Presumption and Rebuttal under NI Act: Read Court’s verdict discussing onus of proof and nature of defence where “payment stopped by drawer”

Additional Chief Metropolitan Magistrate, Mayo Hall Unit, Bengaluru: Vani A. Shetty, XVII Additional Judge, Court of Small Causes & ACMM, addressed a matter with respect to the liability of the accused in a case of dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881.

In the present case, the accused was tried for the offence punishable under Section 138 of the Negotiable Instruments Act.

Factual Background

Complainant with an intention to have a South Africa trip paid Rs 24 lakhs to the accused to book the tickets. But the accused failed to book the tickets and repaid a sum of Rs 14.5 lakhs to the complainant and sought time for the payment of balance amount of Rs 9.5 lakhs. Towards the discharge of the said liability, the accused issued a cheque for Rs 4,50,000 assuring that the cheque would be honoured if presented for payment.

But the cheque came to be dishonoured on the grounds of ‘payment stopped by drawer’. Thereafter the complainant got issued a legal notice demanding repayment of the cheque amount within 15 days. Due to no response from the accused, an instant complaint was filed.

In view of sufficient ground to proceed further, a criminal case was registered against the accused, and she was summoned.

Question for Consideration:

Whether the complainant proved that the accused has committed an offence punishable under Section 138 of the NI Act, 1881?

Analysis, Law and Decision

While analyzing the matter, Bench stated that in order to constitute an offence under Section 138 NI Act, the cheque shall be presented to the bank within a period of 3 months from its date. On dishonour of cheque, the drawer or holder of the cheque may cause demand notice within 30 days from the date of dishonour, demanding to repay within 15 days from the date of service of the notice.

“If the drawer of the cheque fails to repay the amount within 15 days from the date of service of notice, the cause of action arises for filing the complaint.”

In the present matter, the complainant had complied with all the mandatory requirements of Section 138 and 142 of the NI Act.

Section 118 of the NI Act lays down that until the contrary Is proved, it shall be presumed that every Negotiable Instrument was made or drawn for consideration.

Section 139 NI Act contemplated that unless the contrary is proved, it shall be presumed that the holder of the cheque received the cheque of the nature referred to in Section 138 for the discharge, in whole of any debt or liability.

In a catena of decisions, it has been repeatedly observed that in the proceeding under Section 138 of NI Act, the complainant is not required to establish either the legality or the enforceability of the debt or liability since he can avail the benefit of presumption under Sections 118 and 139 of the NI Act in his favour.

Further, it was observed that by virtue of the presumptions, accused had to establish that the cheque in question was not issued towards any legally enforceable debt or liability.

Later in the year 2006, the Supreme Court in the decision of M.S. Narayan Menon v. State of Kerala, (2006 SAR Crl. 616), has held that the presumption available under Section 118 and 139 of N.I. Act can be rebutted by raising a probable defence and the onus cast upon the accused is not as heavy as that of the prosecution.

Further, in the Supreme Court decision of Krishna Janarshana Bhat v. Dattatreya G. Hegde, (2008 Vo.II SCC Crl.166), the Supreme Court held that the existence of legally recoverable debt was not a presumption under Section 138 NI Act and the accused has a constitutional right to maintain silence and therefore, the doctrine of reverse burden introduced by Section 139 of the NI Act should be delicately balanced.

Bench, in conclusion, observed that the presumption mandated by Section 139 of NI Act does indeed include the existence of legally enforceable debt or liability, it is a rebuttable presumption, open to the accused to raise defence wherein the existence of the legally enforceable debt or liability can be contested.

If the accused is able to raise a probable defence, which creates doubt about the existence of legally enforceable debt or liability, the onus shifts back to the complainant.

Court stated that if the accused was able to probabalise that the disputed cheque was issued due to the intervention and pressure of the police, it may not be justified to draw the presumption contemplated under Section 139 NI Act.

It was added that if the police would have really interfered, the accused could have produced some evidence to show the intervention of the police. But there was absolutely no evidence on record to show that cheque was issued either due to pressure of police or due to some other compulsion.

In Court’s opinion, the Court was required to draw the presumption under Section 139 NI Act in favour of the complainant.

Court noted that in the present matter, accused at no point in time asked the complainant to pay the balance amount. Instead, she had kept quiet by enjoying the huge amount of Rs 24 lakhs which clearly indicated that the non-purchase of the ticket was not on account of the non-payment of the remaining amount. Further, there was no forfeiture clause.

For the above, Bench stated that in the absence of the forfeiture clause, the accused could not have retained the amount of the complainant with her, the said was barred by the doctrine of unlawful enrichment under Section 70 of the Indian Contract Act, 1872.

Hence, even if it was held that the complainant was a defaulter in respect of the payment of the remaining amount, the accused was legally liable to repay the amount received by her from the complainant.

In view of the above reasons, guilt of the accused was proved under Section 138 NI Act. [Srinivas Builders and Developers v. Shyalaja, CC No. 57792 of 2018, decided on 13-10-201]


Advocates before the Court:

For the Complainant: V.N.R., Advocate

For the Accused: J.R., Advocate

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