1. Legal Framework

Section 114(g) Evidence Act 1872:

The Court may presume that evidence which could be and is not produced would, if produced, be unfavourable to the person who withholds it.

This is optional presumption, not mandatory. Supreme Court in Union of India v. Ibrahim Uddin, Civil Appeal 1374 of 2008, (2012) 8 SCC 148 summarized law:

1. Generally duty of party to lead best evidence in possession which could throw light on issue.
2. If withheld, court may draw adverse inference even if onus not on that party.
3. BUT court must examine: relevance of document, whether other side asked for inspection/production under Order XI CPC, conduct/diligence, reasonable ground for non-production.
4. "Presumption is always optional and a relevant factor to be considered in background of facts. All pros and cons must be examined before adverse inference is drawn."
5. If one party asked court to direct other side to produce and other side failed to comply with court order, adverse inference justified.

Order XI Rule 5(4) CPC (as amended Commercial Courts Act): If party fails to produce documents despite direction, court can draw adverse inference at conclusion of trial, not midway - Karnataka High Court Commercial Suit ruling 2024.

SEBI Circular on Unauthorized Trading - CIR/HO/MIRSD/MIRSD2/CIR/P/2017/108 & 124 dated Sept 26, 2017 / Nov 30, 2017:

When dispute arises, burden of proof will be on broker to produce records for disputed trades - order placement evidence, telephone recordings, account statements, ledger, contract notes.

Brokers must maintain records for minimum period arbitration accepts complaints - currently 3 years, extended to 7 years if dispute raised. Failure = automatic adverse inference against broker.

2. When Court WILL Draw Adverse Inference

A. Party admits accounts exist but doesn't produce

Classic law: Gopal Krishnaji Ketkar v. Mohd Haji Latif, AIR 1968 SC 1413 - Landmark.

• Defendant was in possession of accounts, admitted he maintained accounts.
• Did not produce.
• SC held: Adverse inference must be drawn that accounts would show case against him.
• This is most cited for account statements.

Goswami Shri Mahalaxmi Vahuji v. Rannchhoddas Kalidas, Supreme Court: When 1st defendant summoned to produce accounts, accounts relating to important periods not produced and no satisfactory explanation, High Court correctly drew inference that account-books were kept back as evidence not favorable to defendant's case.

B. Bank / Broker in fiduciary position

Debts Recovery Tribunal Chennai - NPT Offset Press v. SBI (2020):

• Bank denied copy of statements to borrower after debt discharge.
• DRT: Banks cannot deny copy even if borrower defaulted. Must produce complete statements. Failure leads to adverse inference against bank's claim of outstanding dues.

SEBI v. Mansukh Securities & Arbitration Panels:

• Broker fails to produce ledger + bank statements showing client fund segregation.
• SEBI adjudication holds guilty for non-segregation + penalty. Arbitrators treat non-production as admission of unauthorized trading.

C. Trust / Company accounts

Shanti Prasad Jain v. Kalinga Tubes Ltd., AIR 1962 Ori 202 (Orissa HC):

• Company did not produce books for year 1958 though alleged mismanagement.
• Court: Petitioner entitled to presumption against company for non-production. It was for company to tender books in evidence.

3. When Court Will NOT Draw Adverse Inference

Critical safeguard - prevents fishing.

1. Ramrati Kuer v. Dwarika Prasad Singh, AIR 1967 SC 1134

• Plaintiff said defendant's father used to keep accounts.
• Appellant never asked court to order defendant to produce accounts.
• SC: "An adverse inference could only have been drawn if appellant had asked court to order them to produce accounts and they had failed after admitting they keep accounts. But no such prayer was made, so no adverse inference."

2. Basavaraj v. Padmavathi & Ors., Civil Appeal 8962-8963 of 2022 - Supreme Court 2023
Most recent on bank passbook.

• Specific performance suit - High Court drew adverse inference against plaintiff buyer for not producing bank passbook to prove readiness/willingness.
• Supreme Court reversed:

Unless plaintiff was called upon to produce passbook either by defendant or court orders him to do so, no adverse inference can be drawn.

• Relied on Indira Kaur v. Sheo Lal Kapoor (1988) 2 SCC 488 - absence of passbook, account statements does not allow adverse inference about ability to pay unless asked.

3. Mt. Bilas Kunwar v. Desraj Ranjit Singh, AIR 1915 PC 96

• Litigant can refrain from producing document he considers irrelevant; if other side dissatisfied, he must apply for interrogatories/inspection. If fails to do so, no inference.

4. Mahant Shri Srinivas Ramanuj Das v. Surjanarayan Das, AIR 1967 SC 256

• Mere withholding not enough. Other party must ask party in possession to produce. Then if fails, inference.

4. Specific Contexts

A. Stock Broker - Client Disputes

Burden completely reversed: Under SEBI Circular 2017, when client alleges unauthorized trades:

• Broker must produce: Complete ledger account statement, bank statement showing fund flow, order placement evidence (recorded call, email, signed order slip), contract notes, margin statements.
• If broker produces only 4 days of call recordings out of 6 months - NSE Appellate Arbitration held: "Presenting recordings from four days does not suffice to validate all trades. Reliance on limited allegedly manipulated sample disregards lack of written evidence."
• Failure = award in favor of client + refund + interest.

Bombay High Court Dec 24, 2024 - Sharekhan case: Broker failed to maintain SEBI-mandated trade confirmations (procedural lapse). Arbitral panel held broker liable for 50% of F&O losses. Bombay HC set aside - held procedural lapse alone does not make broker automatically liable for speculative losses unless client proves unauthorized trading. Important distinction.

B. Bank Recovery Suits

Standard Chartered Bank v. Andhra Bank Financial Services (2006): Inference normally arises only after party fails to comply with order or notice to produce.

NI Act Cases - Bank claims documents lost during merger:

• In re: NI Act Bank fails to produce papers - SupremeToday: Bank given multiple opportunities, claimed lost in merger. Court accepted plaintiff's request to lead secondary evidence under Section 65 Evidence Act due to bank's failure. Adverse inference against bank.

Section 34 Evidence Act + Bankers' Books Evidence Act: Banks can produce printout as secondary evidence, but must produce complete ledger from server. If produces truncated statement, adverse inference.

C. Income Tax - Section 276D

• Vasant Sathe's son case: Failed to produce Swiss bank account statements (HSBC Geneva) to IT Department. Prosecution under Section 276D (failure to produce accounts and documents). Court summoned as accused.

5. How to Invoke Adverse Inference - Practical Steps

If opposite side not producing complete account statements:

1. File Application under Order XI Rule 12, 14 CPC - Discovery and Inspection, seeking specific direction to produce complete ledger from [date] to [date] with bank statements.
2. If commercial suit, also under Order XI Rule 5(4) - Seek adverse inference + deny right to rely on those documents later.
3. If broker matter, file complaint to Exchange Investor Grievance Cell - they will direct broker to produce within 15 days, else burden shifts.
4. In evidence, show: (a) Party admits maintaining accounts, (b) You asked, (c) Court ordered, (d) No reasonable explanation (fire, flood must be proved with FIR).
5. Cite Gopal Krishnaji Ketkar + Ibrahim Uddin for proposition.

What Court Does After Adverse Inference:

• Treats your version of accounts as proved.
• In money suit, decrees amount claimed.
• In specific performance, holds readiness not proved if plaintiff fails.
• In broker arbitration, holds trades unauthorized.