2005 (3) KLT 568 -- A verdict with wilder impacts 

(By  Ajith N., Advocate, Irinjalakuda)

The accused, happy with the dictum in Raj v. Rajan (1997 (1) KLT 302) from N.I. Act for “cheque amount, notice amount issue” were not a few, till Division Bench (Justice B.M.Thulasidas and Justice D.Sreedevi) clarified it in 1997 (2) KLT 59. Krishnankutty v. State of Kerala (2005 (3) KLT 568) is worthy for a debate on social issues rather its impacts. Sociological theory says, “law is for maximum benefit for the maximum number of people”. Very much true that theories and definitions are good to have them in print alone. 

Representative sample was the villain who made the accused to win over the “always miserably failing prosecution” in Krishnankutty’s case. Para 8 and 9 of the reported judgment says, “ the question is of daily importance having wide implications on investigation, and warrants an elaborate hearing”. So heard in detail and two like minded judgments were also referred, but one from NDPS Act. Folly from the prosecution side was absence of proof of individual sampling. The verdict was concluded with an observation, “ ...... it is necessary for the prosecution to establish as per law that the accused was in possession of IMFL in excess of the permissible limit, by subjecting the contraband seized from the accused or samples taken therefrom to chemical analysis and obtaining a report from an expert”.

Abkari Act is emphatically silent for sampling. Hon. Supreme Court in Chand Batra’s case gave an answer for the question, “who is an expert in abkari offences and whether chemical analysis and its report is unerringly indispensable in abkari cases? “An officer who has put in long years of service, tasted lakhs of samples, engaged in searches, seizures and the like, is capable of identifying the liquid as contraband liquor or otherwise”. Chemical analysis report assumes weightage when the strength of any particular ingredient turns the story, like in the case of Toddy, or in the case of defilement with noxious substances etc.

Krishnankutty’s case, if taken in toto, both the prosecution and to a certain extent, defence admits possession of 8 bottles of IMFL. His grievance is taking of “representative sample” alone. Being “representative” ie., one among the same kind representing the remaining others, insisting for an ‘individual sample’ is only to negative a positive fact. State deputes excise officials to key posts in each and every distillery, who are supposed to be vigilant from the stage of blending till dispatching to KSBC outlets. Again a cross check is visualized by the State through Excise Officers like those in Ss.32, 34 etc. of the Act. Usually labels will be affixed showing the contents in it, KSBC safety wrapper, State’s sticker, hologram, serial number, batch number and so on. Here in this case, bottles had the KSBC stickers etc. If the IMFL bottles are sealed and having caps in tact, the amber, brownish, or colorless liquid will be liquor as so blended and supplied by the State for its thirsty subjects. If the State is doubtless with the contents, is it necessary for the Court to doubt its own mechanism, in the absence of a specific contention to that effect. Official acts enjoy the same footage in criminal cases, as to its regularity. KSBC will never take the risk of selling colored drinking water in bottles styled as “brandy” or the like. Think that the patrol party seizes a truck full of 375ml bottles containing IMFL illegally transporting or possessing for the purpose of sale. Will they be dare enough to try for a second patrol during their remaining service period?

The Hon. Supreme Court in Vijendrajit Ayodhya Prasad Goel v. State of Bombay (AIR 1953 SC 247) (3 Bench), considered the impact of non-sending of all the bottles seized, for chemical analysis. Para 5 of the judgment reads thus:

“Mr. Umrigar next contended that only one bottle out of the articles recovered at the raid was sent for analysis and that it was not proved that all the bottles and the drums that were recovered from the godown contained rectified spirit. He said these might well have contained “phenyle” the manufacture of which the company admittedly was carrying on in that godown. This argument cannot be seriously considered. It was wholly unnecessary to send all the bottles recovered by the police in the presence of “panchas” and which contained the same stuff for the purpose of analysis. This argument is therefore rejected.”

AIR 1953 SC 247 though, still holds good, what has become the plight of “always miserable prosecutions” in like situations after 2005 (3) KLT 568?. Honored acquittals alarms louder since this one. Accused are more loyal and thankful to Krishnankutty. Definitely the backlogs of our trial courts will come down for lesser chances of State appeals. What is the result? Ultimately State is the sufferer but who cares?

Let the helpless prosecutors wait for a verdict from a superior bench, which will please to consider (Goel’s case. Long live Krishnankutty, but not Krishnankutty v. State of Kerala. 

Right of a chitty foreman to realize future chitty instalments from a prized

subscriber who is a  defaulter -- An attempt in clearing the haze

(By Boby George Kurian, Advocate, Kottayam)

The decision of Madras High Court in C.Dhanam v. A.M. Sreenivasan (AIR 2006 Mad .210 = 2006 (3) KLT SN 30) brought into perspective the continuing haze over the legal position regarding the right of a chitty foreman to realize future instalments from the defaulter who has executed an agreement agreeing the recall of the entire future instalments on default of any one instalment. In the above case the actual issue in dispute was as to the starting point of limitation for recovery of dues under a chitty transaction. But in finding that the limitation starts from the date of termination of the chit period the court observed in paragraph 28 of the judgment that on entering a chit agreement, no debt is incurred by the subscriber for the amount of all future instalments and in respect of such amount there is no debtor creditor relationship. The above observation was based on the decision of Supreme Court in M/s. Sriram Chits and Investments (P) Ltd. v. Union of India (AIR 1993 SC  2063). In M/s. Sriram Chits the Supreme Court was trying to find out whether a chitty transaction is money lending or a special contract. This was to enable the court to find out whether the Parliament was competent to enact Chit Funds Act 1982. The Supreme Court after referring to various decisions of the High Courts and the Supreme Court came to the conclusion that chits are forms of contract and are not money lending business and would fall in Entry 17 of List III of 3rd Schedule and is within the legislative competence of the Parliament. In the M/s. Sriram Chits case there is a clear finding by the 3 member Bench of Supreme Court to the effect that the chit agreement is not a money lending transaction and that there is no relationship of debtor and creditor for the purpose of it being treated as a money lending transaction.

One of the earlier important decisions of our High Court relating to the question in hand was in P.K.Achuthan v. State Bank of Travancore (1974 KLT 806) wherein it was held that a subscriber truly and really becomes a debtor for the prize amount paid by him, and the facility of the repayment in instalment is only a concessional facility and the stipulation enabling the foreman to withdraw the concessional facility in default of punctual payment of instalments will not be penal or unconscionable. But the above Full Bench decision in P.K. Achuthan’s case was over-ruled by a Full Bench of five Judges of our High Court in Janardhana Mallan v. Gangadharan (1983 KLT 197). The Full Bench in Janardhana Mallan after considering a catena of decisions, starting from 1937 came to a conclusion that a chit fund transaction was not a case of borrowing at all and it was entirely different from a loan transaction. But the Supreme Court in a subsequent decision in K.P.Subbaramma Sastri v. K.S.Raghavan (1987 (1) KLT 753) approved the earlier decision of our High Court in P.K.Achuthan and came to a conclusion that the subscriber truly and really becomes a debtor for the prized amount paid to him. But interestingly the subsequent Full Bench decision in Janardhana Mallan’s case was not brought to the notice of the Supreme Court while hearing Subbarama Sastri. But the Supreme Court in M/s. Sriram’s Chits case referred to all the above decisions and observed that except in the over ruled decision in P.K.Achuthan’s case all High Courts have taken the consistent view that chitty transaction is not a money lending transaction. The Supreme Court also approved the said view in para.18 of the said judgment. By doing so the three Judge Bench of the Supreme Court has over ruled by implication, its earlier decision of the two judge bench in Subbarama Sastri’s case which was based on an over ruled decision in P.K.Achuthan’s case.

Our High Court in Mar Apparem Co. Ltd. v. Narendranath (1990 (1) KLT 866) after going through the decisions in Achuthan’s, Janardhana Mallan’s and Subbarama Sastri’s cases correctly came to a conclusion that, since Supreme Court in Subbarama Sastri has approved of the decision in P.K.Achuthan, it is the correct law inspite of it being overruled in Janardhana Mallan and that the foreman can realize entire future instalments on default.

The decision of Supreme Court in M/s.Sriram Chits which approved Janardhana Mallan’s came subsequent to Mar Apparem. From 1993, the year in which M/s. Sriram Chit’s decision was delivered, it can be assumed that the settled law regarding a chitty transaction is that it is a special contract and is not money lending and any condition enabling the realisation of the entire future instalments on default of a single instalment is penal in nature and cannot be enforced. That means the foreman cannot realize entire future instalments on default. But in the decision in John v. Oriental Kuries Ltd. (1994 (2) KLT 353) our High Court relying on the decision in Mar Apparem found that foreman can realize entire future instalments on default. Unfortunately the binding decision of the Supreme Court in Sriram Chits was not brought to the notice of the court. Hence the decision rendered in Oriental Kuries can only be said to have been delivered per incuriam of the binding precedent in Sriram Chits. Nevertheless in lots of cases the proposition of law laid down in Oriental Kuries is still sought to be canvassed by the plaintiffs counsels and in few cases is still being accepted by the courts in Kerala.

What emerges from the haze after the above discussion can be summarized as follows:-

No debt is incurred by a prized subscriber when he prizes the chit and receives the prized amount. This is because the chitty agreement only embodies a promise to pay on future dates, which is not a promise to pay existing debt, but to pay in discharge of a contractual obligation. The prize amount is not received as loan but as of right by virtue of the terms of the contract between the parties. Therefore the stipulation that on default being made in the payment of any instalment the whole of the balance should become due and payable would be in the nature of penalty and cannot be enforced. That means no suit can be filed by the foreman to realise the entire future instalments on default of instalments by the prized subscriber.

Another offshoot of the above discussion is that if the decision in C.Dhanam v. A.M.Sreenivasan (AIR 2006 Mad. 210 - 2006 (3) KLT SN 30) is followed the foreman will be disentitled even from recovering the defaulted instalments before the termination of the chit period because as per the said decision the cause of action will start only from the date of termination of the chit period. That is an issue, which will need further discussion.

Signed Blank Cheque and Burden of Proof

(By A.K. Radhakrishnan, Jt. Secretary, Advocate General’s Office, Ernakulam)

It appears that two Honourable Judges of our High Court have expressed difference of opinion as to whom the burden of proof lies in respect of a signed blank cheque in the context of Ss.138 and 139 of the Negotiable Instruments Act, 1881. This is evident from the two decisions reported in the K.L.T. very recently.

In her elaborate judgment reported in 2006 (3) KLT 972, Hon. Mrs. Justice K.Hema has stated thus:-

“ In cases where the accused raises a plea that the cheque was a blank signed one when it was handed over or received by another person, the court will have to scan through the evidence and the materials placed before it and decide whether the complainant “proved” that the accused has drawn a cheque of the nature defined under the Act or, whether it was only a signed blank cheque which doesn’t satisfy the definition of a cheque under the Act, when it was handed over. The former has to be proved by the prosecution whereas, the latter need only be probabalised, as in a defence case. The degree of proof certainly differs”.

According to the Learned Judge, a prosecution under S.138 of the Negotiable Instruments Act being a Criminal Prosecution, the burden of proof lies on the prosecution to prove its case beyond reasonable doubt and that the accused is presumed to be innocent till the offence against him is proved.

In the considered view of the Learned Judge, cheque is to satisfy the definition of cheque under S. 6 read with S.5 of the Negotiable Instruments Act and that it is the bounden duty of the prosecution to prove that cheque falls within the definition of cheque under the Act. It Is further stated that cheques produced in all cases under S.138 of Negotiable Instruments Act ordinarily contain an order in writing. But that doesn’t mean that the court shall immediately come to the conclusion that such cheques satisfy the definition under the Act.

With reference to the presumption in favour of holder of cheque ie., the holder of a cheque received the cheque of the nature referred to in S.138 for the discharge, in whole or in part, or any debt or other liability, unless the contrary is proved, this is what the Learned Judge has stated.

In order to draw the presumption in favour of the holder of the cheque under S.139 of Negotiable Instruments Act, the court on an assessment of the evidence available must be satisfied that the holder of “cheque” “received” the same by entitlement and that it was not procured by him by any other means. Only after the court gets satisfied that one is the holder of the cheque of the nature stated in S.138 and that he received the same, court can draw the presumption as stated in S.138. In other words, once the basis of presumption exists, the court will have to draw the presumption enumerated under S.139 of the Negotiable instruments Act. If the holder of the cheque has to avail of the benefit of presumption under S.139, the burden is on him to establish ail the prerequisites for drawing such presumption. In a case where the presumption under S.139 are not established or the basis for drawing the presumption that the cheque was drawn for the purpose of discharging a debt or liability under S.139 of the Act, there is no presumption under S.139 that the cheque is “issued” in the sense that it is “executed” by the accused, even if the signature in the cheque is admitted by the accused. There is also no presumption under S.139 or any other provisions of the Negotiable Instruments Act that if a blank cheque is issued, it can be presumed that an implied authority is given to the holder of the cheque to fill it up towards discharge of a debt etc.

The learned Judge has also opined that the expression “received” under S.139 of the Act cannot be equated with the expression “issued” which means “executed”.

Whereas in the decision reported in 2006 (4) KLT 48 Hon. Justice R.Basant has stated thus:- “The defence that a signed blank cheque was handed over by an account holder is inherently a suspicious one and must be approached with great care and caution. If the laudable commercial morality which the legislature wants to usher in by introduction of S.138 of the Negotiable instruments Act in the statute book were to prevail among the polity such an irresponsible casual and indifferent approach by account holders deserves to be discouraged. No account holder is expected to deal with the cheques in such a casual, careless, irresponsible and indifferent manner. Such a defence may still not be impossible in a prosecution under S.138 of the Negotiable Instruments Act. But the burden must certainly rest heavily on the shoulders of such an indictee who wants to attribute such an irresponsible conduct to himself to claim absolution from culpable liability”.

In this context, it would not be out of place to have a look at some of the basic principles pertaining to burden of proof.

Chapter VII of Indian Evidence Act, 1872, deals with burden of proof. It is an obligation to prove facts. It has two meanings. One is burden of proof for establishing a case as a matter of law and the other is one which casts a duty to introduce evidence.

When one is bound to prove the existence of a fact, the burden is on him to prove that fact. In other words, the burden of proof is on one who would fail in a suit or proceeding if evidence is not given on either side. In short, the burden of proof lies on the person who substantially asserts the affirmative of the issue. That burden never shifts. On the other hand the onus of proof shifts. It may be noted that during the course of evidence, there is every possibility of that burden shifting from one to another.

One of the fundamental principles of criminal jurisprudence is that an accused is presumed to be innocent and that the onus of proving the guilt of the accused beyond reasonable doubt lies on the prosecuting agencies. Thus the burden of proving everything essential for establishing the charge framed against an accused is on the prosecution. So, the burden of proof in criminal case is on the prosecuting party, unless shifted by Legislative interference.

It has to be remembered that when a document is in custody or possession of one subsequent to its execution and if it was found that there was some alteration, it is for the person who has the custody of that document to prove that the same was not altered. Every alteration on the face of an instrument renders it suspicious and the party claiming under it should remove the suspicion. Should there be an alteration in a document subsequent to its execution, the person who is in custody of that document has to discharge the burden of establishing that it is not altered. It has to be stated that anything subsequently introduced (“newly introduced) to a document is material alteration because alteration includes a new insertion also. So, insertion also amounts to material alteration. It is also relevant to note that even if a party admits a document, he has a right to explain that the statement contained in the document is not correct.

Under S.118 of the Negotiable Instruments Act, until the contrary is proved, the presumption is that a negotiable instrument is made for consideration and the burden of proof in the first instance is on the maker of the instrument to prove that the consideration was originally absent in whole or part.

In this context, it is quite relevant to note that when both sides have adduced evidence before the court, the debate as to onus is purely academical. It is then for the court to take a final decision on the issue or issues before it. Way back in 1959, Supreme Court has expressed this point thus “the question of burden of proof at the end of the case, when both parties have adduced their evidence is not very great important and the court has to come to a decision on a consideration of all materials”.

In view of the conflict of views between the two Hon’ble Judges, on the subject captioned, an authoritative decision from a Division Bench is expected in a suitable case.