M/S RAJCO STEEL ENTERPRISES Vs. KAVITA SARAFF AND ANR.

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CITATION	Special Leave to appeal (Criminal) No. 5583 of 2022
DATE OF JUDGEMENT	April 9, 2024
COURT	SUPREME COURT OF INDIA
APPELLANT	M/S RAJCO STEEL ENTERPRISES
RESPONDENT	KAVITA SARAFF AND ANR.
BRENCH	HON’BLE Mr. JUSTICE Anirudha BOSE HON’BLE MR. JUSTICE SANJAY KUMAR

INTRODUCTION

This appeal before the Supreme Court arises from the case of M/s Rajco Steel Enterprises vs Mr Kavita Saraff and another wherein the petitioner challenges a judgment delivered by the High Court of Calcutta on 26 June 2016. The High Court had dismissed the petitioner’s appeal against the acquittal of the first respondent for offenses under Section 138 of the Negotiation Instrument Act, 1881. The petitioner alleged that the respondent has issued cheques that were dishonoured, while also claiming that the respondent failed to disprove the existence of a debt and liability. In contrast, the respondent argued that the cheques were unlawfully obtained. After reviewing the evidence, the High Court upheld the trial court’s decision, stating that there was insufficient proof to establish the existence of a legally enforceable debt. The judgment highlights the importance of demonstrating a higher probability of truth in such cases.

FACTS OF THE CASE

The respondent had initially appealed against the magistrate’s order of conviction. On 18 May 2017, the Additional District and Session Judge in Calcutta reversed the conviction and acquitted the respondent. The present appeal challenges this appeal. The appellant, M/s. Rajco Steel Enterprises, a partnership firm, claims that it extended financial assistance to the respondent, Kavita Saraff, through banking transactions. The respondent allegedly issues cheques to partially discharge her obligations, which were dishonored due to insufficient funds. Despite being served with a demand notice, the respondent did not comply, prompting the appellant to initiate proceedings under Section 138 of the Negotiation Instruments Act, 1881.

The appellant’s counsel relied on the presumptions under sections 118(a) and 139 of the act, particularly the presumption of consideration attached to negotiable consideration attached to negotiation instruments under section 118(a). As a juridicial entity, the complainant, being a partnership firm, does not hold personal accounts or familial ties. Ramesh Kumar Gupta, one of the partners, allegedly engaged in speculative transactions with the respondent, attempting to conceal these dealings from his family. Gupta reportedly transferred funds from the firm’s account, even though all partners were his family members. The evidence further indicated that the respondent’s husband’s company received a brokerage percentage from her account at Motilal Oswal, where she engaged in speculation on behalf of the complaint. Since the respondent did not personally benefit from the firm’s remuneration, the evidence was deemed insufficient to meet the standard of reasonableness expected from a prudent person.

ISSUE RAISED

Whether the conclusions of the First Appellant Court and the High Court, which dismissed the petitioner’s special leave petitions, were supported by adequate evidence or are perverse.

Appellant’s Contentions

Senior Advocate Raju Ramchandran, representing the appellant, argued that the law assumes the cheques by evidence were issued to settle a debt or liability unless otherwise. The accused has the responsibility to prove that no such debt or liability exists. If the accused provides sufficient evidence to challenge the presumption, the complainant must then prove the existence of the debt or liability for which the cheques was issued.

To support his arguments, the counsel referred to the following cases:

Uttam Ram vs. Devindar Singh Hudan (2019) 10 SCC 287
Kishan Rao vs. Shankargouda (2018) 8 SCC 165
Shree Daneshwari Traders vs. Sanjay Jain (2019) 16

The appellant’s counsel dismissed the accused’s defense as unlikely, arguing that it does not sufficiently counter the presumption under Section 139 of the Negotiable Instruments Act, 1881. The accused claimed during their testimony that the complainant avoided personal account transactions for privacy reasons, but this ‘claim is contradicted by evidence.

The counsel further relied on the case Rahul Sudhakar Anantwar v. Shivkumar Kanhiyalal Shrivastav (2019) 10 SCC 203, emphasizing that merely admitting the signature on a cheque, combined with an implausible defense, is not enough to rebut the presumption.

The appellant’s counsel criticized the session judge’s decision to acquit the accused, arguing that the decision lacked legal justification. He also pointed out that the complainant had not signed any formal agreement about the alleged loan and had no written proof of providing financial assistance. The counsel stressed the importance of documentary evidence in case involving financial transactions, citing relevant legal precedents.

Respondent’s Contentions

Senior Advocate S. Nagamuthu, representing the respondent, argued that Section 139 of the Negotiable Instruments Act, 1881, presumes that a cheque was issued to settle a debt or liability. However, he contended that this presumption had been successfully challenged due to the lack of evidence.

The respondent highlighted several issues with the complainant’s case:

The complainant lacked critical details, such as the exact amount of financial assistance and supporting agreements, which are necessary to invoke Section 138 of the Act.
The cheques were seized by the CBI from the office of the accused’s husband, suggesting they were not in the complainant’s possession when presented for enactment.
The cheque was presented for encashment just before its expiry, and after the CBI raid, raising doubts about the complainant’s intentions.

The respondent also questioned the complainant’s failure to provide proof of legal ownership of the cheque and the absence of witnesses who could clarify the situation. He argued that the complainant’s financial records made it unlikely that such a substantial loan could have been given without proper documentation, especially considering the complainant’s financial position.

The counsel further argued that the materials provided by the complainant could be used by the accused to rebut the presumption under Section 139.

To support these points, the respondent’s counsel referred to the following cases:

Basalingappa vs. Mudibasappa (2019) 5 SCC 418
K. Subramani vs. K. Damodara Naidu (2015) 1 SCC 99
Reverend Mother Marykutty Vs. Reni C. Kottaram and Another (2013) 1 SCC 327
Krishna Janardhan Bhat vs. Dattatraya G. Hedge (2008) 4 SCC 54
M.S. Narayan Menon vs. State of Kerala AIR 2006 SC 3366

The respondent’s counsel concluded that the accused had successfully rebutted the presumption under Section 139 due to the lack of evidence provided by the complainant.

Judgement

The High Court recently ruled on a case involving a debt alledly paid through cheques . However, the petitioner could not produce any financial records showing this debt. The prosecution’s case was further weakened because other firm partners, who could have confirmed that the cheques were given as financial support, did not testify.

The court also considered the accused’s difficult financial situation and found it unlikely she would act on behalf of the petitioner without any compensation. The petitioner’s simple denial of the debt’s existence was not enough to overcome the legal presumption against them.

Both High Court and the First Appellate Court ruled against the petitioner because their claims lacked evidence. The Supreme Court rejected further appeals, finding no legal grounds to interfere with the lower courts’ decisions.

Analysis

Justice Sabyasachi Bhattacharyya of the Calcutta High Court delivered a judgment in a case under the Negotiable Instruments Act. The accused was alleged to have dishonoured cheques, but they denied owning any valid debt. The judgment explained key legal principles like presumptions, burden of proof, and the evidence needed to refute these presumptions. In the end, the appeals were dismissed, and the Trial court’s decision to acquit the accused was upheld. This analysis shows the importance of evidence and legal standards in proving the existence of a debt in such cases.

Conclusion

The Supreme Court agreed with the lower court’s decisions to dismiss the petitioner’s appeals. The courts based their rulings on the prosecution’s failure to prove that a valid debt or liability existed—a crucial factor in dishoured cheque cases. The lack of financial records to support the debt and the accused’s financial hardships played a key role in the court’s conclusion. These rulings highlighted the importance of solid evidence and financial context in resolving such disputes.

REFERENCES

This article is written by Prasoon Tiwari, an Intern at Legal Vidhya.

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