NI Act- Once The Presumption Under Sec.139 Is Drawn, Complainant Need Not Prove Source Of Fund Till Accused Discharges His Burden

The Supreme Court has held that once the court has drawn presumption of existence of legally enforceable debt as per Section 139 of the Negotiable Instruments Act, factors like source of funds are not relevant if the accused has not been able to rebut the presumption.

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"When such a presumption is drawn, the factors relating to the want of documentary evidence in the form of receipts or accounts or want of evidence as regards source of funds were not of relevant consideration while examining if the accused has been able to rebut the presumption or not", held the bench of Justices A M Sapre and Dinesh Maheswari while dismissing an appeal against a High Court judgment which had reversed the acquittal by trial court.

The case pertained to dishonour of 7 cheques, each issued for Rs.3 lakhs. The defence of the accused was that the cheques were not issued to the complainant, but to his friend with whom the accused had financial transactions, and that such cheques were misused by the complainant. 

The trial court drew presumption that the cheques were issued for a legally enforceable debt based on the admission of signature in cheques by the accused. The trial court however proceeded to hold that that there was no documentary evidence to show source of the amount, transaction was not reflected in records and income tax returns etc. Based on such findings, the trial court held the complainant's case to be not proved and acquitted the accused.

The Trial Court concluded that the accused was successful in bringing rebuttal evidence to the requisite level of preponderance of probabilities; and observed that the complainant had failed to prove, beyond all reasonable doubt, that the cheques were issued in part payment of the loan amount of Rs. 22,50,000/-. Hence, all the 7 complaint cases were dismissed.

On complainant's appeal against acquittal, the High Court found fault with the trial court.The High Court observed that if the transaction in question was not reflected in the accounts and income-tax returns, that would at best hold the lender liable for action under the income-tax laws but, if the complainant succeeds in showing the lending of amount, the existence of legally enforceable debt cannot be denied. 

As the High Court reversed the acquittal, the accused approached the SC. Dismissing the appeal of the accused, the SC observed :

"In the case at hand, even after purportedly drawing the presumption under Section 139 of the NI Act, the Trial Court proceeded to question the want of evidence on the part of the complainant as regards the source of funds for advancing loan to the accused and want of examination of relevant witnesses who allegedly extended him money for advancing it to the accused. This approach of the Trial Court had been at variance with the principles of presumption in law(para 17)".

Referring to Kumar Exports v Sharma Carpets (2009) 2 SCC 519, the SC said that the accused need not lead direct evidence to rebut the presumption under Section 139 NI Act and that the same can be done by way of showing lacuna in the complainant's case. However, if the accused does not bring on record any facts to offset the presumption , the court cannot doubt the complainant's case.

"After such presumption, the onus shifted to the accused and unless the accused had discharged the onus by bringing on record such facts and circumstances as to show the preponderance of probabilities tilting in his favour, any doubt on the complainant's case could not have been raised for want of evidence regarding the source of funds for advancing loan to the accused-appellant(para 17)"

The SC noted that the defence was that the complaint was filed by misusing the cheques given by the accused to a friend of the complainant. This defence was found to be weak on facts.

It may be noted that the accused himself had not advanced any case that the complainant had no capacity to advance the amounts.

In this backdrop, the SC observed :

"The observations of the Trial Court that there was no documentary evidence to show the source of funds with the respondent to advance the loan, or that the respondent did not record the transaction in the form of receipt of even kachcha notes, or that there were inconsistencies in the statement of the complainant and his witness, or that the witness of the complaint was more in know of facts etc. would have been relevant if the matter was to be examined with reference to the onus on the complaint to prove his case beyond reasonable doubt(para 19)".

But since the case was resting on presumption under Section 139 NI Act, such issues raised by the trial court were irrelevant.

"These considerations and observations do not stand in conformity with the presumption existing in favour of the complainant by virtue of Sections 118 and 139 of the NI Act", said the Court.

"Needless to reiterate that the result of such presumption is that existence of a legally enforceable debt is to be presumed in favour of the complainant. When such a presumption is drawn, the factors relating to the want of documentary evidence in the form of receipts or accounts or want of evidence as regards source of funds were not of relevant consideration while examining if the accused has been able to rebut the presumption or not", 

"The result of discussion in the foregoing paragraphs is 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". the Court went on to add.