Rajaram S/O Sriramulu Naidu(since Deceased) Through Lrs. vs Maruthachalam (Since Deceased)through Lrs

IN THE SUPREME COURT OF INDIA CRIMINAL/CIVIL APPELLATE JURISDICTION CRIMINAL APPEAL NO.1978 OF 2013

RAJARAM S/O SRIRAMULU NAIDU (SINCE DECEASED) THROUGH L.RS. ...APPELLANT (S)

VERSUS MARUTHACHALAM (SINCE DECEASED) THROUGH L.RS. ...RESPONDENT (S)

WITH CRIMINAL APPEAL NO. 1990 OF 2013 CIVIL APPEAL NO. 10500 OF 2013 CIVIL APPEAL NO. 10501 OF 2013

JUDGMENT

B.R. GAVAI, J.

1. The Criminal Appeals challenge the common judgment

and order of conviction and sentence dated 28 th October 2008

and 30th October 2008 passed by the Madras High Court

whereby the Appellant has been convicted under Section 138 of Signature Not Verified Digitally signed by Deepak Singh the Negotiable Instruments Act, 1881 (hereinafter referred to as Date: 2023.01.18 15:52:12 IST Reason: 1 “the N.I. Act”) and has been sentenced to a fine of Rs. 7 Lakhs

in each case in respect of two cheques for an amount of Rs. 3.5

Lakhs.

2. The Civil Appeals challenge the judgments dated 08th

August 2011 and 03rd February 2012 passed by the Madras

High Court whereby the Original Suits filed by the plaintiff­

respondents for recovery of money on the basis of promissory

notes were decreed.

3. For the sake of convenience, the parties will be referred to

as their status before this Court.

4. Since both the Criminal Appeals arise out of a common

judgment, we consider it apposite to refer to the facts in

Criminal Appeal No.1978 of 2013. Insofar as the Civil Appeals

are concerned, while they arise out of different judgments, for

the sake of convenience, we shall refer to the facts arising from

Civil Appeal No.10501 of 2013.

2

5. The present appeals arise from the following factual

matrix:

5.1 In 1992, the Appellant­Rajaram’s wife subscribed to a 5­

year chit­fund with one Maruthachalam, the Respondent

in Criminal Appeal No. 1978/2013 and Civil Appeal

No.10500/2013. Upon the Respondent­Maruthachalam’s

persuasion that, in order to be a successful bidder, a

security by way of a blank cheque must be submitted, the

Appellant submitted two signed blank cheques bearing

nos. 237954 and 237956 on behalf of his wife, since she

did not have a bank account. It is to be noted that the

cheques were drawn on the account of M/s Brinda

Engineering, the sole proprietorship concern of the

Appellant, maintained with the Laxmi Vilas Bank Ltd.

5.2 It is further the case of the Appellant that in 1995, his wife

subscribed to yet another 5­year chit­fund with the

Respondent­Maruthachalam.

3 5.3 In 1997, the bank account on which the said cheques were

drawn was closed due to non­operation.

5.4 The first chit matured in 1997 and, since the wife of the

Appellant was never a successful bidder, thus, the

Appellant and his wife repeatedly requested the

Respondent to release the amount of the chits, but the

Respondent never did so. On the contrary, the Respondent

promised to keep the amount as a deposit and pay

interest. Similarly, the second chit matured in 1999,

whereafter also the wife of the Appellant was never a

successful bidder. Thereafter, repeated requests for

releasing the subscription amount to the tune of Rs. 6

lakhs for both the chits were made on their behalf, but to

no avail. Finally, the Appellant and his wife threatened the

Respondent with legal action, whereupon the Respondent

immediately presented the cheques for encashment

without any information or intimation to the Appellant.

4 5.5 The Cheque No. 237954 was dated 20th October 1999 in

favour of Respondent­Nachimuthu (who happens to be the

brother­in­law of Maruthachalam) for an amount of Rs.

3,50,000/, and was presented for encashment on 04 th

November 1999 by the Respondent through his banker

Indian Overseas Bank. The said cheque returned unpaid

on 14th November 1999 with an endorsement stating

“account closed”.

5.6 The other Cheque No. 237956 was dated 25 th October

1999 in favour of the Respondent­Maruthachalam for an

amount of Rs. 3,50,000/­, and was presented for

encashment on 04th November 1999 by the Respondent

through his banker Indian Overseas Bank. The said

cheque too returned unpaid on 14th November 1999 with

an endorsement stating “account closed”.

5.7 Statutory Notices dated 15th November 1999 were sent in

respect of the aforesaid dishonoured cheques, which were

5 duly replied by the accused/Appellant denying the

existence of any legally enforceable debt and stating

therein that the Respondent is liable to pay the chit

amount along with subsequent interest. Since the amount

was not paid, the Respondents instituted Complaint Cases

under Section 138 of the N.I. Act, being CC No. 26 of 2000

in respect of Cheque No. 237954 and CC No. 32 of 2000 in

respect of Cheque No. 237956. Both the cases were

dismissed by the learned Trial Court on 10th July 2001

vide separate judgments.

5.8 Pursuant to the dismissal of the aforesaid cases, both the

Respondents instituted civil/original suits for recovery of

money on the basis of Promissory Notes.

5.9 Original Suit No. 112/2003 (earlier OS No. 602/2002) was

instituted by the Respondent­Nachimuthu, alleging that

the Appellant had borrowed a sum of Rs. 3 Lakhs on 20 th

October 1998 from him and had executed a promissory

6 note on the same day thereby promising to repay the same

with interest at 24% per annum. It was further alleged

that the Appellant had issued a cheque on 20 th October

1999 for Rs. 3,50,000/­ towards the discharge of his

liability and when the same was presented for

encashment, it was dishonoured as the Appellant had

closed the account. Criminal Case No. 32/2000 was

pursued under Section 138 of the N.I. Act which was

dismissed against which an appeal was pending before the

High Court.

5.10 Another Original Suit No. 266 of 2004 (earlier OS 746 of

2002) was instituted by the Respondent­Maruthachalam,

alleging that the Appellant had borrowed a sum of Rs. 3

Lakhs on 25th October 1998 from him and had executed a

promissory note on 25th October 1998, thereby promising

to repay the same with interest at 24% per annum. It was

further alleged that the Appellant issued a cheque on 20 th

7 October 1999 for Rs. 3,50,000/­ towards the discharge of

his liability and when the same was presented for

encashment, it was dishonoured as the Appellant had

closed the account. Criminal Case No. 26/2000 was

pursued under Section 138 of the N.I. Act which was

dismissed against which an appeal was pending before the

High Court.

5.11 Original Suit No. 112 of 2003 and Original Suit No. 266 of

2004 came to be dismissed vide judgment dated 06 th

January 2004 and 29th July 2005 respectively. As against

both the judgments, appeals were preferred before the

High Court.

5.12 The Appeals against the judgments in criminal matters

were allowed by the High Court vide common judgment

and order of conviction and sentence dated 28.10.2008

and 30th October 2008.

8 5.13 In Appeal, Original Suit No. 266 of 2004 and Original Suit

No. 112 of 2003 were decreed by the High Court vide

judgments dated 08th August 2011 and 03rd February 2012

respectively.

5.14 The Appeals against all the 3 judgments of the High Court

are before us and are being disposed of vide this common

judgment.

6. We have heard Ms. Neha Sharma, learned counsel

appearing for the Appellants in all the appeals, and Mr. V.

Prabhakar, learned counsel appearing for both the Respondents

in all the appeals.

7. Ms. Neha Sharma submits that the High Court has

erroneously reversed the well­reasoned judgements of the

learned Trial Court. She submitted that blank cheques issued

in the year 1992 by way of security for chit­funds were misused

by the Respondents in the year 1999. She further submitted

that in the year 1999, when the cheques were sent for

9 encashment, the Appellant was no longer the proprietor of M/s

Brinda Engineering and the bank account on which the said

cheques were drawn was not operated after 1992, and had

already closed in 1997 due to non­operation. She further

submitted that even before the account was closed down, the

wife of the Appellant became the sole proprietor of the

enterprise, and thus, the appellant could not have signed the

said cheques in the capacity of the proprietor of M/s Brinda

Engineering.

8. The learned counsel submitted that the Respondents

herein did not have the financial capacity to lend an amount of

Rs.3,00,000/­ each as on 20th October 1998 and 25th October

1998, when the promissory notes were said to have been

executed. It is further submitted that although it was the

Respondents’ case that they had given the amounts out of their

agricultural income, since they had not declared the same in

their Income Tax Returns from 1992­1999, thus, there was no

10 material to show that they could have lent money. To buttress

her submissions, the learned counsel relies on the judgment of

this Court in the case of, Basalingappa v. Mudibasappa1,

9. Per contra, Mr. V. Prabhakar, learned counsel for the

Respondents, submits that the Appellant­Raja Ram had failed

to produce any material evidence to substantiate the claim that

his wife subscribed to the chit­funds run by Respondent,

Maruthachalam. He submitted that the High Court rightly

observed that no material was produced by the Appellant­Raja

Ram to prove that the cheques and promissory notes were

issued only as a security for such a chit. He further submitted

that no legal proceedings were initiated for the recovery of the

alleged amount due by the Appellant either.

10. The learned counsel submitted that there arose no

occasion for the Appellant­Raja Ram to issue a blank cheque in

the year 1992 for a chit to be subscribed much later in the year

1995. It is further submitted that even if certain amounts are 1 (2019) 5 SCC 418

11 not accounted for in the Income Tax Returns, this is a matter

concerning only the defaulter and Revenue Authority. Thus, a

borrower cannot be allowed to take advantage of the same solely

on the ground that such an amount does not reflect in the

Income Tax Returns. The learned counsel relied on the

judgments of this Court in the cases of Bir Singh v. Mukesh

Kumar2, Rohitbhai Jivanlal Patel v. State of Gujarat and

Anr3, Kalamani Tex and Anr v. P. Balasubramanian4 to

buttress his submissions.

11. We shall first consider the Criminal Appeals.

12. This Court in the case of Baslingappa v. Mudibasappa

(supra) has summarized the principles on Sections 118(a) and

139 of the N.I. Act. It will be relevant to reproduce the same.

“25. We having noticed the ratio laid down by this Court in the above cases on Sections 118(a) and 139, we now

2 (2019) 4 SCC 197 3 (2019) 18 SCC 106 4 (2021) 5 SCC 283

12 summarise the principles enumerated by this Court in following manner:

25.1. Once the execution of cheque is admitted Section 139 of the Act mandates a presumption that the cheque was for the discharge of any debt or other liability.

25.2. The presumption under Section 139 is a rebuttable presumption and the onus is on the accused to raise the probable defence. The standard of proof for rebutting the presumption is that of preponderance of probabilities.

25.3. To rebut the presumption, it is open for the accused to rely on evidence led by him or the accused can also rely on the materials submitted by the complainant in order to raise a probable defence. Inference of preponderance of probabilities can be drawn not only from the materials brought on record by the parties but also by reference to the circumstances upon which they rely.

25.4. That it is not necessary for the accused to come in the witness box in support of his defence, Section 139 imposed an evidentiary burden and not a persuasive burden.

13 25.5. It is not necessary for the accused to come in the witness box to support his defence.”

13. It can thus be seen that this Court has held that once the

execution of cheque is admitted, Section 139 of the N.I. Act

mandates a presumption that the cheque was for the discharge

of any debt or other liability. It has however been held that the

presumption under Section 139 is a rebuttable presumption

and the onus is on the accused to raise the probable defence.

The standard of proof for rebutting the presumption is that of

preponderance of probabilities. It has further been held that to

rebut the presumption, it is open for the accused to rely on

evidence led by him or the accused can also rely on the

materials submitted by the complainant in order to raise a

probable defence. It has been held that inference of

preponderance of probabilities can be drawn not only from the

14 materials brought on record by the parties but also by reference

to the circumstances upon which they rely.

14. In the said case, i.e. Baslingappa v. Mudibasappa

(supra), the learned Trial Court, after considering the evidence

and material on record, held that the accused had raised a

probable defence regarding the financial capacity of the

complainant. The accused was, therefore, acquitted.

Aggrieved thereby, the complainant preferred an appeal before

the High Court. The High Court reversed the same and

convicted the accused. This Court found that unless the High

Court came to a finding that the finding of the learned Trial

Court regarding financial capacity of the complainant was

perverse, it was not permissible for the High Court to interfere

with the same.

15. In the present case, the accused appellant had examined

Mr. Sarsaiyyn, Income Tax Officer, Ward No.18, Circle (II) (5),

who produced certified copies of the Income Tax Returns of the

15 complainant for the financial year 1995­96, 1996­97, 1997­98

and 1998­99. The certified copies of the Income Tax Returns

established that the complainant had not declared that he had

lent Rs.3 lakh to the accused. It further established that the

agricultural income also was not declared in the Income Tax

Returns.

16. The learned Trial Court further found that from the

income which was shown in the Income Tax Return, which was

duly exhibited, it was clear that the complainant(s) did not have

financial capacity to lend money as alleged.

17. The appellant had also examined D.W.2­Thiru Iyyappan,

Assistant Manager, City Union Bank, Ramnagar Branch with

regard to bank transactions made by the sole proprietorship

firm, M/s Brinda Engineering.

18. D.W.3­Mr. Subramaniam, Manager, Lakshmi Vilas Bank,

Ganapathy Branch was also examined on behalf of the defence.

The said witness also deposed that the complainant had signed

16 the application form to introduce the accused to open the

account in the bank.

19. D.W.4­Mr. Ganesan, Village Administrative Officer,

Ganapathy Village was also examined and he deposed that the

land in S.F. No. 591/3 and 592/3 was in joint ownership, and,

in the aforesaid survey numbers, the names of 27 persons were

found.

20. After analyzing all these pieces of evidence, the learned

Trial Court found that the Income Tax Returns of the

complainant did not disclose that he lent amount to the

accused, and that the declared income was not sufficient to give

loan of Rs.3 lakh. Therefore, the case of the complainant that

he had given a loan to the accused from his agricultural income

was found to be unbelievable by the learned Trial Court. The

learned Trial Court found that it was highly doubtful as to

whether the complainant had lent an amount of Rs.3 lakh to

the accused. The learned Trial Court also found that the

17 complaint had failed to produce the promissory note alleged to

have been executed by the accused on 25 th October 1998. After

taking into consideration the defence witnesses and the

attending circumstances, the learned Trial Court found that the

defence was a possible defence and as such, the accused was

entitled to benefit of doubt. The standard of proof for rebutting

the presumption is that of preponderance of probabilities.

Applying this principle, the learned Trial Court had found that

the accused had rebutted the presumption on the basis of the

evidence of the defence witnesses and attending circumstances.

21. The scope of interference in an appeal against acquittal is

limited. Unless the High Court found that the appreciation of

the evidence is perverse, it could not have interfered with the

finding of acquittal recorded by the learned Trial Court.

22. Insofar as the reliance placed by Mr. Prabhakar on the

judgment of this Court in the case of Bir Singh v. Mukesh

Kumar (supra) is concerned, in the said case, though the

18 accused was convicted by the learned Trial Court, which

conviction was maintained by the Appellate Court, the High

Court in its revisional jurisdiction interfered with the same and

acquitted the accused. This Court found that in exercise of

revisional jurisdiction under Section 482 of the Code of

Criminal Procedure, 1973, the High Court could not, in the

absence of perversity, upset concurrent findings of fact. In any

case, in the said case, the accused had not led evidence with

regard to the financial capacity of the complainant. This Court

held that once a cheque was signed and handed over by the

accused, it would attract presumption under Section 139 of the

N.I. Act in the absence of any cogent evidence to show that the

cheque was not issued in the discharge of a debt.

23. In the case of Kalamani Tex and another v. P.

Balasubramanian (supra), the learned Trial Court had

dismissed the complaint. In appeal, at the behest of the

complainant, the same was allowed and the accused were

19 convicted for the offence punishable under Section 138 of the

N.I. Act. In an appeal at the behest of the original accused, this

Court while affirming the order of the High Court observed

thus:

“18. Considering the fact that there has been an admitted business relationship between the parties, we are of the opinion that the defence raised by the appellants does not inspire confidence or meet the standard of “preponderance of probability”. In the absence of any other relevant material, it appears to us that the High Court did not err in discarding the appellants' defence and upholding the onus imposed upon them in terms of Section 118 and Section 139 of NIA.”

24. It can thus be seen that in the facts of the said case, this

Court found that the defence raised by the appellants/accused

did not inspire confidence or meet the standard of

“preponderance of probability”.

20

25. In the present case, we are of the considered opinion that

the defence raised by the appellant satisfies the standard of

“preponderance of probability”.

26. Insofar as the reliance on the judgment of this Court in the

case of Rohitbhai Jivanlal Patel v. State of Gujarat and

Anr. (supra) is concerned, in the said case, the learned Trial

Court had acquitted the accused, the High Court, in appeal,

reversed the acquittal and convicted the accused for the offence

punishable under Section 138 of the N.I. Act. Affirming the

order of the High Court, this Court held that merely by denial or

merely by creation of doubt, the accused cannot be said to have

rebutted the presumption as envisaged under Section 139 of

the N.I. Act. This Court held that unless cogent evidence was

led on behalf of the accused in defence of his case, the

presumption under Section 139 of the N.I. Act could not be

rebutted. As such, the said judgment also would not be

applicable to the facts of the present case. 21

27. In that view of the matter, we are further of the considered

view that the High Court was not justified in reversing the order

of acquittal of the appellant.

28. That leaves us to consider the Civil Appeals. Insofar as

the Civil Appeals are concerned, the High Court, by two

different judgments and orders, has reversed the judgments

and orders of the learned Trial Court dismissing the suits,

thereby decreeing them. It is a settled proposition of law that

the standard of proof in criminal proceedings differs with that in

civil proceedings.

29. A distinguishing fact between the criminal proceedings

and the civil proceedings in the present case is that, while in

the criminal proceedings the complainant had failed to produce

the promissory notes, in the civil proceedings, the complainant

had proved the promissory notes. The High Court found that

the Civil Appeals were required to be decided on the basis of the

preponderance of probabilities. The High Court found that the

22 complainant 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, on the basis of the evidence placed on record,

relying on the preponderance of probability, came to a

conclusion that the plaintiff had the financial ability to lend the

sum of Rs.3 lakh as on 20 th October 1998. The High Court also

found that the appellant’s wife was not examined as a witness

in the said case so as to probabilize the defence plea. The High

Court found that the best available evidence was withheld by

the defendants/appellants herein and as such, the principle of

adverse inference was also applicable.

30. Though it was sought to be argued before the High Court

that in view of the judgment in the criminal proceedings, the

suit(s) was also liable to be dismissed, the High Court rightly

observed that the adjudication in civil matters is based on

preponderance of probabilities whereas adjudication in criminal

23 cases is based on the principle that the accused is presumed to

be innocent and the guilt of the accused should be proved to

the hilt and the proof should be beyond all reasonable doubt.

31. We, therefore, find no reason to interfere with the

judgments and orders passed by the High Court in the Civil

Appeals. However, in the facts and circumstances of the case,

we are inclined to modify the decree. During the pendency of

the proceedings before this Court, the appellants have deposited

an amount of Rs.7 lakh and Rs. 2 lakh pursuant to the orders

of this Court dated 20th February, 2009 passed in Criminal

Appeal No. 1978 of 2013 (arising out of Special Leave Petition

(Criminal) No.1456 of 2009 and connected matter and dated

13th August, 2012 passed in Civil Appeal No.10501 of 2013

(arising out of Special Leave Petition (Civil) No.23036 of 2012).

The said amount has been directed to be invested in a Fixed

Deposit Receipts from time to time. We are, therefore, of the

view that, in the facts and circumstances of the present case,

24 the decree needs to be modified restricting it to the amount

already deposited by the appellants in both the proceedings

with interest accrued thereon.

32. In the result, we pass the following order:

(i) Criminal Appeal Nos. 1978 of 2013 and 1990 of 2013

are allowed and the common judgment of conviction

dated 28th October 2008 and order of sentence dated

30th October 2008 respectively are quashed and set

aside. The judgments and orders dated 10 th July 2011

passed by the learned Trial Court is confirmed.

(ii) Civil Appeal Nos. 10500 of 2013 and 10501 of 2013 are

dismissed. However, the decrees of the High Court are

modified, thereby restricting them to the amount

already deposited by the appellants in this Court in the

civil and criminal proceedings, along with interest

accrued thereon.

25

(iii) The respondents in both the Civil Appeals would be

entitled to withdraw 50% of the amount each from the

amount deposited in this Court with interest accrued

upto date.

33. There shall be no order as to costs. Pending application(s),

if any, shall stand disposed of.

…….........................J. [B.R. GAVAI]

…….........................J. [M.M. SUNDRESH]

NEW DELHI;

JANUARY 18, 2023

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