SUPREME COURT REITERATES THE STANDARDS OF PROOF IN CIVIL AND CRIMINAL CASES ARISING OUT OF DISHONOUR OF CHEQUE

Recently, a two Judge Bench of the Hon’ble Supreme Court comprising of Justice B.R. Gavassi and Justice M.M. Sundresh passed a Judgment dated 18.01.2023 in Rajaram s/o Sriramulu Naidu (since deceased) through l.rs vs. Mr. Maruthachalam (since deceased) through l.rs., Criminal Appeal No.1978 of 2013 and Civil Appeal No. 10500 of 2013, and reiterated that the adjudication in civil matters is based on the preponderance of probabilities, whereas, adjudication in criminal cases is based on the principle that the accused is presumed to be innocent until the prosecution proves the guilt of the accused beyond reasonable doubt.

FACTS

In 1992, the Appellant­ Rajaram’s wife subscribed to a five-year chit­fund with one Maruthachalam, the Respondent. Upon the Respondent’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 on behalf of his Wife and the cheques were drawn on the account of M/s Brinda Engineering, the sole proprietorship concern of the Appellant, maintained with the Bank.

In 1995, the Appellant’s wife subscribed to yet another five­year chit­fund with the Respondent. In 1997, the bank account on which the said cheques were drawn was closed due to non­operation.

The first chit matured in 1997 and the Appellant and his Wife repeatedly requested the Respondent to release the amount of the chits, but the Respondent did not do so. To the contrary, the Respondent promised to keep the amount as a deposit and pay interest.

Similarly, the second chit matured in 1999 and despite repeated requests by the Appellant and his Wife seeking release of subscription amount to the tune of Rs. 6,00,000/- for both the chits, the Respondent did not pay back the money.

Finally, the Appellant and his wife threatened the Respondent with legal action, whereupon the Respondent immediately presented the aforesaid Cheques for encashment without any information / intimation to the Appellant: (i) the Cheque in favour of the Respondent for an amount of Rs.3,50,000/-, was presented for encashment on 04-11-1999, which was returned unpaid, (ii) the other Cheque for an amount of Rs. 3,50,000/­, was presented for encashment on 04-11-1999, which was also returned unpaid.

Hence, as the amount remained unpaid, the Respondent instituted Complaint Cases under Section 138 of the Negotiable Instruments Act 1881 (N.I. Act) (Dishonour of cheque for insufficiency, etc., of funds in the account) in CC No. 26 of 2000 and CC No. 32 of 2000 in respect of Cheque No. 237954 and Cheque No. 237956 respectively. Both the cases were dismissed by the Trial Court, vide separate Judgments dated 10-07-2001.

Pursuant to such dismissal of Complaint Cases by the Ld. Trial Court:

1. The Respondent instituted Original Suit No. 112/2003 for recovery of money on the basis of Promissory Notes before the Civil Court alleging that the Respondent had lent an amount of Rs.3 lakh to the Appellant on 20-10-1998 and thereby executed a Promissory Note on the same day to repay the same with 24% interest per annum. In order to repay the said amount, the Appellant issued a Cheque dated 20-10-1999 for Rs. 3,50,000.00, which was returned from bank as dishonored.
2. In that respect, the Respondent had initiated Criminal Case No. 32/2000 against the Appellant before the Trial Court, which was dismissed and an Appeal against such dismissal was filed before the Madras High Court.
3. Similarly, Original Suit No. 266 of 2004 and Criminal Case No. 26/2000 were also initiated by the Respondent for other such amounts payable by the Appellant. The Criminal Case was dismissed by the Trial Court and an Appeal against such dismissal was filed before the Madras High Court.
4. The Original Suit No. 112/2003 and Original Suit No. 266 of 2004 were dismissed by the Civil Court, vide Judgments dated 06-01-2004 and 29-07-2005 respectively. Thereafter, the Appeals filed against such dismissal of Civil Suits were allowed by the High Court vide Judgment dated 03-02-2012 and 08-08-2011 respectively.
5. Furthermore, the Appeals arising in the Cheque Dishonour Cases i.e. Criminal Case No. 32/2000 and Criminal Case No. 26/2000 were allowed by the High Court, vide Common Order of Conviction dated 28-10-2008 and Order of Sentence dated 30-10-2008 against the Appellants.

REASONING AND ANALYSIS OF THE SUPREME COURT

Aggrieved by the aforementioned Judgements of the Madras High Court arising from both Civil and Criminal matters, the Appellant filed Civil and Criminal Appeals before the Supreme Court, which passed a Judgment dated 18.01.2023 and observed as follows:

(1) That the Apex Court relied on its earlier judgment, Baslingappa vs. Mudibasappa (2019) 5 SCC 418, wherein it was held that once the execution of cheque is admitted, Section 139 of the Negotiable Instruments Act 1881 (I. Act) (Presumption in favour of holder) 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 defense. 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 defense. It has been held that 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.

(2) That “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 defense witnesses and attending circumstances. 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”.

(3) That it is reiterated that the adjudication in civil matters is based on the preponderance of probabilities, whereas, adjudication in criminal cases is based on the principle that the accused is presumed to be innocent until the prosecution proves the guilt of the accused beyond reasonable doubt.

(4) That in the present case, (i) the Appellant had examined the Income Tax Officer who produced certified copies of the Income Tax Returns of the Respondent for the relevant financial year to show that the Respondent had not declared that he had lent Rs.3 Lakhs to the Appellant and that the Respondent did not have financial capacity to lend money as alleged. (ii) But the Respondent proved that he had the financial capacity to lend that amount to the Appellant as he was working as a LIC Agent and his father had agricultural properties from where he derived agricultural income.

(5) Thus, in terms of standard of proof in Civil Cases, the High Court rightly came to the conclusion, on the basis of the evidence, relying on the preponderance of probabilities, that the Respondent had the financial ability to lend money to the Appellant and righty allowed the Civil Suit for Recovery against the Appellant.

(6) However, in terms of standard of proof in the Criminal Cases, the Respondent could not prove the Cheque Dishonour Cases against the Appellant beyond reasonable doubt.

CONCLUSION

Thus, based on the aforesaid observations, the Supreme Court (i) upheld the High Court Judgments dated 03-02-2012 and 08-08-2011 passed in the Civil Cases against the Appellant, (ii) but dismissed the High Court Common Order of Conviction dated 28-10-2008 and Order of Sentence dated 30-10-2008 passed in the Criminal Complaints in favor of the Appellant.

Devashish Kakkar

Legal Associate

The Indian Lawyer