Cheque Bounce Cases Are Not Civil Recovery Suits in Disguise — Presumptions Under Sections 118 and 139 NI Act Must Be Given Full Effect: Supreme Court Restores Conviction in ₹6 Lakh Loan Dispute, Slams High Court's Interference

“Once Execution of the Cheque is Admitted, the Burden Shifts—Statutory Presumptions Are Not Mere Formalities But a Legislative Command”: Supreme Court of India delivered a landmark ruling restoring the conviction of the accused under Section 138 of the Negotiable Instruments Act, 1881, and issuing sweeping procedural reforms to tackle the rampant pendency of cheque bounce cases across India. The Court pulled up the High Court of Bombay (Goa Bench) for its ex parte interference with concurrent findings and categorically held that statutory presumptions under Sections 118 and 139 of the NI Act must be enforced unless rebutted by credible defence—not speculative allegations.

“The High Court Cannot Rewrite Findings in Revisional Jurisdiction Unless There is Perversity—Justice Cannot Be a Casualty to Procedural Lapses”

The Supreme Court set aside the High Court’s judgment dated April 16, 2009, which had acquitted the accused by reversing the consistent findings of both the Trial Court and Sessions Court. The complainant had sought recall, explaining that his lawyer was absent on that day, but the High Court held itself to be functus officio. The Supreme Court termed the High Court’s conduct erroneous and observed:

“It is not for the revisional court to re-analyse and re-interpret the evidence on record. Even if a wrong order is passed by a court having jurisdiction, in the absence of a jurisdictional error or perversity, the High Court has no power to upset the concurrent findings.”

“Presumptions Under Sections 118 and 139 Are Binding and Not Illusory—The Accused Cannot Escape Merely By Doubting the Complainant’s Financial Status”

The cheque in question for ₹6,00,000 was admittedly signed by the accused. The accused claimed the complainant lacked financial capacity, citing his meagre salary. The Court rejected this defence outright, stating:

“Once the execution of the cheque is admitted, the presumption under Section 118 that it was drawn for consideration, and under Section 139 that it was issued in discharge of a legally enforceable debt, arises against the drawer.”

The accused had neither led independent evidence nor summoned any tax or bank officials to prove that the complainant was financially incapable of advancing the loan. The Court found:

“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. He had arranged funds from his father and from a financial institution.”

“Violation of Section 269SS of the Income Tax Act Does Not Invalidate the Loan—Presumptions Under NI Act Cannot Be Dismissed on Tax Grounds”

The Kerala High Court’s view in P.C. Hari v. Shine Varghese that a cash loan above ₹20,000 is unenforceable under Section 138 NI Act due to breach of Section 269SS of the Income Tax Act was categorically rejected. The Supreme Court clarified:

“Section 269SS does not declare such a transaction illegal, invalid or void. Breach of that provision may attract penalty under Section 271D of the IT Act but does not negate enforceability under the NI Act.”

The Court held that legal enforceability of debt cannot be undermined by invoking tax compliance requirements when no such statutory bar exists.

“Defence That Signed Blank Cheque Was Given for Bank Loan Is Absurd—Court Finds It Unbelievable and Dishonest”

The accused’s plea that he gave the cheque to help the complainant secure a bank loan was dismissed as frivolous. The Court quoted the Sessions Judge with approval:

“It is funny to say that for obtaining loan from the bank, one can show a cheque which is issued on an account in which there are not sufficient funds. The case of the accused is unbelievable.”

Such a defence, the Court held, cannot displace the statutory presumption unless substantiated with credible material. The failure to reply to the statutory notice was further held to support the complainant’s case, as observed in MMTC Ltd. v. Medchl Chemicals and Tedhi Singh v. Narayan Dass Mahant.

“Cheque Bounce Cases Are Quasi-Criminal—They Must Be Tried Swiftly With Realistic Procedures and Presumptions Intact”

The Court noted with concern that Section 138 NI Act cases account for nearly 50% of trial court pendency in cities like Delhi, calling it a judicial emergency. Invoking Article 142 of the Constitution, the Court laid down transformative guidelines, stating:

“The offence under Section 138 is a civil sheep in criminal wolf’s clothing—it is the interest of the victim that is to be protected, not the State’s need for retribution.”

The Court reiterated that the object of criminalizing dishonour of cheques is to ensure financial discipline, preserve public trust, and protect commercial transactions, and not merely to incarcerate.

“It Is Time to Revisit and Revise the Damodar Prabhu Guidelines—Compounding Should Be Encouraged Without Extortionate Penalties”

Revising the compounding cost guidelines in Damodar S. Prabhu v. Sayed Babalal H., the Court held:

“If the accused pays the cheque amount before recording his evidence, no compounding cost shall be imposed. Post-evidence payment may attract only a 5% penalty, and at appellate stages, 7.5% to 10% may be levied.”

The Court emphasized that settlements should be facilitated, not burdened by oppressive conditions.

“Accused Must Face the Proceedings—Summons Can Be Served Digitally, QR Payments Allowed, Dashboards to Monitor Pendency”

In a sweeping directive to High Courts and District Judges in Delhi, Mumbai and Calcutta, the Court mandated:

“Summons must be served dasti, and electronically through WhatsApp, email, or messaging apps. Courts must facilitate early online settlement via QR codes. Trial courts must not reduce Section 138 proceedings to civil suits by demanding primary evidence of debt at the first instance.”

Courts were also instructed to maintain dashboards showing pendency, settlement rate, adjournments, and to hold monthly reviews.

“Cheque Dishonour Is Not Just About Recovery—It’s About Rule of Law in Commercial Trust”

Restoring the conviction, the Court directed the accused to pay ₹7,50,000 in 15 equal monthly instalments of ₹50,000 each, and directed that all High Courts must implement the guidelines no later than November 1, 2025.

The Supreme Court has thus not only upheld the sanctity of statutory presumptions under the NI Act, but has also launched a judicial reform movement to preserve cheque credibility, ease pendency, and deliver financial justice.

Date of Decision: September 25, 2025