Blank Cheques Taken During Chit Deals Can't Lead to Criminal Conviction: Madras High Court Dismisses Appeal in ₹20 Lakh Cheque Bounce Case

“Admissions by complainant support the defence version – cheque not issued in discharge of a legally enforceable debt”, In a significant decision reiterating the evidentiary threshold required in cheque bounce cases, the Madras High Court dismissed a criminal appeal against acquittal. The Court upheld the finding of the trial court that the cheque in question, although dishonoured, was not issued against a legally enforceable debt and was instead given blank during chit fund transactions.

The judgment, delivered by Justice D. Bharatha Chakravarthy, affirms that the statutory presumption under Section 139 of the Negotiable Instruments Act is rebuttable, and where the defence narrative appears probable in light of the complainant’s own admissions, acquittal must be upheld. Despite disagreeing with the trial court on one procedural point regarding notice, the High Court ultimately found no perversity or illegality in the overall finding.

“Cheque was filled up by complainant’s husband — No written authority shown to do so” — Court Finds Defence Version More Probable

The High Court noted that the complainant’s case rested on an alleged cash loan of ₹20 lakhs to the accused, backed only by a dishonoured cheque bearing the remark "Drawer's Signature Differs." The cheque was claimed to be issued in repayment of the said loan. However, during cross-examination, the complainant made multiple admissions that undercut her version and significantly bolstered the defence.

The Court highlighted a crucial part of the deposition: “It is admitted by PW1 that it was her husband who had filled up the cheque... it is also admitted that her husband used to collect blank cheques from chit subscribers including the accused.”

This led the Court to observe that, “When it is not the case of the complainant in the complaint or the legal notice that the cheque was given with authority to fill and present, the admission during cross-examination directly supports the defence.”

Justice Chakravarthy further emphasized that a legally enforceable debt must be established to invoke the penal provision under Section 138 of the NI Act. In this case, there was no documentary proof of the loan. The complainant's assertion that the accused had borrowed ₹40 lakhs (₹20 lakhs from her and ₹20 lakhs from her husband) was unsupported by any written instrument or interest clause, which the Court found to be highly implausible.

“Such a huge amount is said to have been advanced without any document whatsoever… it fails the reason as to why they would sell the house only to advance money to the accused without even any interest,” the Court remarked while rejecting the appellant’s contentions.

“Merely Because Cheque Was Dishonoured, It Does Not Automatically Lead to Conviction” — High Court on Burden of Proof

Though the Court found fault with the trial court’s refusal to mark the photocopy of the acknowledgment card proving service of statutory notice, it clarified that such error was not fatal. The accused did not even dispute service of notice during cross-examination, making the rejection of the evidence on this point inconsequential.

Justice Chakravarthy stated, “I am not in agreement with the finding relating to the same… there was no whisper on behalf of the accused that no notice was ever served.”

However, that procedural flaw could not revive the case when the core requirement of a legally enforceable liability remained unproved. The Court noted contradictions in the complainant’s version — especially regarding payment of interest — and held that the burden cast upon the complainant under Section 138 read with Section 139 of the Act was not discharged.

“In an appeal against acquittal, unless the findings of the trial court are shown to be perverse or wholly unreasonable, interference is not warranted. In this case, the defence version is not only plausible, but corroborated by the complainant herself,” the Court concluded.

“Criminal Prosecution Cannot Be Used as a Tool to Enforce Dubious Financial Transactions” — Judicial Caution on Section 138 Cases

The judgment serves as a reminder that the object of Section 138 of the NI Act is to punish actual defaulters in genuine financial transactions, not to facilitate recovery in contested or unsubstantiated claims.

By relying on the complainant’s own testimony — including her admission that the cheque was not filled by the accused and that the same was issued blank during chit dealings — the Court found that the presumption in favour of the complainant had been successfully rebutted.

The Court remarked, “In view of all the admissions, the Trial Court has rendered a finding that the case of the accused seems to be probable and the same cannot be held to be perverse or impossible.”

Thus, it held that the acquittal of the accused was a reasonable outcome, and the criminal appeal deserved to be dismissed.

The criminal appeal was dismissed, and the acquittal of the accused under Section 138 of the Negotiable Instruments Act was upheld. The Court reiterated that where the complainant’s version is weakened by her own admissions, and the defence presents a credible alternate version, conviction under Section 138 cannot be sustained.

Date of Decision: 11 November 2025