M/S Kumar Exports Vs.
M/S Sharma Carpets  INSC 2178 (16 December 2008)
IN THE SUPREME COURT
OF INDIA CRIMINAL APPELLATE JURISDICTION Criminal Appeal No. 2045 OF 2008
(Arising out Special Leave Petition (Criminal) No. 955 of 2007) M/s. Kumar
Exports ... Appellant Versus M/s. Sharma Carpets ... Respondent
J.M. Panchal, J.
instant appeal is directed against judgment dated November 23, 2006, rendered
by the learned Single Judge of Punjab and Haryana High Court, in Criminal
Appeal No. 946 SBA of 2004, by which the judgment dated 2 December 6, 2003,
passed by the learned Judicial Magistrate I Class, Karnal, in Criminal
Complaint No. 178 of 2001, acquitting the appellant under Section 138 of the
Negotiable Instruments Act, 1881 (`the Act' for short), is set aside and after
convicting the appellant under Section 138 of the Act the matter is remitted to
the learned Magistrate to pass appropriate order of sentence.
Bhagwan Sharma, proprietor of M/s. Sharma Carpets, the respondent herein, deals
in carpets. Rajinder Kumar, proprietor of M/s. Kumar Exports, the appellant
herein, is carrying on business at Panipat. It is the case of the respondent
that the appellant purchased handtufted woolen carpets from him on August 6,
1994, cost of which was Rs.1,90,348.39. According to the respondent, the
appellant issued two cheques, i.e., one cheque bearing No. 052912 dated August
25, 1994 for a sum of Rs.1,00,000/- and another cheque bearing No. 052913 dated
September 25, 1994 for an amount of Rs.90,348.39 drawn on Panipat branch of
Union Bank of India, for 3 discharge of his liability. The case of the
respondent is that the cheques were deposited in the bank by him for
encashment, but those cheques were received back unpaid with remarks
"insufficient funds". It is the case of the respondent that the fact
that the cheques were dishonoured for insufficient funds was brought to the
notice of the appellant and on the request of the appellant, the cheques were
again presented for encashment in the bank on January 5, 1995, but they were
again dishonoured due to lack of funds in the account of the firm of the
appellant. What is claimed by the respondent is that under the circumstances he
had served statutory notice dated January 19, 1995 calling upon the appellant
to make payment of the amount due but neither the appellant had replied the
said notice nor made payment of the amount due. The respondent, therefore,
filed Criminal Complaint No. 178 of 2001 in the court of the learned Judicial
Magistrate 1st Class, Karnal and 4 prayed to convict the appellant under
Section 138 of the Act.
service of summons the appellant appeared before the Court. His defence was
that the bill produced by the respondent indicating sale of woolen carpets was
a fictitious one and that blank cheques with his signatures were taken from him
by the respondent to enable the respondent to purchase the raw material for
According to the
appellant the cheques were in the form of advance payment for supply of
carpets, but the respondent had failed to deliver the goods to him. The
appellant alleged that the respondent had stopped manufacturing carpets and as
the cheques were not issued in discharge of any liability, he was not liable to
be convicted under Section 138 of the Act.
order to prove his case the respondent examined himself as CW-3 and produced the
cheques dishonoured at Ex. CW-2/A and CW-2/B, statutory notice at Ex. C-4, 5
carbon copy of bill at CW-2/C, etc. He examined two witnesses to prove the
presentation and dishonour of the cheques. No other witness was examined by him
in support of his case pleaded in the complaint against the appellant. The
appellant examined himself to substantiate his defence as DW-1. He also
examined one Mr. Om Prakash, serving as a clerk in the Sales Tax Department, as
DW-2, who stated before the Court that the respondent's firm had filed sales
tax return for the Assessment Year 1994-95 declaring that no sale or purchase
of woolen carpets had taken place and, therefore, no sales tax was deposited.
The said witness also produced an affidavit filed by the respondent as Ex.D-1
wherein the respondent had stated on oath that no sale or purchase of woolen
carpets had taken place during the Assessment Year 1994-95.
appreciation of evidence the learned Magistrate held that the execution of the
cheques was admitted by the appellant and that it was proved by the respondent
that 6 those cheques were dishonoured on account of insufficient funds.
However, the learned Magistrate concluded that it was not proved by the
respondent that the cheques were issued by the appellant for discharge of a
debt or liability. The learned Magistrate noticed that the bill produced at Ex.
CW-2/C did not bear the signature of the appellant as buyer to acknowledge its
acceptance or correctness. The learned Magistrate also noted that no
corroborative evidence in the form of account books was produced by the
respondent and it was, therefore, doubtful whether in fact the respondent had
delivered any goods to the appellant. The learned Magistrate referred to the
testimony of witness from the Sales Tax Department and concluded that as no
transaction of sale of woolen carpets was effected by the respondent during the
Assessment Year 1994-95, the defence pleaded by the appellant was probablised.
In view of abovementioned conclusions, the learned 7 Magistrate acquitted the
appellant by judgment dated December 6, 2003.
aggrieved, the respondent preferred Criminal Appeal No. 946 SBA of 2004 in the
High Court of Punjab and Haryana at Chandigarh. The learned Single Judge, who
heard the appeal, was of the opinion that in terms of Section 139 of the Act
there was a presumption that the cheques received by the respondent were for
the discharge of a debt or liability incurred by the appellant that execution
of cheques was admitted by the appellant and that the appellant did not place
material to rebut such presumption as a result of which, he was liable to be
convicted under Section 138 of the Act. The learned single Judge concluded that
if the defence put forth by the appellant was true, he would have issued instructions
to `stop payment of the cheques' instead of allowing the cheques to be
presented and dishonoured. He was also of the view that the affidavit of
complainant (appellant herein) that there was no transaction during 1994-95,
was 8 not a relevant circumstance. Accordingly, the learned Single Judge
convicted the appellant under Section 138 of the Act and remitted the matter to
the trial court for passing appropriate order of sentence, after hearing the
appellant and the respondent. Feeling aggrieved, the appellant has approached
this Court by way of filing the instant appeal.
heard the learned counsel for the parties at length and considered the record
of the case.
order to determine the question whether offence punishable under Section 138 of
the Act is made out against the appellant, it will be necessary to examine the
scope and ambit of presumptions to be raised as envisaged by the provisions of
Sections 118 and 139 of the Act. In a suit to enforce a simple contract, the
plaintiff has to aver in his pleading that it was made for good consideration
and must substantiate it by evidence. But to this rule, the negotiable
instruments are an exception.
9 In a significant
departure from the general rule applicable to contracts, Section 118 of the Act
provides certain presumptions to be raised. This Section lays down some special
rules of evidence relating to presumptions. The reason for these presumptions
is that, negotiable instrument passes from hand to hand on endorsement and it
would make trading very difficult and negotiability of the instrument
impossible, unless certain presumptions are made. The presumption, therefore,
is a matter of principle to facilitate negotiability as well as trade. Section
118 of the Act provides presumptions to be raised until the contrary is proved
(i) as to consideration, (ii) as to date of instrument, (iii) as to time of
acceptance, (iv) as to time of transfer, (v) as to order of indorsements, (vi)
as to appropriate stamp and (vii) as to holder being a holder in due course.
Section 139 of the Act provides that it shall be presumed, unless the contrary
is proved, that the holder of a cheque received the cheque of the nature
referred to in Section 138 for the discharge, in whole or in 10 part, of any
debt or other liability. Presumptions are devices by use of which the courts
are enabled and entitled to pronounce on an issue notwithstanding that there is
no evidence or insufficient evidence. Under the Indian Evidence Act all
presumptions must come under one or the other class of the three classes
mentioned in the Act, namely, (1) "may presume" (rebuttable), (2)
"shall presume" (rebuttable) and (3) "conclusive
term `presumption' is used to designate an inference, affirmative or disaffirmative
of the existence a fact, conveniently called the "presumed fact"
drawn by a judicial tribunal, by a process of probable reasoning from some
matter of fact, either judicially noticed or admitted or established by legal
evidence to the satisfaction of the tribunal. Presumption literally means
"taking as true without examination or proof". Section 4 of the
Evidence Act inter-alia defines the words `may presume' and `shall presume as
follows: - 11 "(a) `may presume' - Whenever it is provided by this Act
that the Court may presume a fact, it may either regard such fact as proved,
unless and until it is disproved or may call for proof of it.
(b) `shall presume' -
Whenever it is directed by this Act that the Court shall presume a fact, it
shall regard such fact as proved, unless and until it is disproved."
In the former case
the Court has an option to raise the presumption or not, but in the latter
case, the Court must necessarily raise the presumption. If in a case the Court
has an option to raise the presumption and raises the presumption, the
distinction between the two categories of presumptions ceases and the fact is
presumed, unless and until it is disproved.
118 of the Act inter alia directs that it shall be presumed, until the contrary
is proved, that every negotiable instrument was made or drawn for
consideration. Section 139 of the Act stipulates that unless the contrary is
proved, it shall be presumed, that the holder of the cheque received the
cheque, for the discharge of, whole or part of any debt or liability.
definition of the word `proved' in Section 3 of the 12 Evidence Act to the
provisions of Sections 118 and 139 of the Act, it becomes evident that in a
trial under Section 138 of the Act a presumption will have to be made that
every negotiable instrument was made or drawn for consideration and that it was
executed for discharge of debt or liability once the execution of negotiable
instrument is either proved or admitted. As soon as the complainant discharges
the burden to prove that the instrument, say a note, was executed by the
accused, the rules of presumptions under Sections 118 and 139 of the Act help
him shift the burden on the accused. The presumptions will live, exist and
survive and shall end only when the contrary is proved by the accused, that is,
the cheque was not issued for consideration and in discharge of any debt or
liability. A presumption is not in itself evidence, but only makes a prima
facie case for a party for whose benefit it exists.
use of the phrase "until the contrary is proved" in Section 118 of
the Act and use of the words "unless the contrary is proved" in
Section 139 of the Act read with definitions of "may presume" and
"shall presume" as given in 13 Section 4 of the Evidence Act, makes
it at once clear that presumptions to be raised under both the provisions are
rebuttable. When a presumption is rebuttable, it only points out that the party
on whom lies the duty of going forward with evidence, on the fact presumed and
when that party has produced evidence fairly and reasonably tending to show
that the real fact is not as presumed, the purpose of the presumption is over.
The accused in a trial under Section 138 of the Act has two options. He can
either show that consideration and debt did not exist or that under the
particular circumstances of the case the non-existence of consideration and
debt is so probable that a prudent man ought to suppose that no consideration
and debt existed. To rebut the statutory presumptions an accused is not
expected to prove his defence beyond reasonable doubt as is expected of the
complainant in a criminal trial. The accused may adduce direct evidence to
prove that the note in question was not supported by consideration and that
there was no debt or liability to be discharged by him. However, the court need
not insist in every 14 case that the accused should disprove the non-existence
of consideration and debt by leading direct evidence because the existence of
negative evidence is neither possible nor contemplated. At the same time, it is
clear that bare denial of the passing of the consideration and existence of
debt, apparently would not serve the purpose of the accused.
Something which is
probable has to be brought on record for getting the burden of proof shifted to
the complainant. To disprove the presumptions, the accused should bring on
record such facts and circumstances, upon consideration of which, the court may
either believe that the consideration and debt did not exist or their
non-existence was so probable that a prudent man would under the circumstances
of the case, act upon the plea that they did not exist. Apart from adducing
direct evidence to prove that the note in question was not supported by
consideration or that he had not incurred any debt or liability, the accused
may also rely upon circumstantial evidence and if the circumstances so relied
upon are compelling, the burden may likewise shift again on to the complainant.
The accused 15 may also rely upon presumptions of fact, for instance, those
mentioned in Section 114 of the Evidence Act to rebut the presumptions arising
under Sections 118 and 139 of the Act.
The accused has also
an option to prove the non-existence of consideration and debt or liability
either by letting in evidence or in some clear and exceptional cases, from the
case set out by the complainant, that is, the averments in the complaint, the
case set out in the statutory notice and evidence adduced by the complainant
during the trial. Once such rebuttal evidence is adduced and accepted by the
court, having regard to all the circumstances of the case and the preponderance
of probabilities, the evidential burden shifts back to the complainant and,
thereafter, the presumptions under Sections 118 and 139 of the Act will not
again come to the complainant's rescue.
defence of the appellant was that he had agreed to purchase woolen carpets from
the respondent and had issued the cheques by way of advance and that the
respondent did not supply the carpets. It is the specific case of the
respondent that 16 he had sold woolen carpets to the appellant on 6.8.1994 and
in discharge of the said liability the appellant had issued two cheques, which
were ultimately dishonoured. In support of his case the respondent produced the
carbon copy of the bill. A perusal of the bill makes it evident that there is
no endorsement made by the respondent accepting the correctness of the contents
of the bill. The bill is neither signed by the appellant.
On the contrary, the
appellant examined one official from the Sales Tax Department, who positively
asserted before the Court that the respondent had filed sales tax return for
the Assessment Year 1994-95 indicating that no sale of woolen carpets had taken
place during the said Assessment Year and, therefore, sales tax was not paid.
The said witness also produced the affidavit sworn by the respondent indicating
that during the year 1994-95 there was no sale of woolen carpets by the
respondent. Though the complainant was given sufficient opportunity to
cross-examine the said witness, nothing could be elicited during his
cross-examination so as to create doubt about his assertion that no transaction
of sale of woolen carpets was effected by the respondent during the year
1994-95. Once the testimony of the official of the Sales Tax Department is
accepted, it becomes evident that no transaction of sale of woolen carpets had
taken place between the respondent and the appellant, as alleged by the
respondent. When sale of woolen carpets had not taken place, there was no
existing debt in discharge of which, the appellant was expected to issue
cheques to the respondent. Thus the accused has discharged the onus of proving
that the cheques were not received by the holder for discharge of a debt or
liability. Under the circumstances the defence of the appellant that blank
cheques were obtained by the respondent as advance payment also becomes
probable and the onus of burden would shift on the complainant. The complainant
did not produce any books of account or stock register maintained by him in the
course of his regular business or any acknowledgement for delivery of goods, to
establish that as a matter of fact woolen carpets were sold by him to the
appellant on August 6, 1994 for a sum of Rs.1,90,348.39. Having regard to the
materials on record, this 18 Court is of the opinion that the respondent
failed to establish his case under Section 138 of the Act as required by law
and, therefore, the impugned judgment of the High Court is liable to be set
Court has also noticed a strange and very disturbing feature of the case. The
High Court, after convicting the appellant under Section 138 of the Act,
remitted the matter to the learned Magistrate for passing appropriate order of
sentence. This course, adopted by the learned Single Judge, is unknown to law.
The learned Single Judge was hearing an appeal from an order of acquittal. The
powers of the Appellate Court, in an appeal from an order of acquittal, are
enumerated in Section 386(a) of the Code of Criminal Procedure, 1973. Those
powers do not contemplate that an Appellate Court, after recording conviction,
can remit the matter to the trial court for passing appropriate order of
sentence. The judicial function of imposing appropriate sentence can be
performed only by the Appellate Court when it reverses the order of acquittal
and not by any other 19 court. Having regard to the scheme of the Code of
Criminal Procedure, 1973 this Court is of the view that after finding the
appellant guilty under Section 138 of the Act, the judicial discretion of
imposing appropriate sentence could not have been abdicated by the learned
Single Judge in favour of the learned Magistrate. Having found the appellant
guilty under Section 138 of the Act it was the bounden duty of the High Court
to impose appropriate sentence commensurate with the facts of the case.
Therefore, we do not approve or accept the procedure adopted by the High Court.
Be that as it may, in this case, we have found that reversal of acquittal
itself was not justified.
the foregoing reasons the appeal is allowed. The judgment and order dated
November 23, 2006, rendered by the learned Single Judge of Punjab and Haryana
High Court at Chandigarh in Criminal Appeal No. 946 SBA of 2004 convicting the
appellant under Section 138 of the Act, is set aside and judgment dated
December 6, 2003, rendered by the learned Judicial Magistrate I Class, Karnal
in Criminal Complaint No. 178 of 2001 acquitting the appellant, is restored.