Section 138 NI Act | Existence Of Defence Founded On Disputed Facts Cannot Be Ground To Scuttle Cheque Bounce Prosecution At Inception: Punjab & Haryana High Court

"Mere existence of a defence, particularly one founded upon disputed questions of fact, cannot furnish a legitimate basis for scuttling the prosecution at its inception." Punjab and Haryana High Court, in an authoritative decision dated August 19, 2026, held that a cheque bounce complaint under Section 138 of the Negotiable Instruments Act, 1881 cannot be quashed at the threshold under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 merely on the ground that the accused has a defence regarding the subsistence of a legally enforceable debt.

A single bench of Justice Virinder Aggarwal observed that whether reciprocal obligations were fulfilled under an agreement and whether payment was legitimately stopped are disputed questions of fact that require trial and evidence, emphasizing that the High Court cannot conduct a mini-trial in exercise of its inherent jurisdiction.

The dispute arose out of a land transaction concerning five acres of land in Kapurthala, which the petitioner agreed to sell to the respondent for ₹24,50,000. Following cancellation of the agreement, the parties entered into a settlement on May 16, 2024, whereby the petitioner issued five post-dated cheques to refund the consideration amount against the return of original documents and land possession. Alleging that the respondent failed to restore possession, the petitioner instructed his bank to stop payment, leading to the dishonour of the cheques and the subsequent institution of a complaint under Section 138 of the Negotiable Instruments Act.

The primary question before the court was whether criminal proceedings under Section 138 of the Negotiable Instruments Act could be quashed under Section 528 of the Bharatiya Nagarik Suraksha Sanhita on the plea that no legally enforceable debt subsisted due to breach of reciprocal obligations by the complainant.

Scope Of Inherent Powers Under Section 528 BNSS To Quash Criminal Complaints

The Court underscored that the inherent powers under Section 528 of the BNSS, corresponding to Section 482 of the Code of Criminal Procedure, 1973, are extraordinary and must be exercised sparingly and with great circumspection. The bench reiterated that inherent jurisdiction is meant to prevent abuse of the judicial process or to secure the ends of justice, but cannot be invoked as an instrument to evaluate rival defences at the nascent stage of a trial.

Reaffirming the seminal principles laid down by the Supreme Court in State of Haryana v. Ch. Bhajan Lal, the bench observed that quashing is permissible only where the uncontroverted allegations in the complaint fail to disclose the commission of any offence or where the proceedings are maliciously instituted to wreak vengeance. The bench noted that the present case does not fall within any of the exceptional categories enunciated in R.P. Kapur v. State of Punjab or Bhajan Lal.

High Court Cannot Conduct Mini-Trial Or Appreciate Evidence Under Section 482 CrPC

Justice Aggarwal invoked the Three-Judge Bench decision of the Supreme Court in M/s Neeharika Infrastructure Pvt. Ltd. v. State of Maharashtra, observing that the High Court is strictly precluded from conducting a mini-trial or embarking upon a meticulous appreciation of evidence while considering a quashing petition.

The Court noted that interference is warranted only in the rarest of rare cases where allegations taken at face value do not constitute an offence. The bench held that the court cannot scrutinize disputed questions of fact or adjudicate upon the reliability and genuineness of the complaint's allegations at a preliminary stage where the prosecution is in its infancy.

"Whether the parties fulfilled their respective obligations under the subsequent arrangement, whether any legally enforceable liability subsisted on the date of presentation of the cheque and whether the petitioner was justified in issuing instructions for stoppage of payment are questions which necessarily require evidence and cannot be conclusively determined at the threshold."

Statutory Ingredients Of Section 138 NI Act Disclosed Ex Facie

Examining the complaint, the bench observed that the petitioner admittedly undertook to refund ₹24,50,000 upon the cancellation of the agreement to sell and issued post-dated cheques towards the discharge of the acknowledged obligation. Upon presentation, the cheque was dishonoured with the remarks "Payment Stopped by Drawer," and the petitioner failed to pay the demanded amount despite the receipt of the statutory demand notice.

The bench held that the foundational facts necessary for constituting a prima facie offence under Section 138 of the Negotiable Instruments Act were ex facie disclosed. The Court explained that once the statutory ingredients are prima facie met on the face of the complaint, the High Court cannot prematurely terminate the criminal prosecution.

Distinguishing Precedent On Cheques Issued During Compromise

The Court rejected the petitioner's reliance on the Supreme Court's ruling in Lalit Kumar Sharma v. State of U.P., holding that the factual foundation in that case was materially different because the cheques therein were issued solely to effectuate a compromise during pending proceedings without representing an independent legally enforceable debt.

In contrast, the Court found that the respondent in the present case had paid consideration towards an agreement to sell, and the cheques were issued to refund that admitted sum upon cancellation. The Court concluded that whether the respondent failed to deliver possession of the land is a substantive matter of defence that the petitioner must establish during trial, and dismissed the petition.

The High Court dismissed the petition, refusing to quash the Section 138 NI Act complaint while clarifying that the trial court must adjudicate the matter independently on the evidence adduced without being influenced by any observations made in the order. This ruling reinforces the principle that accused persons cannot bypass the statutory trial mechanism under the Negotiable Instruments Act by raising contested factual defences in inherent jurisdiction petitions.

Date of Decision: 19 August 2026