Case Note & Summary
The appellant, M/s Shree Daneshwari Traders, a commission agent and merchant, supplied rice bags to the respondent, Sanjay Jain, on request. The respondent issued various cheques in favour of the appellant, which were dishonoured upon presentation due to insufficient funds. The appellant filed two complaints under Section 138 of the Negotiable Instruments Act, 1881, alleging that the cheques were issued for discharge of a legally enforceable debt. The respondent contended that the cheques were issued as security for credit purchases and that he had made cash payments for the goods, as evidenced by receipts. The trial court acquitted the respondent, holding that the appellant failed to prove the debt and that the presumption under Section 139 was rebutted. The High Court affirmed the acquittal. The Supreme Court allowed the appeal, holding that the courts below erred in their analysis. The Court noted that the transaction was a mercantile one with running accounts, and the appellant's case that cheques were for credit purchases and receipts for cash purchases was consistent. The receipts produced by the respondent contained the endorsement 'cheques are subject to realisation', indicating that the cheques were not security but were towards payment. The Court found it improbable that the respondent would leave blank cheques and not insist on their return after making cash payments. The respondent failed to rebut the presumption under Section 139 by leading cogent evidence. The Court set aside the acquittal and convicted the respondent under Section 138, directing him to pay the cheque amounts with interest and costs.
Headnote
A) Negotiable Instruments Act - Dishonour of Cheque - Section 138 - Presumption under Section 139 - Rebuttal - In a mercantile transaction involving running accounts, the accused claimed cheques were issued as security and payments were made by cash. The accused produced receipts to show cash payments. However, the receipts contained the endorsement 'cheques are subject to realisation', indicating that the cheques were not security but towards payment. The accused's defence that he left blank cheques and did not insist on their return despite making payments was held improbable. The accused failed to rebut the presumption under Section 139 by leading cogent evidence. The acquittal was set aside and the accused was convicted under Section 138. (Paras 10-18) B) Negotiable Instruments Act - Presumption under Section 139 - Burden of Proof - The initial presumption that the cheque was issued for discharge of a legally enforceable debt or liability is in favour of the complainant. The accused must rebut this presumption by raising a probable defence. Mere production of receipts showing cash payments does not rebut the presumption when the receipts themselves indicate that the cheques were subject to realisation. The accused must prove that the cheques were not for discharge of debt but for security. (Paras 11-15) C) Negotiable Instruments Act - Dishonour of Cheque - Mercantile Transactions - Running Accounts - In mercantile transactions where purchases are made on credit and cash, the complainant's case that cheques were issued for credit purchases and receipts for cash purchases is consistent. The courts below erred in holding that the complainant's case was inconsistent. The accused's defence that he always paid cash and left blank cheques as security was not believable as he did not take steps to retrieve the cheques after payment. (Paras 11-14)
Issue of Consideration
Whether the courts below were right in acquitting the respondent-accused by holding that the appellant-complainant failed to prove that the respondent owed him debt and that the cheques were issued for discharge of the said debt.
Final Decision
The Supreme Court allowed the appeals, set aside the judgment of the High Court and the trial court, and convicted the respondent-accused under Section 138 of the Negotiable Instruments Act, 1881. The respondent was directed to pay the cheque amounts of Rs.53,171/- and Rs.1,93,979/- with interest at 9% per annum from the date of the cheques until payment, and costs of Rs.25,000/-.
Law Points
- Presumption under Section 139 of Negotiable Instruments Act
- 1881
- Rebuttal of presumption by accused
- Standard of proof for rebuttal
- Dishonour of cheque for insufficiency of funds
- Mercantile transactions and running accounts
