The Presumption of Liability under Section 139 of the Negotiable Instruments Act, 1881: A Judicial Exposition

The Presumption of Liability under Section 139 of the Negotiable Instruments Act, 1881: A Judicial Exposition

Introduction

The Negotiable Instruments Act, 1881 (hereinafter "NI Act"), particularly Chapter XVII comprising Sections 138 to 142, was incorporated to enhance the acceptability and credibility of cheques in commercial transactions. At the heart of this legislative framework lies Section 139, a provision that creates a statutory presumption in favour of the holder of a cheque. It stipulates that it shall be presumed, unless the contrary is proved, that the holder of a cheque received it for the discharge, in whole or in part, of any debt or other liability. This provision, operating as a "reverse onus clause," is fundamental to the expeditious disposal of cheque dishonour cases.

This article provides a comprehensive analysis of the jurisprudence surrounding Section 139 of the NI Act as developed by the Supreme Court of India and various High Courts. It traces the evolution of judicial interpretation regarding the scope of the presumption, examines the standard of proof required for its rebuttal, and discusses its application in specific factual contexts. It is pertinent to clarify at the outset that this analysis is confined to Section 139 of the NI Act, 1881, and should not be confused with similarly numbered sections in other statutes, such as Section 139 of the Income-tax Act, 1961, which pertains to the filing of income tax returns and has been discussed in cases like M.P State Agro Industries Development Corporation Ltd. v. Commissioner Of Income-Tax And Others (Madhya Pradesh High Court, 2002) and Presidency Medical Centre (P.) Ltd. v. Commissioner Of Income-Tax, West Bengal-Iii (Calcutta High Court, 1974), which are not germane to the present topic.

The Statutory Framework: Interplay of Sections 138, 118, and 139

To appreciate the function of Section 139, it must be read in conjunction with Section 138 and Section 118 of the NI Act. Section 138 defines the substantive offence of dishonour of a cheque for insufficiency of funds, making it a criminal offence. Section 118(a) lays down a presumption that every negotiable instrument was made or drawn for consideration. Section 139 complements these provisions by creating a specific presumption regarding the purpose of the cheque—that it was issued to discharge a debt or liability.

The combined effect of these provisions is the creation of a reverse onus. Once the complainant establishes that a cheque was drawn by the accused from an account maintained by him, and the same was dishonoured upon presentation, the presumptions under Sections 118 and 139 are activated. The burden then shifts to the accused to prove that the cheque was not issued for consideration or in discharge of a debt or liability. This mechanism was described in Mr. Lakshmi Prabhakar v. Satya Venkata Srinivasa Borusu (Andhra Pradesh High Court, 2013) as a "device to prevent undue delay in the course of litigation," furthering the legislative objective of improving the credibility of negotiable instruments.

The Evolution of Judicial Interpretation on the Scope of Presumption

The Early View and the Conundrum: The Krishna Janardhan Bhat Case

For a period, there was significant judicial debate regarding the precise scope of the presumption under Section 139. The two-judge bench of the Supreme Court in Krishna Janardhan Bhat v. Dattatraya G. Hegde (2008 SCC CRI 2 166) held that Section 139 raises a presumption only to the extent that the cheque was issued for the discharge of some debt or liability. However, the Court opined that the existence of a "legally enforceable debt or liability" was not a matter of presumption under Section 139. This interpretation placed a heavier initial burden on the complainant to first prove the existence of the debt before the presumption could be invoked against the accused. This view, as noted by the Calcutta High Court in k. bhoopathy v. sushanta saha & another (2020), created considerable ambiguity in the application of the law.

The Definitive Clarification: Rangappa v. Sri Mohan

The ambiguity was conclusively settled by a three-judge bench of the Supreme Court in the landmark case of Rangappa v. Sri Mohan (2010 SCC 11 441). The Court held that the presumption mandated by Section 139 of the NI Act does indeed include the existence of a legally enforceable debt or liability. The Court reasoned that to hold otherwise would render the provision otiose, as the very purpose of the presumption is to relieve the complainant of the initial burden of proving the debt. The Court observed:

"In light of these extracts, we are in agreement with the respondent-claimant that the presumption mandated by Section 139 of the Act does indeed include the existence of a legally enforceable debt or liability. To that extent, the impugned observations in Krishna Janardhan Bhat (supra) may not be correct."

This decision has since become the locus classicus on the subject and is consistently followed. High Courts across the country, as seen in PRAMODKUMAR CHHOTALAL VYAS v. STATE OF GUJARAT (Gujarat High Court, 2024) and HAKAM SINGH v. MANDER SINGH (Punjab & Haryana High Court, 2024), have affirmed that the initial presumption under Section 139 is unequivocally in favour of the complainant and encompasses the existence of a legally enforceable debt.

Rebutting the Presumption: The Standard of Proof and Probable Defence

The "Preponderance of Probabilities" Standard

While the presumption under Section 139 is potent, it is rebuttable. The Supreme Court has consistently held that the standard of proof for the accused to rebut this presumption is not "beyond a reasonable doubt" but that of "preponderance of probabilities." This means the accused must adduce evidence to show that the non-existence of the consideration or debt is so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it does not exist. This principle was articulated in early cases like M.S Narayana Menon Alias Mani v. State Of Kerala And Another (2006 SCC CRI 3 30) and has been reiterated in numerous subsequent judgments, including Kumar Exports v. Sharma Carpets (2009 SCC 2 513) and Kalamani Tex And Another v. P. Balasubramanian (2021 SCC CIV 3 25).

In Rangappa v. Sri Mohan, the Court further clarified that the "test of proportionality" should guide the interpretation of reverse onus clauses, as the offence under Section 138 is a "regulatory offence" that is largely in the nature of a civil wrong. Therefore, the accused cannot be expected to discharge an unduly high standard of proof.

Establishing a "Probable Defence"

To discharge the burden of rebuttal, the accused must raise a "probable defence." A mere denial of the existence of a debt is insufficient. The defence must be credible and supported by evidence. The accused can do so by relying on materials submitted by the complainant, by adducing his own evidence, or by demonstrating inherent improbabilities in the complainant's case.

The Supreme Court's decision in Basalingappa v. Mudibasappa (2019 SCC 5 418) provides a classic example. In that case, the accused successfully rebutted the presumption by demonstrating that the complainant did not have the financial capacity to advance the loan amount alleged, thereby rendering the complainant's story improbable. The Court held that if the accused is able to raise a probable defence which creates doubt about the existence of a legally enforceable debt or liability, the prosecution can fail. The principle of establishing a probable defence was also central to the decision in Tedhi Singh v. Narayan Dass Mahant (2022 SCC ONLINE SC 302).

Conversely, in cases like K.N Beena v. Muniyappan And Another (2001 SCC 8 458) and Hiten P. Dalal v. Bratindranath Banerjee (2001 SCC 6 16), the Supreme Court affirmed convictions where the accused failed to discharge the burden of proving that the cheque had not been issued for a debt or liability. The onus, once shifted, must be met with credible evidence.

Specific Contexts and Limitations of the Presumption

While the presumption under Section 139 is robust, it is not absolute and its application may be tempered by the specific facts of a case. A significant limitation has been carved out by the judiciary in cases involving professional relationships, particularly between an advocate and a client.

In B. Sunitha v. The State Of Telengana & Anr. (2017 SCC ONLINE SC 1412), the Supreme Court held that a cheque issued by a client to an advocate cannot be presumed to be for the discharge of a legally enforceable debt if the claim is based on a contingency fee agreement. The Court noted that such agreements are against public policy and constitute professional misconduct under the Advocates Act, 1961. Therefore, a debt arising from such an unethical arrangement is not "legally enforceable." This principle has been followed by High Courts, as seen in RAJASEKARAN v. AMUL PRAKASH (Madras High Court, 2020), where it was emphasized that in the absence of a clear agreement, an advocate must independently prove the liability. However, in standard commercial transactions, the presumption remains strong. The Calcutta High Court in Jupiter Brokerage Services Ltd. v. Ektara Exports Pvt. Ltd. & Ors. (2015) observed that the absence of a money-lending license with the complainant may not, by itself, be sufficient to rebut the presumption of a legally enforceable debt.

The foundational requirement for invoking the presumption, as highlighted in cases like Kamalammal v. C.K Mohanan & Anr. (Kerala High Court, 2006) and K. Bhaskaran v. Sankaran Vaidhyan Balan And Another (1999 SCC 7 510), is the admission or proof of the signature on the cheque. Once the signature is established, the reverse onus clause under Section 139 is immediately triggered.

Conclusion

The jurisprudence surrounding Section 139 of the Negotiable Instruments Act, 1881, has evolved significantly to create a formidable yet balanced legal tool. The Supreme Court, through its landmark decision in Rangappa v. Sri Mohan, has definitively settled that the statutory presumption includes the existence of a legally enforceable debt or liability, thereby strengthening the legislative intent to promote the efficacy of banking operations and ensure the credibility of negotiable instruments.

Simultaneously, the judiciary has ensured that the provision does not become a tool of oppression by mandating that the presumption is rebuttable. By setting the standard of proof for the accused at the "preponderance of probabilities" and requiring the establishment of a "probable defence," the courts have balanced the rights of the complainant with the fundamental principle of a fair trial for the accused. The nuanced application of the presumption in specific contexts, such as professional engagements, demonstrates the judiciary's commitment to ensuring that the debt in question is not only extant but also "legally enforceable." This body of law reflects a mature and sophisticated understanding of a provision critical to the health of commercial transactions in India.