Mere Issuance of a Cheque Does Not Prove Legally Enforceable Debt": Delhi High Court Upholds Acquittal in Cheque Dishonor Case

Delhi High Court, in a significant ruling dismissed an appeal filed by M/s Vijay Power Generators Ltd., which sought to challenge the acquittal of M/s Tarun Engineering Syndicate in a cheque dishonor case under Section 138 of the Negotiable Instruments Act, 1881 (NI Act).

A single-judge bench of Justice Jasmeet Singh held that the respondent successfully rebutted the statutory presumption under Sections 118(a) and 139 of the NI Act, thereby shifting the burden back to the complainant. The Court categorically ruled that the complainant failed to establish that the dishonored cheques were issued against a legally enforceable debt. The absence of purchase orders, invoices, or delivery receipts proved fatal to the complainant’s case.

The Court further upheld the trial court’s rejection of an application under Section 311 CrPC, which sought to summon a Sales Tax Officer to authenticate disputed sales tax forms. Calling the move “a desperate attempt to fill evidentiary gaps,” the Court noted that the application was filed 15 years after the proceedings began, without any satisfactory explanation for the delay.

Rejecting the appeal, the Court concluded, "The presumption under Sections 118(a) and 139 of the NI Act is rebuttable. Once the accused creates a reasonable doubt, the complainant must establish its case beyond reasonable doubt. The complainant has failed to do so. Mere issuance of a cheque does not automatically prove a legally enforceable debt.”

"Burden of Proof on Complainant – Accused Only Needs to Raise a Probable Defense"

The dispute arose from four dishonored cheques issued by the respondent, which the complainant alleged were given as part payment for diesel generators. However, the trial court acquitted the respondent, holding that the presumption under Sections 118(a) and 139 of the NI Act had been successfully rebutted.

The High Court observed, "The accused is not required to prove innocence beyond reasonable doubt but only on a preponderance of probabilities. In contrast, the complainant must establish a legally enforceable debt."

Referring to the Supreme Court's decision in M.S. Narayana Menon v. State of Kerala, (2006) 6 SCC 39, the Court reaffirmed that the accused need not enter the witness box or produce direct evidence. A probable defense, based on inconsistencies in the complainant’s case, is sufficient to rebut the presumption under the NI Act.

The Court further relied on Kumar Exports v. Sharma Carpets, (2009) 2 SCC 513, stating, “The moment the accused raises a reasonable defense, the burden shifts back to the complainant, and the statutory presumption no longer operates in the complainant’s favor.”

"Forged Sales Tax Forms Used to Fabricate Liability – VAT Inspector Exposes Complainant’s Case"

A crucial aspect of the defense was the allegation that the complainant relied on forged sales tax forms to establish the existence of a transaction. The complainant claimed that the respondent had issued C-forms for purchases totaling ₹2.37 crore and that the dishonored cheques were issued in part payment for these transactions.

However, a VAT Inspector from the Sales Tax Department exposed the falsehood, testifying that the disputed C-forms had never been issued to the respondent but were actually issued to an entirely different entity, M/s Avon Agencies. The partner of the respondent’s firm also denied ever signing or issuing the forms, calling them “forged and fabricated.”

The Court noted, “The complainant’s reliance on fraudulent sales tax forms raises serious concerns. The VAT officer’s testimony and the respondent’s categorical denial leave no doubt that these documents were manipulated to mislead the Court.”

"No Proof of Goods Supplied – Complainant’s Own Financial Records Contradict Its Case"

One of the most damaging aspects for the complainant was its failure to produce basic evidence of goods being supplied. Despite claiming that the cheques were issued in payment for generators, the complainant did not provide any purchase orders, invoices, or delivery receipts to substantiate its claim.

The Court scrutinized the complainant’s financial records and found that the alleged outstanding amount was not reflected in the company’s balance sheet. The Managing Director of the complainant company admitted in cross-examination that no civil recovery suit had ever been filed against the respondent for the alleged dues.

Holding that the complainant had failed to establish foundational facts, the Court stated, “A legally enforceable debt must be proved. In the absence of delivery receipts, purchase orders, or even a civil recovery suit, the complainant’s case lacks credibility.”

The Court further referred to Pine Product Industries v. R.P. Gupta & Sons, 2007 (94) DRJ 352, which held that, “If the complaint itself is vague about the nature of liability, mere dishonor of a cheque does not justify conviction under Section 138 NI Act.”

"High Court Rejects Application Under Section 311 CrPC – Calls It ‘A Desperate Attempt to Plug Evidentiary Gaps’"

Apart from the acquittal, the complainant also challenged the trial court’s rejection of an application under Section 311 CrPC, which sought to summon a Sales Tax Officer as an additional witness.

The High Court found no merit in this challenge, noting that the application was filed 15 years after the proceedings began, without any explanation for the delay.

Calling it a desperate last-minute attempt, the Court ruled, "The complainant had multiple opportunities to produce relevant evidence. A Section 311 CrPC application cannot be used as a tool to fill evidentiary gaps after failing to prove a case for over a decade.”

"Delhi High Court Upholds Acquittal – Once Presumption Is Rebutted, Complainant Must Prove Case Beyond Doubt"

Dismissing the appeals, the High Court ruled: "Once the accused successfully rebuts the presumption under Sections 118(a) and 139 NI Act, the burden shifts back to the complainant to prove the existence of a legally enforceable debt. In this case, the complainant has failed to do so. The trial court’s judgment is well-reasoned and does not warrant interference."

The Court emphasized that mere dishonor of a cheque does not automatically result in a conviction. A complainant must establish the foundational facts of a legally enforceable debt before invoking the statutory presumption under the NI Act.

With these findings, the Court dismissed the leave to appeal, rendering the appeal infructuous.

Conclusion: A Landmark Judgment Reinforcing Accused’s Right to Fair Trial in Cheque Bounce Cases

This judgment reinforces several crucial principles in cheque dishonor cases under Section 138 NI Act:

• The presumption under Sections 118(a) & 139 NI Act is rebuttable.

• The accused only needs to raise a probable defense – not prove innocence beyond reasonable doubt.

• Mere issuance of a cheque does not establish liability – foundational facts such as invoices, purchase orders, or delivery receipts must be proven.

• Fabricated or fraudulent evidence (such as forged sales tax forms) will be fatal to the complainant’s case.

• Applications under Section 311 CrPC cannot be misused to fix evidentiary gaps after years of litigation.

This ruling will serve as a key precedent in cheque bounce cases, ensuring that Section 138 NI Act is not misused as a debt recovery tool without proper evidence of a legally enforceable debt.

Date of decision: 18/02/2025