Mere Issuance Of Cheque Without Cogent Proof Of Legal Liability Is Not Sufficient To Convict Under Section 138 NI Act: Bombay High Court Upholds Acquittal

"Cheque Issued for Third-Party Debt, Without Proof of Liability, Cannot Attract Section 138 NI Act", In a significant reaffirmation of the principles governing cheque dishonour cases, the Bombay High Court upheld the acquittal of six accused in a criminal appeal arising from the dishonour of a ₹78,00,000 cheque allegedly issued towards repayment of a third party’s hand loan.

Justice Dr. Neela Gokhale dismissed the complainant’s appeal, holding that the essential ingredients of Section 138 of the Negotiable Instruments Act, 1881 (NI Act) were not established, and no interference was warranted in an acquittal that was based on a “plausible and legally sound” view of the evidence.

The Court found that the complainant failed to establish either the existence of a legally enforceable debt owed by the accused or specific roles of the partners of the firm to sustain vicarious liability. The Sessions Court's order of acquittal dated 31st January 2011 was thus upheld.

“There was no privity of contract, no documentary evidence, and no specific role attributed to any partner”

The appellant, Mr. Vijaykant Kothari, had alleged that the accused persons, partners of a firm, had voluntarily undertaken to repay a personal hand loan of ₹56.5 lakhs taken by one Mr. Hirachand Pagaria. The complainant claimed that a post-dated cheque for ₹78 lakhs was issued by one of the accused as part of that undertaking. The cheque was dishonoured upon presentation, triggering proceedings under Section 138.

However, the High Court found that there was no evidence of any financial dealings between the complainant and the accused, nor any documentation showing acceptance of liability by the accused firm or its partners. “Save and except the bare statement of the complainant, there is no material to prove that the accused undertook liability,” the Court held.

The Court also took serious note of the unexplained escalation of the debt from ₹56.5 lakhs to ₹78 lakhs, observing that, “there is no explanation regarding the rate of interest to justify the increase… the assertion that the cheque was issued in discharge of this loan is far-fetched.”

Scope of Interference in Acquittal Limited – Double Presumption of Innocence Reiterated

The High Court reiterated the binding principles on appellate interference in acquittal under Section 378 CrPC, citing landmark rulings including Chandrappa v. State of Karnataka and Rajesh Prasad v. State of Bihar. It emphasised that:

“There is double presumption of innocence in favour of the accused—firstly under the presumption of innocence in criminal law, and secondly by virtue of acquittal by the trial court.”

Unless the judgment is perverse or based on misreading of evidence, the High Court cannot substitute its view merely because another view is possible.

Partners’ Liability Requires Specific Pleadings — Mere Bald Assertions Not Enough

The Court found the prosecution's failure to attribute specific roles to the partners of the accused firm fatal to its case. Despite invoking vicarious liability, the complaint lacked averments on which partner managed day-to-day affairs, a mandatory requirement under Section 141 read with Section 138 of the NI Act.

Citing N.K. Wahi v. Shekhar Singh and the recent 2025 Supreme Court ruling in Kamalkishore Shrigopal Taparia v. India Ener-Gen Pvt. Ltd., the Court held:

“There must be clear and unambiguous allegations as to how the directors or partners are responsible for the conduct of the business. In the absence of such pleadings and evidence, the complaint is not entertainable.”

This omission, combined with the lack of evidence of liability, led the Court to conclude that the ingredients of the offence under Section 138 were not satisfied.

No Illegality or Perversity in Sessions Court Acquittal

Justice Gokhale concluded that the Sessions Court had correctly appreciated the lack of legal debt, absence of contractual privity, unexplained cheque amount, and failure to establish the partners’ involvement. She held:

“The impugned Judgment and Order of acquittal does not suffer from any patent perversity and is not based on any misreading or omission to consider material evidence… I am not inclined to reverse the judgment of acquittal.”

Accordingly, the criminal appeal was dismissed.

Date of Decision: 28 January 2026