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

2

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 1

st

Class, Karnal and

3

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,

4

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

5

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

6

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

7

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.

8

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

9

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: -

10

“(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

11

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

12

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

13

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

14

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

15

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

16

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

17

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

18

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

19

Complaint No. 178 of 2001 acquitting the appellant, is

restored.

……………………….J.

[R.V. Raveendran]

……………………….J.

[J.M. Panchal]

New Delhi;

December 16, 2008.

20