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T.P. Murugan (Dead) Through Legal Representatives v. Bojan .
Factual and Procedural Background
The appellants had invested capital in Maanihada Tea Produce Co. Pvt. Ltd., a company controlled by the respondent. After resigning as directors on 24-11-1998, the appellants demanded repayment of their investments. On 07-08-2002 the respondent executed a promissory note for Rs 51,00,000 and issued two cheques—one for Rs 37,00,000 and another for Rs 14,00,000—in favour of the appellants. The cheques were dishonoured on 03-02-2003 due to “Stop Payment” instructions. Statutory notices under Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”) were issued, followed by two criminal complaints.
The Judicial Magistrate II, Coimbatore convicted the respondent under Section 138 NI Act, sentencing him to six months’ rigorous imprisonment and a fine of Rs 5,000. The District & Sessions Judge, Fast Track Court III, Coimbatore affirmed the conviction. On revision, the Madras High Court set aside both lower-court judgments, holding that the respondent had raised sufficient doubt about the nature of the transaction. The complainants challenged the High Court’s decision before the Supreme Court in the present appeals.
Legal Issues Presented
- Whether the respondent successfully rebutted the statutory presumption under Sections 118 and 139 of the NI Act that the cheques were issued towards discharge of a legally enforceable debt.
- Whether the Madras High Court erred in reversing concurrent findings of fact by treating the cheques and promissory note as mere security instruments rather than evidence of an existing liability.
Arguments of the Parties
Appellants' Arguments
- The respondent admitted signing both cheques and the promissory note, triggering the presumption under Section 139 NI Act.
- Extensive oral and documentary evidence proved the cheques were issued toward repayment of the appellants’ investments.
- Reliance was placed on Supreme Court precedents—Rangappa v. Sri Mohan (2010) 11 SCC 441, K.N. Beena v. Muniyappan (2001) 8 SCC 458 and T. Vasanthakumar v. Vijayakumari (2015) 8 SCC 378—to emphasize the strength of the statutory presumption and the burden on the drawer to rebut it.
Respondent's Arguments
- The cheques were issued only as security and not in discharge of any legally enforceable debt.
- The High Court correctly found that the simultaneous execution of the promissory note and cheques created doubt sufficient to rebut the presumption under Section 139 NI Act.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Rangappa v. Sri Mohan (2010) 11 SCC 441 | Statutory presumption under Section 139 NI Act and the burden on the accused to rebut it on a preponderance of probabilities. | Used to reaffirm that once execution is admitted, the burden shifts to the drawer, which the respondent failed to discharge. |
| K.N. Beena v. Muniyappan (2001) 8 SCC 458 | Scope of rebuttable presumption under Sections 118 & 139 NI Act. | Cited to stress that mere denial is insufficient; credible evidence is required to rebut the presumption. |
| T. Vasanthakumar v. Vijayakumari (2015) 8 SCC 378 | Standard for rebuttal of presumption and assessment of defence evidence in Section 138 cases. | Relied upon to evaluate and ultimately reject the respondent’s defence as lacking credibility. |
Court's Reasoning and Analysis
The Supreme Court held that under Section 139 NI Act a presumption arises that the cheques were issued for repayment of a debt. The respondent’s admissions of signature on both the cheques and the promissory note triggered this presumption.
- Lack of credible rebuttal: The respondent produced no cogent evidence supporting his claim that the instruments were issued merely as security. His explanation regarding “10 blank cheques” allegedly given in 1995 was found incredible, particularly because he never sought their return for seven years.
- Promissory note contemporaneous with cheques: The promissory note expressly recorded a loan, buttressing the appellants’ version that the cheques discharged a liability.
- Discredited defence witness: DW 2, who asserted the promissory note was filled later, was proven not to be an employee of N.R.R. Finances; hence his testimony was discarded.
- High Court’s error: The High Court misapplied the standard of proof by treating the creation of doubt as sufficient without requiring substantive rebuttal evidence, contrary to principles laid down in Rangappa and related cases.
Holding and Implications
Holding: The Supreme Court allowed the appeals, set aside the Madras High Court judgment dated 27-09-2013, and restored the conviction and sentence imposed by the trial court.
Implications: The respondent remains convicted under Section 138 NI Act, liable to six months’ rigorous imprisonment and a fine of Rs 5,000 in default of which he must undergo one additional month’s imprisonment. The decision reinforces the strength of the statutory presumption under Sections 118 and 139 NI Act and clarifies that speculative or unsupported defences are insufficient to rebut it. No new doctrine is created, but the ruling reaffirms existing jurisprudence, guiding lower courts on the evidentiary threshold for rebuttal.
Indu Malhotra, J.— The present special leave petitions have been filed against the common judgment and order dated 27-9-2013 passed by the High Court of Judicature at Madras in Bojan v. Posa Nandhi. That after issuance 2014 SCC OnLine SC 1685 of notice, special leave petitions were heard finally. Leave granted.
2. These appeals arise out of two complaints filed under Section 138 of the Negotiable Instruments Act (“the NI Act”) filed by the appellants against the respondent for dishonour of two cheques of Rs 37,00,000 and Rs 14,00,000, respectively.
3. The facts of the case briefly stated are as under: the appellants submit that they were inducted in Maanihada Tea Produce Co. Pvt. Ltd. being run by the respondent to infuse capital by way of deposits and shares.
4. On 24-11-1998, the appellants resigned as Directors of the Company after which the respondent and his son, DW 3, remained in charge of the Company. The appellants submit that the respondent failed to return their share in the company. The appellants made demands for repayment of their dues.
5. On 7-8-2002, the respondent issued a promissory note for Rs 51,00,000 in favour of K. Posa Nandhi, the appellant in the second appeal. The promissory note records that it was being issued against a loan. The respondent also issued two cheques on the same date, one for Rs 37,00,000 in favour of K. Posa Nandhi, and the other for Rs 14,00,000 in favour of T.P. Murugan, towards discharge of their liability for the investments made in M/s Maanihada Tea Produce Company.
6. The cheques were presented for encashment on 3-2-2003 by the appellants, which were dishonoured due to “Stop Payment” instructions issued by the respondent.
7. The appellants issued the statutory notices under Section 138 of the NI Act calling upon the respondent to discharge their debt/liability and clear their dues. The respondent vide his reply dated 17-2-2003 refuted the claim of the appellants.
8. The appellants filed two complaints under Section 138 of the NI Act before the Court of Judicial Magistrate II, Coimbatore.
9. The respondent contended that the signed blank promissory note was issued by him in favour of N.R.R. Finances Investments Pvt. Ltd. under a hire-purchase agreement for purchasing a lorry on loan basis. The said promissory note was not issued in favour of the appellant complainants. The promissory note was filled up by DW 2 Mahesh, an employee of N.R.R. Investments, after the signatures of the respondent were obtained on the same.
10. With respect to the two cheques which were dishonoured, the respondent contended that these were amongst 10 blank cheques signed and handed over to the appellant K. Posa Nandhi as security, when he borrowed Rs 5,00,000 in 1995. That even though this loan was repaid in 1996 with interest, the cheques were not returned. The respondent further contended that he had issued a letter on 9-11-2002 asking the appellants to return the 10 blank cheques.
11. The trial court found that the respondent had admitted his signatures both on the pronote and also on the two cheques for Rs 37,00,000 and Rs 14,00,000, respectively. The respondent also admitted that the appellant had invested capital in their concern viz. M/s Maanihada Tea Factory.
12. The court disbelieved the version of the respondent with respect to the 10 blank cheques issued to the appellant in 1995. The respondent failed to place any material on record to show that he had ever asked for return of the 10 blank cheques, allegedly given by him to the respondent, for seven years.
13. That after going through the detailed evidence adduced by the parties, the trial court held that the cheques and pronote were issued for repayment/discharge of a lawful debt. The respondent was found guilty under Section 138 of the NI Act, and sentenced him to undergo RI for six months and a fine of Rs 5000, failing which, he shall undergo one month's RI.
14. Aggrieved by the said judgment, the respondent-accused filed Criminal Appeals Nos. 437-38 of 2006 before the District and Sessions Judge, Fast Track Court No. III, Coimbatore. The District and Sessions Judge held that the presumption under Sections 118 and 139 of the NI Act was not rebutted by the respondent. It was proved by the complainants that there were insufficient funds in the bank account of the respondent at the time of issuance of the cheques. The respondent had with mala fide intention issued “Stop Payment” instructions. The respondent failed to give any explanation as to how the pronote came into possession of the appellant. Furthermore, the Sessions Court discarded the evidence adduced by the accused, of DW 2 Mahesh, as being an interested witness, who had falsely stated that he was an employee of N.R.R. Finances. This was rebutted by two witnesses viz. PW 2 and PW 4, who were Directors of N.R.R. Finances who deposed that DW 2 was never employed by this Company. The District and Sessions Court affirmed the conviction and sentence awarded by the trial court.
15. Aggrieved by the judgment and order dated 26-11-2008 passed by the District and Sessions Judge, Fast Track Court No. III, Coimbatore, the respondent-accused filed two Criminal Revisions Nos. 1657-58 of 2008 before the Madras High Court. That even though the appellants herein/complainants had initially participated in the proceedings, the present appellant was unrepresented during the final hearing. The hearing of the criminal revision petitions proceeded ex parte.
16. The High Court recorded that the respondent-accused had not denied either the issuance of the cheques, or his signatures on the pronote and cheques. The denial was only with regard to the circumstances, the manner and the period during which the cheques were issued. The High Court took the view that the burden cast on the respondent-accused was only to raise a doubt in the mind of the Court about the nature of the transaction. The learned Single Judge accepted the contention of the respondent that since the cheques and the pronote were issued on the same date, it could only be treated as a security, and was not towards any debt or liability. By raising a doubt with respect to the circumstances in which the pronote and cheques were issued, the respondent had discharged the presumption under Section 139 of the NI Act. The High Court held that the trial court and the Sessions Court erred in applying the legal principles of standard of proof for the complainant to prove their case.
17. The High Court, while exercising its revisional jurisdiction, reversed the concurrent findings of the courts below, and set aside the judgment of conviction and sentence passed against the accused.
18. Aggrieved by the judgment and order dated 27-9-2013 passed in Bojan v. Posa Nandhi, the appellant complainants filed the present special leave petitions.
19. Mrs V. Mohana, Senior Advocate represented the appellants, and submitted that the respondent-accused has admitted his signatures on the two dishonoured cheques and on the pronote. The appellant complainants had adduced sufficient evidence to prove their case. Reliance was placed by the Senior Counsel on the decisions of this Court in Rangappa v. Sri Mohan (2010) 11 SCC 441, K.N. Beena v. Muniyappan (2001) 8 SCC 458 and T. Vasanthakumar v. Vijayakumari (2015) 8 SCC 378 in support of her case.
20. Mr R. Basanth, Senior Counsel appeared on behalf of the respondent-accused, and contended inter alia that the cheques were not issued towards discharge of a legally enforceable debt, but as a security, and that the judgment under challenge required no interference.
21. We have heard the Senior Counsel for both parties, and perused the record. Under Section 139 of the NI Act, once a cheque has been signed and issued in favour of the holder, there is statutory presumption that it is issued in discharge of a legally enforceable debt or liability (2001) 8 SCC 458, (2010) 11 SCC 441. This presumption is a rebuttable one, if the issuer of the cheque is able to discharge the burden that it was issued for some other purpose like security for a loan.
22. In the present case, the respondent has failed to produce any credible evidence to rebut the statutory presumption. This would be evident from the following circumstances:
22.1. The respondent-accused issued a pronote for the amount covered by the cheques, which clearly states that it was being issued for a loan;
22.2. The defence of the respondent that he had allegedly issued 10 blank cheques in 1995 for repayment of a loan, has been disbelieved both by the trial court and Sessions Court, on the ground that the respondent did not ask for return of the cheques for a period of seven years from 1995. This defence was obviously a cover-up, and lacked credibility, and hence was rightly discarded.
22.3. The letter dated 9-11-2002 was addressed by the respondent after he had issued two cheques on 7-8-2002 for Rs 37,00,000 and Rs 14,00,000 knowing fully well that he did not have sufficient funds in his account. The letter dated 9-11-2002 was an afterthought, and was written to evade liability. This defence also lacked credibility, as the appellants had never asked for return of the alleged cheques for seven years.
22.4. The defence of the respondent that the pronote dated 7-8-2002 signed by him, was allegedly filled by one Mahesh DW 2, an employee of N.R.R. Finances, was rejected as being false. DW 2 himself admitted in his cross-examination, that he did not file any document to prove that he was employed in N.R.R. Finances. On the contrary, the appellant complainants produced PW 2 and PW 4, Directors of N.R.R. Finances Investment Pvt. Ltd., and PW 3, a Member of N.R.R. Chit funds, who deposed that DW 2 was never employed in N.R.R. Finances.
23. The appellants have proved their case by overwhelming evidence to establish that the two cheques were issued towards the discharge of an existing liability and legally enforceable debt. The respondent having admitted that the cheques and pronote were signed by him, the presumption under Section 139 would operate. The respondent failed to rebut the presumption by adducing any cogent or credible evidence. Hence, his defence is rejected.
24. In view of the aforesaid facts and circumstances, the impugned order dated 27-9-2013 passed in Bojan v. Posa Nandhi is hereby set aside, and the order of conviction and fine passed by the trial court is restored.
25. The appeals are allowed accordingly.
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