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Case title: M/S Rajco Steel Enterprises v. Kavita Saraff and Anr.

Case no.: Petition for Special Leave to Appeal (Criminal) No.5583 Of 2022

Order on: 9^th April 2024

Quorum: Justice Aniruddha Bose and Justice Sanjay Kumar

FACTS OF THE CASE

The case of M/S Rajco Steel Enterprises v. Kavita Saraff and Another, decided by the Supreme Court of India, delves into the intricate provisions of the Negotiable Instrument Act, 1881 (“1881 Act”). The petitioner, a partnership firm dealing in iron and steel products, sought to appeal against the acquittal of the first respondent regarding offenses under Section 138 of the 1881 Act. The judgment, authored by Justice Aniruddha Bose, meticulously examines the evidence and legal principles involved.

The petitioner lodged four complaint cases against the first respondent, alleging dishonor of cheques issued between November 7, 2008, and November 24, 2008, drawn on Axis Bank Limited, Burra Bazar, Kolkata. The petitioner asserted that these cheques, totalling significant amounts, were issued in discharge of a debt owed to them. In response, the first respondent contended that the petitioner had not provided financial assistance but had utilized her bank account for stock market transactions. Additionally, she alleged that the cheques were illegally procured and presented for encashment.

CONTENTIONS OF THE APPELLANT

Rajco Steel Enterprises, represented by Mr. Raju Ramchandran, argued that all elements of Section 138 of the 1881 Act were satisfied, as Saraff’s signature on the cheques and the receipt of funds were undisputed. Ramchandran contended that once these elements were proven, the burden shifted to Saraff to prove that the cheques were not issued to discharge a valid debt. He cited various precedents to support this argument.

Referring to the judgment in the case of D.K. Chandel v. Wockhardt Limited [1], he has further submitted that once the main ingredients of the offence are established, production of the books of accounts is not strictly necessary in a proceeding under the 1881 Act relating to dishonour of cheques. He has cited the case of Rohitbhai Jivanlal Patel v. State of Gujarat and Another [2] to contend that factors relating to source of funds and other documentary evidence for advancing money are not relevant for consideration on the question of rebuttal of presumption by the accused.

CONTENTIONS OF THE RESPONDENTS

On behalf of Kavita Saraff, her defense centered on the contention that the cheques were not issued to discharge any debt owed to Rajco Steel Enterprises. Instead, she claimed that the funds were for stock market transactions conducted through her account on behalf of the firm. Saraff argued that the presumption of guilt under Sections 118 and 139 of the 1881 Act did not apply, as there was no legally enforceable debt.

In the light of the judgment of this Court in the case of Narendra Pratap Narain Singh v. State of U.P. [3] the jurisdiction of this Court under Article 136 of the Constitution of India to interfere with concurrent findings of fact is not in question, when such findings are based on no evidence or are perverse.

LEGAL PROVISIONS

Section 118 of the Negotiable Instrument Act, 1881: Presumptions as to negotiable instruments.

Section 138 of the Negotiable Instrument Act, 1881: Dishonour of cheque for insufficiency, etc., of funds in the account.

Section 139 of the Negotiable Instrument Act, 1881: 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 section138 for the discharge, in whole or in part, of any debt or other liability.

ISSUE –

The whole question involved in this proceeding is as to whether the cheques were issued in discharge of a debt and if it was so, then whether the accused/respondent no.1 was able to rebut the presumption in terms of Section 118 read with Section 139 of the 1881 Act.

• Whether the cheques were issued to discharge a legally enforceable debt.
• Whether the presumption of guilt under Sections 118 and 139 of the 1881 Act applies.
• Whether the appellate courts’ findings were based on sufficient evidence or were perverse.

COURT’S ANALYSIS AND JUDGEMENT

The Trial Court initially convicted Saraff, finding that the cheques were issued to discharge a debt and that she failed to rebut the presumption of guilt. However, the First Appellate Court and the High Court overturned this decision, citing lack of evidence of a valid debt and discrepancies in the signatures on the cheques.

The Supreme Court analyzed the evidence presented by both parties and concluded that Rajco Steel Enterprises failed to establish the existence of a legally enforceable debt. The Court noted that Saraff’s defense regarding the purpose of the funds received was plausible and that the firm’s balance-sheet did not reflect the alleged debt. Consequently, the Court upheld the acquittal, finding no perversity in the appellate courts’ decisions.

The Supreme Court dismissed the petitions for special leave to appeal, affirming the acquittal of Kavita Saraff. The Court held that the findings of the appellate courts were not based on no evidence or were perverse. As no point of law warranted interference, the Court upheld the lower courts’ decisions.

The case of M/S Rajco Steel Enterprises v. Kavita Saraff and Another underscores the importance of establishing the existence of a legally enforceable debt in cases of dishonored cheques. The burden of proof shifts to the accused to rebut the presumption of guilt, but this requires sufficient evidence of a debt. In this case, the appellate courts found no such evidence, leading to the acquittal of the respondent.

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Judgement Reviewed by – Chiraag K A

Click here to View Judgement

[1] [(2020) 13 SCC 471]

[2] [(2019) 18 SCC 106]

[3] [(1991) 2 SCC 623]