138 NI Act | Once Issuance and Signature on Cheque Are Admitted, Burden Shifts on Accused to Dislodge Statutory Presumption: Madras High Court

“Presumption Under NI Act Stands Unless Accused Rebuts It with Probable Defence”, In a significant reaffirmation of legal principles governing cheque dishonour cases, the Madras High Court upheld the conviction of an accused under Section 138 of the Negotiable Instruments Act, 1881, holding that “the statutory presumptions under Sections 118 and 139 stand firmly unless rebutted by the accused through cogent and probable evidence.”

Justice M. Nirmal Kumar confirmed the lower appellate court’s decision convicting K. Ganesamoorthy, the appellant-accused, for issuing a dishonoured cheque of ₹10,00,000 to the complainant, K. Karthikeyan. The Court observed that the accused admitted both the issuance and signature on the cheque, and failed to rebut the statutory presumption under Sections 118 and 139 of the NI Act.

The appeal arose from the reversal of an acquittal by the Sessions Court, which had found the accused guilty and sentenced him to six months' simple imprisonment, along with a direction to pay the cheque amount as compensation.

“Trial Court Erred in Requiring Complainant to Prove Financial Capacity at Initial Stage”

In a pointed rebuke of the trial court’s reasoning, Justice Nirmal Kumar observed:

“Once the accused has not disputed the signature or issuance of the cheque, the statutory presumption under Sections 118 and 139 follows. The trial court committed a serious error by placing the initial burden on the complainant to prove the source of funds, despite no reply being sent by the accused disputing financial capacity.”

The trial court had earlier acquitted the accused on the ground that the complainant failed to establish his financial capacity to lend ₹10 lakh. However, the Sessions Court reversed the acquittal, noting that the defence taken by the accused—of alleged misuse of a blank cheque—was a mere suggestion unsupported by any documentary or oral evidence.

Cheque Issued, Dishonoured, and No Reply to Demand Notice

The complainant alleged that on October 20, 2015, the accused borrowed ₹10 lakh for urgent needs and issued a post-dated cheque (No. 020350 dated 20.11.2015). When presented for encashment, the cheque was dishonoured with the remark “Account Closed.” Despite issuance of a statutory notice on November 30, 2015, the accused neither replied nor paid the amount, prompting the filing of a complaint under Section 138.

During trial, the complainant produced the dishonoured cheque (Ex.P1), bank memo (Ex.P3), statutory notice (Ex.P4), and a photocopy of a 1972 sale deed (Ex.P6) to show ownership of agricultural land as evidence of income. However, the trial court acquitted the accused, questioning the complainant’s financial means.

Court Reiterates Law: Accused Must Dislodge Presumption Through Probable Defence

Rejecting the appellant’s contention that the lower appellate court wrongly reversed the acquittal, the High Court cited a catena of Supreme Court decisions, particularly Rohitbhai Jivanlal Patel v. State of Gujarat (2019) 18 SCC 106 and Sanjabij Tari v. Kishore S. Borcar, 2025 SCC OnLine 2069. The Court observed:

“The proceedings under Section 138 NI Act are quasi-criminal in nature. Once issuance and signature on the cheque are admitted, the presumption of a legally enforceable debt arises. The burden then shifts to the accused to rebut it with probable defence. Mere suggestions or blanket denials do not amount to rebuttal.”

Further, the Court placed reliance on the Supreme Court's observation in Tedhi Singh v. Narayan Dass Mahant (2022) 6 SCC 735, that unless financial incapacity of the complainant is asserted in reply to the demand notice, the complainant cannot be faulted for not producing such evidence ab initio.

“Failure to Reply to Statutory Notice Supports Inference Against Accused”

The High Court found the accused’s failure to respond to the statutory demand notice as a serious factor against his defence:

“The accused neither replied to the notice nor produced any evidence to show how the cheque came into complainant’s hands if not issued for a debt. This strengthens the inference that the defence was an afterthought.”

The accused had argued that the cheque was given to another party during business and was misused, but failed to name that party or produce any evidence in support of this claim.

Non-Compliance with Suspension Order: Appellant Failed to Deposit ₹5 Lakh as Directed

Interestingly, the Court also recorded that the accused had failed to comply with an earlier conditional order dated 27.11.2018, wherein he was directed to deposit ₹5,00,000 while seeking suspension of sentence. His failure to do so, despite passage of several years, led the Court to direct the trial court to issue a warrant to secure the accused for serving the sentence.

No Interference Warranted in a Well-Reasoned Conviction

Dismissing the criminal appeal, Justice Nirmal Kumar concluded: “The lower appellate court’s judgment is a well-reasoned one based on proper appreciation of law and facts. This Court finds no perversity or illegality to interfere under Section 374(2) CrPC.”

Accordingly, the conviction and sentence of six months’ imprisonment and compensation of ₹10,00,000 was upheld, and the trial court was directed to execute the sentence.

Date of Decision: January 19, 2026