Holding

The High Court’s reversal of the appellate court’s acquittal was a manifest error; the appellant’s probable defence rebutted the statutory presumption, and the prosecution failed to prove the debt, so the appeal is allowed.

Summary

The appellant, a share broker, was charged under Section 138 of the Negotiable Instruments Act for the dishonour of a cheque issued to a member of the Cochin Stock Exchange. He contended that the cheque was given as security, not in discharge of any debt, and that he had discharged the initial evidential burden under Section 139. The trial court convicted him, the appellate court acquitted him, and the Kerala High Court reversed the acquittal on revisional jurisdiction grounds. The Supreme Court held that the High Court erred in overturning the appellate court's finding, as the appellant had raised a probable defence and the prosecution failed to prove the debt. It further clarified that statutory presumptions under Sections 118(a) and 139 are rebuttable and the burden on the accused is not as heavy as that on the prosecution. Consequently, the appeal was allowed, the High Court judgment set aside, and the appellant was discharged.

Issues considered

The applicability of Section 138 of the Negotiable Instruments Act to a cheque issued as security.
Whether the accused discharged the initial evidential burden under Section 139.
The evidentiary value and rebuttal of statutory presumptions under Sections 118(a) and 139.
The jurisdiction of the High Court to entertain a revisional appeal against an acquittal.

Legislation cited

Indian Evidence Act, 1872s. 3, s. 4
Negotiable Instruments Acts. 118(a), s. 138, s. 139

Subjects

Negotiable Instruments ActSection 138Section 139Presumption of considerationBurden of proofCheque dishonourStock exchange regulationsRevisional jurisdictionPreponderance of probabilities

Judgment

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

JULY 4, 2006

B [S.B. SINHA AND P.P. NAOLEKAR, JJ.]

Negotiable Instruments Act; Ss. l/8(a), 138 and 139:

Dishonour ofa Cheque-Complaint-Notice-Trial Court found accused-
C share-broker guilty of committing offence under Section 138 of the Act-
Reversed by the first Appellate Court-Appeal against allowed by High Court-
on 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 ofproof, he need not require to disprove the case of the
prosecution-Onus on the accused is not as heavy as that on the prosecution-
Evidence 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 ofsecurity 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.

.Jurisdiction of High Court:

Revisional!Appellate jurisdiction of the High Court-Exercise a/-
Discussed
G 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
H 124
M.S. NARAYANAN MENON@ MANI v. ST ATE 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 non-
existence 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)
'
Bharat Barrel & Drum Manufacturing Company v. Amin Chand
Payre/al, 119991 3 SCC 35, relied on.
F
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:
D
(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.

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
to.
G. Vasu v. Syed Yaseen Sifuddin Quadri, AIR (1987) AP 139, referred -
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
Aiyar, 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.) J29

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:

"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
D
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
E 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.
F
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 ATE 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 c
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.
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 as settlement.
All bargains on securities carried on for a period of 14 days is known
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.] J33

" ... 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. D11 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. D11 series of officially approved accounts will D
show that transactions worth Rs. 14,63,555/- entered in Ext. 010
series go unaccounted in Ext. D11 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 F
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
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,
the Executive Director of Cochin Stock Exchange has credibly deposed
c
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. D11 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
into by PWI outside the floor of the Cochin Stock Exchange cannot
E
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. D11 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
136 SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.

A " ... The contention of the Isl respondent is that all the transactions
mentioned in Ext. P10 series are not found in Ext. D11 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
B Cochin Stock Exchange and therefore there is difference in Ext. PIO
series and Ext. D11 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.
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.
F 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
G
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."
H •·
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. B
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:
c
" ... 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
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 G
existence so probable that a prudent man ought, under the
circumstances of the particular case, to act upon the supposition that
it exists.

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:

"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.
E The defendant can prove the non-existence of a consideration by
raising a probable defence. 1f 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
F 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
G 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
H
M.S. NARAYANAN MENON @MANI v. STATE OF KERALA (SINHA, J.) 139

-- evidence as the existence of negative evidence is neither possible nor
contemplated and even if led, is to be seen with a doubt...."
A

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. H
140 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. (as His Lordship then was) speaking for the Full Bench
noticed various provisions of the Evidence Act as also a large number of case '
B laws and authorities in opining:.

"From the aforesaid authorities, we hold that once the defendant
adduces evidence to the satisfaction of the Court that on a
preponderance of probabilities there is no consideration in the manner
pleaded in the plaint or suit notice or the plaintiffs evidence, the
burden shifts to the plaintiff and the presumption 'disappears' and
c does not haunt the defendant any longer."

It was further held:

"For the aforesaid reasons, we are of the view that where, in a suit
on a promissory note, the case of the defendant as to the circumstances
D under which the promissory note was executed is not accepted, it is
open to the defendant to prove that the case set up by the plaintiff on
the basis of the recitals in the promissory note, or the case set up in
suit notice or in the plaint is not true and rebut the presumption under
S. 118 by showing a preponderance of probabilities in his favour and
E against the plaintiff. He need not lead evidence on all conceivable
modes of consideration for establishing that the promissory note is
not supported by any consideration whatsoever. The words 'until the
contrary is proved' in S. 118 do not mean that the defendant must
necessarily show that the document is not supported by any form of
consideration but the defendant has the option to ask the Court to
F consider the non-existence of consideration so probable that a prudent
man ought, under the circumstances of the case, to act upon the
supposition that consideration did not exist. Though the evidential
burden is initially placed on the defendant by virtue of S. 118 it can
be rebutted by the defendant by showing a preponderance of
G probabilities that such consideration as stated in the pronote, or in the
suit notice or in the plaint does not exist and once the presumption
is so rebutted, the said presumption 'disappears'. For the purpose of
rebutting the initial evidential burden, the defendant can rely on direct
evidence or circumstantial evidence or on presumptions of law or
fact. Once such convincing rebuttal evidence is adduced and accepted
H by the Court, having regard to all the circumstances of the case and
M.S. NARAYANAN MENON@MANI v. STATEOFKERALA [SINHA,J.] 141

the preponderance of probabilities, the evidential burden shifts back A
to the plaintiff who has also the legal burden. Thereafter, the
presumption under S. 118 does not again come to the plaintiffs
rescue. Once both parties have adduced evidence, the Court has to
consider the same and the burden of proof loses all its importance."

If for the purpose of a civil litigation, the defendant may not adduce B
any evidence to discharge the initial burden placed on him, a 'fortiori' even
an accused need not enter into the witness box and examine 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 presumption is a legal or factual assumption drawn from the existence C
of certain facts.

In P. Ramanatha Aiyar's Advanced Law Lexicon, 3rd edition, at page
3697, the term 'presumption' has been defined as under:

"A presumption is an inference as to the existence of a fact not D
actually known arising from its connection with another which is
known.

A presumption is a conclusion drawn from the proof of facts or
circumstances and stands as establishing facts until overcome by
contrary proof. E
A presumption is a probable consequence drawn from facts (either
certain, or proved by direct testimony) as to the truth of a fact alleged
but of which there is no direct proof. It follows, therefore that a
presumption of any fact is an inference of that fact from others that F
are known". (per ABBOTT, C.J., R. v. Burdett, 4 B. & Aid, 161)

The word 'Presumption' inherently imports an act of reasoning -
a conclusion of the judgment; and it is applied to denote such facts
or moral phenomena, as from experience we known to be invariably,
or commonly, connected with some other related facts. (Wills on G
Circumstantial Evidence)

A presumption is a probable inference which common sense draws
·from circumstances usually occurring in such cases. The slightest
presumption is of the nature of probability, and there are almost
infinite shades from slight probability to the highest moral certainty. H
142 SUPREME COURT REPORTS [2006) SUPP. 3 S.C.R.

A A presumption, strict'ly speaking, results from a previously known
and ascertained connection between the presumed fact and the fact
from which the inference is made."

Having noticed the effect of presumption which was required to be
raised in terms of Section J l 8(a) of the Act, we may also notice a decision
B of this Court in regard to 'presumption' under Section 139 thereof.

In Hiten P. Dalal v. Bratindranath Banerjee, [200 I] 6 SCC 16, a 3-
Judge Bench of this Court held that although by reason of Sections 138 and
139 of the Act, the presumption of law as distinguished from presumption of
fact is drawn, the court has no other option but to draw the same in every
c case where the factual basis of raising the presumption is established. Pal, J.
speaking for a 3-Judge Bench, however, opined:

" ... Presumptions are rules of evidence and do not conflict with the
presumption of innocence, because by the latter, all that is meant is
that the prosecution is obliged to prove the case against the accused
D beyond reasonable doubt. The obligation on the prosecution may be
discharged with the help of presumptions of law or fact unless the
accused adduces evidence showing the reasonable possibility of the
non-existence of the: presumed fact.

In other words, provided the facts required to form the basis of
E
a presumption of law exist, 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. A fact is said to be proved when,
"after considering the matters before it, the court either believes
F
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 3upposition that it exists".
Therefore, the rebuttal does not have to be conclusively established
but such evidence must be adduced before the court in support of the
G
defence that the court must either believe the defence to exist or
consider its existence to be reasonably probable, the st~ndard of
reasonability being that of the "prudent man''."

The court, however, in the fact situation obtaining therein, was not
H required to go into the question as to whether an accused can discharge the
M.S. NARAYANANMENON@MANI v. STATEOFKERALA [SINHA, J.] 143

onus placed on him even from the materials brought on records by the A
complainant himself. Evidently in law he is entitled to do so.

In Goaplast (P) Ltd. v. Chico Ursula D 'Souza and Anr., [2003] 3 SCC
232, upon which reliance was placed by the learned counsel, this Court held
that the presumption arising under Section 139 of the Act can be rebutted by
adducing evidence and the burden of proof is on the person who want to B
rebut the presumption. The question which arose for consideration therein
was as to whether closure of accounts or stoppage of payment is sufficient
defence to escape from the penal liability under Section 138 of the Act. The
answer to the question was rendered in the negative. Such a question does
not arise in the instant case.
c
In Kundan Lal Rallaram v. Custodian, Evacuee Property, Bombay,
AIR (1961) SC 1316, Subba Rao, J., as the learned Chief Justice then was,
held that while considering the question as to whether burden of proof in
tenns of Section 118 had been discharged or not, relevant evidence cannot
be pennitted to be withheld. If a relevant evidence is withheld, the court may D
draw a presumption to the effect that if the same was produced might have
gone unfavourable to the plaintiff. Such a presumption was itself held to be
sufficient to rebut the presumption arising under Section 118 of the Act
stating:

" ... Briefly stated, the burden of proof may be shifted by presumptions E
of law or fact, and presumptions of law or presumptions of fact may
be rebutted not only by direct or circumstantial evidence but also by
presumptions of law or fact. We are not concerned here with
irrebuttable presumptions of law."

Two adverse inferences in the instant case are liable to be drawn against F
the Second Respondent:

(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 tenns of the bye-laws of Cochin Stock Exchange. G
Moreover, the onus on an accused is not as heavy as that of the
prosecution. It may be compared with a defendant in a civil proceeding.

In Harbhajan Singh v. State of Punjab and Anr., AIR (1966) SC 97,
this Court while considering the nature and scope of onus of proof which the H
•
144 SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.

A accused was required to discharge in seeking the protection of exception 9
to Section 499 of the Indian Penal Code stated the law as under:

" .. .In other words, the onus on an accused person may well be
compared to the onus on a party in civil proceedings, and just as in
civil proceedings the court trying an issue makes its decision by
B adopting the test of probabilities, so must a Criminal Court hold that
the plea made by the accused is proved if a preponderance of
probability is established by the evidence led by him ... "

In V.D. Jhingan v. State of Uttar Pradesh, AIR (1966) SC I 762, it was
stated:
c
" .. .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"

[See also State of Maharashtra v. Wasudeo Ramchandra Kaida!war,
D AIR (1981) SC 1186]

In Kali Ram v. State of Himachal Pradesh, [1973] 2 SCC 808, Khanna,
J., speaking for the 3-Judge Bench, held:

" ... One of the cardinal principles which has always to be kept in view
E in our system of administration of justice for criminal cases is that a
person arraigned as an accused is presumed to be innocent unless that
presumption is rebutted by the prosecution by production of evid1~nce
as may show him to be guilty of the offence with which he is charged.
The burden of proving the guilt of the accused is upon the prosecution
and unless it reli1~ves itself of that burden, the courts cannot record
F a finding of the guilt of the accused. There are certain cases in which
statutory presumptions arise regarding the guilt of the accused, but
the burden even in those cases is upon the prosecution to prove the
existence of facts which have to be present before the presumption
can be drawn. Once those facts are shown by the prosecution to exist,
G the Court can raise the statutory presumption and it would, in such
an event, be for the accused to rebut t!te presumption. The onus even
in such cases upon the accused is not as heavy as is normally upon
the prosecution to prove the guilt of the accused. If some material is
brought on the record consistent with the innocence of the accused
which may reasonably be true, even though it is not positively proved
H
M.S. NARAYANAN MENON@ MANI v. ST ATE OF KERALA [SINHA, J.] \ 45

to be true, the accused would be entitled to acquittal." A
In The State through the Delhi Administration v. Sanjay Gandhi, AIR
(1978) SC 961, it was stated:

" .. .Indeed, proof of facts by preponderance of probabilities as in a
civil case is not foreign to criminal jurisprudence because, in cases B
where the statute raises a presumption of guilt as, for example, the
Prevention of Corruption Act, the accused is entitled to rebut that
presumption by proving his defence by a balance of probabilities. He
does not have to establish his case beyond a reasonable doubt. The
same standard of proof as in a civil case applies to proof of incidental
issues involved in a criminal trial like the cancellation of bail of an C
accused ... "

The evidences adduced by the parties before the trial court lead to one
conclu~ion that the Appellant had been able to discharge his initial burden.
The burden thereafter shifted to the Second Respondent to prove his case. He D
failed to do so.

The submission of the Second Respondent that the Appellant had not
denied his entire responsibility and the dispute relating only to the quantum
of debt cannot be accepted.

We in the facts and circumstances of this case need not go into the E
question as to whether even if the prosecution fails to prove that a large
portion of the amount claimed to be a part of debt was not owing and due
to the complainant by the accused and only because he has issued a cheque
for a higher amount, he would be convicted if it is held that existence of debt
in respect of large part of the said amount has not been proved. The Appellant F
clearly said that nothing is due and the cheque was issued by way of security.
The said defence has been accepted as probable. If the defence is acceptable
as probable the cheque therefor cannot be held to have been issued in discharge
of the debt as, for example, if a cheque is issued for security or for any other
purpose the same would not come within the purview of Section 138 of the
Act. We have gone through the oral evidences. The Second Respondent has G
even failed to prove that the Appellant had paid to him a sum of Rs. 5000/
- by cash.

In any event the High Court entertained an appeal treating to be an
appeal against acquittal, it was in fact exercising the revisional jurisdiction. H
SUPREME COURT REPORTS (2006] SUPP. 3 S.C.R.

A 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 shou Id not interfere with
the finding of acquittal recorded by the court below.

We, therefore, are of the opinion that the impugned judgment cannot
B be sustained which is set aside accordingly. The appeal is allowed. The
Appellant is on bail. He is discharged from the bail bonds. The Second
Respondent shall pay and bear the costs of the Appellant. Counsels' fee
assessed at Rs. 10,000/-.

C S.K.S. Appeal allowed.