Court’s Decision
The Bombay High Court dismissed the revision petition filed by the accused challenging his conviction under Section 138 of the Negotiable Instruments Act, 1881. The Court upheld the concurrent findings of the Magistrate and Sessions Court that the accused had issued the cheque in discharge of a legally enforceable debt, which was dishonoured due to insufficient funds. The Court held that once the cheque and signature are admitted, the presumption under Section 139 arises automatically, and the burden shifts to the accused to rebut it. As the accused failed to provide cogent rebuttal evidence, his conviction and sentence were affirmed .
Facts
The complainant advanced a loan to the accused, who issued a cheque towards repayment. The cheque, when presented, was dishonoured with the endorsement “insufficient funds.” A statutory notice was duly served, but the accused failed to pay within the stipulated time.
The complainant filed a complaint under Section 138 of the NI Act before the Magistrate. The Magistrate convicted the accused, sentencing him to imprisonment and compensation. The Sessions Court upheld the conviction. The accused then approached the High Court in revision, challenging both the conviction and sentence.
Issues
- Whether the cheque in question was issued towards a legally enforceable debt or liability.
- Whether the presumption under Section 139 NI Act stood rebutted by the accused.
- Whether the complainant was required to prove the source of funds advanced to the accused.
- Whether the concurrent findings of conviction warranted interference by the High Court in revision .
Petitioner’s (Accused’s) Arguments
The accused argued that there was no legally enforceable debt, as the complainant had failed to prove the source of funds allegedly advanced. He contended that the cheque was issued as a security and misused by the complainant.
It was submitted that the trial court erred in drawing presumption under Section 139 NI Act without examining whether the complainant had sufficient financial capacity to advance the loan. The defence stressed that the complainant produced no supporting documents, no independent witnesses, and no corroborative material regarding the alleged loan transaction.
Thus, it was argued that the prosecution had failed to prove the existence of a debt beyond reasonable doubt, and the presumption under Section 139 stood rebutted by inherent improbabilities .
Respondent’s (Complainant’s) Arguments
The complainant countered that the accused admitted his signature on the cheque, which was dishonoured due to insufficient funds. Once issuance is proved, Section 139 creates a presumption that the cheque was for a debt or liability.
It was submitted that the defence of “security cheque” was a mere afterthought, unsupported by evidence. The complainant was not required to prove the source of funds once the presumption operated in his favour.
The complainant argued that both trial and appellate courts had rightly convicted the accused after appreciating evidence, and no interference was warranted in revision .
Analysis of the Law
The Court analyzed Sections 118(a) and 139 of the NI Act, which provide statutory presumptions in favour of the holder of the cheque. It reiterated that the presumption includes the existence of a legally enforceable debt or liability.
On the question of financial capacity, the Court held that proof of source of funds is not a mandatory requirement in every case. Unless the accused discharges his initial burden by raising a probable defence, the complainant is not bound to prove his financial capacity.
The Court clarified that the standard of rebuttal evidence must be “preponderance of probabilities,” but mere bald denial or suggestions of security cheque are insufficient without corroboration.
The Court also emphasized the limited revisional jurisdiction, noting that concurrent findings of fact by two courts cannot be interfered with unless they are perverse or grossly erroneous .
Precedent Analysis
- Rangappa v. Sri Mohan (2010) 11 SCC 441 – Held that presumption under Section 139 includes legally enforceable debt. Relied upon by Court.
- Kumar Exports v. Sharma Carpets (2009) 2 SCC 513 – Clarified that presumption can be rebutted only by cogent evidence, not by mere denial. Applied here.
- Bir Singh v. Mukesh Kumar (2019) 4 SCC 197 – Established that once signature on cheque is admitted, presumption arises; defence must rebut with credible material.
- Kalamani Tex v. Balasubramanian (2021) 5 SCC 283 – Reiterated that security cheque defence cannot succeed without independent evidence.
These precedents shaped the Court’s conclusion that the accused had failed to discharge his burden .
Court’s Reasoning
The Court found that:
- The cheque and signature were admitted by the accused.
- The defence of security cheque was unsubstantiated and raised only at a belated stage.
- The complainant’s evidence was consistent, statutory notice was proved, and dishonour was undisputed.
- No material contradictions existed in the complainant’s testimony.
- Both trial and appellate courts correctly applied the law and convicted the accused.
The High Court reiterated:
“Once a cheque is issued and dishonoured, the statutory presumption under Section 139 NI Act arises. Unless rebutted by cogent and probable defence, the presumption cannot be displaced.”
Conclusion
The High Court upheld the conviction and sentence of the accused under Section 138 NI Act, dismissing the revision petition. It ruled that the complainant was not required to prove his financial capacity once the presumption under Section 139 operated, and the accused had failed to rebut it with credible evidence .
Implications
- Strengthens the statutory presumption in favour of cheque holders, safeguarding commercial confidence.
- Clarifies that “proof of source of funds” is not a universal requirement; it arises only when accused raises a credible defence.
- Reinforces the principle that the “security cheque” argument cannot succeed without independent evidence.
- Limits revisional interference in concurrent findings of conviction in cheque dishonour cases .
FAQs
1. Is the complainant bound to prove financial capacity in cheque bounce cases?
Not in every case. Once cheque issuance is admitted, presumption applies. Financial capacity needs proof only if accused raises a probable defence .
2. Can an accused rely on the defence of “security cheque” to rebut presumption?
Yes, but only with independent corroborative evidence. Mere assertion is insufficient .
3. When will a High Court interfere with concurrent convictions in NI Act cases?
Only if findings are perverse or arbitrary. Otherwise, concurrent findings are binding .
