Case Study: M.S. Narayana Menon v. State of Kerala

By Yousuf Khan 10 Minutes Read

“Presumption under Section 139 of the Negotiable Instruments Act, 1881 is rebuttable and does not require the accused to disprove liability beyond a reasonable doubt.”

Citation: (2006) 6 SCC 39

Date of Judgment: 25^th July, 2006

Court: Supreme Court of India

Bench: S.B. Sinha(J), P.P. Naolekar(J)

Facts

• The appellant, M.S. Narayana Menon, issued a cheque for ₹2,00,000 to the respondent, Mr. Mathew, as part of what was claimed to be a commercial transaction.
  The cheque was presented to the bank, but it was dishonored due to insufficient funds in Menon’s account.
• Mr. Mathew initiated proceedings under Section 138, contending that the cheque was issued in discharge of a legally enforceable debt, and hence, Menon was liable for the dishonor under the Act.
• Menon argued that the cheque was issued as an advance for a transaction that did not materialize, and thus, no legally enforceable debt existed at the time of issuance. He contended that since the underlying transaction fell through, Section 138 could not be invoked against him.
• Menon was convicted, and he preferred an appeal to the Supreme Court, challenging the presumption of liability under Section 139 of the Negotiable Instruments Act.

Decision of the trial court

The Trial Court convicted the appellant under Section 138 of the Negotiable Instruments Act, concluding that the appellant had failed to rebut the presumption of liability under Section 139 of the Act. The court accepted the respondent’s claim that the cheque was issued for an outstanding liability, sentencing the appellant to rigorous imprisonment for one year.

Decision of the High Court

The appellate court overturned the trial court’s decision, accepting the appellant’s version that the cheque was issued as security rather than for discharge of any liability.

However, the High Court of Kerala later reinstated the Trial Court’s judgment, holding that the presumption under Section 139 was not effectively rebutted and that the appellant was liable under Section 138 of the NI Act.

Decision of the Supreme Court

The Supreme Court, in its judgment delivered on July 25, 2006, addressed the interpretation of Section 139 of the Negotiable Instruments Act, 1881. The Court emphasized that the presumption created by Section 139 is rebuttable. The Supreme Court held that the standard of proof required by the accused to rebut the presumption under Section 139 is not as stringent as the standard required for proving guilt beyond a reasonable doubt. It is sufficient if the accused can raise a probable defense that creates doubt about the existence of a legally enforceable debt or liability.

Section 139 creates a presumption in favor of the holder of the cheque that it was issued for the discharge of a legally enforceable debt. However, this presumption is not absolute and can be rebutted by the accused by raising a probable defense.

The Court clarified that the burden of proof on the accused is not as stringent as the burden on the prosecution. The accused is only required to establish a credible defense that tilts the balance of probabilities in their favor.

After examining the evidence, the Supreme Court found that the appellant had successfully rebutted the presumption. The cheque was issued as an advance for a transaction that did not materialize, and thus, the complainant failed to prove the existence of a legally enforceable debt at the time the cheque was issued.

The Supreme Court acquitted the appellant, overturning the decisions of the lower courts.

Key Legal Issues addressed by the Court

1. Whether the presumption under Section 139 of the Negotiable Instruments Act is absolute or rebuttable?

Rebuttable

The Court clarified that while the law assumes the cheque was issued for the discharge of a debt or liability, the accused can challenge this presumption by raising a credible defense that creates doubt about the existence of a legally enforceable debt.

Referring to the Paragraph 27 of the Judgement, “In view of the aforementioned backdrop of events, the questions of law which had been raised before us will have to be considered. Before we advert to the said questions, we may notice the provisions of Sections 118(a) and 139 of the Act which read as under: (The court then referred to the Sections 118(a) and 139 of the Act and held as under): Presumptions both under Sections 118(a) and 139 of the Act are rebuttable in nature.”

The Court emphasized that the mere issuance of a cheque does not automatically confirm the existence of a legally enforceable debt. The accused can rebut this presumption by bringing forth facts or evidence that show a likelihood that the cheque was not issued for a debt but for another purpose, such as being held as security or issued for an advance. This shifts the burden back to the complainant to prove the debt.

2. Whether the accused must disprove the presumption beyond a reasonable doubt?

No

The Court noted that the accused only needs to establish a probable defense, thereby shifting the balance of probabilities in their favor. The prosecution, on the other hand, must still prove their case beyond a reasonable doubt. The Supreme Court found that the appellant had successfully rebutted the presumption.

The court remarked in Para 47, “It is well established that where the burden of an issue lies upon the accused, he is not required to discharge that burden by leading evidence to prove his case beyond a reasonable doubt.”

The appellant provided a plausible explanation that the cheque was issued as an advance for a commercial transaction that did not materialize. The complainant failed to demonstrate that a legally enforceable debt existed at the time the cheque was issued, leading to the appellant’s acquittal.

Referring to the reasoning made in Para 29 to 32, 38, 45 – Although the statute places the burden on the accused in terms of Section 139 of the Act to prove to the contrary, the standard of proof expected of him is “preponderance of probabilities”. Therefore, the accused need not disprove the prosecution case in its entirety. That standard has been held to be discharged if the accused can bring on record relevant material which makes the prosecution case reasonably doubtful.

3. Whether the lower courts erred in convicting the appellant based solely on the presumption under Section 139?

Yes

The lower courts had convicted the appellant without fully considering his defense. The Supreme Court corrected this by acknowledging the appellant’s defense and finding that the complainant had not met the burden of proof to establish the existence of a legally enforceable debt.

The Supreme Court found that the lower courts wrongly convicted the appellant by relying solely on the presumption under Section 139 without adequately considering the appellant’s defense. The presumption under Section 139 shifts the burden to the accused, but it does not eliminate the prosecution’s duty to prove the existence of a legally enforceable debt. In this case, the lower courts failed to acknowledge that the appellant had presented a reasonable defense, which should have shifted the burden back to the complainant.

Yousuf Khan