Has Not Specified His Designation In The ... vs Also Disputed The Service Of Notice. The ... on 6 February, 2023

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Bangalore District Court

Has Not Specified His Designation In The ... vs Also Disputed The Service Of Notice. The ... on 6 February, 2023

1 CC.6157/2021( J)

KABC030183102021

Presented on : 12-03-2021
Registered on : 12-03-2021
Decided on : 06-02-2023
Duration : 1 years, 10 months,
25 days

IN THE COURT OF THE XV ADDL CHIEF METROPOLITAN
MAGISTRATE AT BENGALURU CITY.

Dated this the 6 th Day of February-2023

Present: Lokesh Dhanapal Havale. B.A.L.L.B.,
XV Addl.C.M.M., Bengaluru.

Judgment U/s.355 of the Cr.P.C. 1973.

1.Sl.No.of the case CC.No.6157/2021

2.Name of the Complainant: Sri.A.Rudrappa
S/o Sri.Late Anjinappa
Aged about 60 years,
R/at No.73, 1st Floor,
1st Main Road,
Hebbal Farm Post,
Bangalore-560024.

3.Name of the accused: M/s. Matha Overseas Private Limited.
By its Authorized Signatory
Sri.Lakshmi Narayana,
2 CC.6157/2021( J)

No.222, 'Matha Nilaya'
5th Main, 6th Block,
Banashankari 3rd Stage,
Bangalore- 560 085.

4.The offence complained of : U/s.138 of Negotiable Instruments Act.

5.Plea of the accused: Pleaded not guilty.

6.Final Order: Acting U/s.255(1) Cr.P.C., accused is
acquitted.

7.Date of final Order 06.02.2023

* * *

This complaint is filed U/Sec.200 of Cr.P.C. against the
accused for the offence punishable U/Sec.138 of the Negotiable
Instruments Act, 1881.

2. The facts of the complaint in brief are as under:

The complainant and accused knew each other from long
time. The accused is running a mines business in the name and
style of M/s. Matha Overseas Private Limited and for the purpose
of investing amount in business, he approached the complainant
for financial assistance of Rs.25,00,000/- in the month of February
2020. The complainant lent hand loan of Rs.25,00,000/- on
06.02.2020. The accused agreed to repay the said hand loan
3 CC.6157/2021( J)

within 6 months. The accused failed to repay the amount as
agreed. The accused issued cheque bearing No.000113 dated
16.11.2020 for a sum of Rs.25,00,000/- drawn on HDFC bank,
Basaveshwarnagar Branch, Bengaluru at the intervention of friends
and well wishers. He presented the said cheque for encashment
and it was returned with endorsement "Funds Insufficient" vide
return memo dated 05.01.2021. He issued legal notice dated
22.01.2021 through RPAD. The notice was duly served on the
accused on 27.01.2021. The accused failed to pay the check
amount within 15 days and thereby committed an offence
punishable U/s.138 of the N.I.Act.

3. After the institution of the complaint, the cognizance
was taken and it has been registered as PCR No.4400/2021. The
sworn statement of the complainant has been recorded and on the
basis of sworn statement and other materials on hand, the criminal
case has been registered against the accused and summons was
issued to accused. In response to the service of summons, the
accused appeared through his learned counsel and got enlarged
on bail. The prosecution papers were supplied to the accused and
the substance of the accusation was read over and explained to
the accused in the language known to him. He pleaded not guilty
and claimed to be tried.

4. During trial the complainant examined herself as PW-1
and got marked Ex.P1 to P5. The statement of the accused U/s.
4 CC.6157/2021( J)

313 of Cr.P.C. was recorded. The accused did not lead any
evidence.

5. Heard the arguments. On perusal of the entire
materials on record, the points that arise for my consideration are
as under;

1. Whether the complainant proves that the
accused issued cheque bearing No.000113
dated 16.11.2020 for Rs.25,00,000/- drawn on
HDFC Bank, Basaveshwaranagar, Bengaluru-
560079 towards the discharge of legally
enforceable debt/liability and on its
presentation for encashment, it was
dishonored with an endorsement "Funds
Insufficient" and even after the service of
legal notice, the accused has not paid the
amount within 15 days and thereby accused
committed an offence punishable U/Sec.138 of
N.I. Act, 1881?

2. Whether the accused rebuts the
presumption U/s.139 of the N.I.Act?

3. What order?
5 CC.6157/2021( J)

6. My answers on the above points for consideration are
as under:

Point No.1 : Negative
Point No.2 : Affirmative
Point No.3 : As per final order for the following;

REASONS

7. Point No.1 and 2:- The points are taken together for
common discussion to avoid repetition of facts and evidence.

At this juncture it is necessary to discuss the provisions
under Section 138, 118(a), 139 and 141 of the N.I. Act., 1881 and
the said provisions are extracted and they read as under;

138. Dishonour of cheque for insufficiency,
etc., of funds in the account - Where any
cheque drawn by a person on an account
maintained by him with a banker for payment
of any amount of money to another person from
out of that account for the discharge, in whole
or in part, of any debt or other liability, is
returned by the bank unpaid, either because of
the amount of money standing to the credit of
that account is insufficient to honour the cheque
or that it exceeds the amount arranged to be
6 CC.6157/2021( J)

paid from that account by an agreement made
with that bank, such person shall be deemed to
have committed an offence and shall, without
prejudice to any other provision of this Act, be
punished with imprisonment for a term which
may be extended to two years, or with fine
which may extend to twice the amount of the
cheque, or with both:

Provided that nothing contained in this
section shall apply unless:-

(a) the cheque has been presented to the
bank within a period of six months from
the date on which it is drawn or within
the period of its validity, whichever is
earlier;

(b) the payee or the holder in due
course of the cheque, as the case may
be, makes demand for the payment of
the said amount of money by giving a
notice in writing, to the drawer of the
cheque, within thirty days of the receipt
of information by him from the bank
regarding the return of the cheque as
unpaid; and
7 CC.6157/2021( J)

(c) the drawer of such cheque fails to
make the payment of the said amount of
money to the payee or as the case may
be, to the holder in due course of the
cheque within fifteen days of the receipt
of the said notice.

Explanation:- For the purposes of
this section, "debt or other liability"
means a legally enforceable debt or other
liability.

118. 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
accepted, indorsed, negotiated or
transferred, was accepted, indorsed,
negotiated or transferred for
consideration;
8 CC.6157/2021( J)

(b) as to date:- that every Negotiable
Instrument bearing date was made or
drawn on such date;

139. Presumption in favour of holder.- It
shall be presumed, unless 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.

141. Offences by companies:-(1) If the
person committing an offence under section 138
is a Company, every person who, at the time
the offence was committed, was in charge of,
and was responsible to the Company for the
conduct of the business of the Company, as well
as the Company, shall be deemed to be guilty
of the offence and shall be liable to be
proceeded against and punished accordingly;

Provided that nothing contained in this
sub-section shall render any person liable to
punishment if he proves that the offence was
committed without his knowledge, or that he
had exercised all due diligence to prevent the
commission of such offence;
9 CC.6157/2021( J)

Provided further that where a person is
nominated as a Director of a Company by virtue
of his holding any office or employment in the
Central Government or State Government or a
financial corporation owned or controlled by the
Central Government or the State Government, as
the case may be, he shall not be liable for
prosecution under this Chapter.

(2) Notwithstanding anything contained in sub-
section (1), where any offence under this Act
has been committed by a Company and it is
proved that the offence has been committed
with the consent or connivance of, or is
attributable to, any neglect on the part of, any
director, manager, secretary or other officer of
the Company, such director, manager, secretary
or other officer shall also be deemed to be
guilty of that offence and shall be liable to be
proceeded against and punished accordingly.

Explanation:- For the purposes of this section;

(a) "Company" means and Board of
Directors corporate and includes a firm
or other association of individuals; and
10 CC.6157/2021( J)

(b) "director", in relation to a firm,
means a partner in the firm.

8. On plain perusal of the provisions U/s. 118(a) and 139
of the N.I.Act., it can be seen that initially the statutory
presumptions are raised in favour the complainant. However it is
open to an Accused to raise probable defences and rebut the
statutory presumptions by proving the same. An Accused can raise
a defence, wherein the existence of legally enforceable debt or
liability can be contested. It is also well established that an
Accused for discharging the burden of proof placed upon him
under a statute need not examine himself. He may discharge his
burden on the basis of the materials already brought on record.
An Accused has constitutional rights to maintain silence. The
standard of proof on part of the Accused and that of the
prosecution in a Criminal case is different. The prosecution must
prove the guilt of an Accused beyond all reasonable doubts but
the standard of proof so as to prove a defence on the part of an
Accused is preponderance of probabilities.

9. The burden of proving the defence is on the accused.
However, in a case, where a Company is an accused and its
directors are to be made vicariously liable, then it is necessary for
the complainant to prove that its directors were in charge of and
responsible to the conduct of its business at the time of
commission of the offence. Once the complainant proves it, the
11 CC.6157/2021( J)

onus shifts on an accused to prove that the offence was committed
without his knowledge or he had exercised all due diligence to
prevent the commission of offence, if not, the directors are
vicariously liable. On the other hand, if the directors are able to
prove by cogent evidence that they are neither in charge of and
responsible to the conduct of the business of the Company nor
they had knowledge of the transaction or negligent, they are
entitled for acquittal.

10. Under the light of position of the law, I have perused
the complaint and the evidence placed on record. The complainant
in support of his claim made in the complaint has adduced
evidence by examining himself as PW-1 and he got marked Ex.P1
to 5. PW-1 filed his evidence affidavit on oath and reiterated the
complaint averments. Ex.P1 is the cheque bearing No.000113 dated
16.11.2020 for Rs.25,00,000/- drawn on HDFC Bank,
Basaveshwaranagar, Bengaluru. Ex.P1(a) is the signature of the
accused. Ex.P2 is the Bank endorsement with shara "Funds
Insufficient" dated 05.01.2021. Ex.P3 is the office copy of Legal
Notice dated 22.01.2021 issued by the complainant to the accused
demanding repayment of the cheque amount to the address of the
accused. Ex.P4 is the postal receipt for having sent the legal notice
to the accused. Ex.P5 is the postal acknowledgment for having
served the legal notice on the accused.

11. On perusal of the documents, it is clear that the
cheque at Ex.P1 bearing No.000113 dated 16.11.2020 for
12 CC.6157/2021( J)

Rs.25,00,000/- drawn on HDFC Bank, Basaveshwaranagar,
Bengaluru was presented for encashment within its validity. Ex.P2
is the Bank endorsement with shara "Funds Insufficient" dated
05.01.2021. The office copy of Legal Notice dated 22.01.2021 at
Ex.P3 was issued by the complainant to the accused demanding
repayment of the cheque amount within time from the date of
dishonour of cheque. The postal acknowledgment at Ex.P5 shows
that the legal notice was served on the accused on 27.01.2021.
The accused disputed the cheque, signature and the service of
notice in the cross examination of PW.1. The complaint was filed
on 12.12.2017.

12. The accused did not lead the defence evidence. The
counsel for the accused cross examined PW.1 in length and set up
the defence during the course of cross examination. It is the
defence of the accused that the name of the accused is
Lakshminarayana Gubba and he has no connection with M/s Matha
Overseas Private Limited. The account belongs to the company and
not to him. The signature found in the cheque does not belong to
him. He is not the drawer of the cheque. The complainant has not
made the company and its directors as accused in the complaint.
He has not issued notice to the company and its directors. The
complainant has not specified his designation in the company. The
complainant has no financial capacity to lend huge amount of
Rs.25,00,000/- by way of cash. The complainant misused the lost
cheque of the company and filed false case against him.
13 CC.6157/2021( J)

13. The counsel for the accused argued that the full name
of the accused is Lakshminarayana Gubba. The accused is not
concerned with M/s Matha Overseas Private Limited. The accused
disputed the cheque as well as the signature. The account to
which the cheque belongs does not pertaining to the
Laxminarayana Gubba and he is not the drawer of cheque. The
complainant instead of making the company and its directors as
the accused, he filed the complaint against the accused showing
him as authorized signatory of M/s Matha Overseas Private
Limited. The notice was not sent to the company and its directors.
The notice was sent to the house address of Laxminarayana. The
accused also disputed the service of notice. The counsel for the
accused argued that the ingredients of Sec.138 of N.I Act are not
made out. The counsel for the accused also argued that the
complainant lent huge amount of Rs.25,00,000/- by way of cash
on a single day. The complainant has no financial capacity to lend
such a huge amount. The complainant has not produced any
documents to prove his source of funds. The transaction of money
of more than Rs.20,000/- by way of cash is illegal under the
provisions of Income Tax Act. The alleged loan is not reflected in
the IT returns and though the complainant is income tax assessee
has not produced any income tax documents to prove his income
to the extent of loan amount. The said alleged amount of loan is
unaccounted money of the complainant. There is no transaction as
alleged in the complaint and there is no legally recoverable debt.
14 CC.6157/2021( J)

14. The counsel for the complainant argued on the
following points-

a) That the said Lakshminarayana admitted in his statement
recorded U/s.313 of Cr.P.C. that the complainant is known him
and they knew each other since long time.

b) That the accused failed to enter the witness box and it is
fatal to the case of the accused. The adverse inference can be
drawn against the accused as per Section 114(g) of the Indian
Evidence Act.

c) That the cheque bearing No.000113 for Rs.25,00,000/-
dated 16.11.2020 at Ex.P1 is in the name of M/s. Matha Overseas
Private Limited and the authorized signatory is one
G.Lakshminarayana, who is the part of the M/s. Matha Overseas
Private. Limited. The cheque at Ex.P1 is dishonoured with
endorsement "funds insufficient" and not for any other reasons.
The accused took defence that his name is Lakshminarayana Gubba
and not Lakshminarayana. However, the bank authorities have
dishonoured cheque and identified the signature of
G.Lakshminarayana and issued the endorsement. He has not
produced any documents to show that his name is
Lakshminarayana Gubba instead of Lakshminarayana only.

d) That the complaint is filed against the M/s. Matha Overseas
Private Limited as well as Sri.Lakshminarayana. Lakshminarayana
15 CC.6157/2021( J)

made the transaction with the complainant on behalf of the said
company. He had obtained the loan and issued the cheque in the
name of the company and it is signed by him. There is averment
in the complaint regarding the responsibility of the accused person
for conduct of business of the firm at the time of commission of
the offence. It is stated in the complaint that the accused is
running the mines business in the name and style M/s Matha
Overseas Private Limited and for the purpose of investing in
business, he had approached the complainant for urgent financial
assistance.

e) That the counsel for the complainant also argued that
the authorized signatory of M/s. Matha Overseas Private Limited
issued the cheque for discharge of loan and bank issued the
endorsement "funds insufficient". Therefore the presumption arises
under section 139 of NI Act and the burden to prove that the
complainant misused the said cheque is on the accused.

f) That the demand notice at Ex.P5 was addressed to M/s.
Matha Overseas Private Limited and it was duly served on the
address mentioned in the cause title. The accused contended in the
cross examination of PW.1 that the address mentioned in the
notice does not belong to the M/s. Matha Overseas Private
Limited. After service of notice, he has not given any reply to the
said notice on behalf of him or on behalf of the said company.
Therefore the contention urged by the accused in the cross
examination of the PW.1 that the address mentioned in the notice
16 CC.6157/2021( J)

at Ex.P5 is not the company address etc, are unsustainable under
law.

g) That the cheque at Ex.P.1 is issued by the accused but
he contended in the cross examination of PW.1 that the said
cheque was lost but the accused has not produced any documents
before the Court about the said defence. In the absence of any
material evidence the allegations made by the accused are
unbelievable.

h) That the accused has issued the cheque and bank has
issued the endorsement as funds insufficient. Therefore the
presumption U/s. 139 of N.I.Act arises there exists the legally
enforceable debt or other liability. Once the presumption is raised
the burden is on the accused to rebut the presumption. The
accused failed to lead evidence and also failed to rebut the
presumption.

15. The counsel for the complainant relied on the
following judgments of the Hon'ble Supreme Court of India and
Hon'ble High Court of Karnataka in support of his case in respect
of the presumption and burden of proof.

a) The Hon'ble Supreme Court in Rangappa Vs. Mohan
reported in (2010)11 SCC 441 held as under:
The presumption mandated by Section 139 of the Act
does indeed include the existence of a legally enforceable
17 CC.6157/2021( J)

debt or liability. It is a rebuttable presumption and it is
open to the accused to raise a defence, wherein the
existence of a legally enforceable debt or liability can be
contested. However, there can be no doubt that there is an
initial presumption, which favours the complainant.

b) The Hon'ble High Court of Karnataka in Fayaz Pasha Vs.
N. Nagaraj Crl R.P. No. 381 0f 2011 dated 29.03.2011
held as under:
In view of the presumption U/s 139 of N.I.Act and in
view of the fact that the cheques in question undisputedly
relate to the account held by the accused with the banker
and they bear signature, there was no need for the
complainant to prove sources of income and this aspect of
the matter is now well settled by later decision of the
Supreme Court in the case of Rangappa Vs. Mohan reported
in 2010 AIR SCW 2946.

c) The Hon'ble Supreme Court in T. Vasantha Kumar V/s
Vijaya Kumari reported in (2015) 8 SCC 378 held as
under:-

If the cheque as well as the signature is admitted by
the accused, the presumption under sec.139 would operate.
The burden is on the accused to disprove the cheque or the
existence of any legally recoverable debt or liability.
18 CC.6157/2021( J)

d) The Hon'ble Supreme Court of India in the case of
Rohitbhai Jivanlal Patel Vs. State of Gujarat, (2019) 18
SCC 106 held as under:

"In the case at hand, even after purportedly drawing
the presumption under Section 139 of the NI Act, the trial
Court proceeded to question the want of evidence on the
part of the complainant as regards the source of funds for
advancing loan to the accused and want of examination of
relevant witnesses who allegedly extended him money for
advancing it to the accused. This approach of the Trial
Court had been at variance with the principles of
presumption in law. After such presumption, the onus
shifted to the accused and unless the accused had discharged
the onus by bringing on record such facts and circumstances
as to show the preponderance of probabilities tilting in his
favour, any doubt on the complainant's case could not have
been raised for want of evidence regarding the source of
funds for advancing loan to the appellant-accused....."

e) The Hon'ble Supreme Court of India in its latest case
of M/s. Kalamani Tex v. P. Balasubramanian reported in
(2021) 5 SCC 283 observed at para No.14 to 18 as under:-

14. Adverting to the case in hand, we find on a
plain reading of its Judgment that the trial Court completely
overlooked the provisions and failed to appreciate the
19 CC.6157/2021( J)

statutory presumption drawn under Section 118 and Section
139 of NIA. The Statute mandates that once the signature(s)
of an accused on the cheque/negotiable instrument are
established, then these 'reverse onus' clauses become
operative. In such a situation, the obligation shifts upon the
accused to discharge the presumption imposed upon him.
This point of law has been crystalized by this Court in
Rohitbhai Jivanlal Patel Vs. State of Gujarat, (2019) 18 SCC
106 in the following words:

15. Once the 2nd Appellant had admitted his
signatures on the cheque and the Deed, the trial Court
ought to have presumed that the cheque was issued as
consideration for a legally enforceable debt. The trial Court
fell in error when it called upon the Complainant-
Respondent to explain the circumstances under which the
appellants were liable to pay. Such approach of the Trial
Court was directly in the teeth of the established legal
position as discussed above, and amounts to a patent error
of law.

16. No doubt, and as correctly argued by senior
Counsel for the appellants, the presumptions raised under
Section 118 and Section 139 are rebuttable in nature. As
held in M.S.Narayana Menon Vs. State of Kerala, (2006) 6
SCC 39, which was relied upon in Basalingappa (supra), a
probable defence needs to be raised, which must meet the
standard of "preponderance of probability", and not mere
possibility. These principles were also affirmed in the case
of Kumar Exports (supra), wherein it was further held that a
bare denial of passing of consideration would not aid the
case of accused.

17. Even if we take the arguments raised by the
appellants at face value that only a blank cheque and signed
blank stamp papers were given to the respondent, yet the
statutory presumption cannot be obliterated. It is useful to
21 CC.6157/2021( J)

cite Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, 36
where this court held that:

"Even a blank cheque leaf, voluntarily signed and
handed over by the accused, which is towards
some payment, would attract presumption under
Section 139 of the Negotiable Instruments Act, in
the absence of any cogent evidence to show that
the cheque was not issued in discharge of a
debt."

18. Considering the fact that there has been an
admitted business relationship between the parties, we are of
the opinion that the defence raised by the appellants does
not inspire confidence or meet the standard of
'preponderance of probability'. In the absence of any other
relevant material, it appears to us that the High Court did
not err in discarding the appellants' defence and upholding
the onus imposed upon them in terms of Section 118 and
Section 139 of the NIA.

f) The Hon'ble Supreme Court of India in the case of
A.P.S Forex Services Private Limited Vs. Shakthi
Internatonal Fashion Linkers & Others reported in 2020
STPL 5773 SC, held at para No.7 as under:
22 CC.6157/2021( J)

7. Coming back to the facts in the present case and
considering the fact that the accused has admitted the
issuance of the cheques and his signature on the cheque and
that the cheque in question was issued for the second time,
after the earlier cheques were dishonoured and that even
according to the accused some amount was due and
payable, there is a presumption under Section 139 of the
N.I. Act that there exists a legally enforceable debt or
liability. Of course such presumption is rebuttable in nature.
However, to rebut the presumption the accused was required
to lead the evidence that full amount due and payable to
the complainant has been paid. In the present case, no such
evidence has been led by the accused. The story put forward
by the accused that the cheques were given by way of
security is not believable in absence of further evidence to
rebut the presumption and more particularly the cheque in
question was issued for the second time, after the earlier
cheques were dishonoured. Therefore, both the courts below
have materially erred in not properly appreciating and
considering the presumption in favour of the complainant
that there exists legally enforceable debt or liability as per
Section 139 of the N.I. Act. It appears that both, the
Learned Trial Court as well as the High Court, have
committed error in shifting the burden upon the complainant
to prove the debt or liability, without appreciating the
presumption under Section 139 of N.I. Act. As observed
above, Section 139 of the Act is an example of reverse onus
23 CC.6157/2021( J)

clause and therefore once the issuance of the cheque has
been admitted and even the signature on the cheque has
been admitted, there is always a presumption in favour of
the complainant that there exists legally enforceable debt or
liability and thereafter it is for the accused to rebut such
presumption by leading evidence.

g) In the case of Uttam Ram Vs. Devinder Singh
Hudan reported in 2019 INSC 0875, the Hon'ble Supreme
Court held as under;

The burden of proving the due amount should not be
on the complainant as if he has to prove a debt before a
civil court. Rather, the burden to rebut the presumption of
debt in cheque bounce case under Section 138 of Negotiable
Instruments Act is on the accused.

It was also held that the statement of accused under
Section 313 of the Code is only to the effect that the cheque
has been misused. There is no stand in the statement that
the cheque book was stolen. The statement of accused u/s
313 of Cr.P.C is not a substantive evidence of defence of the
accused but only an opportunity to the accused to explain
the incriminating circumstances appearing in the prosecution
case of accused. Therefore, there is no evidence to rebut the
presumption that the cheque was issued for consideration.
24 CC.6157/2021( J)

h) The Hon'ble High Court of Karnataka in Yogesh Poojary
vs Shankar Bhat ILR 2019 KAR 493 held as under:

9. Merely by making a suggestion which has remained
unacceptable by the complainant cannot be taken as proof of
the defence of the accused, who has made such suggestion.
In such a situation, a corroborative evidence either oral or
documentary may require to be placed before the Court.
Therefore, as observed by the Hon'ble apex Court in the
case of T.Vasanthakumar vs. Vijayakumari reported in (2015)
8 SCC 378, wherein also in a similar circumstance of the
case, the Hon'ble Apex Court held that the defence of the
accused that the cheque in question was given to the
complainant as a security was not held as acceptable, it has
to be held that the accused was not able to convincingly
rebut the presumption existing in favour of the complainant
under Section 139 of the N.I. Act.

11. When the accused in the process of rebutting the
presumption existing in favour of the complainant under
Section 139 of the N.I. Act apart from making a mere
suggestion as to absence of any documentation about the
alleged loan transaction and absence of non-disclosure of the
loan transaction in the Income Tax Returns is also required
to place more material either in the form of favorable
replies elicited in the cross-examination of the complainant
or in the form of documents or at least bringing to the
25 CC.6157/2021( J)

notice of the Court and convincing it that the circumstances
of the case warrants for drawing such a conclusion,
particularly, mere making a suggestion to the complainant
that he has not disclosed the alleged loan transaction in his
Income Tax Returns or eliciting the statement from the
complainant that he has not disclosed the alleged loan
transaction in his Income Tax Returns by itself is not
sufficient. It is also required for the accused to establish that
the complainant is an income tax assessee or required to be
an assessee and that the nature of his income tax assessment
and the Income Tax Return which he files, requires him to
disclose the alleged transaction or the liability in question.
In the absence of eliciting those details, by merely making a
suggestion that the alleged debt or liability, has not been
reflected in the income tax returns would not by itself
suffice to draw an adverse inference and to hold that there
was no legally enforceable debt or the presumption standing
in favour of the complainant as successfully rebutted by the
accused.

i) The Hon'ble High Court of Karnataka in Revanappa Vs.
Narasingha Naik 2019 (4) AKR 630 held as under:

12. Be that as it may. If at all the said cheque has
been stolen, then under such circumstances, the accused
ought to have given the letter to the concerned bank not to
encash the said cheque as the said cheque has been stolen.
26 CC.6157/2021( J)

No such letter has also been given to the bank and no
notice has also been given to the complainant for having
stolen the cheque with the help of one Umesh and
Rangappa. Nothing was prevented him to issue notice to the
complainant if it is a fact. Leave apart that, when the
accused has admitted the signature, what was the necessity
of keeping the said cheque in the house after signature and
for what purpose the said cheque has been kept has also not
been placed on record. No prudent man will keep the
cheque easily accessible after signing it. The conduct of the
accused, filing the complaint after receipt of the notice
shows that accused is trying to avoid the proceedings and
payment of the said loan amount.

j) The Hon'ble Supreme Court in K. Bhaskaran Vs.
Shankaran Vaidyan Balan and others AIR 1999 SC 3762
held as under:

As the signature in the cheque is admitted to be that
of the accused, the presumption envisaged in Section 118 of
the Act can legally be inferred that the cheque was made or
drawn for consideration on the date which the cheque bears.
Section 139 of the Act enjoins on the Court to presume that
the holder of the cheque received it for the discharge of any
debt or liability. The burden was on the accused to rebut
the aforesaid presumption.
27 CC.6157/2021( J)

k) The Hon'ble Supreme Court in T. P. Murugan Vs.
Bhojan (2018) 8 SCC 469 held as under:

Under Section 139 of the N.I. Act, once a cheque has
been signed and issued in favour of the holder, there is
statutory presumption that it is issued in discharge of a
legally enforceable debt or liability. This presumption is a
rebuttable one, if the issuer of the cheque is able to
discharge the burden that it was issued for some other
purpose like security for a loan.

l) The Hon'ble Supreme Court in Hiten P. Dalal Vs.
Bratindranath Banerjee AIR 2001 SC 3897 held as under:

This section provides that "it shall be presumed, unless
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". The effect of these presumptions is to place the
evidential burden on the appellant of proving that the
cheque was not received by the Bank towards the discharge
of any liability Because both Sections 138 and 139 require
that the Court "shall presume" the liability of the drawer of
the cheques for the amounts for which the cheques are
drawn, as noted in State of Madras vs. A. Vaidyanatha Iyer
AIR 1958 SC 61, it is obligatory on the Court to raise this
presumption in every case where the factual basis for the
28 CC.6157/2021( J)

raising of the presumption had been established. "It
introduces an exception to the general rule as to the burden
of proof in criminal cases and shifts the onus on to the
accused" (ibid). Such a presumption is a presumption of law,
as distinguished from a presumption of fact which describes
provisions by which the court "may presume" a certain state
of affairs. 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 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.

16. Therefore on perusal of the Judgments, it is clear if
the cheque and signature are admitted, the presumption arises that
the cheque was issued for legally enforceable debt/liability. The
presumption is rebuttable. The accused has to raise a probable
defence and prove it by adducing evidence, which must meet the
standard of preponderance of probabilities. Unless the same has
been done, doubt can not be raised on the case of the
complainant. The financial capacity of the complainant can not be
questioned unless the accused rebuts the presumption U/s. 139 of
the NI Act. The statement of the accused u/sec.313 of Cr.P.C is
not substantive evidence.
29 CC.6157/2021( J)

17. In order to understand the scope of presumption
U/s.139 of NI Act, the burden of proof and the rebuttal of
presumption, it is necessary to go through the following decisions
along the decisions relied upon by the counsel for the
complainant:-

(a) The Hon'ble Supreme Court in the case of M.S.
Narayana Menon Vs. State of Kerala - (2006) 6 Supreme
Court Cases 39, held as under:-

"30. Applying the said definitions of 'proved' or
'disproved' to principle behind Section 118(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 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.

31. A Division Bench of this Court in Bharat Barrel &
Drum Manufacturing Company v. Amin Chand Payrelal
reported in (1999) 3 SCC 35 albeit in a civil case laid down
the law in the following terms:
30 CC.6157/2021( J)

"12. 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 118(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. If 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
entitled to the benefit of presumption arising under
Section 118(a) in his favour. The court may not insist
31 CC.6157/2021( J)

upon the defendant to disprove the existence of
consideration by leading direct evidence as the
existence of negative evidence is neither possible nor
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.

32. The standard of proof evidently is preponderance
of probabilities. Inference of preponderance of probabilities
can be drawn not only from the materials on records but
also by reference to the circumstances upon which he relies.

(b) The Hon'ble Supreme Court in Kumar Exports Vs.
Sharma carpets reported in (2009) 2 SCC 513, held as
under;

"20. The accused in a trial under Section 138 of the
Act has two options. He can either show that consideration
and debt did not exist or that under the particular
circumstances of the case the non-existence of consideration
and debt is so probable that a prudent man ought to
suppose that no consideration and debt existed. To rebut the
statutory presumptions an accused is not expected to prove
his defence beyond reasonable doubt as is expected of the
complainant in a criminal trial. The accused may adduce
32 CC.6157/2021( J)

direct evidence to prove that the note in question was not
supported by consideration and that there was no debt or
liability to be discharged by him. However, the court need
not insist in every case that the accused should disprove the
non- existence of consideration and debt by leading direct
evidence because the existence of negative evidence is
neither possible nor contemplated. At the same time, it is
clear that bare denial of the passing of the consideration and
existence of debt, apparently would not serve the purpose of
the accused. Something which is probable has to be brought
on record for getting the burden of proof shifted to the
complainant. To disprove the presumptions, the accused
should bring on record such facts and circumstances, upon
consideration of which, the court may either believe that the
consideration and debt did not exist or their non-existence
was so probable that a prudent man would under the
circumstances of the case, act upon the plea that they did
not exist. Apart from adducing direct evidence to prove that
the note in question was not supported by consideration or
that he had not incurred any debt or liability, the accused
may also rely upon circumstantial evidence and if the
circumstances so relied upon are compelling, the burden
may likewise shift again on to the complainant. The accused
may also rely upon presumptions of fact, for instance, those
mentioned in Section 114 of the Evidence Act to rebut the
presumptions arising under Sections 118 and 139 of the Act.
33 CC.6157/2021( J)

21. The accused has also an option to prove the non-
existence of consideration and debt or liability either by
letting in evidence or in some clear and exceptional cases,
from the case set out by the complainant, that is, the
averments in the complaint, the case set out in the statutory
notice and evidence adduced by the complainant during the
trial. Once such rebuttal evidence is adduced and accepted
by the court, having regard to all the circumstances of the
case and the preponderance of probabilities, the evidential
burden shifts back to the complainant and, thereafter, the
presumptions under Sections 118 and 139 of the Act will not
again come to the complainant's rescue.

27. Section 139 of the Act is an example of a
reverse onus clause that has been included in furtherance of
the legislative objective of improving the credibility of
negotiable instruments. While Section 138 of the Act
specifies a strong criminal remedy in relation to the
dishonour of cheques, the rebuttable presumption under
Section 139 is a device to prevent undue delay in the course
of litigation. However, it must be remembered that the
offence made punishable by Section 138 can be better
described as a regulatory offence since the bouncing of a
cheque is largely in the nature of a civil wrong whose
34 CC.6157/2021( J)

impact is usually confined to the private parties involved in
commercial transactions. In such a scenario, the test of
proportionality should guide the construction and
interpretation of reverse onus clauses and the
accused/defendant cannot be expected to discharge an
unduly high standard or proof.

28. In the absence of compelling justifications,
reverse onus clauses usually impose an evidentiary burden
and not a persuasive burden. Keeping this in view, it is a
settled position that when an accused has to rebut the
presumption under Section 139, the standard of proof for
doing so is that of `preponderance of probabilities'.
Therefore, if the accused is able to raise a probable defence
which creates doubts about the existence of a legally
enforceable debt or liability, the prosecution can fail. As
clarified in the citations, the accused can rely on the
materials submitted by the complainant in order to raise
such a defence and it is conceivable that in some cases the
accused may not need to adduce evidence of his/her own.

(d) The the Hon'ble Supreme Court in Basalingappa Vs.
Mudibasappa reported in (2019) 5 SCC 418 held as
under:-

"25. We having noticed the ratio laid down by this
Court in the above cases on Sections 118 (a) and 139, we
35 CC.6157/2021( J)

now summarise the principles enumerated by this Court in
following manner:

25.1. Once the execution of cheque is admitted Section
139 of the Act mandates a presumption that the
cheque was for the discharge of any debt or other
liability.

25.2. The presumption under Section 139 is a
rebuttable presumption and the onus is on the accused
to raise the probable defence. The standard of proof
for rebutting the presumption is that of preponderance
of probabilities.

25.3. To rebut the presumption, it is open for the
accused to rely on evidence led by him or the accused
can also rely on the materials submitted by the
complainant in order to raise a probable defence.
Inference of preponderance of probabilities can be
drawn not only from the materials brought on record
by the parties but also by reference to the
circumstances upon which they rely.

25.4. That it is not necessary for the accused to come
in the witness box in support of his defence, Section
139 imposed an evidentiary burden and not a
persuasive burden.
36 CC.6157/2021( J)

25.5. It is not necessary for the accused to come in
the witness box to support his defence.

18. Therefore on perusal of the Judgments, it is clear that
it is well established that if the cheque and signature are admitted
the presumption arises that the cheque was issued for legally
enforceable debt/liability. The presumption is rebuttable. The
accused has to raise a probable defence and prove it by adducing
evidence, which must meet the standard of preponderance of
probabilities. Unless the same has been done, doubt can not be
raised on the case of the complainant. An accused need not
examine himself for discharging the burden of proof placed upon
him under a statute. He may discharge his burden on the basis of
the materials already brought on record. An accused has
constitutional rights to remain silent. The standard of proof on
part of the accused and that of the prosecution in a Criminal Case
is different. The prosecution must prove the guilt of an accused
beyond all reasonable doubts and the standard of proof so as to
prove a defence on the part of an accused is preponderance of
probabilities. The Inference of preponderance of probabilities can
be drawn not only from the materials brought on record by the
parties but also by reference to the circumstances upon which they
rely. He need not lead defence evidence for the said purpose and
it can be done by relying on the evidence of the prosecution on
record. It is the duty of the Courts to consider carefully and
37 CC.6157/2021( J)

appreciate the totality of the evidence and then come to a
conclusion, whether in a given case, the accused has shown that
the case of the complainant is in peril for the reason that the
accused has established a probable defence either by leading direct
defence evidence or by relying on the evidence of the
complainant. Therefore the arguments of the complainant that
accused failed to lead defence evidence and it is fatal to the case
of the accused and therefore adverse inference can be drawn
against the accused U/s.114(g) of Indian Evidence Act is not
acceptable.

19. In the back ground of the facts and the above
decisions, the evidence has to be appreciated. The counsel for the
accused cross examined PW1 in respect of the name of the accused
and it was elicited in the cross examination that he did not know
the full name of the his friend Lakshminarayana as
Lakshminarayana Gubba. PW1 answered that he knew
Lakshminarayana from past 15 years. During the course of
recording statement u/sec.313 Cr.P.C, the accused admitted that
himself and complainant are known to each other from past
several years. Further the accused has not produced any
documents to show that his full name is Lakshminarayana Gubba.
Therefore the defence of the accused that Lakshminarayana and
Lakshminarayana Gubba are different persons and that the
complainant filed false case on him using his name is not
believable and acceptable.
38 CC.6157/2021( J)

20. On perusal of the documents, it is clear that the
cheque at Ex.P1 bearing No.000113 dated 16.11.2020 for
Rs.25,00,000/- drawn on HDFC Bank, Basaveshwaranagar,
Bengaluru is the cheque pertaining to the account of M/s. Matha
Overseas Private Limited. It is the cheque pertaining to the
account maintained by the company. It was presented for
encashment within its validity. Ex.P2 is the Bank endorsement
with shara "Funds Insufficient" dated 05.01.2021. The bank
endorsement is neither signed by the Bank Manager nor the seal of
Bank is present. The Bank Memo is not issued as per the
provisions of the Banker's Books Evidence Act, 1891. It is written
on the memo that it is computer generated return memo and it
does not require seal or signature but the certificate U/s.65B of
Indian Evidence Act is also not produced along with it. The office
copy of Legal Notice dated 22.01.2021 at Ex.P3 was issued by the
complainant to the accused demanding repayment of the cheque
amount within time from the date of dishonour of cheque. The
postal acknowledgment at Ex.P5 shows that the legal notice was
served on the accused. In the notice M/s. Matha Overseas Private
Limited represented by its authorized signatory is shown as
accused. The designation of the accused in the the company is not
mentioned. The address mentioned in the notice is the house
address of the accused. The notice was not sent to the registered
address of the company. The notice was sent to the house address
of Laxminarayana. The accused disputed the service of notice in
the cross examination of PW.1. The complaint was filed on
39 CC.6157/2021( J)

12.12.2017. The cheque and the signature in the cheque are also
disputed.

21. The residential address of the Lakshminarayana in
notice and complaint is not disputed by him and no evidence was
lead to show that the said address is not his correct address.
Further Ex.P5 clearly discloses that the notice was served on
Lakshminarayana. Therefore on the basis of evidence on record,
this Court is of the opinion that the notice issued by the
complainant is served on Lakshminarayana. He neither issued
reply notice nor lead the defence evidence. It is the defence of the
accused Lakshminarayana that the lost cheque of the company was
misused by the complainant. It is also the defence that the cheque
and the signature in the cheque do not belong to him. The cheque
belongs to the company and the company is the drawer of the
cheque. It is pertinent to note that the the service of notice to
Lakshminarayana at his residential address is proved. However he
failed to issue reply notice taking the contention that the signature
in the cheque does not belong to him. It is pertinent to note that
the cheque is pertaining to the account maintained by the
company and when the cheque was presented for encashment it
was dishonoured with shara 'Funds Insufficient' and not with
shara 'drawers signature differs' or with any other reason. The
Hon'ble Supreme Court of India has in the case of Laxmi Dychem
v. State of Gujarat and Ors. reported in (2012) 13 SCC 375
held that the expression "amount of money...........is insufficient"
appearing in Section 138, N.I. Act is a genus and dishonour for
40 CC.6157/2021( J)

reasons such as "account closed", "payment stopped", "referred to
the drawer" are only species of that genus. Just as dishonour of a
cheque on the ground that the account has been closed is a
dishonour falling in the first contingency referred to in Section
138, so also dishonour on the ground that the "signatures do not
match" or that the "image is not found", would constitute a
dishonour within the meaning of Section 138 of the Act. Therefore
the endorsement "drawers signature differs" also attracts the
offence punishable U/s.138 of N.I.Act. Thereafter Lakshminarayana
failed to take steps to send the cheque to the expert for his
opinion for comparison of signature if at all the signature actually
does not belong to him. Further the signature of the accused in
vakalath, plea, statement u/sec.313 of Cr.P.C and the signature in
the cheque are similar. Therefore it clearly shows that the
signature in the cheque belongs to Lakshminarayana. Since the
cheque at Ex.P1 belongs to account maintained by the company
M/s Matha Overseas Private Limited and the bank has issued
endorsement with no other reasons but 'Funds Insufficient', it
shows that Lakshminarayana is the authorized signatory of the
company. Therefore the defence of the accused Lakshminarayana
that the lost cheque was misused by the complainant and that the
cheque and signature do not belong to him are not believable and
acceptable. However that itself is not sufficient. When the
company is the drawer of the cheque, the company has to be
arrayed as accused and the persons who are in charge and
responsible for the conduct of the business of the company have to
41 CC.6157/2021( J)

be arrayed as accused and there must be specific averments in the
complaint about the same.

22. The counsel for the accused cross examined PW.1 in
respect of the company as shown in the cause title of the
complaint. It was elicited that M/s. Matha Overseas Private
Limited is the registered company. He could not say the names of
Managing Director and Directors of the company. He did not see
Articles of Association and Memorandum of Association of the
company. He did not know that Lakshminarayana Gubba is not the
Director of M/s. Matha Overseas Limited. The company has not
sought for loan in writing. He voluntarily stated that
Lakshminarayana approached him seeking loan. There is no
transaction between him and M/s. Matha Overseas Private Limited.
He did not know the registered address of the M/s. Matha
Overseas Private Limited Company. He did not know the drawer
of the cheque. He voluntarily stated that it was given by
Lakshminarayana. He did not know that the account pertaining to
the cheque does not belong to Lakshminarayana Gubba. He did
not know that the cheque belongs to M/s. Matha Overseas Private
Limited Company. On going through the above portion of cross
examination it is crystal clear that the complainant knew
Lakshminarayana and he has done transaction with
Lakshminarayana, which is alleged to have taken place as per the
complaint. There is no transaction between complainant and the
company. He did not know anything about the company, its
Managing Director, its Directors and address of the company. He
42 CC.6157/2021( J)

also did not know the designation of the Lakshminarayana in the
company. He stated in his further cross examination that
Lakshminarayana is the Director of the company and he did not
produce any documents to show the designation of
Lakshminarayana in the accused company. He also did not know
about the fact as to whom the account pertaining to the cheque
belongs. He did not know the drawer of the cheque. It is not at
all the case of the complainant that Lakshminarayana approached
him representing the company and took the loan on behalf of the
company and issued the cheque in question representing the
company. This makes it clear that the alleged loan was taken by
Lakshminarayana and cheque was issued by the company. The
words "any cheque" and "other liability" in Section 138 clarifies
the legislative intent. If the cheque is given towards any liability
which may have been incurred even by someone else (such as in a
case of a guarantor), the person who draws the cheque is liable
for prosecution in case of dishonour of the cheque as held by the
Hon'ble Supreme Court in ICDS Ltd. v. Beena Shabeer reported
in (2002) 6 SCC 426. Once it is clear that the drawer of the
cheque is the company. The company and the directors who are
responsible for conduct of business of the company are to be
arrayed as accused. Though it is averred in the complaint that
Lakshminarayana is doing mining business in the name and style
of M/s Matha Overseas Private Limited Company and borrowed the
loan for investing in the company, it is not sufficient to construe
that he is responsible for conduct of business of the company.
Once the company is the drawer of the cheque, the company must
43 CC.6157/2021( J)

be arrayed as the first accused and the persons responsible for the
conduct of the company have to be arrayed as the other accused.
If the company is found guilty, the persons responsible for the
conduct of the business of the company are to be held vicariously
liable. It appears that the complainant without ascertaining
anything about the drawer of the cheque i.e. company has filed
the complaint against Lakshminarayana on the basis of information
available on the cheque. The averments made in the complaint are
vague and company is not arrayed as the accused.

23. The counsel for the complainant argued that
Lakshminarayana is the authorized signatory of accused company
and notice sent to him is served and it is sufficient service of
notice on the company. He relied on the judgment of Hon'ble
Supreme Court of India in the case of Rajneesh Aggarwal v/s
Amit .J Bhalla reported in AIR 2001 SC 518 wherein it was
held at para No.6 as under:-

6. Having regard to the contentions raised by the
counsel for the parties, two questions really arise for
our consideration :

(1) Was the High Court justified in coming to the
conclusion that the drawer has not been duly served
with notice for payment?

(2) Whether deposit of the entire amount covered by
three cheques, while the matter is pending in this
Court, would make any difference?
44 CC.6157/2021( J)

So for as the first question is concerned, it is no
doubt true that all the three requirements under
clauses (a), (b) arid (c) must be complied with before
the offence under Section 138 of the Negotiable
Instruments Act, can be said to have been committed
and Section 141 indicates as to who would be the
persons, liable in the event the offence is committed
by a company. The High Court itself on facts, has
recorded the findings that conditions (a) and (b) under
Section 138 having been duly complied with and,
therefore, the only question is whether the conclusion
of the High Court that condition (c) has not been
complied with, can be said to be in accordance with
law. Mere dishonour of a cheque would not raise to a
course of action unless the payee makes a demand in
writing to the drawer of the cheque for the payment
and the drawer fails to make the payment of the said
amount of money to the payee. The cheques had been
issued by M/s Bhalla Techtran Industries Limited,
through its Director Shri Amit Bhalla. The appellant
had issued notice to said Shri Amit J. Bhalla, Director
of M/s Bhalla Techtran Industries Limited.
Notwithstanding the service of the notice, the amount
in question was not paid, the object of issuing notice
indicating the factum of dishonour of the cheques is to
give an opportunity to the drawer to make payment
within 15 days, so that it will not be necessary for the
45 CC.6157/2021( J)

payee to proceed against in any criminal action, even
though the bank dishonoured the cheques. It is Amit
Bhalla, who had signed the cheques as the Director of
M/s Bhalla Techtran Industries Limited. When the
notice was issued to said Shri Amit Bhalla, Director of
M/s Bhalla Techtran Industries Limited., it was
incumbent upon Shri Bhalla to see that the payments
are made within the stipulated period of 15 days. It is
not disputed that Shri Bhalla has not signed the
cheques, nor is it disputed that Shri Bhalla was not
the Director of the company. Bearing in mind the
object of issuance of such notice, it must be held that
the notices cannot be construed in a narrow technical
way without examining the substance of the matter.
We really fail to Understand as to why the judgment
of this court in Bilakchand Gyanchand Co., [1999] 5
SCC 693, will have no application. In that case also
criminal proceedings had been initiated against A.
Chinnaswami, who was the Managing Director of the
company and the cheques in question had been signed
by him. In the aforesaid premises, we have no
hesitation to come to the conclusion that the High
Court committed error in recording a finding that
there was no notice to the drawer of the cheque, as
required under Section 138 of the Negotiable
Instruments Act. In our opinion, after the cheques
were dishonoured by the bank the payee had served
46 CC.6157/2021( J)

due notice and yet there was failure on the part of the
accused to pay the money, who had signed the
cheques, as the Director of the company. The
impugned order of the High Court, therefore, is liable
to be quashed.

As per the above decision, the notice sent to the Managing
Director was held to be sufficient.

24. Further the counsel for the complainant argued that
the notice need not be sent to all the directors of the company
individually. He relied on the subsequent judgment of Hon'ble
Supreme Court of India in the case of Kirshna Texport & Capital
Markets Limited. Vs Ila A. Agrawal & Ors. reported in AIR
2015 SC 2091 wherein it was held at para No.14 and 15 as
under:-

14. Section 141 states that if the person committing an
offence under Section 138 is a Company, every
director of such Company who was in charge of and
responsible to that Company for conduct of its
business shall also be deemed to be guilty. The reason
for creating vicarious liability is plainly that a juristic
entity i.e. a Company would be run by living persons
who are in charge of its affairs and who guide the
actions of that Company and that if such juristic entity
is guilty, those who were so responsible for its affairs
47 CC.6157/2021( J)

and who guided actions of such juristic entity must be
held responsible and ought to be proceeded against.
Section 141 again does not lay down any requirement
that in such eventuality the directors must individually
be issued separate notices under Section 138. The
persons who are in charge of the affairs of the
Company and running its affairs must naturally be
aware of the notice of demand under Section 138 of
the Act issued to such Company. It is precisely for this
reason that no notice is additionally contemplated to
be given to such directors. The opportunity to the
'drawer' Company is considered good enough for those
who are in charge of the affairs of such Company. If
it is their case that the offence was committed without
their knowledge or that they had exercised due
diligence to prevent such commission, it would be a
matter of defence to be considered at the appropriate
stage in the trial and certainly not at the stage of
notice under Section 138.

15. If the requirement that such individual notices to
the directors must additionally be given is read into
the concerned provisions, it will not only be against
the plain meaning and construction of the provision
but will make the remedy under Section 138 wholly
cumbersome. In a given case the ordinary lapse or
negligence on part of the Company could easily be
48 CC.6157/2021( J)

rectified and amends could be made upon receipt of a
notice under Section 138 by the Company. It would be
unnecessary at that point to issue notices to all the
directors, whose names the payee may not even be
aware of at that stage. Under Second proviso to
Section 138, the notice of demand has to be made
within 30 days of the dishonour of cheque and the
third proviso gives 15 days time to the drawer to
make the payment of the amount and escape the penal
consequences. Under clause (a) of Section 142, the
complaint must be filed within one month of the date
on which the cause of action arises under the third
proviso to Section 138. Thus a complaint can be filed
within the aggregate period of seventy five days from
the dishonour, by which time a complainant can
gather requisite information as regards names and
other details as to who were in charge of and how
they were responsible for the affairs of the Company.
But if we accept the logic that has weighed with the
High Court in the present case, such period gets
reduced to 30 days only. Furthermore, unlike proviso
to clause (b) of Section 142 of the Act, such period is
non-extendable. The summary remedy created for the
benefit of a drawee of a dishonoured cheque will thus
be rendered completely cumbersome and capable of
getting frustrated.
49 CC.6157/2021( J)

On perusal of the above judgment, it is clear that if the
notice is sent to the company, it is not necessary to send
individual notices to the each of the director of the company.

25. Further the counsel for the complainant argued that
defect in the description mentioned in the cause title is not fatal
to the case of the complainant. He relied on the judgment of the
Hon'ble Supreme Court in Bhupesh Rathod vs Dayashankar
Prasad ChaurasiabAIR 2021 SC 5726 held as under:

26. The description of the complainant with its full
registered office address is given at the inception itself
except that the Managing Director's name appears first as
acting on behalf of the Company. The affidavit and the
cross-examination in respect of the same during trial
supports the finding that the complaint had been filed by
the Managing Director on behalf of the Company. Thus, the
format itself cannot be said to be defective though it may
not be perfect. The body of the complaint need not be
required to contain anything more in view of what has been
set out at the inception coupled with the copy of the Board
Resolution. There is no reason to otherwise annex a copy of
the Board Resolution if the complaint was not being filed by
the appellant on behalf of the Company.

27. In our view, one of the most material aspects is,
as stated aforesaid, that the signatures on the cheques were
50 CC.6157/2021( J)

not denied. Neither was it explained by way of an
alternative story as to why the duly signed cheques were
handed over to the Company. There was no plea of any
fraud or misrepresentation. It does, thus, appear that faced
with the aforesaid position, the respondent only sought to
take a technical plea arising from the format of the
complaint to evade his liability. There was no requirement
of a loan agreement to be executed separately as any
alternative nature of transaction was never stated.

On perusal of the above decision, it is clear that the name
of the company and its full office address is mentioned in the
cause title of the complaint, but name of the Managing Director is
mentioned first and the resolution of the company was appended.
The Hon'ble Apex Court held that it can not be said to the
defective.

26. However in the case of S.M.S. Pharmaceuticals
Limited. v. Neeta Bhalla reported in (2005) 8 SCC 89, the
Hon'ble Supreme Court of India explained the requirements under
Section 141 of the NI Act as under:

(a) It is necessary to specifically aver in a complaint under
Section 141 that at the time the offence was committed, the
person accused was in charge of, and responsible for the
conduct of business of the company. Without this averment
51 CC.6157/2021( J)

being made in a complaint, the requirements of Section 141
cannot be said to be satisfied.

(b) Merely being a director of a company is not
sufficient to make the person liable under Section 141
of the Act. A director in a company cannot be
deemed to be in charge of and responsible to the
company for the conduct of its business. The
requirement of Section 141 is that the person sought
to be made liable should be in charge of and
responsible for the conduct of the business of the
company at the relevant time. This has to be averred
as a fact as there is no deemed liability of a director
in such cases.

(c) The managing director or joint managing director
would be admittedly in charge of the company and
responsible to the company for the conduct of its
business. When that is so, holders of such positions in
a company become liable under Section 141 of the
Act. By virtue of the office they hold as managing
director or joint managing director, these persons are
in charge of and responsible for the conduct of
business of the company. Therefore, they get covered
under Section 141. So far as the signatory of a cheque
which is dishonoured is concerned, he is clearly
52 CC.6157/2021( J)

responsible for the incriminating act and will be
covered under subsection (2) of Section 141.

27. Further the principles are laid down by the Hon'ble
Apex Court in decision in the case of National Small Industries
Corporation Limited v. Harmeet Singh Paintal and Another ,
reported in 2010 (3) SCC 330 Hon'ble Apex Court held at
paragraph No.24 and 25 as under;

24) Section 291 of the Companies Act provides that
subject to the provisions of that Act, the Board of
Directors of a Company shall be entitled to exercise all
such powers, and to do all such acts and things, as
the Company is authorized to exercise and do. A
Company, though a legal entity, can act only through
its Board of Directors. The settled position is that a
Managing Director is prima facie in-charge of and
responsible for the Company's business and affairs and
can be prosecuted for offences by the Company. But
insofar as other Directors are concerned, they can be
prosecuted only if they were in-charge of and
responsible for the conduct of the business of the
Company. A combined reading of Sec. 5 and Sec.291
of Companies Act, 1956 with the definitions in clauses
24, 26, 30, 31 and 45 of Sec. 2 of that Act would
show that the following persons are considered to be
53 CC.6157/2021( J)

the persons who are responsible to the Company for
the conduct of the business of the Company:

(a) the Managing Director/s;

(b) the whole-time Director/s;

(d) the Secretary;

(e) any person in accordance with whose directions or
instructions the Board of Directors of the Company is
accustomed to act;

(f) any person charged by the Board of Directors with
the responsibility of complying with that provision;

Provided that the person so charged has given
his consent in this behalf to the Board;

(g) where any Company does not have any of the
officers specified in clauses (a) to (c), any director or
directors who may be specified by the Board in this
behalf or where no director is so specified, all the
directors:

Provided that where the Board exercises any
power under clause (f) or clause (g), it shall, within
thirty days of the exercise of such powers, file with
the Registrar a return in the prescribed form.

But if the Accused is not one of the persons who
falls under the category of "persons who are
54 CC.6157/2021( J)

responsible to the Company for the conduct of the
business of the Company" then merely by stating that
"he was in-charge of the business of the Company" or
by stating that "he was in- charge of the day-to-day
management of the Company" or by stating that "he
was in-charge of, and was responsible to the Company
for the conduct of the business of the Company", he
cannot be made vicariously liable under Section 141(1)
of the Act. To put it clear that for making a person
liable under Section 141(2), the mechanical repetition
of the requirements under Section 141(1) will be of no
assistance, but there should be necessary averments in
the complaint as to how and in what manner the
Accused was guilty of consent and connivance or
negligence and therefore, responsible under sub-section
(2) of Section 141 of the Act.

25) From the above discussion, the following
principles emerge :

(i) The primary responsibility is on the complainant to
make specific averments as are required under the law
in the complaint so as to make the Accused vicariously
liable. For fastening the criminal liability, there is no
presumption that every Director knows about the
transaction.
55 CC.6157/2021( J)

(ii) Section 141 does not make all the Directors liable
for the offence. The criminal liability can be fastened
only on those who, at the time of the commission of
the offence, were in charge of and were responsible
for the conduct of the business of the Company.

(iii) Vicarious liability can be inferred against a
Company registered or incorporated under the
Companies Act, 1956 only if the requisite statements,
which are required to be averred in the
complaint/petition, are made so as to make Accused
therein vicariously liable for offence committed by
Company along with averments in the petition
containing that Accused were in-charge of and
responsible for the business of the Company and by
virtue of their position they are liable to be proceeded
with.

(iv) Vicarious liability on the part of a person must be
pleaded and proved and not inferred.

(v) If Accused is Managing Director or Joint Managing
Director then it is not necessary to make specific
averment in the complaint and by virtue of their
position they are liable to be proceeded with.

(vi) If Accused is a Director or an Officer of a
Company who signed the cheques on behalf of the
56 CC.6157/2021( J)

Company then also it is not necessary to make specific
averment in complaint.

(vii) The person sought to be made liable should be
in- charge of and responsible for the conduct of the
business of the Company at the relevant time. This has
to be averred as a fact as there is no deemed liability
of a Director in such cases.

28. The Hon'ble Supreme Court of India in its recent
decision in the case of Dilip Hiraramani v/s Bank of Baroda
Crl.A.No.767/2022 (SLP) Crl.No.461/2022 dated 09.05.2022
held as under:

In the said case the facts are that the Bank of Baroda
had granted term loans and cash credit facility to a
partnership firm M/s. Global Packaging on 04th October
2012 for Rs. 6,73,80,000/-. It is alleged that in part
repayment of the loan, the Firm, through its authorized
signatory, Simaiya Hariramani, had issued three cheques of
Rs. 25,00,000/- each on 17 th October 2015, 27th October
2015 and 31st October 2015. However, the cheques were
dishonoured on presentation due to insufficient funds. On
04th November 2015, the Bank, through its Branch Manager,
issued a demand notice to Simaiya Hariramani under Section
138 of the NI Act. On 07th December 2015, the respondent
Bank, through its Branch Manager, filed a complaint under
57 CC.6157/2021( J)

Section 138 of the NI Act before the Court of Judicial
Magistrate, Balodabazar, Chhattisgarh, against Simaiya
Hariramani and the Explanation.-- For the purposes of this
section, "debt or other liability" means a legally enforceable
debt or other liability. The Firm was not made an accused
in the said case. Simaiya Hariramani and the appellant, as
per the cause title, were shown as partners of the Firm.
Paragraph 8 of the complaint, which relates to the vicarious
culpability, states: "8. That, both accused No. 1 and accused
No. 2 are partners of the indebted firm. Accused No. 1, as a
partner of the debtor firm, issued a under the obligation of
the debtor firm. Thus, under Section 20 of the Partnership
Act 1932, accused No. 2 is equally responsible for the
underlying authority and liability of the deemed partners."
Other than the paragraph mentioned above, no other
assertion or statement is made to establish the vicarious
liability of the appellant. The demand notice issued on 04 th
November 2015 by the Bank, through its Branch Manager,
was served solely to Simaiya Hariramani, the authorized
signatory of the Firm.

The Hon'ble Supreme Court referring to its judgment
in Dayle De'souza v. Government of India through Deputy
Chief Labour Commissioner (C) and Another, wherein it has
answered the question of whether a director or a partner
can be prosecuted without the company being prosecuted,
held at para No.59 that in view of our aforesaid analysis,
58 CC.6157/2021( J)

we arrive at the irresistible conclusion that for maintaining
the prosecution under Section 141 of the Act, arraigning of
a company as an accused is imperative. The other categories
of offenders can only be brought in the drag-net on the
touchstone of vicarious liability as the same has been
stipulated in the provision itself. We say so on the basis of
the ratio laid down in C.V. Parekh which is a three-Judge
Bench decision. Thus, the view expressed in Sheoratan
Agarwal does not correctly lay down the law and,
accordingly, is hereby overruled. The decision in Anil Hada
is overruled with the qualifier as stated in para 51. The
decision in Modi Distillery has to be treated to be restricted
to its own facts as has been explained by us hereinabove."
The provisions of Section 141 impose vicarious liability by
deeming fiction which presupposes and requires the
commission of the offence by the company or firm.
Therefore, unless the company or firm has committed the
offence as a principal accused, the persons mentioned in
sub-section (1) or (2) would not be liable and convicted as
vicariously liable. Section 141 of the NI Act extends
vicarious criminal liability to officers associated with the
company or firm when one of the twin requirements of
Section 141 has been satisfied, which person(s) then, by
deeming fiction, is made vicariously liable and punished.
However, such vicarious liability arises only when the
company or firm commits the offence as the primary
offender.
59 CC.6157/2021( J)

29. The Hon'ble Supreme Court of India in the judgment
in the case of Dayle De'souza v. Government of India through
Deputy Chief Labour Commissioner (C) and Another in SLP
Crl.No.3913/2020 dated 29.10.2021 held as under:

27. In terms of the ratio above, a company being a juristic
person cannot be imprisoned, but it can be subjected to a
fine, which in itself is a punishment. Every punishment has
adverse consequences, and therefore, prosecution of the
company is mandatory. The exception would possibly be
when the company itself has ceased to exist or cannot be
prosecuted due to a statutory bar. However, such exceptions
are of no relevance in the present case. Thus, the present
prosecution must fail for this reason as well.

30. In view of the principles laid down in the above
recent judgments of the Hon'ble Supreme Court of India the
judgments relied on by the counsel for the complainant are not
applicable to the facts of the case on hand as the company has
not been arrayed as the primary accused in the case. Merely
mentioning the name of the company in the cause title does not
make the company as primary accused. It is also pertinent to note
that there is no mention in the complaint about the persons who
are in charge and responsible for the conduct of the business of
the company. The averments made in the complaint in respect of
60 CC.6157/2021( J)

the Lakshminarayana who is authorized signatory are also not
sufficient to show that he is the in charge and responsible for the
conduct of the business of the company. The complainant admitted
in the cross examination that address mentioned in Ex.P5 is not
the address of M/s. Matha Overseas Private Limited Company. He
voluntarily stated that the said address is the residential address of
the Lakshminarayana. He did not issue notice to M/s Matha
Overseas Private Limited company after dishonor of the cheque.
When it was asked to PW1 that Lakshminarayana Gubba is not
connected to the M/s. Matha Overseas Private Limited Company
and he is not in charge of day today affairs of the company, PW1
denied it and voluntarily stated that Lakshminarayana is the
Director of M/s. Matha Overseas Limited company. He admitted
that he had not produced any document to show that
Lakshminarayana Gubba is the Director of M/s. Matha Overseas
Private Limited Company. When it was asked to PW1 that whether
he can produce the documents, PW1 answered that he could not
say. The cross examination of PW.1 itself makes clear that the
complainant has no knowledge about the company and persons
responsible for its day to day affairs. It is clear from the cause
title and the complaint that the notice has been sent to the
authorized signatory of the company to his residential address. The
complainant did not know anything about the company, its
directors and registered address of the company. No notice has
been sent to the company as per the complaint and the documents
available on record. Therefore the ingredients of the offence
u/sec.138 of the N.I Act are not attracted.
61 CC.6157/2021( J)

31. In view of the above discussion it is clear that the
ingredients of Sec.138 of N.I Act are not complied. Therefore
presumptions u/sec.139 and 118(a) of N.I Act are not available to
the complainant. Apart from that the counsel for the accused
challenged the financial capacity of the complainant. It was
elicited in the cross examination of PW.1 that the loan of
Rs.25,00,000/- was lent by way of cash. He has been doing
financial transaction from past 15-20 years. He did not know that
the transaction worth more than Rs.20,000/- should not be made
by way of cash as per the rules. It was further elicited that he has
been doing poultry business and dairy business. He kept the
amount received from the said business by way of cash with him.
He gave the said money to the accused. He did not show
Rs.25,00,000/- income received from poultry business and dairy
business in his ITR returns.

32. The Hon'ble Supreme Court of India in the case of
Tedhi Singh v/s Narayan Dass Mahant in Crl Appeal
No.362/2022 arising out of SLP (Crl) No.1963/2019 dated
7.3.2022, observed at para No.9 as under:-

"The Trial Court and First Appellate Court have
noted that in the case u/sec.138 of N.I Act, the
complainant need not show in the first instance that
he had the capacity. The proceedings u/sec.138 of N.I
Act is not a civil suit. At the time when the
62 CC.6157/2021( J)

complainant give his evidence unless a case is set up
in the reply notice to the statutory notice sent, that
the complainant did not have the fair wherewithal, it
can not be expected of the complainant to initially
lead evidence to show that he had the financial
capacity. To that extent the courts in our view were
right in holding on those lines. However, the accused
has the right to demonstrate that the complainant in
a particular case did not have the capacity and
therefore, the case of the accused is acceptable which
he can do by producing independent materials,
namely, by examining his witnesses and producing
documents. It is also open to him to establish the
very same aspect by pointing to the materials
produced by the complainant himself. He can further,
more importantly, achieve this result through the
cross examination of the witnesses of the complainant.
Ultimately, it becomes the duty of the courts to
consider carefully and appreciate the totality of the
evidence and then come to a conclusion whether in a
given case, the accused has shown that the case of
the complainant is in peril for the reason that the
accused has established a probable defence.

33. The Hon'ble Supreme Court of India in the case of
Rajaram Sriramulu Naidu v/s Marutha Chalam in
Crl.A.No.1878/2013 dated 18.01.2023, observed as under:-
63 CC.6157/2021( J)

20. After analyzing all the pieces of evidence, the
learned Trial Court found that the Income Tax Returns of
the complainant did not disclose that he lent the amount to
the accused and that the declared income was not sufficient
to give loan of Rs.3,00,000/-. Therefore the case of the
complainant that he had given a loan to the accused from
his agricultural income was found to be unbelievable by the
learned Trial Court. The learned Trial Court also found that
the complainant has failed to produce the Promissory Note
alleged to have executed by the accused on 25.10.1998.
After taking into consideration the defence witnesses the
attending circumstances, the learned trial Court found that
the defence was a possible defence and s such, the accused
was entitled to benefit of doubt. The standard of proof for
rebutting the presumption is that of preponderance of
probabilities. Applying this principle, the learned Trial Court
had found that the accused had rebutted the presumption on
the basis of he evidence of the defence witnesses and
attending circumstances

21. The scope of interference in an appeal against
acquittal is limited. Unless the High Curt found that the
appreciation of the evidence is perverse, it could not have
interfered with the finding of acquittal recored by the
learned Trial Court.
64 CC.6157/2021( J)

34. Therefore as per the above judgments, complainant
need not show in the first instance that he had the financial
capacity at the time when the complainant give his evidence.
However in the case on hand the accused has pointed out the
infirmities in the case of the complainant by way of cross
examination and relying on the materials of the complainant. Such
being the case, when along with the other defences, the accused
also challenges the financial capacity and when the presumption
u/sec.139 of N.I Act is not available to the complainant, in view
of non compliance of ingredients of Sec.138 of N.I Act and
Sec.141 of N.I Act, it is incumbent upon the complainant to prove
his financial capacity. The complainant stated to have income from
poultry business and dairy business but he has not produced any
documents to show his income. He stated that he is income tax
assessee but he did not produce the IT returns. The non
production of documents in respect of income/source of funds of
the complainant, adverse inference can be drawn that he has no
such income as alleged. Therefore following the analogy from the
aforesaid judgments it can be safely held that the complainant has
no financial capacity to lend huge amount of Rs.25,00,000/- that
too by way of cash on a single day. If the said income from the
dairy business and poultry business is not disclosed in the ITR
Returns, it would become unaccounted money and therefore it can
not be considered that their exists legally recoverable debt.

35. For the reasons mentioned herein above, it is
crystallized that the accused has proved that there was no
65 CC.6157/2021( J)

existence of legally enforceable debt/liability between him and the
complainant and he has not at all issued the instant cheque
towards the discharge of legally enforceable liability of
Rs.25,00,000/- as alleged in the complaint. On the other hand, the
complainant failed to prove that the accused issued the cheque for
the legally enforceable liability. The complainant failed to prove
his case beyond reasonable doubts. It is well settled that the
accused needs to prove his defence by preponderance of
probabilities. It is sufficient if the doubt is created on the alleged
transaction. The accused has created the doubt on the transaction
and issuance of cheque in favour of complainant as alleged in the
complaint. The complainant failed to make the company as the
primary offender and the persons responsible including the
Lakshminarayana, who is authorized signatory, for the conduct of
the business of the company as the other offenders. The notice has
not been sent to the company. Therefore this Court is of the
opinion that the accused-Lakshminarayana demolished the case of
complainant by pointing out the infirmities in the case of the
complainant. Accordingly, the accused-Lakshminarayana is found
not guilty for the offence punishable U/s.138 of the N.I.Act.
Hence, the Point No.1 is answered in the Negative and Point No.2
is answered in the Affirmative.

36. Point No.3 : In view of the reasons assigned in Point
No.1 and 2 and considering the facts and circumstances of the
case, I proceed to pass the following:-
66 CC.6157/2021( J)

ORDER

As per the provisions of Sec.255(1) Cr.P.C. the accused is hereby acquitted of the offence punishable u/s.138 of NI Act, 1881.

The Personal Bond executed by the accused is hereby stands cancelled and the cash surety of Rs.5,000/- deposited by the accused shall be refunded to him after appeal period is over.

(Dictated to the Stenographer, transcript thereof is computerized and printout taken by him, is verified and then pronounced by me in Open Court on this the 6th day of February-2023.) (Lokesh Dhanapal Havale) XV Addl. CMM., Bangalore.

67 CC.6157/2021( J) ANNEXURE Witnesses examined for the Complainant:-

PW.1 : Sri. A Rudrappa Documents marked for the Complainant:-

     Ex.P1            : Cheque
     Ex.P1(a)         : Signature of the accused
     Ex.P2            : Bank endorsement
     Ex.P3            : Office copy of the legal notice
     Ex.P4            : Postal receipt
     Ex.P5            : Postal acknowledgment

Witnesses examined For Defence:-

NIL Documents marked for Defence:-

NIL (Lokesh Dhanapal Havale), XV Addl.CMM., Bengaluru.

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