Karnataka High Court Reinstates Conviction in Cheque Dishonour Case: Affirms Presumption Under Section 139 of NI Act and Justifies Conviction for Failure to Rebut

Court’s Decision

The Karnataka High Court, in its judgment, allowed the complainant’s appeal and set aside the Appellate Court’s decision that had acquitted the accused. The High Court restored the Trial Court’s conviction of the accused under Section 138 of the Negotiable Instruments Act, 1881. The court emphasized that the statutory presumption under Section 139 of the NI Act, which arises when a signed cheque is presented, was not rebutted by the accused. Therefore, the accused was liable for the offence.

Facts

1. Loan Issuance: In December 2004, the complainant lent Rs. 3,50,000 to the accused for urgent business needs.
2. Cheque Issued: To repay the loan, the accused issued a cheque in favor of the complainant.
3. Cheque Dishonoured: The cheque was dishonoured upon presentation due to insufficient funds in the accused’s account.
4. Notice Sent: The complainant sent a statutory notice to the accused as required under Section 138 of the NI Act. The notice sent via registered post was returned as “not claimed,” but the one sent under certificate of posting was deemed served.
5. No Payment: The accused failed to pay the cheque amount within the statutory period, leading the complainant to file a complaint under Section 138 of the NI Act.
6. Trial Court Conviction: The Trial Court convicted the accused under Section 138.
7. Appellate Court Acquittal: The accused appealed, and the Appellate Court reversed the conviction, doubting the financial capacity of the complainant to lend Rs. 3,50,000.
8. High Court Appeal: The complainant challenged the Appellate Court’s acquittal in the High Court, leading to the current decision.

Issues

1. Primary Legal Question: Did the Appellate Court err in reversing the Trial Court’s conviction of the accused under Section 138 of the NI Act?
2. Secondary Considerations: Did the complainant successfully prove the financial capacity to lend Rs. 3,50,000, and did the accused effectively rebut the presumption under Section 139 of the NI Act?

Petitioner’s Arguments (Complainant)

1. Admission of Signature: The accused admitted his signature on the cheque. This admission activates the presumption under Section 139 of the NI Act, which assumes that the cheque was issued to discharge a legally enforceable debt.
2. Financial Capacity Proven:
   • The complainant presented a passbook (Ex.P11) showing that she had borrowed Rs. 2,00,000 from a cooperative bank in November 2004, a month before lending Rs. 3,50,000 to the accused.
   • She also submitted property documents (Ex.P12), which showed that she owned agricultural land and had borrowed an additional Rs. 50,000 by mortgaging it, proving her capacity to lend.
3. Failure to Rebut Presumption: The accused failed to rebut the statutory presumption under Section 139 and did not provide any defence regarding how the signed cheque reached the complainant.
4. Misinterpretation by Appellate Court: The Appellate Court erroneously doubted the complainant’s financial capacity despite clear documentary evidence.

Respondent’s Arguments (Accused)

1. Doubts About Financial Capacity: The accused argued that the complainant, being unemployed and without significant income, lacked the financial capacity to lend Rs. 3,50,000.
2. No Date of Borrowing Mentioned: The complainant failed to specify the exact date on which the loan was given.
3. Lack of Evidence: There were no corroborative witnesses or written agreements proving the loan transaction.
4. Power of Attorney Issue: The complainant’s son, who testified as the Power of Attorney holder, lacked personal knowledge of the transaction.
5. Rebuttal of Presumption: The accused contended that the presumption under Section 139 had been rebutted through these doubts, shifting the burden of proof back to the complainant.

Analysis of the Law

1. Presumption under Section 139:
   • Section 139 of the NI Act creates a presumption that the cheque was issued for discharging a debt or liability once the signature is admitted.
   • This presumption is rebuttable, but the burden to rebut lies with the accused, and the standard of proof is “preponderance of probabilities.”
2. Burden of Proof on the Accused:
   • The accused must present evidence or a plausible explanation to show that the cheque was not issued for a legally enforceable debt.
   • The Apex Court in Basalingappa vs. Mudibasappa (2019) and Rajesh Jain vs. Ajay Singh (2023) clarified that if the accused fails to rebut the presumption, the court can proceed to convict.
3. Financial Capacity of the Complainant:
   • The High Court noted that documentary evidence such as loan records and property documents established the complainant’s financial capacity to lend Rs. 3,50,000.
   • The Appellate Court’s focus on the complainant’s financial capacity was misplaced and not supported by the evidence.

Precedent Analysis

The court referred to:

• Basalingappa vs. Mudibasappa (2019): This case established that the presumption under Section 139 can be rebutted by the accused based on probabilities, not proof beyond a reasonable doubt.
• Rajesh Jain vs. Ajay Singh (2023): The Supreme Court held that once the presumption under Section 139 is activated, the burden shifts to the accused, and failure to rebut the presumption can justify conviction.

Court’s Reasoning

1. Failure to Rebut Presumption: The accused admitted his signature on the cheque but provided no explanation for how the complainant obtained it. This failure to offer a plausible defence resulted in the presumption under Section 139 remaining unrebutted.
2. Complainant’s Financial Capacity: The complainant’s loan records and property documents were sufficient to establish her financial capacity to lend Rs. 3,50,000.
3. Errors by Appellate Court: The Appellate Court misinterpreted the evidence and failed to appreciate the statutory presumption under Section 139.
4. Role of Power of Attorney Holder: The complainant’s Power of Attorney holder, though lacking personal knowledge of the transaction, testified consistently, and no contradictions were found.

Conclusion

The High Court set aside the Appellate Court’s acquittal and reinstated the Trial Court’s conviction of the accused. The court found that the complainant had successfully proved the offence under Section 138 of the NI Act, and the accused had failed to rebut the presumption under Section 139.

Implications

1. Reinforcement of Statutory Presumption: This judgment underscores the importance of the presumption under Section 139 and the evidentiary burden on the accused in cheque dishonour cases.
2. Documentary Evidence: The case highlights how financial records and property documents can effectively prove a complainant’s financial capacity.
3. Appellate Review Standards: The decision warns appellate courts against misinterpreting evidence or ignoring statutory presumptions.

This judgment is a significant reaffirmation of the principles governing cheque dishonour cases under the NI Act, ensuring robust enforcement of financial obligations.

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