138 NI Act | Financial Capacity Must Be Proved When Challenged – Mere Possession of Cheque Not Enough: Gujrat High Court

“Once Financial Capacity Is Challenged, Complainant Must Prove Means to Lend”, Gujarat High Court dismissed a criminal appeal challenging the acquittal of an accused in a cheque dishonour case under Section 138 of the Negotiable Instruments Act, holding that the accused had successfully rebutted the statutory presumption and that the complainant had failed to prove a legally enforceable debt.

Justice S.V. Pinto observed that “statutory presumption under Section 139 of the N.I. Act is not conclusive and stands rebutted when a probable defence is raised”, and further declared that “once the financial capacity of the complainant is questioned, it becomes essential for the complainant to establish it through cogent evidence.”

 “Burden Shifts Back Once Probable Defence Raised”

The Court began by affirming that while Section 139 of the Negotiable Instruments Act creates a presumption in favour of the complainant, this presumption is rebuttable, and the accused is required only to prove a “probable defence on a preponderance of probabilities”, not beyond a reasonable doubt.

Quoting from the Supreme Court’s authoritative ruling in Basalingappa v. Mudibasappa, the Court noted:

“The presumption under Section 139 is a rebuttable presumption and the onus is on the accused to raise the probable defence... It is not necessary for the accused to come in the witness box to support his defence.”

In the present case, the accused had stated that the cheque in question was issued to his brother-in-law Vinodbhai in 2000, and that the complainant had misused the cheque. The accused categorically denied knowing the complainant or receiving any money from him.

“Financial Capacity of Complainant Appears Improbable and Unsupported by Evidence”: Court

The complainant, a school teacher drawing ₹3,000–₹4,200 per month, claimed that he had lent ₹2,00,000 to the accused without any written agreement or documentation. According to him, he borrowed ₹50,000 from friends and kept ₹1,50,000 in cash at home.

However, the Court found serious inconsistencies in this claim. The complainant had not named the friends from whom the loan was taken, produced no documentary evidence, and failed to even mention the date of the alleged loan in his complaint, notice or deposition.

Justice Pinto found this omission fatal, observing:

“There is no iota of evidence that any amount was borrowed from any friend or that the complainant had withdrawn the amount from any of his bank accounts or had the financial capacity to advance the amount of ₹2,00,000.”

The Court went further to state that the complainant’s explanation of keeping ₹1.5 lakhs at home lacked credibility, particularly considering his limited income and family responsibilities.

“Accused Not Required to Prove Defence with Mathematical Certainty”: Consistent Defence Considered Probable

The accused had maintained a consistent version throughout the proceedings — from his reply to the statutory notice, to his statement under Section 313 CrPC, to his deposition under oath. He claimed that the cheque was part of an old cheque book handed to his brother-in-law in 2000 and was never meant for the complainant.

The defence was further corroborated by a bank official, who testified that the accused’s business had closed in 2001 and the bank account was formally shut in 2005.

Referring to the legal standards for rebutting presumption under Section 139 NI Act, the Court reiterated:

“The accused must only show that the non-existence of liability is more probable than its existence — even a 51% probability is sufficient.”

The Court found that the defence raised by the accused was not only consistent but also supported by the circumstances, and therefore concluded that the burden shifted back to the complainant to prove the existence of debt or liability — a burden the complainant failed to discharge.

“Trial Court's Reasoning Not Perverse or Arbitrary”: High Court Declines to Interfere with Acquittal

The complainant had argued that the trial court erred in disbelieving his version and failed to account for the improbability of the accused’s defence. However, the High Court rejected this argument, noting that the trial court had correctly appreciated the evidence and had applied the legal principles governing Section 138 NI Act in a just and reasoned manner.

Justice Pinto held:

“This Court finds no reason to interfere with the findings of the learned Trial Court. The findings are well-reasoned, based on appreciation of evidence, and legally sustainable.”

Accordingly, the Court confirmed the acquittal, dismissed the appeal as devoid of merit, and cancelled the bail bond of the accused.

Mere Issuance of Cheque Not Enough — Presumption Under Section 139 Cannot Override Lack of Foundational Facts

The judgment stands as a reaffirmation of the principle that the presumption under Section 139 of the N.I. Act, though powerful, is not invincible. If the accused can raise a probable defence, the complainant must step forward with credible evidence to establish not just the issuance of the cheque, but the underlying liability.

The Gujarat High Court’s decision is rooted in a long line of precedents including Rangappa v. Mohan, Kumar Exports v. Sharma Carpets, Basalingappa v. Mudibasappa, and Rajesh Jain v. Ajay Singh, all of which stress the dynamic burden of proof in cheque dishonour cases.

As Justice Pinto aptly summarised: “Presumption under Section 139 does not dispense with proof of foundational facts — once challenged, the complainant must prove that the debt existed.”

Date of Decision: 04 November 2025