Defence Must Meet The Standards Of “preponderance Of Probability”: The Supreme Court

CASE TITLE:

Rajaram S/O Sriramulu Naidu (since deceased) through L.RS. v. Maruthachalam (since deceased) through L.RS.

DATE OF ORDER:

18 January 2023.

JUDGE(S):

Justice B. R. Gavai.

PARTIES:

Petitioner: Rajaram S/O Sriramulu Naidu.
Respondent: Maruthachalam.

SUBJECT:

In the present case, the Criminal Appeals challenge the common judgment and order of conviction and sentence passed by the Madras High Court whereby the Appellant has been convicted under Section 138 of the Negotiable Instruments Act, 1881 for issuing two cheques for an amount of Rs. 3.5 Lakhs, and has been sentenced to a fine of Rs. 7 Lakhs in each case. The Civil Appeals challenge the judgments passed by the Madras High Court whereby the Original Suits filed by the plaintiff-respondents for recovery of money on the basis of promissory notes were decreed.

BRIEF FACTS: 

• The present case involves a dispute between the Appellant (Rajaram) and the Respondent (Maruthachalam). 
• In 1992, the Appellant's wife subscribed to a 5-year chit-fund with Maruthachalam, the Respondent. 
• The Appellant submitted two signed blank cheques on behalf of his wife, since she did not have a bank account. 
• In 1995, his wife subscribed to yet another 5-year chit-fund with Maruthachalam. 
• The bank account on which the cheques were drawn was closed due to non-operation in 1997. 
• The first chit matured in 1997, while the second chit matured in 1999. 
• The Appellant and his wife repeatedly requested the Respondent to release the amount of the chits, but the Respondent never did so. 
• Finally, the Appellant and his wife threatened the Respondent with legal action, whereupon the Respondent presented the cheques for encashment without any information or intimation to the Appellant. 
• Both cheques were returned unpaid, so the Respondents instituted Complaint Cases under Section 138 of the N.I. Act. After the cases were dismissed, the Respondents instituted civil suits for the recovery of money on the basis of Promissory Notes. 
• The appeals against the judgments in the criminal matters were allowed by the High Court and the Appeals in the Original Suits were decreed by the High Court.

QUESTIONS RAISED:

• What standard of proof is required in criminal proceedings compared to civil proceedings? 
• What evidence was provided by the appellant to the court to substantiate his claim? 
• What principle was applied by the court in deciding the suit?

ARGUMENTS ADVANCED BY THE APPELLANT:

• In this case, Ms. Neha Sharma is arguing that the High Court had incorrectly overturned the decisions of the lower court in regards to blank cheques issued in 1992 by the Appellant as security for chit-funds. She claims that the cheques were misused by the Respondents in 1999, long after the Appellant closed the bank account on which they were drawn in 1997. 
• She further argues that at the time the cheques were sent for encashment, the Appellant was no longer the proprietor of M/s Brinda Engineering, and his wife had become the sole proprietor. 
• Thus, the Appellant could not have signed the cheques in the capacity of the proprietor of M/s Brinda Engineering.
• The Appellant counsel referred to the case of Basalingappa v. Mudibasappa [(2019) 5 SCC 418].

ARGUMENTS ADVANCED BY THE RESPONDENT:

• The learned counsel for the Respondents, Mr. V. Prabhakar, has argued that the Appellant-Raja Ram has failed to produce any material evidence to substantiate his claim that his wife subscribed to the chit-funds run by the Respondent, Maruthachalam. 
• He has further argued that the High Court rightly observed that no material was produced to prove that the cheques and promissory notes were issued only as security for the chit. 
• Additionally, he has argued that no legal proceedings were initiated for the recovery of the alleged amount due by the Appellant. 
• He further argued that it was not necessary for the Appellant to issue a blank cheque in the year 1992 for a chit to be subscribed much later in the year 1995. 
• Lastly, he has argued that even if certain amounts are not accounted for in the Income Tax Returns, this is a matter concerning only the defaulter and Revenue Authority and, therefore, the borrower cannot take advantage of the same. To support his arguments, he has relied on the judgments of this Court in the cases of Bir Singh v. Mukesh Kumar [(2019) 4 SCC 197], Rohitbhai Jivanlal Patel v. State of Gujarat [(2019) 18 SCC 106] and Anr, and Kalamani [(2021) 5 SCC 283].

ANALYSIS OF THE COURT:

• The Court observed that the appellant had presented evidence to the court, including Mr. Sarsaiyyn, Income Tax Officer, Thiru Iyyappan, Assistant Manager, City Union Bank, Ramnagar Branch, Mr. Subramaniam, Manager, Lakshmi Vilas Bank, Ganapathy Branch, and Mr. Ganesan, Village Administrative Officer, Ganapathy Village. 
• Through this evidence, it was established that the complainant had not declared that he had lent Rs.3 lakh to the accused, and that the declared income was not sufficient to give the loan of Rs.3 lakh. 
• Furthermore, the complainant had failed to produce the promissory note alleged to have been executed by the accused on 25th October 1998. 
• Applying the principle of preponderance of probabilities, the court found that the accused had rebutted the presumption, and was therefore entitled to the benefit of doubt. The scope of interference in an appeal against acquittal is limited, and the High Court cannot interfere with the finding of acquittal recorded by the learned Trial Court unless it finds that the appreciation of the evidence is perverse.
• In the present case, the court believes that the defense raised by the appellant does meet this standard of "preponderance of probability".
• The High Court found that the standard of proof in criminal proceedings differs from that in civil proceedings. As such, the High Court found that in the civil proceedings, the complainant had proved the promissory notes and had established the ability to lend the sum of Rs.3 lakh. It also found that the appellant's wife was not examined as a witness in order to probabilize the defense plea. The High Court then concluded that the suit(s) should be decided on the basis of the preponderance of probability and that the principle of adverse inference was applicable. 
• As such, the High Court reversed the judgments and orders of the Trial Court and decreed the suits. The High Court modified the decree by restricting it to the amount already deposited by the appellants in both the proceedings with interest accrued thereon.
• The Court allowed the present appeal on the following conditions-
• Criminal Appeal Nos. 1978 of 2013 and 1990 of 2013 are allowed and the common judgment of conviction dated 28 October 2008 and order of sentence dated 30 October 2008 respectively are quashed and set aside. The judgments and orders dated 10 July 2011 passed by the learned Trial Court is confirmed.
• Civil Appeal Nos. 10500 of 2013 and 10501 of 2013 are dismissed. However, the decrees of the High Court are modified, thereby restricting them to the amount already deposited by the appellants in this Court in the civil and criminal proceedings, along with interest accrued thereon.
• The respondents in both the Civil Appeals would be entitled to withdraw 50% of the amount each from the amount deposited in this Court with interest accrued upto date.

CONCLUSION

Based on the arguments and analysis presented by both the Appellant and Respondent, the Court allowed the present appeal. The Court modified the decrees of the High Court and restricted them to the amount already deposited by the Appellant in both the proceedings with interest accrued thereon. The Respondents in both the Civil Appeals were also entitled to withdraw 50% of the amount each from the amount deposited in this Court with interest accrued up to date.

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