Section 138 NI Act | Presumption Rebutted When Accused Proves Prior Intimation Of Lost Cheque And Discredits Complainant's Financial Capacity: Karnataka High Court

"These facts clearly establishes that the accused has rebutted the presumptions available in favour of the complainant. However, after such rebuttal, the complainant has not produced any evidence to prove his contention." High Court of Karnataka has held that the statutory presumptions under Sections 118 and 139 of the Negotiable Instruments Act, 1881 (NI Act) stand successfully rebutted when an accused establishes a prior intimation of lost cheque leaves to the police and the bank, coupled with discrediting the complainant's financial capacity to lend substantial cash amounts.

Setting aside concurrent convictions recorded by the trial court and the appellate court, a single bench of Justice Geetha K.B. observed that lower courts cannot "blindly apply" statutory presumptions when cross-examination and defence evidence expose glaring contradictions in the complainant's case.

The complainant alleged that the accused, an acquaintance and postal department employee, borrowed a hand loan of Rs. 10,00,000 in cash on September 25, 2021, for personal necessities and subsequently issued a cheque dated December 20, 2021, drawn on Cauvery Grameena Bank to discharge the debt. Upon presentation, the cheque was returned unpaid due to "insufficient funds," prompting the complainant to issue a statutory demand notice which was returned as "unclaimed" and with "insufficient address." While the Principal Civil Judge and JMFC, Chintamani convicted the accused under Section 138 NI Act and the II Additional District and Sessions Judge, Chikkaballapur affirmed the conviction, the accused approached the High Court in revision asserting that the cheque was among multiple leaves lost in June 2020, well before the purported loan transaction.

The primary question before the court was whether the concurrent judgments of conviction suffered from perversity, gross illegality, or non-consideration of material evidence warranting interference under revisional jurisdiction under Sections 397 and 401 of the Code of Criminal Procedure, 1973 (CrPC). The bench was also called upon to determine whether the accused had successfully discharged the evidentiary burden required to rebut the statutory presumptions under Sections 118 and 139 of the NI Act.

Contours Of High Court's Revisional Powers Under Section 397 CrPC

The court began by delineating the settled boundaries of revisional jurisdiction under Sections 397 and 401 CrPC. Relying on the Supreme Court's pronouncement in Kuntegowda v. Thurubaiah (2026 SCC OnLine SC 1485), which reiterated the principles laid down in State of Kerala v. Puttumana Illath Jathavedan Namboodiri (1999) and State of Maharashtra v. Jagmohan Singh Kuldip Singh Anand (2004), the bench underscored that a revisional court does not sit as a court of second appeal.

The High Court observed that while re-appreciating evidence at large is generally impermissible, intervention becomes imperative if the findings below are perverse, grossly erroneous, or wholly untenable. Revisional interference is justified where lower courts act arbitrarily, consider irrelevant material, or omit relevant, crucial evidence that results in a gross miscarriage of justice.

Accused Can Rebut Section 139 NI Act Presumption Through Three Recognized Modes

Examining the essential ingredients of Section 138 of the NI Act, the bench observed that once issuance of the cheque and signatures are shown along with compliance with notice mandates, statutory presumptions under Sections 118 and 139 arise in favour of the holder. However, the court stressed that such presumptions are inherently rebuttable on a preponderance of probabilities.

The court noted that an accused is entitled to rebut these presumptions through three distinct or combined modes: by replying to the statutory legal notice, by effectively cross-examining the complainant to demolish the case, or by leading independent defence evidence. Since the demand notices in this case were returned unserved, the accused was fully entitled to establish his defence through rigorous cross-examination and defence documentation.

Prior Police And Bank Intimations Of Lost Cheque Leaves Substantively Rebut Presumption

Evaluating the defence evidence, the bench noted that the accused had lodged a formal police complaint on June 22, 2020, and addressed a written requisition to Cauvery Grameena Bank on November 2, 2020, to block 44 lost cheque leaves, passbooks, and ATM cards. The subject cheque was specifically enumerated among the lost leaves reported to the authorities more than ten months prior to the alleged cash loan transaction of September 2021.

Justice Geetha pointed out that the complainant never denied the factum of these lost-cheque intimations during the cross-examination of the accused, nor did he put any suggestion to dispute their veracity. The bench held that even though the bank's return memo cited "funds insufficient" rather than "cheque blocked," the uncontroverted proof of prior intimations destroyed the foundational narrative of voluntary issuance for an existing liability.

"The complaint to police was lodged on 22.06.2020 and to Cauvery Grameena Bank, Kulkunte on 02.11.2020... The details of cheque leaves are mentioned in Ex.D.1, which includes the subject cheque as discussed above... the above factum of loss of cheque is not seriously disputed."

Failure To Substantiate Financial Capacity To Advance Substantial Cash Loan Proves Fatal

Turning to the complainant's financial standing, the High Court observed that the complainant admitted to earning merely Rs. 40,000 to Rs. 50,000 per month and was not an income tax assessee. Despite lending a substantial sum of Rs. 10,00,000 in cash without any contemporaneous loan agreement, promissory note, or independent witness, the complainant failed to place any bank statements or source-of-income documents on record to prove his lending capacity once it was specifically challenged.

The court also adverted to regulatory mandates, observing that under Reserve Bank of India (RBI) directives and the provisions of the Income Tax Act, 1961, transactions exceeding Rs. 2,00,000 are mandatorily required to be conducted through regular banking channels. The bench observed that advancing Rs. 10,00,000 in cash without inquiring into the borrower's repaying capability or employment status defied standard human conduct and legal commercial prudence.

Unexplained Discrepancies In Cheque Recitals And Inconsistent Testimonies

Scrutinizing the physical condition of the disputed cheque, the bench observed that the instrument bore the signature of the accused on both the front and the reverse sides, a practice ordinarily reserved for self-cheques rather than non-account payee cheques handed to third parties. Furthermore, the recitals and the signatures were executed in entirely different inks, creating serious suspicion regarding its genuine execution.

The bench also identified irreconcilable contradictions in the complainant's depositions. While the complainant initially claimed that the accused had never visited his house, he subsequently deposed that the money was advanced in two installments directly at his residence, while failing to examine the intermediary who purportedly introduced them.

Concurrent Convictions Founded On Perverse Appreciation Of Law And Evidence

Holding that the trial court and the appellate court fell into complete error, the bench concluded that both forums mechanically fastened guilt upon the accused by misapplying the statutory presumptions under Sections 118 and 139 of the NI Act while shutting their eyes to the materials elicited in cross-examination.

The High Court held that once the accused successfully established a probable defence by discrediting the complainant's financial capacity and demonstrating prior intimation of lost cheque leaves, the burden shifted back onto the complainant to establish the underlying transaction, which he miserably failed to discharge.

Allowing the revision petition, the High Court set aside the judgments of conviction and sentences passed by the trial court and confirmed by the appellate court, and acquitted the petitioner-accused of the offence punishable under Section 138 of the NI Act. The ruling reinforces the vital principle that statutory presumptions in cheque bounce proceedings are not irrebuttable and concurrent convictions will be vacated in revision where lower courts ignore baseline evidentiary frailties concerning cash transactions and lost instruments.

Date of Decision: 17 October 2026