Karnataka High Court Affirms Acquittal in Cheque Bounce Case: Complainant Fails to Prove Financial Capacity to Lend ₹6,35,000, Accused Successfully Rebuts Presumption Under Section 139 of Negotiable Instruments Act
Karnataka High Court Affirms Acquittal in Cheque Bounce Case: Complainant Fails to Prove Financial Capacity to Lend ₹6,35,000, Accused Successfully Rebuts Presumption Under Section 139 of Negotiable Instruments Act

Karnataka High Court Affirms Acquittal in Cheque Bounce Case: Complainant Fails to Prove Financial Capacity to Lend ₹6,35,000, Accused Successfully Rebuts Presumption Under Section 139 of Negotiable Instruments Act

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Court’s Decision

The Karnataka High Court dismissed the appeal filed by the complainant against the trial court’s judgment acquitting the accused under Section 138 of the Negotiable Instruments Act, 1881 (hereafter, “the Act”). The High Court upheld the trial court’s finding that:

  1. The complainant failed to establish his financial capacity to lend the alleged amount of Rs. 6,35,000.
  2. The accused successfully rebutted the statutory presumption under Section 139 of the Act, which presumes that a cheque is issued for discharging a legally enforceable debt or liability.

The High Court emphasized that the trial court’s decision was well-reasoned, as the complainant could not prove the existence of a valid debt or his capacity to lend such a significant amount.


Facts

  1. The complainant alleged that the accused borrowed a total of Rs. 6,35,000 on various dates for personal and family necessities, including the purchase of vehicles.
  2. To repay the loan, the accused issued three cheques as follows:
    • Cheque No. 618918, dated 26.11.2009, for Rs. 15,000,
    • Cheque No. 618919, dated 26.12.2009, for Rs. 15,000,
    • Cheque No. 618915, dated 21.01.2010, for Rs. 6,05,000.
  3. When presented for encashment, the cheques were dishonored due to insufficient funds.
  4. The complainant sent a legal notice demanding repayment, but the accused failed to respond, leading to the filing of a complaint under Section 138 of the Act.
  5. The trial court acquitted the accused, finding that:
    • The complainant failed to prove his financial capacity to lend Rs. 6,35,000.
    • The accused presented a plausible defense that the cheques were issued as security for a loan taken by a third party.

The complainant filed an appeal before the Karnataka High Court challenging the acquittal.


Issues

The key legal questions in the case were:

  1. Whether the accused issued the cheques to discharge a legally enforceable debt or liability?
  2. Whether the complainant proved his financial capacity to lend Rs. 6,35,000?
  3. Whether the accused successfully rebutted the statutory presumption under Section 139 of the Act?

Petitioner’s Arguments

The complainant argued that:

  1. The accused admitted his signatures on the cheques, which invoked the presumption under Section 139 of the Act. This presumption states that the cheques were issued to discharge a legally enforceable debt or liability.
  2. The defense that the cheques were issued as security for a loan taken by a third party (Venkatesh) was unsupported by any evidence.
  3. The trial court erred by focusing excessively on the complainant’s financial capacity rather than the enforceability of the debt.
  4. The judgment of acquittal was contrary to the law and evidence presented.

Respondent’s Arguments

The accused defended the acquittal, asserting that:

  1. The cheques were issued as security for a loan availed by one Venkatesh, who was employed as a driver for the complainant.
  2. The complainant admitted during cross-examination that the cheques were blank, signed cheques, with their contents filled in later by the complainant. This significantly weakened the complainant’s case and supported the accused’s version.
  3. The complainant failed to provide any documentary evidence, such as bank statements or income details, to substantiate his financial capacity to lend Rs. 6,35,000.
  4. The complainant could not provide specific dates for when the alleged loan was given, which raised questions about whether the claim was even within the limitation period.

Analysis of the Law

1. Presumption Under Section 139

Section 139 of the Negotiable Instruments Act creates a presumption that a cheque is issued to discharge a legally enforceable debt. However, this presumption is rebuttable. The accused does not need to prove his defense beyond a reasonable doubt but only on a preponderance of probabilities. If the accused can raise a reasonable doubt about the existence of the debt, the burden shifts back to the complainant to prove the debt.

2. Financial Capacity of the Creditor

The Supreme Court, in Dattatreya v. Sharanappa (2024), held that if the accused challenges the complainant’s financial capacity to lend the alleged amount, the complainant must prove his capacity through cogent evidence. Failure to establish such capacity undermines the complainant’s case.

3. Standard of Proof

The standard of proof for rebutting the presumption under Section 139 is “preponderance of probabilities,” meaning that the accused only needs to show that it is more likely than not that the debt did not exist.

4. Burden of Proof

Once the accused rebuts the presumption, the burden of proof shifts back to the complainant, who must then demonstrate that the debt was genuine and legally enforceable.


Court’s Reasoning

  1. Failure to Prove Financial Capacity: The complainant admitted during cross-examination that he had no documents, such as bank statements, income tax returns, or agreements, to substantiate his financial capacity to lend Rs. 6,35,000. This failure undermined his case, as the accused had successfully raised doubts about his ability to lend such a large sum.
  2. Inconsistent Testimony: The complainant’s testimony contained contradictions. While he initially claimed the accused was a friend, he later denied this in cross-examination. He also failed to specify the dates on which the loan was allegedly given, which made it difficult to determine whether the claim was barred by limitation.
  3. Defense of the Accused: The accused’s defense, that the cheques were issued as security for a loan availed by a third party (Venkatesh), was supported by the complainant’s admission that the cheques were blank when signed. This admission created significant doubt about the complainant’s claim.
  4. Rebuttal of Presumption: The accused successfully rebutted the presumption under Section 139 by presenting a plausible defense and pointing out inconsistencies in the complainant’s case. Once the presumption was rebutted, the burden shifted to the complainant, who failed to provide evidence of the loan’s enforceability.
  5. Reasoned Judgment by the Trial Court: The High Court found that the trial court had carefully analyzed the evidence and reached a reasoned conclusion. The complainant’s failure to prove the debt or his financial capacity justified the acquittal.

Conclusion

The Karnataka High Court upheld the trial court’s acquittal, concluding that:

  1. The accused successfully rebutted the presumption under Section 139.
  2. The complainant failed to prove his financial capacity to lend Rs. 6,35,000 or the enforceability of the debt.
  3. The inconsistencies in the complainant’s testimony and lack of evidence supported the trial court’s findings.

The appeal was dismissed.


Implications

This judgment emphasizes the following:

  1. Complainants in cheque bounce cases must maintain proper documentation to substantiate their claims, including evidence of financial capacity and loan transactions.
  2. Accused persons can rebut the presumption under Section 139 by raising reasonable doubts about the existence of the debt or liability.
  3. Courts will carefully scrutinize the evidence and testimony on record, especially when large sums of money are involved.

This judgment strengthens the legal requirement for creditors to maintain transparency and credible evidence in financial transactions.

Also Read – Bombay High Court Upholds Arrest Procedure Under BNSS, 2023: “Four-Minute Delay in Communicating Grounds of Arrest Satisfies Fundamental Rights Compliance”

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