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Key Takeaways

  • A ‘Negotiable Instruments’ may be negotiated either by promissory notes, bills of exchange, and cheques or by bank drafts, bank notes, share warrants, bearer debentures, dividend warrants, scripts and treasury bills.
  • Negotiable Instruments also have value like properties do.
  • Section 139 of the Negotiable Instruments Act, 1881 talks about the presumptions made in the favour of the holder.
  • The burden of proof is on the accused at first but if the accused is able to prove that he is innocent, then the burden of proof shifts to the respondent.
  • The accused need to present evidentiary proof in order to prove himself innocent.

Introduction Negotiable Instruments Act

The Negotiable Instruments Act was enacted in India in 1881.Prior to this Act’s enactment, the English provision for the Negotiable Instruments Act was applicable in India. The present Act is also based on the English Act and the provisions currently in place just have had some modifications made to them.

According to Section 13 of Negotiable Instruments Act, 1881- A 'negotiable Instruments' means a promissory note, bill of exchange or cheque payable either to order or to the bearer.

What Are Negotiable Instruments

There are specific types of documents used for commercial transactions and monetary dealings. Those are called negotiable instruments. The meaning of word “negotiable” means transferable from one person to another and the meaning of word “Instruments” means a written document. Thus,a negotiable instrument is a written document by which a person transfers the rights in favour of another person under the provisions of the Negotiable Instruments Act, 1881. A negotiable instrument is a document which is treated as movable property by various laws and definitions.

Since every property has some value, a negotiable instrument also has monetary value.In order to buy it, one needs to pay its worth to the owner and simply procure it as a property.

Features Of Negotiable Instruments

An instrument may be negotiated either by promissory notes, bills of exchange, and cheques or by the bank drafts, bank notes, share warrants, bearer debentures, dividend warrants, scripts and treasury bills.

An instrument can be called transferable if it is freely transferrable and the transfer is done by delivery or by endorsement and delivery.

The negotiable instrument is subject to certain presumptions.

Presumptions

  • Consideration - Every negotiable instrument has to be drawn and accepted, endorsed, negotiated, or transferred for consideration.
  • Date- Every negotiable Instruments must have the date on which it is made or drawn.
  • Acceptance- Every bill of exchange has to be accepted within a reasonable time after the date mentioned therein and before the date of its maturity.
  • Transfer- Every transfer should be made before the expiry date.

Section 139 Of The Negotiable Instruments Act, 1881

Section 139 of the Negotiable Instruments Act, 1881 states the presumption in favour of the holder. It talks about the liability of the person who has issued the cheque of a certain amount and the cheque has been dishonoured.

Such person is presumed to be guilty unless he is proved innocent in the eyes of law. The person who is accused of such an offence cannot escape just by stating that such cheque was issued for security. If the presumption of the liability is not proved on the respondent’sside, then the burden of proof shifts on the complainant. The complainant needs to prove that the cheque was issued for discharging the liability of the debt and the cheque got dishonoured.

This presumption is also governed by Section 118 A of the Evidence Act.

Landmark Judgements Under Section 139 Of The Negotiable Instruments Act, 1881

1. Basalingappa v. Mudibasappa

  • The complainant gave a notice to the accused.
  • After the non-payment of the amount, the complainant filed a case under Section 138 of the Negotiable Instruments Act, 1881.
  • The allegations in the complaint were that the accused had requested the complainant to lend a sum of Rs. 6,00,000 because of some family emergency. The complainant lent the money to the accused.
  • A cheque was issued by the accused of Rs 6,00,000. The same was returned by the bank stating “insufficient funds”.
  • The Trial Court stated that if the accused is able to raise a doubt by his defence about the existence of the legally enforceable debts or liability, then the prosecution may fail.
  • The High Court set aside the judgement given by the Trial Court and considering all the evidences and facts, held the accused liable and convicted him under Section 138 of the Negotiable Instruments Act, 1881.
  • The Supreme Court held that the accused needs to raise a probable defence and for that, it is not necessary for the accused to prove the existence of consideration by way of direct evidence or the evidences given by the complainant as false.
  • The court, after acknowledging the signature on the cheque of the accused, held that the cheque was issued for the legally enforceable liability and debt and that the onus of proof is on the accused.
  • The accused can rely on the evidences given by him and also the evidences given by the complainant to prove himself innocent. It is not necessary for him to come in the witness box and support his evidences. Section 139 of the Negotiable Instruments Act,1881 imposes an evidentiary burden and not a persuasive burden on the accused.
  • The Supreme Court then, after considering all the facts and evidences and also the accused’s other transaction, stated that it was clear that he is not in a position to pay the debt and the court questioned the complainant about the financial capacity but he was unable to answer, so the court acquitted the accused by setting aside the judgement of the High Court.

2. APS Forex Services Pvt. Ltd. v. Shakti International Fashion Linkers & Ors.

  • The accused in this case approached the complainant for issuing him foreign exchange for the sum of Rs 19,01,320/- which was paid by the complainant through VTM (visa travel money card).
  • The accused paid Rs 6,45,107/- only by leaving the balance of Rs 12,55,513/-
  • The accused issued four cheques to pay the liability and debt but all the four cheques got dishonoured.
  • The accused again issued a cheque of Rs 9,55,574/- which was again dishonoured due to “stop payment”.
  • The accused admitted in the Trial Court that he issued those cheques but the cheques were misused by the security and the complainant in order to recover the dues of the business.
  • The Trial Court and the High Court acquitted the accused.
  • The issue in this case is whether the decision of the Trial Court and the High Court of acquitting the accused is right, keeping in mind the presumptions under Section 139 of the Negotiable Instruments Act,1881.
  • The Supreme Court observed that once the cheque is issued and the signature on the cheque is also admitted, then according to Section 139 of the Negotiable Instruments Act, 1881, the presumption is always made in favour of the complainant that there is existence of the legal liability and debts and the onus of proof is on the accused. The accused needs to prove in the court that he is not guilty by turning in some evidences to supporthis statements.
  • In this case, the Supreme Court held that no such evidences have been given by the accused to prove himself innocent and the story which is put forth by the accused is not believable and also there is absence of any further evidences to rebut the presumptions under Section 139 of the Negotiable Instruments Act, 1881.
  • The accused also issued the cheque in question for a second time after the earlier cheque was dishonoured.
  • The Supreme Court held that both the Trial Court and the High Court made a mistake by shifting the burden of proof on the complainant and not appreciating the presumption in favour of the complainant.

3. Rohitbhai Jivanlal Patel v. State of Gujarat

  • In this case, the accused issued the cheque which got dishonoured and the complainant filed a case in the Trial Court to recover the amount from the accused.
  • In the Trial Court, after considering all the evidences and the facts and the claims by both the parties just by mere creation of doubt by the accused, the Trial Court acquitted him.
  • For the accused to rebut the presumptions made under Section 139 of the Negotiable Instruments Act, 1881, there should be some documentary evidence or at least some evidence in order for the accused to support his statement.
  • The Trial Court acquitted him just by the creation of doubt.
  • The High Court reversed the judgement passed by the Trial Court.
  • The case was then filed in the Supreme Court where the Supreme Court held that “the major considerations on which the Trial Court chose to proceed clearly show its fundamental error of approach where, even after drawing the presumption, it had proceeded as if the complainant was to prove his case beyond reasonable doubt. Such being the fundamental flaw on the part of the Trial Court, the High Court cannot be said to have acted illegally or having exceeded its jurisdiction in reversing the judgment of acquittal.”

4. Rangappa v. Sri Mohan

  • The appellant (accused) and the respondent (complainant) both are the residents of Karnataka. The accused was supervising the construction of the complainant’s house. The construction was to be completed in October, 1998.
  • According to the respondent, in October, 1998, the appellant requested him to lend him Rs 45,000 for completing the construction of his house, and so the respondent gave him the money in cash.
  • After receiving the money, he assured the respondent that he will pay the money till October, 1999. However, he failed to do so and requested the respondent to give him some extra time till December, 2000.
  • The accused on 8th February, 2001, issued a cheque in favour of the complainant. On the same day, the complainant went for the encashment of the cheque.
  • After some days, the bank issued a memo to the respondent stating that the “payment has been stopped by the drawer”.
  • The respondent then issued a notice to the appellant for the recovery of his money.
  • The accused failed to honour the cheque after receiving the notice and he didn’t even comply with the notice, and so the respondent filed a suit against him under Section 138 of the Negotiable Instruments Act, 1881.

Trial Court Findings

  • The accused raised the defence that the cheque was a blank cheque and that he lost the cheque and the respondent tried to misuse the cheque. He also stated that there was no legally enforceable liability or debt as he hadn’t even demanded the money from the respondent.
  • The Trial Court acquitted the accused and mentioned that during the cross examination of the complainant, he was not sure about the date when the cheque was issued.
  • The respondent said that he gave the money to the accused. It was later observed that he spent the money on the construction of his own house.
  • Also, there was no sufficient evidence to prove that the accused has taken the money from the complainant.

High Court Findings

  • The High Court reversed the judgement given by the Trial Court and held the accused liable and asked him to pay Rs 75,000/- and if he is unable to pay the sum, then he has to undergo simple imprisonment for three months.
  • The court observed that he had admitted that he had signed on the cheque and so this brings the presumption in favour of the complainant under Section 139 of the Negotiable Instruments Act, 1881.
  • The court also noted that as the accused said that his cheque was lost but when he called the bank to stop the payment, he didn’t mention anything about the lost cheque. While the cross examination was on, the accused said that the lost cheque was with the respondent. So practically he was aware where the lost cheque is. This statement thereby weakened his defence.

Supreme Court Findings

  • The Supreme Court also observed that the defence of the lost cheque is not a probable defence as he had mentioned different dates in the stop payment instructions given to the bank.
  • The court also observed that as the accused failed to comply with the legal notice under Section 138, he failed to pay the legally enforceable debts and liabilities.During the cross examination, he mentioned that he had signed the cheque because of which the presumption in favour of the complainant comes into picture. There was not enough proof to show that the accused is not guilty and to rebut the presumptions.
  • The Hon’ble Supreme Court upheld the judgement given by the High Court and held the accused liable of the offence and convicted him thereby disposing the appeal.

Conclusion

When a cheque is issued for the discharge of the liability or debts, whether wholly or partly and if the cheque gets dishonoured and it is observed by the court that the accused admits that he issued the cheque and the signature on the cheque is his, then the presumption in the favour of the complainant takes place.The court shall presume that the accused is guilty unless he gives some evidences in court to support his statement.He can even rely on the evidences given by the complainant to prove himself innocent.

The above-mentioned cases clearly show that how important the presumptions are and how the presumptions are made. It cannot be made by merely a doubt, there has to be certain evidence in order to support it. The accused is free to prove himself innocent by relying on his evidences or on the evidences presented by the complainant in the court. He is not expected to come in the witness box and give evidences to prove himself innocent but there has to be some documentary evidence.

HOPE YOU FIND THE ARTICLE INFORMATIVE

Questions

  1. What are Negotiable Instruments?
  2. What are the two main aspects after which the presumption in favour of holder comes in the picture?

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