THE COMMISSIONER OF INCOME TAX vs. THE BILAGI PATTAN SAHAKARI BANK NIYAMITH

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CRL.A No. 100007 of 2015

IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH DATED THIS THE 6TH DAY OF DECEMBER, 2022 BEFORE THE HON'BLE MR JUSTICE S.RACHAIAH CRIMINAL APPEAL NO. 100007 OF 2015 (A)

BETWEEN: GANESH LAXMINARAYAN MARKOD, AGE: 55 YRS, OCC: BUSINESS, R/O. NEW UDUPI HOTEL, M.G.ROAD, BAGALKOT. …APPELLANT (BY SRI. V. G. BHAT., ADVOCATE) AND: VENKATESH S/O. HANAMANTHAPPA KANDKUR, AGE: 55 YEARS, OCC: BUSINESS, R/O. SARASWATI SADAN, HOUSE NO.117, IST CROSS, SHIRUR PARK, VIDYANAGAR, HUBLI. …RESPONDENT (BY SRI. K. L. PATIL., ADVOCATE)

THIS CRIMINAL APPEAL IS FILED U/S. 378 (4) OF CR.P.C. SEEKING TO SET ASIDE THE JUDGMENT AND ORDER OF ACQUITTAL PASSED BY THE PRL. CIVIL JUDGE & JMFC COURT, BAGALKOT, IN C.C.NO.119/2010 DATED 10.11.2014 & TO CONVICT THE ACCUSED U/S 138 OF NI ACT, AND TO AWARD COMPENSATION AS PER LAW.

THIS APPEAL COMING ON FOR FURTHER HEARING, THIS DAY, THE COURT MADE THE FOLLOWING:

Digitally signed by VIJAYALAXMI M BHAT Location: HIGH COURT OF KARNATAKA, DHARWAD BENCH, DHARWAD. Date: 2022.12.17 15:43:57 +0530

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JUDGMENT

This criminal appeal is filed by the appellant being aggrieved by the judgment and order of acquittal dated 10.11.2014 in C.C. No.119/2010 on the file of learned Prl. Civil Judge and JMFC, Bagalkot. 2. Brief facts of the case are as under;

The complainant and accused are business men and well known to each other. The accused was doing business in Hubballi, whereas the complainant was doing business in some other places. The accused was doing oil and real estate business. The accused being well acquainted with the complainant asked financial assistance for his business purpose. Accordingly, the complainant has lent Rs.11 lakhs to the accused in presence of PW.2 and PW.3. The accused after receiving the amount, in lieu of the amount received by him, issued cheque bearing No.086392 dated 04.11.2008 drawn on Corporation Bank, Bagalkot. 3. The complainant presented the same for encashment through his Banker. The same has been returned with a shara as ‘fund insufficient’ on 10.01.2009 and he got the

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endorsements marked as Ex.P.2 and Ex.P.3. A notice was issued regarding the dishonor of the cheque. Notice was served and accused replied to the said notice, which is marked as Ex.P.8. 4. To prove the case of the complainant, the complainant has examined PW.1 to PW.4 and got marked Ex.P.1 to Ex.P.11. 5. On the other hand, the accused examined himself as DW.1 and got marked Ex.D.1 and Ex.D.2. 6. The Trial Court after appreciating the oral and documentary evidence, acquitted the accused for the offence punishable under Section 138 of N.I. Act. Being aggrieved by the said judgment and order of acquittal passed by the Trial Court, this criminal appeal is filed seeking to set aside the judgment of acquittal. 7. Heard Sri. V. G. Bhat., learned counsel for the appellant and Sri. K. L. Patil., learned counsel for the respondent. 8. Sri. V. G. Bhat., learned counsel for the appellant submits that, the judgment and order of acquittal passed by

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the Trial Court is contrary to the facts and the law. Therefore, the same is liable to be set aside. 9. It is further submitted that, PW.1 to PW.4 are consistent in their evidence regarding the issuance of the cheque by the accused and also the amount paid to the accused. The evidence of all these witnesses has been ignored while analyzing the evidence. It is further submitted that, the complainant has proved that, he has paid the amount and also proved the sources of generating the income. The evidence of PW.3 and PW.4 clarifies the sources of income, the Trial Court ignored in considering the evidence of PW.3 and P.W.4. 10. It is further submitted that, the Trial Court failed to raise presumption which is envisaged under Section 139 of the N. I. Act. It is settled principle of law that, ‘it shall be presumed, unless the contrary is proved, that the holder of the cheque received the cheque of the nature referred to in Section 138 of N. I. Act for the discharge in whole or in part, of any debt or other liability.’ It is also settled principle of law that defence which may not be allowed in any prosecution under Section 138 of N. I. Act. The drawer had no reason to believe when he issued the cheque that the cheque may be dishonored

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on presentment for the reasons stated in that Section. The offence punishable under Section 138 of N. I. Act is a deemed offence which means that despite bona fide intention of the drawer of a cheque, in case a cheque is dishonored and remains unpaid in the circumstances mentioned in Section 138 of N. I. Act, such a drawer of a cheque shall be deemed to have committed an offence. Such being the fact, the Trial Court ignored in considering the said settled principle of law and acquitted the accused which is contrary to the law. Therefore, the same is liable to be set aside. 11. Per contra, Sri. K. L. Patil, the learned counsel for the respondent justifying the judgment and order of acquittal passed by the Trial Court submits that, the complainant has failed to prove the financial capacity. The witnesses who have supported the case of the complainant are friends of the complainant and merely saying that, they have financed him to pay the amount to the accused is not sufficient, unless they produce cogent evidence regarding the loan given to the complainant. 12. It is further submitted that, issuance of the cheque to the complainant has been clearly stated in the evidence. The

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wife of the accused had borrowed a sum of Rs.10 lakhs from Basaveshwar Co-operative Bank, Bagalkot. The said loan transaction documents are produced as Ex.P.8 and Ex.P.9. It is also true that the complainant has stood as a Guarantor to the loan. At the time of standing as a Guarantor to the loan, the complainant has obtained a signed blank cheque as a security. The complainant misusing the said cheque, has filed a false case. Therefore, the Trial Court rightly appreciated the evidence and acquitted the accused which does not require any interference. 13. After having heard the learned counsel for the respective parties and also perused the records, it is necessary to re-appreciate the evidence and also need to look as to whether the application of law by the Trial Court is inconsonance with the Act. 14. PW.1 is the complainant, PW.2 is the Bank Manager, PW.3 and PW.4 are the friends of PW.1. They have been examined to corroborate the lending capacity of PW.1. PW.3 and PW.4 who stated to have paid the loan to the complainant, thereby the complainant had executed hand-loan agreement to them as per Ex.P.10 and Ex.P.11.

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“26. In light of these extracts, we are in agreement with the respondent claimant that the presumption mandated by Section 139 of the Act does indeed include the existence of a legally enforceable debt or liability. To that extent, the impugned observations in Krishna Janardhan Bhat may not be correct. However, this does not in any way cast doubt on the correctness of the decision in that case since it was based on the specific facts and circumstances therein. As noted in the citations, this is of course in the nature of 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. 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 dishonor of cheques, the rebuttable presumption under

1 (2010) 11 SCC 441

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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 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 defendant-accused cannot be expected to discharge an unduly high standard or proof.

2 (2019) 18 SCC 106

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does indeed include the existence of a legally enforceable debt or liability. To that extent, the impugned observations in Krishna Janardhan Bhat Vs. Dattatraya G. Hegde, (2008) 4 SCC 54, may not be correct. However, this does not in any way cast doubt on the correctness of the decision in that case since it is based on the specific facts and circumstances therein. As noted in the citations, this is of course in the nature of a rebuttal 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. 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 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 defendant-accused

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cannot be expected to discharge an unduly high standard of 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." 17. On the aspects relating to preponderance of probabilities, the accused has to bring on record such facts and such circumstances which may lead the Court to conclude either that the consideration did not exist or that its non- existence was so probable that a prudent man would, under the circumstances of the case, act upon the plea that the consideration did not exist. This Court has, time and again, emphasized that though there may not be sufficient negative evidence which could be brought on record by the accused to discharge his burden, yet mere denial would not fulfil the requirements of rebuttal as envisaged under Section 118 and 139 of the N.I.Act. This court stated the principles in Kumar

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Exports Vs. Sharma Carpets, (2009) 2 SCC 513 as follows: "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 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-

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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. 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, therefore, the presumptions under Sections 118 and 139 of the Act will not again come to the complainant's rescue."

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plot. The evidence of these witnesses has not inspired the confidence of the Court, because it is stated in their evidence that. PW.3 and PW.4 have paid the loan to PW.1 and received Ex.P10 and Ex.P11 as hand-loan agreements. If the said agreements are received by them in lieu of the amount which they have paid to PW.1, they should have taken necessary steps to recover the amount from PW.1. No such documents have been produced before this Court. However, PW.3 and PW.4 have produced Ex.P10 and Ex.P11 which creates doubt regarding the alleged transaction between PW.3 and PW.4 and the complainant. In such a way, the Trial Court opined that the complainant has failed to prove the financial capacity to lend a huge sum of money to the accused. 19. It is to be relevant to notice that the accused has taken a contention that the alleged cheque is said to have been given as security for which the complainant stood as a guarantor to the loan for which his wife had borrowed from the co-operative bank. In support of his contention, the accused has produced Ex.P8 and Ex.P9 - the documents which indicate the loan transaction between the wife of the accused and the co-operative bank. Ex.P8 is the document which indicates that

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the Manager of Shri Basaveshwara Co-operative Bank, Bagalkot has filed a case against the wife of the accused to recover the loan amount before the Addl. Registrar of Co-operative Societies, Bangalore. The said recovery proceedings indicate that the complainant is arrayed as respondent No.3. There is no whisper regarding the final outcome of the complaint filed before the Addl. Registrar of Co-operative Societies, Bangalore for recovery of the loan amount against the wife of the accused. Thus, the contention raised by the accused that the said blank cheque had been given to the complainant in lieu of the surety for having stood for the loan which the wife of the accused had borrowed is acceptable, thereby the accused successfully rebutted the presumption mandated in terms of section 139 of the N.I. Act. 20. In the light of the observations made above, I am of the considered opinion that the judgment and order passed by the Trial Court and the findings of facts recorded for such acquittal is appropriate and do not call for interference. Hence, I proceed to pass the following: ORDER a) The Appeal filed by the appellant stands dismissed.

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b) The judgment and order of acquittal passed by learned Principal Civil Judge and JMFC, Bagalkot, dated 10.11.2014 in C.C.No.119/2010 stands confirmed.

Sd/- JUDGE

PJ: para 1 to 16 VMB: para 17 to end List No.: 1 Sl No.: 14