The division Bench of Justice B.R. Gavai and Justice M.M. Sundaresh of the Apex court in the case of Rajaram S/O Sriramulu Naidu (Since deceased) Through LRS Vs Maruthachalam (Since deceased) Through LRS observed that Section 139 of the Negotiable Instrument Act of 1881 (hereinafter referred to as “NIA”) provides for a mandatory presumption that the cheque was issued for the discharge of a debt or liability. However, the presumption is rebuttable and the onus is on the Accused to raise a probable defence. The standard of proof is that of the preponderance of probabilities. It was opined that the inference of preponderance of probabilities can be drawn from both the materials on record and by reference to the circumstances upon which the parties rely.
In the present case, there was no record of the Agricultural income in the Income Tax Returns. There was also nothing to prove that the Respondents gave a loan to the Appellant. The Apex Court noted that the Appellant has fulfilled the standard of “preponderance of probability.”
Brief Facts:
The factual matrix of the case was that the Appellant’s wife subscribed to a 5-year chit fund with the Respondent and the Appellant submitted two blank cheques in the form of security. The cheques were drawn on account of M/s Brinda Engineering maintained with Laxmi Vilas Bank Ltd. in 1997, the bank account got closed due to non-operation.
In 1997, after the first chit got matured, the Appellant and his wife repeatedly requested the Respondent to release the amount as the wife was never a successful bidder. However, the Respondent suggested keeping the amount as a deposit and paying interest on the same. Later, the second chit also got matured and requests were made repeatedly to release the subscription amount.
The Respondent immediately presented the cheques for encashment without providing any notice or informing the Appellant after the Appellant and his wife threatened the Respondent with legal action.
Both the cheques when presented for encashment were returned unpaid with an endorsement stating “account closed”.
Thereafter, Respondent filed a suit alleging that the Appellant had borrowed Rs. 3 Lakhs from him and had signed a promissory note pledging to repay the same. Further, it was claimed that the Appellant issued a cheque for Rs. 3,50,000/ to pay off his debt; however, when the cheque was presented for encashment, it was rejected since the Appellant had closed the account. A criminal case was pursued under Section 138 NIA. The suit was dismissed. An appeal was preferred before the High Court and the same was allowed by the High Court. It is to be noted that the Respondents had initiated both civil and criminal cases against the Appellant.
Therefore, the present appeals are filed against the decision of both civil and criminal proceedings.
Contentions of the Appellant:
It was contended that the blank cheques which were issued in the form of security were misused by the Respondents. Furthermore, it was submitted that the Appellant was no longer the owner of M/s Brinda Engineering when the cheques were delivered for encashment, and the bank account on which the abovementioned cheques were drawn was closed in 1997 as a result of nonoperation after 1992. It was also submitted that the Respondents lacked the financial resources to give any loan.
Contentions of the Respondents:
It was contended that the High Court rightly observed that no material was produced by the Appellant to prove that the cheques and promissory notes were issued only as a security for such a chit. It was submitted that even if some amounts are not included in income tax returns, the Revenue Authority and the defaulter are the only parties affected by this. Therefore, a borrower cannot be permitted to benefit from it on the basis that such an amount is not reflected in their income tax returns.
Observations of the Court:
It was noted that Section 139 NIA provides for a mandatory presumption that the cheque was issued for the discharge of a debt or liability. However, the presumption is rebuttable and the onus is on the Accused to raise a probable defence. The standard of proof is that of the preponderance of probabilities. It was opined that the inference of preponderance of probabilities can be drawn from both the materials on record and by reference to the circumstances upon which the parties rely.
As for the civil proceedings, the High Court found that the Respondent had established that he was working as a LIC Agent, that his father was owning extensive agricultural properties and that he was deriving agricultural income. The High Court, based on the evidence placed on record, relying on the preponderance of probability, concluded that the Respondent had the financial ability to lend a loan.
The decision of the Court:
Based on the above-mentioned reasons, the Supreme Court allowed the criminal appeals and quashed the order of the High Court whereas the decree of the civil proceedings was modified, restricting the Appellant to depositing the amount already deposited by him in the Court.
Case Title: Rajaram S/O Sriramulu Naidu (Since deceased) Through LRS Vs Maruthachalam (Since deceased) Through LRS
Coram: Hon’ble Justice B.R. Gavai and Hon’ble Justice M.M. Sundresh
Case No: Criminal Appeal No. 1978 of 2013
Citation: 2023 Latest Caselaw 41 SC
Advocate for the Appellant: Adv. Ms. Neha Sharma
Advocate for the Respondent: Adv. Mr. V. Prabhakar
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