A. Indian Evidence Act, 1872 (1 of 1872), Section 4 -- May presume – Shall Presume – Section 4 of Evidence Act inter-alia defines the words ‘may presume’ and ‘shall presume as follows:-

“(a) ‘may presume’ – Whenever it is provided by this Act that the Court may presume a fact, it may either regard such fact as proved, unless and until it is disproved or may call for proof of it.

(b) ‘shall presume’ – Whenever it is directed by this Act that the Court shall presume a fact, it shall regard such fact as proved, unless and until it is disproved.”

In the former case the Court has an 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 an option to raise the presumption and raises the presumption, the distinction between the two categories of presumptions ceases and the fact is presumed, unless and until it is disproved.

(Para 9)

B. Negotiable Instruments Act (26 of 1881), Section 118, 139 – Indian Evidence Act, 1872 (1 of 1872), Section 3 – Cheque against consideration -- Legally enforceable debt or liability – Presumption -- Rebuttal – In a trial u/s 138 of the Act a presumption will have to be made that every negotiable instrument was made or drawn for consideration and that it was executed for discharge of debt or liability once the execution of negotiable instrument is either proved or admitted -- As soon as the complainant discharges the burden to prove that the instrument, say a note, was executed by the accused, the rules of presumptions under Sections 118 and 139 of the Act help him shift the burden on the accused -- Presumptions will live, exist and survive and shall end only when the contrary is proved by the accused, that is, the cheque was not issued for consideration and in discharge of any debt or liability -- A presumption is not in itself evidence, but only makes a prima facie case for a party for whose benefit it exists.

(Para 10)

C. Negotiable Instruments Act (26 of 1881), Section 118, 138, 139 – Indian Evidence Act, 1872 (1 of 1872), Section 4 – Cheque against consideration -- Legally enforceable debt or liability – Presumption -- Rebuttal – Phrase “until the contrary is proved” read with definitions of “may presume” and “shall presume” as given in Section 4 of the Evidence Act, makes it at once clear that presumptions to be raised under both the provisions are rebuttable.

(Para 11)

D. Negotiable Instruments Act (26 of 1881), Section 118, 138, 139 – Indian Evidence Act, 1872 (1 of 1872), Section 4, 114 – Rebuttal of presumption – Accused in a trial u/s 138 of the Act has two options – He can either show that consideration and debt did not exist or that under the particular circumstances of the case the non-existence of consideration and debt is so probable that a prudent man ought to suppose that no consideration and debt existed – To rebut the statutory presumptions an accused is not expected to prove his defence beyond reasonable doubt as is expected of the complainant in a criminal trial – Court need not insist in every case that the accused should disprove the non-existence of consideration and debt by leading direct evidence because the existence of negative evidence is neither possible nor contemplated – At the same time, it is clear that bare denial of the passing of the consideration and existence of debt, apparently would not serve the purpose of the accused – Something which is probable has to be brought on record for getting the burden of proof shifted to the complainant.

-- To disprove the presumptions, the accused should bring on record such facts and circumstances, upon consideration of which, the court may either believe that the consideration and debt did not exist or their non-existence was so probable that a prudent man would under the circumstances of the case, act upon the plea that they did not exist.

-- Accused may also rely upon circumstantial evidence and if the circumstances so relied upon are compelling, the burden may likewise shift again on to the complainant – Accused may also rely upon presumptions of fact, for instance, those mentioned in Section 114 of the Evidence Act to rebut the presumptions arising under Sections 118 and 139 of the Act.

-- Accused has also an option to prove the non-existence of consideration and debt or liability either by letting in evidence or in some clear and exceptional cases, from the case set out by the complainant, that is, the averments in the complaint, the case set out in the statutory notice and evidence adduced by the complainant during the trial.

Once such rebuttal evidence is adduced and accepted by the court, having regard to all the circumstances of the case and the preponderance of probabilities, the evidential burden shifts back to the complainant and, thereafter, the presumptions under Sections 118 and 139 of the Act will not again come to the complainant’s rescue.

(Para 11)

E. Negotiable Instruments Act (26 of 1881), Section 138 -- Code of Criminal Procedure, 1973 (2 of 1974), Section 378(4), 386 -- Acquittal by trial court – Conviction in appeal by High Court – Sentence to accused -- High Court, after convicting the appellant u/s 138 of the Act, remitted the matter to the learned Magistrate for passing appropriate order of sentence – Held, this course, is unknown to law -- Powers of the Appellate Court, in an appeal from an order of acquittal, are enumerated in Section 386(a) of the Code of Criminal Procedure, 1973 -- Powers do not contemplate that an Appellate Court, after recording conviction, can remit the matter to the trial court for passing appropriate order of sentence -- Judicial function of imposing appropriate sentence can be performed only by the Appellate Court when it reverses the order of acquittal and not by any other court -- Procedure adopted by the High Court not approved.

(Para 13)

Negotiable Instruments Act, 1881 (26 of 1881), Section 138 – Cheque bounce complaint -- Cause of action – Third demand notice -- First notice having not been served and the second notice having been withdrawn in terms of the reply of appellants/ accused, the complainant cannot be said to have committed any illegality in presenting the cheque for the third time and issuing the third notice upon the defaulter -- Issuance of a valid notice calling upon the drawer of the cheque to pay the amount in question and the appellants' failure to pay to the complainant the amount in question within a period of 15 days from the date of receipt of a copy of the said notice upon them, a cause of action arose for filing a complaint petition – Held, cause of action for filing a complaint arose only once and not more than once.

(Para 33)

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 138 -- Demand Notice for payment – Mandatory in nature -- Object of – Object of the proviso is to avoid unnecessary hardship to an honest drawer -- Giving a notice to the drawer before filing complaint u/s 138 of the Act is a mandatory requirement.

(Para 6)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138 -- General Clauses Act, 1897 (10 of 1897), Section 27 -- Indian Evidence Act, 1872 (1 of 1872), Section 114 -- Demand Notice for payment – Serviced of notice -- Presumption of – Cause of action -- Where the payee dispatches the notice by registered post with correct address of the drawer of the cheque, the principle incorporated in Section 27 of the G.C. Act would be attracted -- Requirement of Clause (b) of proviso to Section 138 of the Act stands complied with and cause of action to file a complaint arises on the expiry of the period prescribed in Clause (c) of the said proviso for payment by the drawer of the cheque -- Nevertheless, it would be without prejudice to the right of the drawer to show that he had no knowledge that the notice was brought to his address.

(Para 10)

C. Negotiable Instruments Act, 1881 (26 of 1881), Section 138 -- General Clauses Act, 1897 (10 of 1897), Section 27 -- Indian Evidence Act, 1872 (1 of 1872), Section 114 – Demand Notice for payment – Service of notice – Presumption of -- Pleadings – Requirement of -- Section 27 gives rise to a presumption that service of notice has been effected when it is sent to the correct address by registered post – It is not necessary to aver in the complaint u/s 138 of the Act that service of notice was evaded by the accused or that the accused had a role to play in the return of the notice unserved -- Complaint must contain basic facts regarding the mode and manner of the issuance of notice to the drawer of the cheque.

(Para 14, 15)

D. Negotiable Instruments Act, 1881 (26 of 1881), Section 138 -- General Clauses Act, 1897 (10 of 1897), Section 27 -- Indian Evidence Act, 1872 (1 of 1872), Section 114 -- Demand Notice for payment – Service of notice – Presumption of – Rebuttal of -- At the time of taking cognizance of the complaint u/s 138 of the Act, the Court is required to be prima facie satisfied that a case under the said Section is made out and the mandatory statutory procedural requirements have been complied with -- It is then for the drawer to rebut the presumption about the service of notice and show that he had no knowledge that the notice was brought to his address or that the address mentioned on the cover was incorrect or that the letter was never tendered or that the report of the postman was incorrect.

(Para 15)

E. Negotiable Instruments Act, 1881 (26 of 1881), Section 138 -- General Clauses Act, 1897 (10 of 1897), Section 27 -- Indian Evidence Act, 1872 (1 of 1872), Section 114 -- Demand Notice for payment – Service of notice – Presumption of – Rebuttal of – Any drawer who claims that he did not receive the notice sent by post, can, within 15 days of receipt of summons from the court in respect of the complaint u/s 138 of the Act, make payment of the cheque amount and submit to the Court that he had made payment within 15 days of receipt of summons (by receiving a copy of complaint with the summons) and, therefore, the complaint is liable to be rejected -- A person who does not pay within 15 days of receipt of the summons from the Court along with the copy of the complaint u/s 138 of the Act, cannot obviously contend that there was no proper service of notice as required under Section 138, by ignoring statutory presumption to the contrary under Section 27 of the G.C. Act and Section 114 of the Evidence Act.

(Para 17)

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 141 – Cheque by company -- Incharge and responsible for conduct of business company – Pleadings as to role -- It is necessary to specifically aver in a complaint u/s 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company -- This averment is an essential requirement, without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.

(Para 1(a), 16(a))

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 141 -- Cheque by company -- Director of company – Merely being a director of a company is not sufficient to make the person liable u/s 141 of the Act -- The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time -- This has to be averred as a fact as there is no deemed liability of a director in such cases.

(Para 1(b), 16(b))

C. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 141 -- Cheque by company -- Managing Director of company -- Joint Managing Director of company – Signatory of cheque -- By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company -- Therefore, they get covered u/s 141 -- So far as signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141.

(Para 1(c), 16(c))

Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 142 -- Code of Criminal Procedure, 1973 (2 of 1974), Section 204, 239, 252, 482 -- Cheque bounce case – Cognizance by Magistrate -- Summoning of acused – Interlocutory order – Discharge/ Recalling application – Remedy of -- Once the plea of the accused is recorded u/s 252 of the Code the procedure contemplated under Chapter XX (Cr.P.C.) has to be followed which is to take the trial to its logical conclusion -- Only remedy available to an aggrieved accused to challenge an order in an interlocutory stage is the extraordinary remedy u/s 482 of the Code and not by way of an application to recall the summons or to seek discharge which is not contemplated in the trial of a summons case.

(Para 16, 17)

Negotiable Instruments Act, 1881 (26 of 1881), Section 138 -- Code of Criminal Procedure, 1973 (2 of 1974), Section 378 -- Cheque bounce case – Acquittal in -- Appellate Court’s Power --  Magistrate came to the conclusion that the complainant/respondent has not established his case -- High Court on reappreciation of the evidence, has come to a different conclusion on entirely new grounds without considering the material considered by the trial court and convicted the appellant – Held, it was the duty of the High Court to have first come to the conclusion that the conclusions arrived at by the trial court for good reasons are either unreasonable or contrary to the material on record -- In the absence of any such finding, the High Court was in error in taking a contra view merely because another view was possible on the material on record -- Impugned judgment of the High Court, set aside.

(Para 5-9)

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 6, 8, 9, 17, 85A, 138 -- Pay Order – Holder in due course -- Dishonour of pay order – Maintainability of cheque bounce complaint -- Complainant-bank was well within its right to possess the cheque and to receive or recover the amount covered by the instrument -- High Court quashed the complaint on the ground that Pay order is not cheque -- Supreme Court dissented – Appeal allowed, impugned judgment, set aside -- Trial to proceed.

(Para 2, 18, 21)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 6, 85A, 131A – Draft – Pay order – Cheque -- Section 85A deals with drafts drawn by one branch of a bank on another branch of the same bank -- Such draft is a negotiable instrument -- Section 131A makes all the provisions for crossing of cheques applicable to the drafts also.

(Para 9, 10)

C. Negotiable Instruments Act, 1881 (26 of 1881), Section 8, 9, 50, 85A, 118(g) -- Pay order – Holder in due course – Endorsement – Presumption – High Court took the view that complainant was not a holder in due course in the absence of an endorsement made on the instrument in the manner prescribed under section 50 of the Act – Held, this ground was adopted by the High Court without regard to certain relevant provisions of the Act – Complainant-company is the holder of the instrument on its own right and could be a holder in due course also until the concerned party adduces evidence to rebut the presumption -- It is open to the respondents to rebut the presumption in the trial but till then the High Court could not say that the complainant is not a holder in due course..

(Para 20-23)

Negotiable Instruments Act, 1881 (26 of 1881), Section 118, 138, 139 – Cheque bounce complaint – Presumption – Rebuttal -- Provided the facts required to form the basis of a presumption of law exists, no discretion is left with the Court but to draw the statutory conclusion, but this does not preclude the person against whom the presumption is drawn from rebutting it and proving the contrary -- Rebuttal does not have to be conclusively established but such evidence must be adduced before the Court in support of the defence that the Court must either believe the defence to exist or consider its existence to be reasonably probable, the standard of reasonability being that of the ’prudent man’.

(Para 19)

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 5 -- Bill of exchange – Bill of exchange is a negotiable instrument in writing containing an instruction to a third party to pay a stated sum of money at a designated future date or on demand.

(Para 17)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 5, 6 -- Bill of exchange – Cheque -- A ‘cheque is a bill of exchange drawn on a bank by the holder of an account payable on demand -- A ‘post-dated cheque is not payable till the date which is shown thereon arrives and will become cheque on the said date and prior to that date the same remains bill of exchange.

(Para 17)

C. Negotiable Instruments Act, 1881 (26 of 1881), Section 6, 138 – Cheque bounce complaint – Post dated cheque – For prosecuting a person for an offence u/s 138 of the Act, it is inevitable that the cheque is presented to the banker within a period of six months from the date on which it is drawn or within the period of its validity whichever is earlier – Post-dated cheque becomes a cheque within the meaning of Section 138 of the Act on the date which is written thereon -- Six months period shall be reckoned from the date mentioned on the face of the cheque and not any earlier date on which the cheque was made over by the drawer to the drawee.

(Para 18)

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 1 -- Object and purpose of NI Act -- The negotiable instruments are, in fact, the instruments of credit being convertible on account of the legality of being negotiated and thus easily passable from one hand to another. The source of Indian law relating to such instruments is admittedly the English Common Law. The main object of the Act is to legalise the system by which instruments contemplated by it could pass from hand to hand by negotiation like any other goods. The purpose of the Act was to present an orderly and authoritative statement of the leading rules of law relating to the negotiable instruments. The Act intends to legalise the system under which claims upon mercantile instruments could be equated with ordinary goods passing from hand to hand. To achieve the objective of the Act, the Legislature in its wisdom thought it proper to make provision in the Act for conferring such privileges to the mercantile instruments contemplated under it and provide special procedure in case the obligation under the instrument was not discharged.

(Para 5)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138 – Interpretation -- It has, always to be kept in mind that Section 138 of The Act creates an offence and the law relating to the penal provisions has to be interpreted strictly so that non-one can ingeniously or insidiously or guilefully or strategically be prosecuted.

(Para 5)

C. Negotiable Instruments Act, 1881 (26 of 1881), Section 5, 6 – Post dated cheque -- Bill of Exchange – Cheque -- When a post-dated cheque is written or drawn, it is only a bill of exchange -- Post-dated cheque become a cheque under the Act on the date which is written on the said cheque.

(Para 6)

D. Negotiable Instruments Act, 1881 (26 of 1881), Section 72, 138 -- Presentation of cheque -- Bank, where to present – Drawer Bank – Cheque to be presented at the bank on which it is drawn if the drawer is to be held criminally liable -- Such presentation is necessarily to be made within six months at the bank on which the cheque is drawn, whether presented personally or through another bank, namely, the collecting bank of the payee.

(Para 9)

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 141 -- Cheque by Company -- Demand notice to Director of Company – Validity of – Demand notice to Director of Company, who signed the cheque -- High Court committed error in recording a finding that there was no notice to the drawer of the cheque, as required u/s 138 of the NI Act – Held, Impugned order of the High Court is liable to be quashed.

(Para 1, 7)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 141 -- Code of Criminal Procedure, 1973 (2 of 1974), Section 482 -- Cheque by Company -- Offence by Company – Deposit of money in court – Quashing of proceedings – Permissibly of -- Once the offence is committed, any payment made subsequent thereto will not absolve the accused of the liability of criminal offence, though in the matter of awarding of sentence, it may have some effect on the Courts trying the offence -- But by no stretch of imagination, a criminal proceeding could be quashed on account of deposit of money in the Court.

(Para 8)

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 142 – Cause of action -- Pre-mature filing of complaint – Cognizance by Magistrate -- "Taking cognizance of an offence" by the Court has to be distinguished from the filing of the complaint by the complainant -- Taking cognizance would mean the action taken by the Court for initiating judicial proceedings against the offender in respect of the offence regarding which the complaint is filed – Mere presentation of the complaint in the Court cannot be held to mean that its cognizance had been taken by the Magistrate -- If the complaint is found to be pre-mature, it can await maturity or be returned to the complainant for filing later and its mere presentation at an earlier date need not necessarily render the complaint liable to be dismissed or confer any right upon the accused to absolve himself from the criminal liability for the offence committed.

(Para 8-10)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 142 – Presentation of complaint – Cognizance by Magistrate -- Complaint was returned to the complainant/ appellant on the ground that the verification was not signed by the counsel, could not be termed to be an action of the Magistrate taking cognizance within the meaning of Section 142 of the Act.

(Para 11)

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 141 – Sick Industrial Companies (Special Provisions) Act (1 of 1986), Section 22 – Code of Criminal Procedure, 1973 (2 of 1974), Section 482 – Constitution of India, Article 227 -- Dishonour of Cheque -- Prosecution of the Company/ Directors – SICA proceedings -- Maintainability of complaint u/s 138 of NI Act -- Section only creates an embargo against disposal of assets of the company for recovery of its debts -- Purpose of such an embargo is to preserve the assets of the company from being attached or sold for realisation of dues of the creditors -- Section does not bar payment of money by the company or its directors to other persons for satisfaction of their legally enforceable dues -- Section 22 SICA does not create any legal impediment for instituting and proceeding with a criminal case on the allegations of an offence u/s 138 of the NI Act against a company or its Directors.

(Para 18)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 141 – Sick Industrial Companies (Special Provisions) Act (1 of 1986), Section 22-A – Code of Criminal Procedure, 1973 (2 of 1974), Section 482 -- Constitution of India, Article 227 -- Dishonour of Cheque -- Prosecution of the Company/ Directors – Company declared Sick -- Maintainability of complaint u/s 138 of NI Act -- In a case in which the BIFR has submitted its report declaring a company as ‘sick’ and has also issued a direction u/s 22-A restraining the company or its directors not to dispose of any of its assets except with consent of the Board then the contention raised that a criminal case for the alleged offence u/s 138 NI Act cannot be instituted during the period in which the restraint order passed by the BIFR remains operative cannot be rejected outright -- Whether the contention can be accepted or not will depend on the facts and circumstances of the case -- For instance, before the date on which the cheque was drawn or before expiry of the statutory period of 15 days after notice, a restraint order of the BIFR u/s 22-A was passed against the company then it cannot be said that the offence u/s 138 NI Act was completed -- In such a case it may reasonably be said that the dishonoring of the cheque by the bank and failure to make payment of the amount by the company and/or its Directors is for reasons beyond the control of the accused -- In such circumstances it would be unjust and unfair and against the intent and purpose of the statute to hold that the Directors should be compelled to face trial in a criminal case.

(Para 19, 20)

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 138 -- Cheque bounce case – Complaint u/s 138 of NI Act – Recovery of money under cheque -- A criminal prosecution is neither for recovery of money nor for enforcement of any security etc. -- Section 138 of the NI Act is a penal provision the commission of which offence entails a conviction and sentence on proof of the guilt in a duly conducted criminal proceedings -- Once the offence u/s 138 is completed the prosecution proceedings can be initiated not for recovery of the amount covered by the cheque but for bringing the offender to the penal liability.

(Para 20)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 141, 142 – Sick Industrial Companies (Special Provisions) Act (1 of 1986), Section 22(1) –Cheque bounce case -- Prosecution of the Company/ Directors – Effect of SICA proceedings – Maintainability of Complaint u/s 138 of NI Act – Section 138 of NI Act was introduced in 1988 when SICA was already in vogue -- Parliament did not think it necessary to exclude companies falling u/s 22 of SICA from the operation thereof -- Held, if commission of the offence u/s 138 of the NI Act was completed before the commencement of proceedings u/s 22(1) of SICA there is no hurdle in any of the provisions of SICA against the maintainability and prosecution of a criminal complaint duly instituted u/s 142 of the NI Act.

(Para 21, 22)

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 138 – Cheque bounce case -- Demand notice for payment – Additional claim in demand notice -- Effect of – If in a notice any other sum is indicated in addition to the cheque amount the notice cannot be faulted.

(Para 10)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 139 – Cheque bounce case – Presumption -- Additional claim in demand notice -- Presumption u/s 139 of NI Act would arise only in respect of the cheque amount -- Regarding other claims, a civil suit would be necessary.

(Para 10-13)