Supreme Court of India · 2008
Kumar Exports v. Sharma Carpets
(2009) 2 SCC 513 · AIR 2009 SC 1518 · Decided 16 December 2008
Court
Supreme Court of India
Bench
J.M. Panchal & R.V. Raveendran, JJ.
Date
16 December 2008
Subject
NI Act ss.118 & 139 — Rebutting the Presumption
Background & Facts
Kumar Exports v. Sharma Carpets, decided by a Bench of J.M. Panchal and R.V. Raveendran, JJ. on 16 December 2008, is an authority on the burden and standard of proof in proceedings under Section 138 of the Negotiable Instruments Act, 1881. The respondent, Sharma Carpets, alleged a sale of woollen carpets for Rs.1,90,348.39 and the issue of two cheques that were dishonoured for insufficient funds. The Magistrate at Karnal acquitted the appellant, Kumar Exports; the Punjab and Haryana High Court reversed the acquittal relying on the Section 139 presumption.
The accused's defence was that the bill was fictitious and that blank signed cheques had been given as an advance for carpets that were never supplied. He examined an official of the Sales Tax Department, who produced the complainant's own return and affidavit stating that no sale of woollen carpets took place in the assessment year 1994-95. The question before the Supreme Court was the nature of the presumptions under Sections 118 and 139, what an accused must do to displace them, and the standard against which the accused's rebuttal is to be measured. The Court used the occasion to explain the interplay between the statutory presumptions and the general burden-of-proof principles under the law of evidence.
Key Issues Before the Court
Holdings of the Court
Holding 1 — The Sections 118 and 139 Presumptions Are Rebuttable
The Supreme Court held that the presumptions under Section 118(a) and Section 139 of the Negotiable Instruments Act, 1881 are rebuttable. Section 139 requires the court to presume that the holder of a cheque received it for the discharge of a debt or liability, and Section 118(a) presumes that the instrument was made or drawn for consideration. Read with the definitions of “may presume” and “shall presume” in Section 4 of the Evidence Act, the words “unless the contrary is proved” make clear that both presumptions are rebuttable; they arise once execution of the instrument is proved or admitted, and a presumption “is not in itself evidence, but only makes a prima facie case for a party for whose benefit it exists” (paras 10–11).
Holding 2 — Direct Evidence Is Not Always Required, but Bare Denial Is Not Enough
The Court held that it need not insist in every case that the accused disprove consideration and debt by leading direct evidence, “because the existence of negative evidence is neither possible nor contemplated”. At the same time, “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”. The accused may rely on circumstantial evidence, on presumptions of fact such as those under Section 114 of the Evidence Act, and, “in some clear and exceptional cases”, on the case set out by the complainant — the averments in the complaint, the statutory notice and the complainant's evidence at trial (para 11).
Holding 3 — The Standard Is the Preponderance of Probabilities
The Court held that the standard against which the accused's rebuttal is measured is the preponderance of probabilities, not proof beyond reasonable doubt. The accused “is not expected to prove his defence beyond reasonable doubt as is expected of the complainant in a criminal trial”; the accused may show that consideration and debt did not exist, or that their non-existence “is so probable that a prudent man ought to suppose that no consideration and debt existed” (para 11).
Holding 4 — Once a Probable Defence Is Raised, the Onus Shifts Back to the Complainant
The Court explained that once rebuttal evidence is adduced and accepted by the court, having regard to all the circumstances and the preponderance of probabilities, “the evidential burden shifts back to the complainant and, thereafter, the presumptions under Sections 118 and 139 of the Act will not again come to the complainant's rescue” (para 11). On the facts, the Sales Tax evidence showed that no sale had taken place, the bill was unsigned by the accused, and the complainant produced no books of account, stock register or delivery acknowledgement; the High Court's judgment was set aside and the acquittal restored (paras 12, 14). The Court also disapproved the High Court's course of convicting the accused and remitting the case to the Magistrate for sentence, as unknown to law in an appeal against acquittal (para 13).
Practical Implications
Kumar Exports v. Sharma Carpets is a working reference for both sides of Section 138 litigation. For a complainant, the judgment confirms that the Sections 118 and 139 presumptions are a strong starting point but are not impregnable. Where the complainant anticipates that the existence of the debt may be put in issue, contemporaneous records of the underlying transaction — invoices, ledgers, acknowledgements, bank records and correspondence — are valuable, because if the presumptions are rebutted the complainant must prove the debt on the facts.
For an accused, the judgment confirms that the defence need not be established beyond reasonable doubt. A probable defence supported by evidence or circumstances — and, in some clear and exceptional cases, drawn from the complainant's own case — measured on the preponderance of probabilities, can be enough to shift the evidential burden back to the complainant. Bare denial is not. The decision is frequently read together with later authorities that apply and refine the same rebuttal standard.
Relevant Statutory Provisions
Practical Application for Creditors & Borrowers
This page is general legal information, not legal advice. Whether you are a creditor prosecuting a Section 138 complaint or a borrower defending one, the rebuttal standard set out in this judgment is central to how the matter is run. Our partner-led team advises banks, NBFCs and businesses on Section 138 strategy — from complaint drafting and evidence planning to representation before the High Courts and the Supreme Court.
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