Reportable

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 U D G M E N T

J.M. Panchal, J.

1. Leave granted.

2. The  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

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.

3. Jai 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

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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

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prayed to convict the appellant under Section 138 of the

Act.

4. On 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  him.

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.

5. In  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,

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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.

6. On 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

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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

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Magistrate  acquitted  the  appellant  by  judgment  dated

December 6, 2003.

7. Feeling  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

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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.

8. We heard the learned counsel for the parties at length and

considered the record of the case.

9. In  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.

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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

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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 presumptions”

(irrebuttable).    The  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: -

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“(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.   

10. Section 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.

Applying the definition of the word ‘proved’ in Section 3 of the

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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.   

11. The 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

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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

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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

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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.     

12. The 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

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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

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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

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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 aside.

13.This  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

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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.

14.For  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

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Complaint  No.  178  of  2001  acquitting  the  appellant,  is

restored.   

……………………….J. [R.V. Raveendran]

……………………….J. [J.M. Panchal]

New Delhi; December 16, 2008.

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