Section 138 N.I. Act | Failure to Prove Legally Enforceable Debt Leads to Acquittal in Cheque Dishonour Case: Karnataka High Court

Presumption Under Section 139 N.I. Act Can Be Rebutted with Plausible Defences; Complainant Must Establish Legally Enforceable Debt – Karnataka High Court upheld the acquittal of the respondent-accused in a cheque dishonour case under Section 138 of the Negotiable Instruments Act, 1881 (N.I. Act).

Justice Shivashankar Amarannavar dismissed the appeal, observing that the complainant failed to prove the existence of a legally enforceable debt and rebut the respondent’s plausible defence. The decision underscores the principle that the statutory presumption under Section 139 N.I. Act is rebuttable, and the burden ultimately lies on the complainant to establish his claim.

The case arose from a complaint filed by the appellant, Sri Shankar Shetty, alleging that the respondent, Smt. Srilatha Shetty, had borrowed Rs. 5,00,000 from him in March 2007 to meet her immediate financial needs. The respondent allegedly issued a cheque (No. 676564, dated 14.07.2007) drawn on Syndicate Bank, Hampankatta Branch, Mangalore, towards repayment of the loan.

When the cheque was presented for clearance, it was dishonoured due to insufficient funds. The appellant issued a legal notice under Section 138 N.I. Act, but the respondent failed to pay the cheque amount, prompting the appellant to file a private complaint.

The learned Magistrate, after examining the evidence, acquitted the respondent-accused. Aggrieved by this decision, the appellant filed the present appeal.

Section 139 of the N.I. Act raises a statutory presumption that the cheque was issued for the discharge of a legally enforceable debt. However, the presumption is rebuttable if the accused provides a plausible defence.

The court observed: "The respondent rebutted the presumption under Section 139 of the N.I. Act by raising plausible defences, including that the cheque was issued as security to a third party. Once the presumption is rebutted, the burden shifts back to the complainant to prove the legally enforceable debt."

The appellant relied on a Memorandum of Understanding (MoU) dated 26.09.2008, allegedly executed during the pendency of the case. According to the appellant, the MoU admitted the loan transaction and issuance of the cheque.

However, the respondent denied executing the MoU, and the appellant failed to examine any attesting witnesses, particularly M. Venkataraya Prabhu, a key witness and alleged facilitator of the loan.

The court held: "Non-production of corroborative evidence to establish the execution of the MoU created doubt regarding the appellant’s claim of a legally enforceable debt. Withholding material evidence further weakened the case."

The respondent questioned the appellant’s financial capacity to advance a loan of Rs. 5,00,000. During cross-examination, the appellant gave vague and evasive answers regarding his financial capacity and did not produce any supporting documents to prove that he had sufficient funds to lend such a large amount.

The court noted: "The complainant’s inability to prove his financial capacity, coupled with his involvement in three criminal cases under Section 138 N.I. Act as an accused, undermined his credibility. The evasive answers further created suspicion about the alleged loan transaction."

The respondent claimed that she had handed over two signed cheques to M. Venkataraya Prabhu as security for a loan she had availed from him. The appellant allegedly misused one of these cheques.

Despite knowing that Prabhu was a signatory to the MoU and a central figure in the alleged loan transaction, the appellant failed to examine him as a witness to disprove the respondent’s defence.

The court observed: "Withholding evidence of Venkataraya Prabhu, who could have clarified the circumstances, created further suspicion. The defence of misuse of a security cheque, in the absence of rebuttal, appeared plausible."

During cross-examination, the appellant admitted that he handed over cash to the respondent on 14.11.2007, a date subsequent to the cheque’s issuance (14.07.2007). This admission contradicted the timeline of events and created doubts about the appellant’s version.

The High Court upheld the Trial Court’s judgment and dismissed the appeal, concluding:

"The complainant failed to prove the loan transaction and the existence of a legally enforceable debt. The respondent successfully rebutted the presumption under Section 139 of the N.I. Act by raising a plausible defence that the cheque was issued as security. The Trial Court rightly acquitted the respondent for the offence punishable under Section 138 of the N.I. Act."

This judgment highlights the necessity of proving a legally enforceable debt in cheque dishonour cases under Section 138 N.I. Act. While the presumption under Section 139 provides initial support to the complainant, it is rebuttable, and the complainant must discharge the ultimate burden of proof. Failure to provide corroborative evidence, especially when material witnesses are withheld, can be fatal to the case.

Date of Decision: 17 January 2025