Section 138 NI Act | Accused Rebuts Presumption By Proving Intimation Of Misplaced Cheque To Bank And Lack Of Documentation For Alleged Settlement: Andhra Pradesh High Court

"In proving the case in rebutting statutory presumption under Section 139 read with Section 118 of N.I.Act, accused required to raise points which are of such a nature of fact, existence of which can raise a question to the mind of a Court to disbelieve existence of prosecution case." Andhra Pradesh High Court, in a ruling dated October 1, 2026, set aside the conviction of an accused under Section 138 of the Negotiable Instruments (NI) Act, holding that the accused had successfully rebutted the statutory presumption by demonstrating that the subject cheque had been reported as misplaced years prior to the alleged issuance.

A bench presided by Justice Subhendu Samanta observed that when an accused provides cogent evidence—such as bank correspondence regarding a lost cheque and highlights the absence of documentation for a supposed "full and final settlement"—the burden under Section 139 is sufficiently discharged on the basis of a preponderance of probabilities.

The complainant alleged that the accused, a Managing Director, issued a post-dated cheque for Rs. 9,00,000 in July 2000 as part of a settlement for the surrender of shares. The cheque was dishonoured upon presentation, leading to a private complaint under Section 138 of the NI Act. Both the trial court and the appellate court found the accused guilty, relying on the statutory presumption of a legally enforceable debt. The accused challenged this concurrent finding in the present revision, asserting that the cheque in question was one of several left in an office that had been misplaced in 1996, a fact documented by an intimation sent to the State Bank of Hyderabad at the time.

The central legal issue was whether the accused had successfully rebutted the statutory presumption under Section 139 read with Section 118 of the NI Act. Specifically, the court examined whether the evidence of a prior report of a misplaced cheque, combined with the lack of documentation for the alleged final settlement, was sufficient to shift the burden back to the complainant to prove the existence of a legally enforceable debt.

The Court reaffirmed the established legal position that Section 139 of the NI Act creates a rebuttable presumption, and the standard of proof for the accused is that of a "preponderance of probabilities." The Court noted that an accused need not prove their defence beyond reasonable doubt; rather, they must produce evidence that creates a genuine doubt in the mind of the court regarding the existence of the debt.

Standard of Proof for Rebuttal

Justice Samanta emphasized that the court must act as a "prudent man" in weighing conflicting probabilities. If the accused presents facts that suggest a "50% tilt" in favour of their narrative, it is sufficient to rebut the presumption. The Court held that the "impossible is weeded out at the first stage; the improbable at the second stage," and that the judiciary must focus on whether the defence renders the prosecution's claim inherently doubtful.

Evidence of Misplaced Cheque

The High Court attached significant weight to the documentary evidence marked as Ex.D5, a letter dated October 11, 1995, wherein the accused informed the Chief Manager of the State Bank of Hyderabad that the specific cheque leaf had been misplaced. The Court ruled that even in the absence of a formal police complaint, this prior bank intimation serves as a crucial circumstance supporting the accused's plea that the cheque was used without authorization after the company faced financial distress.

Court Finds Prosecution Case Dubious

The Court further noted that while all previous share transactions between the parties were meticulously documented, the alleged "full and final settlement" for Rs. 9,00,000 remained entirely undocumented. The court observed that the timing of the cheque presentation—coinciding with the initiation of recovery proceedings against the company by a bank—cast a shadow of suspicion over the complainant's case, suggesting the exploitation of a dormant, misplaced instrument.

"The circumstance of issuance of impugned cheque at that relevant point of time is doubtful. There are sufficient documents to hold that petitioner has sufficiently rebutted the statutory presumption under Section 139 read with Section 118 of N.I.Act."

Limited Scope of Revisional Jurisdiction

Addressing the limits of its revisional powers, the Court acknowledged that it generally does not embark upon a "roving re-examination" of evidence. However, it held that where the lower courts have overlooked vital documentary evidence and failed to appreciate the "preponderance of probabilities," the finding of conviction becomes perverse and untenable in law, necessitating the intervention of the High Court to prevent a miscarriage of justice.

In conclusion, the Court allowed the Criminal Revision Case, set aside the concurrent conviction orders, and acquitted the petitioner. The ruling underscores that while Section 138 is a robust tool for commercial security, it cannot be sustained when the foundational claim of a legally enforceable debt is contradicted by evidence of a previously reported lost instrument and a total absence of transactional documentation.

Date of Decision: 01 October 2026