Blank Cheque Theory Rejected — Presumption Under Section 138 NI Act Stands Unrebutted In Absence Of Cogent Defence

Karnataka High Court Affirms Conviction Of Borrower In Rs.1 Crore Loan Dispute   Absence of Santhosh, Missing Books of Accounts and Admitted Acknowledgments Defeats Accused’s Case — Karnataka High Court dismissed a revision petition challenging concurrent findings of conviction under Section 138 of the Negotiable Instruments Act, where the accused had defaulted on repayment of a Rs.1 crore loan. Justice H.P. Sandesh held that “When there is no material to show that the presumption has been rebutted, and when documents Ex.P2 and Ex.P3 are clear acknowledgments of debt, the theory of blank cheque given to a pigmy collector cannot be accepted.” 
 
The Court reaffirmed that mere allegations of blank cheque misuse without substantiating evidence or examination of the concerned intermediary (Santhosh) are insufficient to rebut the statutory presumption under Sections 118 and 139 of the NI Act. 
 

The respondent-financier had advanced a cash loan of Rs.1 crore to the petitioner on 22.12.2006, who agreed to repay the loan through daily instalments collected by a pigmy collector. However, when repayment failed, the accused issued a cheque dated 13.03.2007, which was dishonoured with the remark “payment stopped by drawer.” The complainant immediately issued a demand notice and subsequently filed a complaint under Section 138 of NI Act. The Trial Court convicted the accused and imposed a fine of Rs.1,02,10,150/-, out of which Rs.5,000 was directed to be paid to the State and the balance to the complainant. 
 
In appeal (Crl.A. No. 1614/2019), the First Appellate Court upheld the conviction and the sentence. Aggrieved, the accused approached the High Court in revision. 
 
 
The Defence and The Case Set Up by The Accused 
 
The accused contended that:  He never borrowed Rs.1 crore, but had applied for a much smaller loan of Rs.1 lakh. The cheque was allegedly handed over as a blank security cheque to the pigmy collector named Santhosh. He claimed that the complainant misused the cheque and initiated a false case. 
 
 
The accused further tried to challenge the capacity of the complainant’s witness by arguing that the Power of Attorney was not properly substituted and that the evidence of PW1 was thus inadmissible. 
 
 
 
The Court found that the accused’s defence was entirely unsupported by evidence. Justice H.P. Sandesh remarked, “It is the specific case of the accused that he gave the cheque for Rs.1 lakh in favour of Santhosh but no document for having given a loan application for Rs.1,00,000/- is produced. Apart from that, Santhosh, the alleged collector, has not been examined before the 
Trial Court.” 
 
The Court emphasized that: “The document at Ex.P2 is very clear having received the amount of Rs.1 crore wherein also 18% interest was agreed to repay the same and admits the signature as well as issuance of confirmation letter on 23.03.2007 wherein balance amount was also confirmed as Rs.1,02,10,150/- in terms of Ex.P3.” 
 
The accused admitted: 
 
His signatures on the cheque, Ex.P2 (loan receipt) and Ex.P3 (balance confirmation). 
 
His knowledge about the contents of Ex.P2 and Ex.P3. 
 
That he never took legal action against Santhosh despite alleging that he misused the cheque. 
 
 
The Court observed that:  “When the accused took the specific defence, he ought to have examined the said Santhosh and placed some evidence regarding the smaller loan, but he has not done so.” 
 
Regarding service of legal notice, the accused contended that no notice was received, but the Court rejected this plea stating:  “The notice was sent through RPAD as well as certificate of posting and Ex.P9 and Ex.P10 evidence the said fact.” 
 
 
 The petitioner argued that Smt. Girija, who was examined as PW1, had ceased to be the authorized representative. However, the Court held: 
 
“GPA which is marked as Ex.P1 is clear with regard to giving of authorization and though it is elicited that substitution was made, nothing is elicited in the cross-examination of PW1 that this power of attorney was withdrawn.” 
 
Thus, the Court rejected the challenge to the complainant’s standing to depose. 
 
The High Court dismissed the revision petition, affirming the concurrent findings of the Trial Court and the First Appellate Court. 

Justice Sandesh concluded: 
 
“When such material is available on record, the presumption lies in favour of the complainant and the same has not been rebutted by the accused placing any cogent evidence.” 
 
The Court reminded that the scope of revisional jurisdiction is limited and found no perversity in the concurrent findings warranting interference. 
 
 
Date of Decision: 28th March 2025