Cheque Bounce – Presumption U/S 139 Negotiable Instruments Act, 1881 and How it can be shifted to Section 118 of the Act

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This Article is written by Nidhi Singh, a 3rd-year student from Lloyd law college, Greater Noida.

Chapter XVII containing Sections 138 to 142 was introduced in the Act by Act 66 of 1988 with the object of inculcating faith in the efficacy of banking operations and giving credibility to negotiable instruments in business transactions. These provisions were intended to discourage people from not honoring their commitments by way of payment through cheques. It is for this reason that the Courts should lean in favor of an interpretation that serves the object of the statue.

Section 118 – Presumptions as to negotiable instruments—Until the contrary is proved, the following presumptions shall be made:

(a) of consideration—that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, endorsed, negotiated or transferred, was accepted, endorsed, negotiated or transferred for consideration;

(b) as to date —that every negotiable instrument bearing a date was made or drawn on such date;

(c) as to the time of acceptance —that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity;

(d) as to the time of transfer —that every transfer of a negotiable instrument was made before its maturity;

(e) as to order of indorsements —that the indorsements appearing upon a negotiable instrument were made in the order in which they appear thereon;

(f) as to stamps —that a lost promissory note, bill of exchange or cheque was duly stamped;

(g) that holder is a holder in due course —that the holder of a negotiable instrument is a holder in due course:

Section 139- Presumption in favor of holder—It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability.”

Dealings in cheques are vital and important not only for banking purposes but also for commerce and industry and the economy of the country. But according to the rise in dealings with cheques also rises the practice of giving cheques without any intention of honoring them. Before 1988 there is no effective legal provision to restrain people from issuing cheques without having sufficient funds in their account or any stringent provision to punish them in the vent of such cheque not being honored by their bankers and returned unpaid. Of course on dishonor of cheques, there is a civil liability accrued.

Section 138[1] creates a statutory offense in the matter of dishonor of cheques on the ground of insufficiency of funds in the account maintained by a person with the banker. Section 138 of the Act can be said to be falling either in the acts which are not criminal in the real sense but are acts which in the public interest are prohibited under the penalty or those where although the proceeding may be in criminal form, they are only a summary mode of enforcing a civil right. Normally in criminal law existence of guilty intent is an essential ingredient of a crime. However, the Legislature can always create an offense of absolute liability or strict liability where;mens rea; is not at all necessary.

It is enough if a cheque is drawn by the accused on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for discharge in whole or in part, of any debt or other liability due.

Presumption[2] – According to the NI Act

The presumption under Sections 118 and 139 of the Negotiable Instrument Act was required to be drawn that the cheques were issued for consideration and until the contrary was proved, such presumption would hold good and that the complainant had proved legally enforceable debt in the oral as also documentary evidence, including the written acknowledgment by the accused on stamp paper; and that except bare denial, nothing was brought on record by the accused to dislodge the proof adduced by the complainant.

 A presumption was to be made that every negotiable instrument was made or drawn for consideration and that it was executed for the discharge of debt or liability once the execution of a negotiable instrument was either proved or admitted.

 When the complainant discharged the burden to prove that the cheque was executed by the accused, the rules of presumptions under Sections 118 and 139 were very much available to the complainant and the burden shifted on the accused. However, this presumption was rebuttable. Under the circumstances, it was the duty of the accused before the court by adducing that the cheque was not supported by consideration and that there was no debt or liability to be discharged as alleged.

In the Cheque Bounce/Misuse[3] cases, the complainant’s position is strong as he has a cheque. The complainant has to issue a demand notice letter keeping in view the provisions of Section 138, the complaint application should contain the provisions of Section 138 only then the complainant is entitled to the benefit of Sections 139 and 118 otherwise. The defendants can avail of the benefit of a lack of pleading. If the provisions of Section 138 (a)(b)(c) are not present in the complaint application, the indent is not valid and can be dismissed.

It is required to be presumed that the cheques in question were drawn for consideration and the holder of the cheques. The onus, therefore, shifts[4] on the accused-appellant to establish a probable defense to rebut such a presumption.

Let’s understand these sections of NI with reference to some important 

Case Laws,

Rohitbhai Jivanlal Patel v. State of Gujrat & Ors.

The High Court while passing its order in the case observed that the presumption under Sections 118 and 139 of the Negotiable Instrument Act was required to be drawn that the cheques were issued for consideration and until the contrary was proved, such presumption would hold good and that the complainant had proved legally enforceable debt in the oral as also documentary evidence, including the written acknowledgment by the accused on stamp paper; and that except bare denial, nothing was brought on record by the accused to dislodge the proof adduced by the complainant.

 Remarkable observations[5] made by the apex court in this case;

  • That an accused is presumed to be innocent unless proved guilty beyond reasonable doubt and a judgment of acquittal further strengthens such presumption in favor of the accused. However, such restrictions need to be visualized in the context of the particular matter before the Appellate Court and the nature of inquiry therein. That the same rule with the same rigor cannot be applied in a matter relating to the offense under Section 138 of the NI Act, particularly where a presumption is drawn that the holder has received the cheque for the discharge, wholly or in part, of any debt or liability.
  • That though the accused is entitled to bring on record the relevant material to rebut such presumption and to show that preponderance of probabilities are in favor of his defence but while examining if the accused has brought about a probable defence to rebut the presumption, the Appellate Court is certainly entitled to examine the evidence on record to find if preponderance indeed leans in favor of the accused.
  • While noting the facts of the case, the Supreme Court was of the view that all the basic ingredients of Section 138 as also of Sections 118 and 139 are apparent on the face of the record. Therefore, it is required to be presumed that the cheques in question were drawn for consideration and the holder of the cheques. The onus, therefore, shifts on the accused-appellant to establish a probable defence to rebut such a presumption.

Jagdamba Nursery vs. Pramod Kumar on 24 April 2019

The cheque in question was executed by the accused in favor of the complainant, has not been denied nor was it in dispute that the cheques were dishonored because of insufficient funds in the accused account with the drawer, viz. State Bank of India.

The court in the case has to consider whether the accused has supported his defence by any proof sufficient to rebut the presumption drawn against him.

Negotiable CC NO.13430/2016, PS­ ANAND VIHAR Page 16/18 JAGDAMBA NURSERY vs. PRAMOD KUMAR It is the case of the accused that the accused had visited the complainant’s office at least on three occasions and asked the complainant to deliver the said plants indicating first; the complainant had nursery or an office from where the complainant was selling plants and second; that the accused had agreed for supplying of plants by the complainant to the accused. Moreover, the defense of the accused that the complainant did not supply the plants which were agreed to be deliver indicating that the cheque in question was without any valid consideration is answered against the accused by the presumption under section 118 of Negotiable Instruments Act that until the contrary is proved it shall be presumed that every negotiable instrument was made or drawn for consideration. In the entire record of the cross­examination of the complainant, there is nothing contrary to the presumption under section 118 of Negotiable Instruments Act.

 K.N. Beena v/s Muniyappan and Another[6]   Criminal Appeal No. 1066 of 2001,   Decided On, 18 October 2001

The appellant filed a complaint under section 138 of the Negotiable Instruments Act, 1881, as the cheque dated April 6, 1993, in a sum of Rs. 63, 720 issued by the first respondent in favor of the appellant on Central Bank, had been dishonored with the remarks “insufficient funds”. The appellant had issued a legal notice dated April 28, 1993. Receipt of the said notice is admitted. A reply dated May 21, 1993, was sent by the first respondent. However, no payment was made.

After trial, the judicial Magistrate-II, Kumbakonam, convicted the first respondent under section 138 and directed payment of a fine of Rs. 65, 000. In default, the first respondent was to suffer simple imprisonment for one year. The first respondent challenged the conviction and sentence by filing Criminal Appeal No. 32 of 1995. The same came to be dismissed by the Sessions Judge on August 28, 1995.

The judgment erroneously proceeds on the basis that the burden of proving consideration for a dishonored cheque is on the complainant. It appears that the learned judge had lost sight of sections 118 and 139 of the Negotiable Instruments Act. Under section 118, unless the contrary was proved, it is to be presumed that the negotiable instrument (including a cheque) had been made or drawn for consideration.

[1] http://www.legalserviceindia.com/articles/sec138.htm

[2] https://www.vakilno1.com/legal-news/presumption-under-sec-139-of-ni-act-once-presumption-is-drawn-complainant-need-not-prove-source-of-fund-sc.html

[3] http://www.legalserviceindia.com/legal/article-1109-misuse-and-violation-of-section-138-negotiable-instrument-act-1881.html

[4] https://www.vakilno1.com/legal-news/presumption-under-sec-139-of-ni-act-once-presumption-is-drawn-complainant-need-not-prove-source-of-fund-sc.html

[5] https://www.vakilno1.com/legal-news/presumption-under-sec-139-of-ni-act-once-presumption-is-drawn-complainant-need-not-prove-source-of-fund-sc.html

[6] https://www.casemine.com/judgement/in/5609ad97e4b0149711411cbd

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