# M.S. NARAYANAN MENON @ MANI v. STATE OF KERALA AND ANR

- **Citation:** [2006] Supp. 3 S.C.R. 124
- **Court:** Supreme Court of India
- **Decided:** 2006-07-04
- **Case number:** Cirminal Appeal No. 1012 of 1999
- **Bench:** S.B. Sinha, P.P. Naolekar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-narayanan-menon-mani-v-state-of-kerala-and-anr-21325
- **Pages:** 23

## Headnote

Negotiable Instruments Act; Ss. l/8(a), 138 and 139:
Dishonour of a Cheque-Complaint-Notice-Trial Court found accusedC share-broker guilty of committing offence under Section 138 of the ActReversed by the first Appellate Court-Appeal against allowed by High Courton appeal, Held: A member of Stock Exchange is required to maintain books
of accounts in a particular manner-The accused did not maintain statutOly
books of account in terms of bye-laws of the Stock Exchange and also did not
D produce the same before the Court-The Cheque in question was allegedly
issued by the accused in discharge of his debt-Thus, liability arose in terms
of that transaction-Under the circumstances, accused required only to
discharge initial onus of proof, he need not require to disprove the case of the
prosecution-Onus on the accused is not as heavy as that on the prosecutionEvidence adduced by the parties before the trial Court concludes that the
E accused had discharged his initial burden but the complainant had not been
able to prove his case-The accused clearly stated that the Cheque was issued
by him by way of security and not in discharge of debt-The statement accepted
as probable-Thus the Cheque in question cannot be held to have been issued
in discharge of the debt-Hence, provisions of Section 138 of the Act not
F attracted-Evidence Act, 1872--Ss. 3 and 4 .
G
H
.Jurisdiction of High Court:
Revisional!Appellate jurisdiction of the High Court-Exercise a/-
Discussed
The Appellant used to carrY, on transactions in shares through the
Second Respondent, a membt~r of Stock Exchange. They have been on
business terms for some time. Allegedly, a sum of Rs. 3,00,033/-was due
to the second respondent from the Appellant in relation to the said -
transactions. The Appellant allegedly paid a sum of Rs. 5000/- in cash and
124
M.S. NARAYANAN MENON@ MANI v. ST A TE OF KERALA
125
issued another Cheque drawn on Vijaya Bank for the balance amount. A
When the Cheque was presented for encashment through the same banker,
it was dishonoured as the funds in the account of the Appellant were found
to be insufficient. A complaint petition was filed by the Second Respondent
against the Appellant purported to be for commission of an offence under
Section 138 of the Negotiable Instruments Act. A notice was issued to him. B
His defence was that the first Cheque was a blank Cheque given by him
to Respondent No. 2 by way of security. The second Cheque was issued
later and the same had been given for the purpose of discounting.
The Trial Court held that the Appellant had failed to discharge the
onus placed on him in terms of Section 139 of the Act. A verdict of guilt C
was recorded against the Appellant. He was sentenced to undergo rigorous
imprisonment for one year. On an appeal preferred thereagainst by the
Appellant, the judgment of conviction and sentence was set aside by the
appellate Court. However, appeal against the order of the appellate Court
was allowed by the High Court. Hence the present appeal.
D
Appellant contended that the Trial Court and the High Court
misconstrued and misinterpreted Section 139 of the Act and furthermore
failed to take into consideration the principle of law that once the accused
discharges the initial burden placed on him, the burden of proof would
revert back to the prosecution; and that the High Court acted illegally
and without jurisdiction in arriving at the finding that it was for the E
accused to prove his innocence by adducing positive evidence for rebutting
the statutory presumption that he had not received the Cheque of the r
na~ure referred to under Section 138 of the Act for the discharge, in whole
or in part, of any debt or other liability.
F
Respondent submitted that the Appellant did not dispute the
statement of accounts in relation to the transactions and he had also
acknowledged his liability in relation to some of the transactions and the
dispute being only in relation to the quantum of debt; and that statutory
presumption

## Text

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A
B
M.S. NARAYANAN MENON @ MANI
v.
STATE OF KERALA AND ANR.
JULY 4, 2006
[S.B. SINHA AND P.P. NAOLEKAR, JJ.]
Negotiable Instruments Act; Ss. l/8(a), 138 and 139:
Dishonour of a Cheque-Complaint-Notice-Trial Court found accusedC share-broker guilty of committing offence under Section 138 of the ActReversed by the first Appellate Court-Appeal against allowed by High Courton appeal, Held: A member of Stock Exchange is required to maintain books
of accounts in a particular manner-The accused did not maintain statutOly
books of account in terms of bye-laws of the Stock Exchange and also did not
D produce the same before the Court-The Cheque in question was allegedly
issued by the accused in discharge of his debt-Thus, liability arose in terms
of that transaction-Under the circumstances, accused required only to
discharge initial onus of proof, he need not require to disprove the case of the
prosecution-Onus on the accused is not as heavy as that on the prosecutionEvidence adduced by the parties before the trial Court concludes that the
E accused had discharged his initial burden but the complainant had not been
able to prove his case-The accused clearly stated that the Cheque was issued
by him by way of security and not in discharge of debt-The statement accepted
as probable-Thus the Cheque in question cannot be held to have been issued
in discharge of the debt-Hence, provisions of Section 138 of the Act not
F attracted-Evidence Act, 1872--Ss. 3 and 4 .
G
H
.Jurisdiction of High Court:
Revisional!Appellate jurisdiction of the High Court-Exercise a/-
Discussed
The Appellant used to carrY, on transactions in shares through the
Second Respondent, a membt~r of Stock Exchange. They have been on
business terms for some time. Allegedly, a sum of Rs. 3,00,033/-was due
to the second respondent from the Appellant in relation to the said -
transactions. The Appellant allegedly paid a sum of Rs. 5000/- in cash and
124
M.S. NARAYANAN MENON@ MANI v. ST A TE OF KERALA
125
issued another Cheque drawn on Vijaya Bank for the balance amount. A
When the Cheque was presented for encashment through the same banker,
it was dishonoured as the funds in the account of the Appellant were found
to be insufficient. A complaint petition was filed by the Second Respondent
against the Appellant purported to be for commission of an offence under
Section 138 of the Negotiable Instruments Act. A notice was issued to him. B
His defence was that the first Cheque was a blank Cheque given by him
to Respondent No. 2 by way of security. The second Cheque was issued
later and the same had been given for the purpose of discounting.
The Trial Court held that the Appellant had failed to discharge the
onus placed on him in terms of Section 139 of the Act. A verdict of guilt C
was recorded against the Appellant. He was sentenced to undergo rigorous
imprisonment for one year. On an appeal preferred thereagainst by the
Appellant, the judgment of conviction and sentence was set aside by the
appellate Court. However, appeal against the order of the appellate Court
was allowed by the High Court. Hence the present appeal.
D
Appellant contended that the Trial Court and the High Court
misconstrued and misinterpreted Section 139 of the Act and furthermore
failed to take into consideration the principle of law that once the accused
discharges the initial burden placed on him, the burden of proof would
revert back to the prosecution; and that the High Court acted illegally
and without jurisdiction in arriving at the finding that it was for the E
accused to prove his innocence by adducing positive evidence for rebutting
the statutory presumption that he had not received the Cheque of the r
na~ure referred to under Section 138 of the Act for the discharge, in whole
or in part, of any debt or other liability.
F
Respondent submitted that the Appellant did not dispute the
statement of accounts in relation to the transactions and he had also
acknowledged his liability in relation to some of the transactions and the
dispute being only in relation to the quantum of debt; and that statutory
presumption in terms of Section 139 of the Act although is a rebuttable
one, the question will have to be determined upon taking into consideration G
another presumption drawn in terms ofSection 118(a) thereof.
Allowing the appeal, the Court
HELD: I. I. The High Court, in view of the findings of fact arrived
at by the appellate court committed a manifest error in reversing the H
126
SUPREME COURT REPORTS [2006) SUPP. 3 S.C.R.
A judgment of the first appellate Court. The Second Respondent evidently
had not be1~n able to explain th1~ discrepancies in his books of accounts. If
except putting a suggestion to the witness, the Second Respondent has not
been able to bring on records ~my material to show that the parties had
any transactions other than those which had been entered into through
the Stock Exchange, the explanation of the accused could not have been
B thrown over board. The High Court has furthermore committed a manifest
error of record in arriving at a finding that the Appellant himself or
through his agent has acknowledged as correct the statements of accounts.
Admittedly there had been no acknowledgement in respect of five
statements of accounts. In view of the said error of record, the findings of
C the High Court to the effect that the Appellant had not been able to
substantiate his contention as regard the correctness of the accounts, must
be rejected. 1136-C-D-E-Fl
t.2. The Court shall presume a negotiable instrument to be for
consideration unless and until after considering the matter before it, it
D either believes that the consideration does not exist or considers the nonexistence of the consideration so probable that a prudent man ought, under
the circumstances of the particular case, to act upon the supposition that
the consideration does not exist. For rebutting such presumption, what is
needed is to raise a probable defence. Even for the said purpose, the
E evidence adduced on behalf of the complainant could be relied upon. It is
not necessary for the defendant to disprove the existence of consideration
by way of direct evidence. 1138-B-C; 139-A)
'
F
Bharat Barrel & Drum Manufacturing Company v. Amin Chand
Payre/al, 119991 3 SCC 35, relied on.
1.3. The standard of proof evidently is pre-ponderance of
probabilities. Inference of pre-pond'.erance of probabilities can be drawn
not only from the materials on records but also by reference to the
circumstances upon which he relies .. 1139-B)
G
1.4. Presumption drawn under a statute has only an evidentiary
value. Presumptions are raised in terms of the Evidence Act. Presumption
drawn in respect of one fact may be an evidence even for the purpose of
drawing presumption under another. 1139-CJ
2.1. The complainant was a member of a Stock Exchange. The
H transactions in relation to the Stock Exchange are regulated by the statutes
~.
... ,
M.S. NARAYANAN MENON@ MANI v. STATE OF KERALA
127
and statutory rules. If in terms of the provisions of a statute, a member A
of a Stock Exchange is required to maintain books of accounts in a
particular manner, he would be required to do so, as non-compliance of
the mandatory provisions of the Rules may entail punishment. Both parties
would have to rely upon one another. For the said purpose, the courts of
law may also take judicial notice of the practice prevailing in such business. B
The Appellate Judge rightly did so. 1139-D-EI
2.2. The definite case of the complainant was that the Cheque was
issued by the accused in discharge of his debt. The said liability by way of
debt arose in terms of the transactions. For proving these transactions,
the Second Respondent filed books of accounts. The books of accounts C
maintained by the complainant were found to be not reflecting the correct
state of affairs. 1139-FI
2.3. Two adverse inferences in the instant case liable to be drawn
against the complainant are:
(i) He deliberately has not produced his books of accounts.
(ii) He had not been maintaining the statutory books of accounts and
other registers in terms of the bye-laws of Cochin Stock Exchange.
D
Moreover, the onus on an accused is not as heavy as that of the E
prosecution. It may be compared with a defendant in a civil proceeding.
(143-F-GI
Hiten P. Dalal v. Bratindranath Banerjee, (200116 SCC 16; Goaplast
(P) Ltd. v. Chicd Ursula D'Souza and Anr., (20031 3 SCC 232; Harbhajan
Singh v. State of Punjab and Anr., AIR (1966) SC 97; V.D. Jhingan v. State F
of Uttar Pradesh, AIR (1966) SC 1762; State of Maharashtra v. Wasudeo
Ramchandra Kaidalwar, AIR (1981) SC 1186 and The State through the Delhi
Administration v. Sanjay Gandhi, AIR (1978) SC 961, referred to.
3.1. It was for the accused only to discharge initial onus of proof. G
He was not necessarily required to disprove the prosecution case. Whether
in the given facts and circumstances of a case, the initial burden has been
discharged by an accused would be a question of fact. It was matter
relating to appreciation of evidence. The High Court in its impugned
judgment did not point out any error on the part of the appellate court in
that behalf. (139-G-HI
H
SUPREME COURT REPORTS (2006] SUPP. 3 S.C.R.
A
G. Vasu v. Syed Yaseen Sifuddin Quadri, AIR (1987) AP 139, referred
to.
3.2 .. If for the purpose of a civil litigation, the defendant may not
adduce any evidence to discharge the initial burden placed on him, a
'fortiori' even an accused neE,d not enter into the witness box and examine
B other witnesses in support of his defence. He, it will bear repetition to state,
need not disprove the prosecution case in its entirety as has been held by
the High Court. A presump1tion is a legal or factual assumption drawn
from the existence of certain facts. (141-B-C]
C
Advanced Law Lexicon, 3rd edition, at page 3697 by P. Ramanatha
A iyar, referred to.
3.3. The evidences adduced by the parties before the trial court lead
to one conclusion that the accused had been able to discharge his initial
burden. The burden thereafter shifted to the complainant to prove his case.
D He failed to do so. The submission of the complainant that the accused
had not denied his entire res:ponsibility and the dispute relating only to
the quantum of debt cannot be accepted. The accused clearly said that
nothing is due and the Cheque was issued by way of security. The defence
has been accepted as probable. If thi? defence is acceptable as probable
E the Cheque therefor cannot be held to have been issued in discharge of
the debt and the same would not come within the purview of Section 138
of the Act. (145-D-E-F]
4. In any event the High Court entertained an appeal treating it to
be an appeal against ~cquittal, it was in fact exercising the revisional
p jurisdiction. Even while exercising an appellate power against a judgment
of acquittal, the High Court should have borne in mind the well-settled
principles of law that where two views are possible, the appellate Court
should not interfere with the finding of acquittal recorded by the Court
below. (145-H; 146-A(
G
CRIMINAL APPELLATE JURISDICTION: Cirminal Appeal No. 1012
of 1999.
From the Judgment dated 24.5.1999 of the High Court ofKerala in Cr!.
Appeal No. 145/1996.
H
L. Nageswara Rao and C.K. Sasi for the Appellant.
-
M.S. NARAYANAN MENON@ MANI v. STATE OF KERA LA [SINHA, J.) J 29
E.M.S. Anam, M.K. Sreegesh and K.R. Sasiprabhu for the Respondents. A
·:'he Judgment of the Court was delivered by
S.B. SINHA, J. The Second Respondent was a member of the Cochin
Stock Exchange. The Appellant used to carry on transactions in shares through
the Second Respondent in the said Stock Exchange. They have been on B
business terms for some time. A complaint petition was filed on 19. 11.1992
by the Second Respondent herein against the Appellant purported to be for
commission of an offence under Section 138 of the Negotiable Instruments
Act (for short "the Act"), on the following allegations:
The Second Respondent had been carrying on business of stock and C
share brokers under the name and style of"Midhu and Midhun's Co.". It is
a sole proprietory concern. The Appellant also used to do transactions in
shares through him in his capacity as a share broker. It has not been disputed
that the Appellant had closed the account and, thus, when the cheque in
question being dated 31.7. 1992 (Ex. P-1) drawn on Ernakulam Banerji Road D
branch of the Syndicate Bank, was presented for encashment by the
complainant through his bankers, namely, the Cochin Stock Exchange
Extension Counter of the Syndicate Bank, it was returned on 4.8.1982 with
the remarks "account closed".
Allegedly, a sum of Rs. 3,00,033/- was, thus, owing and due to him E
from the Appellant in relation to the said transactions. The Appellant is said
to have paid a sum of Rs. 5000/- in cash and issued another cheque being
dated 17.8.1992 drawn on Ernakulam Broadway Branch of the Vijaya Bank
for a sum of Rs. 2,95,033/-. The said cheque being Exhibit P-3 was presented
for encashment on 18.8. 1992 through the same bankers, but it was dishonoured
on 19.8. 1992 as the funds in the account of the Appellant were found to be F
insufficient.
A notice was issued by the complainant on 27.8.1992 informing the
Appellant about the dishonour of the said cheque. He sent a reply to the said
notice. The defence of the Appellant had been that the first cheque was a G
blank cheque given by him to Respondent No. 2 by way of security. The
second cheque was issued in February, 1992 and the same had been given for
the purpose of discounting.
The Respondent is said to have not issued any contract note pertaining
to the transactions the Appellant had with him.
H
130
SUPREME COURT REPORTS [2006) SUPP. 3 S.C.R.
A
At the trial, Respondent No. 2 has examined five witnesses including
himself. The Appellant examined three witnesses. Respondent No. 2, however,
did not produce the original books of accounts in order to prove the transactions
he had with the Appellant.
The prosecution of the Appellant was confined to the dishonour of the
B cheque dated 17 .8.1992 only.
In the said proceedings, the Appellant herein raised a plea that the
Respondent No. 2 was in din~ financial assistance and a cheque for a sum of
Rs. 2,95,033/- was given by way of loan so as to enable him to tide over his
difficulties. He also adduced his evidence before the Trial Court. The Trial
C Court in its judgment dated 15.7.1994 opined that the Appellant herein had
failed to discharge the onus placed on him in terms of Section 139 of the Act
stating:
D
E
F
"To the evidence adduced in this case, I have to hold that the accused
failed tc rebut the presumptions available to Ext. p3 cheque. The case
of P.W.1 that the ch~que was issued by the accused on the date
mentioned thi:!rein for discharging a liability due to him, is supported
by Ext. 02 to 09. The case of the complainant that the accused paid
Rs. 5,000/- and thereafter he issued Ext. P3 cheque, is only to be
accepted under this circumstance. I find that the cheque was issued
by the accused for discharging a liability legally due to the
complainant, point answered accordingly."
A verdict of guilt against the Appellant under Section 138 of the Act
on the basis of the said findings was recorded. He was sentenced to undergo
rigorous imprisonment for one year.
On an appeal preferred thereagainst by the Appellant herein, the said
judgment of conviction and sentence was, however, set aside. The appellate
court analysed the evidences on records in great details and concluded that
explanation offered by the Appellant was more probable.
G
The complainant, however, aggrieved by and dissatisfied therewith filed
a criminal appeal before the High Court which has been allowed by reason
of a judgment dated 24.5.1999 which is impugned herein.
Submission of Mr. L. Nag;eswara Rao, learned senior counsel appearing
H on behalf of th'.! Appellant is that the Trial Court and the High Court
M.S. NARAYANAN MENON @MANI v. ST A TE OF KERALA [SINHA, J.] 131
misconstrued and misinterpreted Section 139 of the Act and furthermore A
failed to take into consideration the principle of law that once the accused
discharges the initial burden placed on him, the burden of proof would revert
back to the prosecution.
The High Court, according to the learned counsel, acted illegally and
without jurisdiction in arriving at the finding that it was for the accused to B
prove his innocence by adducing positive evidence for rebutting the statutory
presumption that he had not received the cheque of the nature referred to
under Section 138 of the Act for the discharge, in whole or in part, of any
debt or other liability.
Mr. E.M.S. Anam, learned counsel appearing on behalf of the
Respondent, on the other hand, argued that statutory presumption raised to
the effect that an accused in terms of Section 139 of the Act although is a
rebuttable one, the question will have to be determined upon taking into
consideration another presumption drawn in terms of Section I 18(a) thereof.
c
D
According to the learned counsel, the Appellant did not dispute the
statement of accounts in relation to certain transactions. He had also
acknowledged his liability in relation to some of the transactions. In that
view of the matter, it was urged, that the dispute being only in relation to the
quantum of debt, the impugned judgment of the High Court must be sustained
against the Appellant as he rebutted the presumption arising against him E
under Section !J8(a) read with Section 139 of the Act.
Before adverting to the propositions of law adverted to by the learned
counsel, we may notice certain broad facts.
Issuance of three cheques being Ex. P-1, 2 and 3 by the Appellant is F
not in dispute. One of the cheques being Exhibit P-1, according to the accused,
however, was a blank one.
Cochin Stock Exchange has been constituted under the Securities
Contracts (Regulation) Act, 1956. It is governed by the provisions of the
Securities and Exchange Board of India Act, 1992 as also the Securities G
Contracts (Regulation) Rules, 1957 framed under the 1956 Act.
The transactions carried out by the brokers in the Cochin Stock Exchange
are governed by the bye-laws framed by it as also the regulations made under
the provisions of the aforementioned Act. Indisputably, dealings in the stock H
132
SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.
A exchange are governed by the bye-laws made under the statute which were
marked as Exhibit D-15 in terms whereof inter alia trading sessions, meaning
thereby, meetings of the m1:mbers of the Cochin Stock Exchange must be
held on the floor of the Exchange itself; entry wherefor is restricted only to
its members. All transactions by the investors and speculators must be made
B through the members of the Exchange. Whereas the Second Respondent was
a member of the Stock Exchange, the Appellant was not. They belong to
different districts in the State of Kerala. Indisputably, the Appellant had been
taking the services of the Second R~spondent for transacting his business of
purchase and sale of shares.
c
All bargains on securities carried on for a period of 14 days is known
as settlement. A statemrnt of accounts is furnished by a broker to the investor
in prescribed form being Form A together with a contract note. The contract
note contains accounts of the securities purchased or sold, its quantity, rate
as also the date of transaction. The same is issued so as to enable an investor
to compare the entries in the: contract note with those made in the statement
D of accounts enabling him to confirm or deny the particulars contained therein.
The dispute between the parties appears to be covered by settlement Nos. 15
to 22 during the years 1991-92. The Second Respondent in his evidence
admitted that Exhibits D-2 to D-9 corresponded to P-10 series which pertained
to settlement Nos. 15/91 to 22/92 showing transactions entered into by and
E between him and the Appellant for a sum of Rs. 3,00,033/-.
According to the Appellant, Exhibits D-2 to D-9 did not reflect the
correct accounts of the transactions and the entries made therein are false.
His further plea was that the date of the cheque (being Exhibit P-3) was not
in his own handwriting which had been issued to the complainant so as to
p enable him to facilitate the complainant to discount the same and overcome
his economic exigencies.
The learned appellate court noticed that it had been accepted that if
Exhibits D-2 to D-9 accounts. corresponding to Exhibit P-10 series cannot be
relied on as true and correct accounts incorporating the particulars of various
G transactions, the complainant'~ case will fall to the ground as the story of
issuance of the cheque by the Appellant could not have been founded
thereupon. As regards the contention of the Second Respondent that the
Appellant was estopped and precluded from disputing the correctness of
Exhibit P-10 series as he having accepted and acknowledged the correctness
H thereof, it was held:
M.S. NARAYANAN MENON @MANI v. STATE OF KERALA (SINHA, .l.] J 33
" ... On a close scrutiny I am of the view that the said contention on A
behalf of PW I cannot be accepted. In the case of the statement of
accounts dated 24-1-1992, 7-2-1992 and 21-2-1992 in Ext. Pl 0 series
pertaining to the 20th, 21st and 22nd settlements (corresponding to
Exts. 07 to 09) there is an endorsement on the reverse to the effect
that those accounts were received and accepted by the accused. But,
there is no such endorsement in the case of the statement of accounts B
dated 8-11-1991, 22-11-1991, 6-12-1991, 20-12-1991and10-1-1992
pertaining to the 15th, 16th, 17th, 18th and 19th settlements
corresponding to Exts. 02 to 06. That apart, ifExts. 02 to 09 accounts
corresponding to Ext. PI 0 series are true then all the transactions
entered therein should find a place in Ext. D 11 series of accounts C
maintained by the Cochin Stock Exchange. With regard to Ext. DI 1
series of accounts there is no quarrel that the same are the officially
maintained accounts prepared after every settlement the transactions
of which are fed in to the computer by means of memos of
confirmation like Ext. 01 memo. A comparison of Ext. PIO series of
accounts with Ext. D 11 series of officially approved accounts will D
show that transactions worth Rs. 14,63,555/- entered in Ext. 010
series go unaccounted in Ext. D 11 series. This is not a small figure
to be lightly ignored. There is no dispute that the column pertaining
to contract number in Ext. PIO series of accounts is left blank both
in the case of purchases as well as sales of shares. The specific case E
of the accused is that PWI was not giving him copies of the contract
notes pertaining to the transactions by which he had purchased and
sold shares on behalfof the accused. The above version of the accused
is probabilised by the blank columns regarding the contract number
in Ext. PIO series. If, as asserted by PWl he had been promptly
giving contract notes to the accused, then the relevant columns in
Ext. PI 0 series for entering the contract note number would have
been filled up. Moreover, except the bald statements of PWI that he
is having in his possession carbon copies of the contract notes issued
F
to the accused, there has been absolutely no gesture on his part to
produce them before court. Without comparing the statement of G
accounts with the relevant contract note it is impossible for the accused
or any speculator for that matter, to either confirm or deny the entries
in the statement of accounts .... "
Admission or acknowledgement of three out of eight statements of
accounts by the Appellant, the learned appellate court opined, by itself would H
134
SUPREME COURT REPORTS (2006] SUPP. 3 S.C.R.
A not be sufficient to invoke the principle of estoppel. The appellate court
noticed that the parties came to know each other personally at the Cochin
Stock Exchange and till the fifteen settlements they did not meet. It was
further found that before such acquaintance ripened into thick business relations
some security from the Appellant was sought for by the Second Respondent
B by way of abundant caution wherefor only according to the Appellant a blank
cheque was given. The court having regard to the facts and circumstances of
this case, came to the conclusion that the said version of the Appellant is
quite credible and probable. In doing so, the business practice that some
security is always asked for in similar transaction was noticed.
C
The appellate court further held that the stand of the Appellant was
corroborated by the Assistant Secretary of the Cochin Stock Exchange as he
had categorically stated that the members could carry on business in
transactions within the Exchange itself. It was noticed that the said witness
categorically stated that all its members were required to maintain prescribed
books of accounts for a period of five years but the Second Respondent
D herein clearly and in unequivocal terms admitted that he had not been
maintaining the prescribed books of accounts including register of transactions,
general ledger, clients' ledger,, journals and documents register showing full
particulars of shares and securities received and delivered. In the
aforementioned situation, it was held that when Exhibit P-10 series of the
E statement of accounts which were not traceable to any statutory rules would
not have any probative value particularly when D-11 series of statement of
accounts officially maintained by the Cochin Stock Exchange contained vital
omissions in regard to transactions to the tune of Rs. 14 lakhs. Furthermore,
the books of accounts having not been kept in the ordinary course of business
were not admissible in evidence and, thus, the genuineness thereof was open
F to question. The learned Judge further came to the conclusion that the Second
Respondent had not been able to prove that the discrepancies could be
explained away lJS has been sought to be done by the Second Respondent
when there were some other transactions which did not pertain to the Cochin
Stock Exchange particularly when the Appellant had denied or disputed the
G same categorically stating that apart from the transactions in the Cochin
Stock Exchange, the Second Respondent had never been engaged by him for
purchasing or selling shares from other Stock Exchanges. The court further
noticed that even a suggestion had been put on behalf of the Second
Respondent to the Appellant while he W!!S being examined as DW-5 that it
was because brokerage, value of application forms and other transactions
H outside the Cochin Stock Exchange which are not included in D-11 series,
M.S.NARAYANANMENON@MANI v. STATEOFKERALA (SINHA,J.] )35
--
those settlements did not tally with Exhibit P-10 series. Significantly it was A
held:
" ... When PWI himself does not have such a case either in his oral
evidence or in the averments in his complaint, the explanation for the
wide discrepancy between Ext. PIO series and Ext. DI I series could
have been offered by the defence. The trial Magistrate could explain B
away the above discrepancy by observing that there are certain
variations. In the first place it was not open to the defence to put
forward such an explanation which the complainant himself does not
have either in his written complaint or in his testimony. Secondly, the
discrepancy in figures runs into more than 14 lakhs of rupees. DW4, c
the Executive Director of Cochin Stock Exchange has credibly deposed
before Court that a member of one exchange cannot transact out~ide
the floor of the exchange and if one enters into any such transaction
which is called "kerb transaction", he has to report the same to the
exchange of which he is a member. PWI has no case that he has
reported any of the kerb transactions entered into by him to the Cochin D
Stock Exchange. Ext. D 11 series of statement of accounts maintained
by the Cochin Stock Exchange does not contain any of those kerb
transactions. When PW I was admittedly engaged by the accused for
purchasing and selling shares from the Cochin Stock Exchange only,
Ext. PI 0 series of accounts which include kerb transactions entered E
into by PWI outside the floor of the Cochin Stock Exchange cannot
be put against the accused to prove any liability. Even according to
PW! his commission (that is, brokerage) ranges only from 0.25% to
0.75%. The accused examined as DW5 has asserted that even if
brokerage was included in Ext. D 11 statement of accounts maintained
by the Cochin Stock Exchange still the said accounts will not tally F
with Ext. PIO series of accounts. As for the value of application
forms, the same comes to only 2 rupees and this cannot tilt the balance
to the tune of 14 and odd lakhs of rupees ... "
The High Court on the contrary did not go into the said contentions at
all. It proceeded on the basis that the scope and ambit of the evidence to be G
adduced in the mater of prosecution of an offence punishable under Section
138 of the Act should not go beyond the requirements of law and that
correctness of the accounts maintained by the Second Respondent in terms of
the provisions of the Act and Rules could not have been a ground to disbelieve
...
his case. It was held:
H
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SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.
" ... The contention of the Isl respondent is that all the transactions
mentioned in Ext. P 10 series are not found in Ext. D 11 series
maintained by the Cochin Stock Exchange in the name of the appellant
as share broker. The appellant has explained this contention of the
respondent stating that the transactions conducted by him outside the
Stock Exchange will not be found in the accounts maintained by the
Cochin Stock Exchange and therefore there is difference in Ext. PIO
series and Ext. D 11 series."
The High Court, in view of the findings of fact arrived at by the appellate
court, in our opinion, committed a manifest error in reversing the said
C judgment. The Second Respondent evidently had not been able to explain the
discrepancies in his books of accounts. If except putting a suggestion to the
witness, the Second Respondent has not been able to bring on records any
material to show that the parties had any transactions other than those which
had been entered into through the Cochin Stock Exchange, the explanation
of the accused could not have been thrown over board. The High Comt has
D furthermore committed a manifest error of record in arriving at a finding that
the Appellant himself or through his agent has acknowledged as correct the
statements appearing in Exhibit P-10 series dated 16.12.1991, 20.12.1991,
28.12.1991, J0.1.1992, 24.1.1992, 7.2.1992 and 21.2.1992. Admittedly there
had been no acknowledgement in respect of five statements of accounts
E being Exhibits D-2 to D-6.
F
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In view of the said error of record, the findings of the High Court to
the effect that the Appellant had not been able to substantiate his contention
as regard the correctness of the accounts of Exhibit P-10 series must be
rejected.
In view 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 l 18(a)
and 139 of the Act which read as under:
"I I 8. Presumptions as to negotiable instruments. - Until the contrary
is proved, the following presumptions shall be made:
(a) of consideration - that every negotiable instrument was made or
drawn for consideration, and that every such instrument, when it
has been acc<:pted, indorsed, negotiated or transferred, was
accepted, indoirsed, negotiated or transferred for consideration."
•·
M.S. NARAYANAN MENON@MANI v. STATEOFKERALA [SINHA, J.] 137
"139. Presumption in favour of ho/der.-It shall be presumed, unless A
the contrary is proved, that the holder of a cheque received the cheque
of the nature referred to in section 138 for the discharge, in whole or
in part, of any debt or other liability."
Presumptions both under Sections l l 8(a) and 139 of the Act are
rebuttable in nature.
What would be the effect of the expressions 'May Presume', 'Shall
Presume' and 'Conclusive Proof has been considered by this Court in Union
of India (UOI) v. Pramod Gupta (D) by L.Rs. and Ors., [2005] 12 SCC I in
the following tenns:
" ... It is true that the legislature used two different phraseologies "shall
be presumed" and "may be presumed" in Section 42 of the Punjab
Land Revenue Act and furthermore although provided for the mode
B
c
and manner of rebuttal of such presumption as regards the right to
mines and minerals said to be vested in the Government vis-a-vis the D
absence thereof in relation to the lands presumed to be retained by
. the landowners but the same would not mean that the words "shall
presume" would be conclusive. The meaning of the expressions "may
presume" and "shall presume" have been explained in Section 4 of
the Evidence Act, 1872, from a perusal whereof it would be evident
that whenever it is directed that the court shall presume a fact it shall E
regard such fact as proved unless disproved. In terms of the said
provision, thus, the expression "shall presume" cannot be held to be
synonymous with "conclusive proof..."
In terms of Section 4 of the Evidence Act whenever it is provided by
the Act that the Court shall presume a fact, it shall regard such fact as proved F
unless and until it is disproved. The words 'proved' and 'disproved' have
been defined in Section 3 of the Evidence Act (the interpretation clause) to
mean: -
"Proved-A fact is said to be proved when, after considering the
matters before it, the Court either believes it to exist, or considers its
existence so probable that a prudent man ought, under the
circumstances of the particular case, to act upon the supposition that
it exists.
G
Disproved-A fact is said to be disproved when, after considering the H
138
SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.
A
matters before it the Court either believes that it does not exist, or
considers its non-existence so probable that a prudent man ought,
under the circumstances of the particular case, to act upon the
supposition that it does not exist."
Applying the said definitions of 'proved' or 'disproved' to principle
B behind Section I I 8(a) of the Act, the Court shall presume a negotiable
instrument to be for consideration unless and until after considering the matter
before it, it either believes that the consideration does not exist or considers
the non-existence of the consideration so probable that a prudent man ought,
under the circumstances of the particular case, to act upon the supposition
C that the consideration does not exist. For rebutting such presumption, what
is needed is to raise a probable defence. Even for the said purpose, the
evidence adduced on behalf of the complainant could be relied upon.
A Division Bench of this Court in Bharat Barrel & Drum Manufacturing
Company v. Amin Chand Payrelal, [1999] 3 SCC 35 albeit in a civil case laid
D down the law in the following terms:
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"Upon consideration of various judgments as noted hereinabove, the
position of law which emerges is that once execution of the promissory
note is admitted, the presumption under Section I I 8(a) would arise
that it is supported by a consideration. Such a presumption is rebuttable.
The defendant can prove the non-existence of a consideration by
raising a probable defence. 1 f the defendant is proved to have
discharged the initial onus of proof showing that the existence of
consideration was improbable or doubtful or the same was illegal, the
onus would shift to the plaintiff who will be obliged to prove it as a
matter of fact and upon its failure to prove would disentitle him to the
grant of relief on the basis of the negotiable instrument. The burden
upon the defendant of proving the non-existence of the consideration
can be either direct or by bringing on record the preponderance of
probabilities by reference to the circumstances upon which he relies.
In such an event, the plaintiff is entitled under law to rely upon all
the evidence led in the case including that of the plaintiff as well. In
case, where the defendant fails to discharge the initial onus of proof
by showing the non-existence of the consideration, the plaintiff would
invariably be held en:titled to the benefit of presumption arising under
Section I 18(a) in his favour. The court may not insist upon the
defendant to disprove the existence of consideration by leading direct
--
.,.
M.S. NARAYANAN MENON @MANI v. STATE OF KERALA (SINHA, J.) 139
evidence as the existence of negative evidence is neither possible nor A
contemplated and even if led, is to be seen with a doubt...."
This Court, therefore, clearly opined that it is not necessary for the
defendant to disprove the existence of consideration by way of direct evidence.
The standard of proof evidently is pre-ponderance of probabilities. B
Inference of pre-ponderance of probabilities can be drawn not only from the
materials on records but also by reference to the circumstances upon which
he relies.
Presumption drawn under a statute has only an evidentiary value.
Presumptions are raised in terms of the Evidence Act. Presumption drawn in C
respect of one fact may be an evidence even for the purpose of drawing
presumption under another.
The Second Respondent herein was a member of a Stock Exchange.
The transactions in relation to the Stock Exchange are regulated by the statutes
and statutory rules. If in terms of the provisions of a statute, a member of a D
Stock Exchange is required to maintain books of accounts in a particular
manner, he would be required to do so, as non-compliance of the mandatory
provisions of the Rules may entail punishment. It is not in dispute that
transactions comprising purchases and sales of shares by investors is a matter
of confidence. Both parties would have to rely upon one another. For the said E
purpose, the courts of law may also take judicial notice of the practice
prevailing in such business. The learned Appellate Judge rightly did so.
The definite case of the second Respondent was that the cheque dated
17.8.1992 was issued by the Appellant in discharge of his debt. The said
liability by way of debt arose in terms of the transactions. For proving the F
said transactions, the Second Respondent filed books of accounts. The books
of accounts maintained by the Second Respondent were found to be not
reflecting the correct state of affairs. A discrepancy of more than Rs. I 4,00,000
was found.
It was for the Appellant only to discharge initial onus of proof. He was G
not necessarily required to disprove the prosecution case. Whether in the
given facts and circumstances of a case, the initial burden has been discharged
by an accused would be a question of fact. It was matter relating to appreciation
of evidence. The High Court in its impugned judgment did not point out any
error on the part of the appellate court in that behalf.
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SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.
A
What would be the effect of a presumption and the nature thereof fell
for consideration before a Full Bench of the Andhra Pradesh High Court in
G. Vasu v. Syed Yaseen Sifuddin Quadri, AIR (I987) AP 139. In an instructive
judgment, Rao, J.