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M/S Kalamani Tex & Anr. v. P. Balasubramanian

Criminal Appeal · 2021 INSC 72Decided 10 Feb 2021
Criminal Appeal No. 123 of 2021
Justice N.V. Ramana · Justice Surya Kant · Justice Aniruddha Bose

Background

The respondent and Appellant No.1 (a garment exporting firm) had a joint business arrangement to export garments to France; when payment issues arose, the firm's managing partner (Appellant No.2) issued a cheque for Rs. 11.20 lakh to the respondent and also signed a Deed of Undertaking acknowledging the liability. The cheque bounced for insufficient funds, and when the respondent sued under Section 138 of the NI Act, the appellants claimed the cheque and signed blank stamp papers had been given only to help the respondent in unrelated debt-recovery proceedings, not to discharge any real debt. The trial court acquitted the appellants, but the Madras High Court reversed this and convicted them; the appellants then approached the Supreme Court, having already deposited the full disputed amount with the Court's Registry during the appeal's pendency.

Decision Breakdown

The Supreme Court upheld the conviction, holding that once the appellants admitted their signatures on the cheque and the Deed of Undertaking, the statutory presumptions under Sections 118 and 139 of the NI Act, that the cheque was issued for a legally enforceable debt, arose in the respondent's favour and could only be rebutted on a "preponderance of probability," not by a bare denial. It held that even a blank cheque voluntarily signed and handed over attracts this presumption absent cogent contrary evidence, and the appellants' evidence about the respondent's separate bank debt did not disprove their own liability. However, given that the appellants had voluntarily deposited the full cheque amount with the Court in 2018, the Court took a lenient view and modified the High Court's sentence so that the managing partner would not have to undergo the awarded jail term, while directing the deposited amount (with interest) to be paid to the respondent.

Lesson Learnt

Signing and issuing a cheque, even as part of a blank cheque or stamp paper arrangement, creates a legal presumption that it was issued against a genuine debt, and merely alleging it was given for some unrelated purpose, without solid proof, will not be enough to escape liability under Section 138 of the NI Act.

Official source (sci.gov.in)View Judgment (PDF)

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