138 NI Act | Once Signature Is Admitted, the Law Presumes Liability: Madhya Pradesh High Court Restores Conviction in Cheque Bounce Case

“Failure to Reply to Statutory Notice Strengthens the Presumption” – Madhya Pradesh High Court at Jabalpur delivered a reportable judgment restoring conviction under Section 138 of the Negotiable Instruments Act, 1881. Justice Rajendra Kumar Vani set aside the appellate court’s order of acquittal dated 01.02.2012 and reinstated the conviction and sentence of two years’ rigorous imprisonment along with compensation of ₹2,22,000 as originally imposed by the Chief Judicial Magistrate, Khandwa on 01.10.2011.

Holding that the lower appellate court’s reasoning was “flimsy and baseless,” the High Court reaffirmed the strength of statutory presumptions under Sections 118 and 139 of the NI Act once the signature on the cheque is admitted.

Loan of ₹2 Lakh and Dishonour for “Insufficient Funds”

The complainant alleged that the respondent had sought financial assistance for domestic needs, whereupon a sum of ₹2,00,000 was advanced. In discharge of this liability, the accused issued a post-dated cheque dated 13.01.2009. On presentation, the cheque was dishonoured due to “insufficient funds.”

Despite service of statutory notice under Section 138, the accused failed to make payment. The Trial Court convicted him and awarded two years’ rigorous imprisonment with compensation under Section 357(3) CrPC.

However, the Second Additional Sessions Judge reversed the conviction, primarily doubting the complainant’s financial capacity and questioning the circumstances under which the cheque was issued.

“Signature Proved, Presumption Follows”

The High Court noted that both courts below had recorded a categorical finding that the cheque bore the signature of the accused. Once execution is admitted, the statutory presumptions under Sections 118 and 139 of the NI Act automatically arise.

Quoting Bir Singh v. Mukesh Kumar, the Court emphasized that “a person who signs a cheque and makes it over to the payee remains liable unless he adduces evidence to rebut the presumption.” Even a signed blank cheque voluntarily handed over does not invalidate liability.

The High Court observed that the appellate court had indulged in conjecture by assuming that the cheque might have been issued conditionally or under pressure, despite no such plea being substantiated by the defence. The reasoning that the cheque was presented on the same day it was issued was held not to be “unnatural behaviour,” as it is common practice for cheques to be deposited immediately.

Defence of “Lost Cheque Book” Found Unsubstantiated

In his statement under Section 313 CrPC, the accused claimed that his cheque book had been misplaced and misused by the complainant. However, the High Court found that this defence was neither put to the complainant in cross-examination nor supported by any defence evidence.

On the contrary, contradictory suggestions were put during cross-examination, including that the cheque was issued as security for a different transaction of ₹50,000. These inconsistent stands, without documentary or oral proof, failed to rebut the statutory presumption.

The Court reiterated the law laid down in Sanjabij Tari v. Kishore S. Borcar that once execution is admitted, “the initial onus of proving that the cheque is not in discharge of any debt or other liability is on the accused.”

Financial Capacity: “Explanation Not Unnatural or Flimsy”

The appellate court had doubted the complainant’s financial capacity, observing that the loan was not reflected in income tax returns. The High Court rejected this approach.

The complainant had deposed that the amount was advanced from agricultural income and sale of furniture. He clarified that the sum was not from business capital and hence not reflected in income tax returns. The High Court held that this explanation was neither unnatural nor flimsy.

Relying on APS Forex Services, Rajaram v. Maruthachalam, and Sanjabij Tari, the Court observed that the accused could have rebutted the presumption by examining income tax officials or producing bank records, but no such effort was made.

Significantly, the Court echoed the Supreme Court’s observation that “when the evidence of PW-1 is read in its entirety, it cannot be said that the complainant had no wherewithal to advance the loan.”

“Non-Reply to Notice Leads to Adverse Inference”

A decisive factor in the High Court’s reasoning was the accused’s failure to reply to the statutory notice under Section 138. The Court relied upon Tedhi Singh v. Narayan Dass Mahant and MMTC Ltd. v. Medchl Chemicals, observing that when a statutory notice is not replied to, it must be presumed that the cheque was issued towards discharge of liability.

The Court held that the defence of financial incapacity was an afterthought, particularly since no reply was sent disputing the liability or alleging misuse of the cheque.

Acquittal Set Aside, Conviction Restored

After re-evaluating the evidence and the applicable legal principles, the High Court concluded that the complainant had established the ingredients of Section 138 of the NI Act and that the accused had failed to rebut the presumptions under Sections 118 and 139.

Terming the appellate court’s approach unsustainable, the High Court allowed the appeal, set aside the acquittal, and restored the conviction and sentence imposed by the Trial Court. The Trial Court was directed to take the accused into custody and execute the sentence.

This judgment reinforces the robust nature of statutory presumptions under the Negotiable Instruments Act. Once signature and issuance of cheque are admitted, the burden shifts decisively to the accused. Mere suggestions in cross-examination, inconsistent defences, or speculative reasoning by appellate courts cannot displace the presumption of legally enforceable debt.

The ruling serves as a reminder that “the presumption under Section 139 is a rule of law, not a matter of discretion,” and unless rebutted by cogent evidence, conviction must follow.

Date of Decision: 25/02/2026