'In Indian law, disputes arising from dishonored cheques are increasingly prevalent. Section 138 of the NI Act[1], which criminalizes cheque dishonor for insufficient funds, has seen countless litigations. To establish an offense under this section, it is imperative to prove a sequence of acts leading up to the dishonor, as elucidated in K. Bhaskaran Vs. Sankaran Vaidhyan Balan (1999) 7 SCC 510[2]. However, the core issue of debt/liability often remains contentious.

The Supreme Court overturned an accused's acquittal in a dishonored cheque case by restating the rules governing the presumption under Section 139 of the Negotiable Instruments Act 1881[3].

The Supreme Court, vide this judgment, applied the legal principles governing the presumption under Section 139 of the NI Act and shifted the burden of proof on the complainant instead of the accused. The Supreme Court has clarified that once the signature on the cheque is admitted by the accused, the Court must raise the presumption under Section 139 that the cheque was issued to discharge a debt or liability. The burden then shifts to the accused to prove by a preponderance of probabilities that there was no debt or liability.

The Supreme Court has found that the accused had failed to discharge his evidential burden, and his defense was full of contradictions and inconsistencies. The Court also noted that the courts below had wrongly fixed the burden on the complainant to prove his case beyond a reasonable doubt without considering the effect of the presumption.

Title of the Case: Rajesh Jain Vs. Ajay Singh
Citation: SLP (Crl.) No. 12802/2022
Court: The Supreme Court of India
Coram: Hon'ble Justice Aravind Kumar and Justice SVN Bhatti
Decided on: 9th October, 2023

Facts

1. Mr. Ajay Singh (respondent in the present appeal) and his wife had approached the appellant, Mr. Rajesh Jain, requesting to lend him money. According to the appellant, Mr. Rajesh Jain, he had lent a sum of Rs. 6 lacs and some further sums after the respondent promised to repay his money.
2. The Appellant had lent the money under the genuine belief that Mr. Ajay Singh would honor his promise of timely repayment and return the sum borrowed with interest, as agreed. The respondent should have reimbursed the borrowed money within the agreed-upon time frame.
3. The complainant's efforts to retrieve his money were met with avoidance and delay techniques.
4. The accused (respondent) changed his cellular phone number without notifying the complainant to avoid his financial commitments. In 2017, the complainant managed to locate the respondent, who pleaded for pardon and pledged to refund the sums borrowed and interest to the appellant within three months.
5. The accused issued a post-dated Cheque for Rs.6,95,204/- towards partial repayment of outstanding debts. The accused informed the complaint that the remaining sum would be refunded by issuing a second cheque in December 2017.
6. When it was presented, The Cheque was returned because of insufficient funds in an account with an endorsement 'Funds Insufficient.' The complainant issued the accused a demand notice, requiring him to reimburse the Cheque amount (Rs. 6,95,204) and additional expenses incurred within 15 days.
7. As the demand was unmet, a complaint was filed with the Court of Judicial Magistrate First Class under Section 138 of the NI Act. The trial Court held that the complainant had failed to prove his case beyond reasonable doubt.
8. Aggrieved by the decision, the complainant approached the Punjab and Haryana High Court in appeal Section 378 (4) CrPC[4] before the High Court of Punjab and Haryana. On reappreciating the evidence on record, the High Court found no merit in the appeal and upheld the order of acquittal passed by the Trial Court.
9. Aggrieved by the decision of the High Court, the complainant appealed before the Supreme Court.

Issues

1. Has the respondent (accused) discharged the evidentiary burden for rebuttal of presumption under Section 139 of the Negotiable Instruments Act?
    
2. Has the complainant proved beyond reasonable doubt that the cheque he issued was given for debt independent of the application of presumption under Section 139 of the Negotiable Instrument Act?
    
3. The overarching question of law in Rajesh Jain Vs. Ajay Singh[5] pertained to the precise interpretation and application of Section 139 of the NI Act. Specifically, the Court was tasked with determining whether the accused had effectively rebutted the presumption established by this section, thereby returning the burden to the complainant.

Legal Dicta
The judgment in Rajesh Jain Vs. Ajay Singh unfurls the complexities of Section 139 of the NI Act. This section assumes paramount significance as it addresses the presumption concerning issuing a cheque for debt or liability discharge. It strategically shifts the evidential burden onto the accused and establishes a reverse onus clause. This means that it becomes incumbent upon the accused to prove the non-existence of the presumed fact, i.e., that the cheque was not issued in discharge of a debt/liability.

The legal doctrines established in this case underscore two pivotal aspects: the legal and evidential burdens. The legal burden remains constant throughout the trial about proving facts and contentions supporting a party's case. In contrast, the evidential burden may shift as the trial progresses, contingent on the balance of evidence presented.

Question Of Law
The overarching question of law in Rajesh Jain Vs. Ajay Singh pertained to the precise interpretation and application of Section 139 of the NI Act. Specifically, the Court was tasked with determining whether the accused had effectively rebutted the presumption established by this section, thereby returning the burden to the complainant.

Court's Findings
Trial Court
The trial in the case of Rajesh Jain Vs. Ajay Singh commenced in the Trial Court. The crux of the matter revolved around a dishonored cheque issued by the accused, Ajay Singh, to the complainant, Rajesh Jain. When the complainant received the dishonored cheque, he promptly issued a legal notice demanding payment. The accused, in response, contended that the cheque in question was a blank leaf that the complainant had misused.

However, what is notable about the Trial Court proceedings is its framing of the fundamental question to be decided. The Trial Court erroneously framed the question: 'whether a legally valid and enforceable debt existed qua the complainant and the cheque was issued to discharge said liability/debt.' This initial framing of the question needed to be corrected, setting the stage for further complications.

On consideration of the evidence on record, the TC returned a finding that the accused was not guilty on the following grounds:

• Legal notice dated 26.10.17 was invalid since the Complainant or his counsel still needs to sign it. In the complaint, legal notice, and affidavit evidence, the Complainant has failed to mention the date on which he advanced various sums of money toward the loan.
• Evidence on records indicates that the Complainant is in the business of money lending.
• Since he does not possess any valid license/registration under the Money Lenders Act of 1938, he could not have filed a suit for recovery of money advanced as per S. 3 of the Act.
• The procedure set out in S. 138 must be followed correctly because the legal notice has been issued prematurely, even before the Complainant received the cheque return memo notice.
• The version of the Complainant is doubtful since the cheque was, admittedly, issued in part-payment of outstanding dues. Nowhere in the complaint or demand notice has the Complainant disclosed the total amount loaned to the accused.

Punjab & Haryana High Court[6]
Subsequently, the case moved to the High Court, where the High Court engaged with the evidence on record. In its analysis, the High Court made a pivotal finding that the complainant had proven the issuance of the cheque. This finding is crucial as it activated the presumption under Section 139 of the Negotiable Instruments Act, 1881 (NI Act), which presumes that a cheque has been issued to discharge debt or liability.

The High Court correctly identified that the burden to rebut this presumption rested on the accused. It acknowledged that the accused had questioned the complainant and explained the circumstances under Section 313 of the Code of Criminal Procedure (Cr.P.C.). However, the High Court's judgment lacked elucidation on the material circumstances or basis on which it concluded that the accused had effectively rebutted the presumption.

Supreme Court Of India[7]
The Supreme Court's judgment in Rajesh Jain Vs. Ajay Singh offers a meticulous analysis of the case, highlighting critical aspects of the law related to dishonored cheques and evidentiary burdens. The Court conducted an exhaustive examination of the evidence and arguments presented by both parties. It acknowledged that the five acts delineated in K. Bhaskaran's case[8] were matters of record.

They should be available as documentary evidence in the early stages of the complaint and prosecution. The Court underscored the nature of presumptions, classifying them into presumptions of fact and law. Presumptions of fact entail inferences logically drawn from one point to deduce the existence of other facts and can be refuted by contradictory evidence. In contrast, law presumptions may be irrebuttable (conclusive presumptions) or rebuttable.

37. Presumptions are of two kinds: fact and law. Presumptions of fact are inferences logically drawn from one point as to the existence of other facts. Presumptions of fact are rebuttable by evidence to the contrary. Presumptions of law may be irrebuttable (conclusive presumptions) so that no evidence to the contrary may be given or rebuttable.

A rebuttable presumption of law is a legal rule to be applied by the Court in the absence of conflicting evidence (Halsbury, 4th Edition, paras 111, 112]. Among the class of rebuttable presumptions, a further distinction can be made between discretionary presumptions ('may presume') and compulsive or compulsory presumptions ('shall presume'). [G. Vasu v. Syed Yaseen (Supra)]

38. The Evidence Act provides for presumptions, which fit within one of three forms: 'may presume' (rebuttable presumptions of fact), 'shall presume' (rebuttable presumption of law, and conclusive presumptions (irrebuttable presumption of law).

The distinction between 'may presume' and 'shall presume' clauses is that, as regards the former, the Court has the 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 the option to extend the presumption and raise the presumption, the distinction between the two categories of presumptions ceases, and the fact is presumed unless and until it is disproved [G. Vasu v. Syed Yaseen (Supra)]

55. Once the presumption under Section 139 was given effect, the Courts ought to have proceeded on the premise that the cheque was, indeed, issued in discharge of a debt/liability. The entire focus would then necessarily have to shift to the case set up by the accused since the activation of the presumption has the effect of shifting the evidential burden on the accused.

The nature of the inquiry is to see whether the accused has discharged his onus of rebutting the presumption. If he fails to do so, the Court can proceed to convict him, subject to the satisfaction of the other ingredients of Section 138. If the Court finds that the evidential burden placed on the accused has been discharged, the complainant would be expected to prove the fact independently, without taking the aid of the presumption. The Court would then take an overall view based on the evidence on record and decide accordingly.

"56. At the stage when the courts concluded that the signature had been admitted, the Court ought to have inquired into either of the two questions (depending on the method in which the accused has chosen to rebut the presumption): Has the accused led any defense evidence to prove and conclusively establish that there existed no debt/liability at the time of issuance of cheque? Without rebuttal evidence being led, the inquiry would entail: Has the accused proved the nonexistence of debt/liability by a preponderance of probabilities by referring to the 'particular circumstances of the case'?"

The Supreme Court observed that the legal and evidential burdens in such cases need to be understood distinctly. The legal burden remains consistent throughout the trial and pertains to establishing facts and contentions to support a party's case. In contrast, the evidential burden may shift depending on the balance of evidence presented by both parties.

The Court emphasized the nature of presumptions, categorizing them into presumptions of fact and law. Presumptions of fact are inferences logically drawn from one point to deduce the existence of other facts, and they can be refuted by contradictory evidence. Presumptions of law may be either irrebuttable or rebuttable.

Section 139 of the NI Act introduces a 'shall presume' clause, obligating the Court to assume that a cheque holder received it for debt/liability discharge. However, the accused can challenge this presumption by either conclusively proving the non-existence of debt/liability or establishing it by a preponderance of probabilities, considering the case's specific circumstances.

The Supreme Court articulated that the standard of proof required to discharge this evidential burden is less rigorous than that demanded for the prosecution to prove an accused's guilt. The accused must meet the 'preponderance of probabilities' standard, akin to the burden in civil proceedings.

Importantly, once the accused furnishes evidence to establish, even though a preponderance of probabilities, the absence of debt/liability at the time of cheque issuance, the burden reverts to the complainant. The complainant must independently substantiate the existence of debt/liability—failure to do so results in the complaint's dismissal.

Judgment
The Supreme Court held that the courts below had erred in their approach and appreciation of evidence. It observed that once the signature on the cheque was admitted by the accused, the courts needed to raise the presumption under Section 139 that the cheque was issued in the discharge of a debt or liability. The burden then shifted to the accused to prove by a preponderance of probabilities that there was no debt or liability.

The Court found that the accused had failed to discharge his evidential burden, and his defense was full of contradictions and inconsistencies. The Court also noted that the courts below had wrongly fixed the burden on the complainant to prove his case beyond a reasonable doubt without considering the effect of the presumption.

The Court further stated that the burden of proof cannot be discharged just by making some suggestions during the cross-examination; instead, a likely defense must be established. The Supreme Court, therefore, set aside the judgments of the courts below and convicted the accused with a fine of twice the amount of the cheque, or Rs. 13,90,408/- (Rupees thirteen thousand nine hundred and eight only), failing which he would undergo simple imprisonment for one year.

Analysis Based On Findings Made By All The Three Respective Court's Individually
The Trial Court's initial framing of the question needed to be revised, as it burdened the complainant to prove the existence of a legally valid and enforceable debt. This misconceived framing of the question led to confusion about allocating the burden of proof. In the High Court, the judgment correctly recognized the activation of the presumption under Section 139 of the NI Act upon the complainant, proving the issuance of the cheque. However, the High Court's finding lacked sufficient elucidation regarding how the accused effectively rebutted this presumption.

This omission left a gap in the reasoning of the judgment. The Supreme Court's conclusions clarified the distinct legal and evidential burdens in dishonored cheque cases. It underscored the nature of presumptions, the evidentiary standards required for rebuttal, and the shift in burden once the accused presents evidence. The judgment serves as a guiding precedent, helping lower courts accurately interpret and apply Section 139 of the NI Act.

In conclusion, while the Trial Court's framing of the question created initial confusion and the High Court's judgment lacked in-depth analysis, the Supreme Court's findings in Rajesh Jain Vs. Ajay Singh has definitively clarified the law regarding evidentiary burdens in cases of dishonored cheques. This landmark judgment ensures a more precise and just interpretation of Section 139, providing a robust framework for future cases involving dishonored cheques in India.

Analysis
The Supreme Court clarified the distinction between legal and evidential burdens in cases. The legal burden remains constant and involves proving a party's case, while the evidential burden may shift depending on the evidence presented. The Court explained the types of presumptions, categorizing them as factual (inferences based on logic) and legal (either unchallengeable or open to challenge). This distinction helps in understanding how burdens and presumptions work in legal cases.

The initial framing of the issue by the Trial Court was marred by a fundamental flaw, wherein it erroneously mandated the complainant to establish the existence of a legally valid and enforceable debt. This misconception engendered ambiguity regarding the appropriate allocation of the burden of proof within the case.

The Supreme Court has since rectified this matter by providing lucid guidance. It expounded upon the operation of these legal principles, delineated the requisite evidentiary criteria for their establishment or refutation, and elucidated the circumstances under which the burden of proof transitions from the complainant to the accused.

This landmark decision serves as a significant precedent that furnishes lower courts with a comprehensive understanding of these principles and their judicious application in cases about dishonored cheques in the Indian legal context.

Not only that but also the Honorable Supreme Court of India has held that 'burden of proof' as per Indian Evidence Act, 1872 states:

1. One is the burden of proof arising as a matter of pleading. It is held that the 'legal burden' of the pleading never shifts.
2. Another Burden of Proof is the one that deals with the question of who has first to prove a particular fact, which is called the "Evidential Burden," and it shifts from one side to the other.

'Conclusion
In the annals of Indian jurisprudence, Rajesh Jain Vs. Ajay Singh[9] is a guiding star for interpreting Section 139 of the NI Act. It provides invaluable insights into the shifting of burdens, the nature of presumptions, and the evidentiary standards requisite in cases involving dishonored cheques. This landmark judgment underscores the paramount importance of a well-defined problem, as even the venerable Einstein once emphasized, and how it can mold the legal landscape.

For legal practitioners and scholars alike, dissecting such judgments is imperative, as they encapsulate legal principles at their core. Rajesh Jain Vs. Ajay Singh not only elucidates the law but also underscores the pivotal role of evidence and burdens in litigation. This case will undoubtedly continue to influence future matters involving dishonored cheques, ensuring justice is met and legal standards upheld in India's ever-evolving legal milieu.

End-Notes:

• https://www.indiacode.nic.in/show-data?actid=AC_CEN_2_33_00042_00042_1523271998701§sectionId=45718§sectionno=138&orderno=143
• http://www.scconline.com/DocumentLink/VQDH78oW
• https://www.indiacode.nic.in/show-data?actid=AC_CEN_2_33_00042_00042_1523271998701§sectionId=45719§sectionno=139&orderno=144
• https://www.indiacode.nic.in/show-data?actid=AC_CEN_5_23_000010_197402_1517807320555§sectionId=22790§sectionno=378&orderno=423
• https://main.sci.gov.in/supremecourt/2022/19374/19374_2022_8_1505_47486_Judgement_09-Oct-2023.pdf
• https://phhc.gov.in/download_file.php?auth
• https://main.sci.gov.in/supremecourt/2022/19374/19374_2022_8_1505_47486_Judgement_09-Oct-2023.pdf
• http://www.scconline.com/DocumentLink/VQDH78oW
• https://main.sci.gov.in/supremecourt/2022/19374/19374_2022_8_1505_47486_Judgement_09-Oct-2023.pdf

Written By: Bhaswat Prakash, Ajeenkya DY Patil University, Pune (B.A.LL. B)'