Cheque Issued Merely as Security Cannot Trigger Criminal Liability Under Section 138 NI Act: Madras High Court Affirms Acquittal

“The case of the complainant in a criminal case should stand on its own and cannot get fortified by the weakness of the defence” - In a significant ruling concerning cheque dishonour prosecutions, the Madras High Court upheld the acquittal of an accused in a cheque bounce case under Section 138 of the Negotiable Instruments Act, 1881, holding that the complainant failed to prove the cheque was issued in discharge of a legally enforceable debt, and not merely as a security instrument in a real estate transaction. Justice D. Bharatha Chakravarthy, while dismissing Criminal Appeal No. 288 of 2022, emphasized that in a criminal prosecution under the NI Act, the burden on the complainant is substantive and cannot rest merely on statutory presumptions, especially when material omissions and inconsistencies are apparent on record.

The complainant, Rajavel, alleged that he had advanced ₹10,00,000 to the accused by RTGS on 28.03.2014, and upon non-repayment, received two cheques of ₹5,00,000 each in October 2014, which were later replaced by a single cheque of ₹10,00,000 dated 13.06.2015. When this cheque was dishonoured for insufficient funds, a legal notice followed, culminating in a private complaint under Section 138 NI Act.

“When the RTGS transfer coincides exactly with the real estate transaction, the claim of loan becomes doubtful”

The Trial Court, and subsequently the High Court, found that the complainant’s version suffered from critical omissions and a lack of clarity. A key factor was that the RTGS payment of ₹10,00,000 was made on the same day the complainant purchased plots from a third party, DW-1 Ramakrishnan. The defence, which claimed that the money was paid for stamp duty and registration charges in connection with the property transaction and that the cheque was issued only as a security, was accepted as a plausible explanation.

Justice Bharatha Chakravarthy observed, “The trial court believed the version of the accused that the money was transferred pursuant to the real estate transaction... the cheque was issued as a security in respect thereof.”

This timeline – the RTGS payment aligning precisely with the property sale – created sufficient doubt regarding the existence of a loan liability, which is a prerequisite for prosecution under Section 138.

“Omission to Mention Two Earlier Cheques in Statutory Notice Undermines Credibility of the Complaint”

One of the most decisive findings in the judgment pertained to the absence of any mention of two earlier cheques of ₹5 lakhs each in the statutory notice issued under Section 138. The complainant admitted during trial that two cheques were initially issued and later replaced by the final cheque. However, the statutory notice only mentioned the ₹10 lakh cheque.

The Court remarked, “Though the statutory notice is not an encyclopaedia of facts, still the doubt arises only because of the version of the complainant that the accused would issue cheques in excess of his liability and direct the complainant to withdraw the amount and pay the balance.”

Such omissions, the Court held, cast serious doubt on the genuineness of the complainant’s version, especially since the earlier cheques formed a crucial part of the alleged liability.

“Presumption Under Section 139 NI Act Rebutted When Complainant Fails to Prove Cheque Was Towards Enforceable Debt”

Although the law presumes that a cheque is issued in discharge of a debt or liability under Section 139 of the NI Act, that presumption is rebuttable. The accused, through cross-examination and production of DW-1, established that the cheque was issued in the context of a real estate transaction, not a personal loan.

The Court emphasized that the burden always remains on the complainant to establish that the cheque was issued towards a subsisting debt. Merely pointing out that the accused signed the cheque is not sufficient when circumstances suggest a different context.

“In this case, the complainant case is one of hand loan… but the transaction date aligns exactly with the date of sale deeds... the complainant failed to prove the cheque was issued in discharge of a loan.”

The High Court found that the presumption under Section 139 stood rebutted, and the complainant failed to discharge the reverse burden under law.

"Acquittal in Cheque Bounce Cases Will Not Be Reversed Unless Trial Court's View Is Perverse or Impossible"

The Court reiterated the principles governing appeals against acquittal, stating that unless the view of the Trial Court is so unreasonable or perverse, appellate interference is not warranted. In this case, the Trial Court had carefully evaluated all evidence, including omissions in the statutory notice, contradictions in the complainant’s version, and the alternative explanation provided by the defence.

Justice Chakravarthy concluded, “The trial Court’s view cannot be said to be perverse or impossible... Accordingly, finding no merits, the Criminal Appeal stands dismissed.”

The judgment serves as a reminder that criminal prosecution under Section 138 requires clarity, consistency, and strict proof of liability, particularly when the cheque is alleged to be issued in contexts like property transactions where cheques are often held merely as security.

Date of Decision: 03 November 2025