U/S 138 NI Act | "Mere Possession of Signed Cheque Does Not Prove Debt," Rules Supreme Court

The Supreme Court has affirmed the acquittal of an accused in a cheque bounce case under Section 138 of the Negotiable Instruments Act, 1881. The judgment, delivered by a bench comprising Justices B.V. Nagarathna and Augustine George Masih, highlights the importance of establishing a clear financial transaction and the complainant's financial capacity in such cases. The court upheld the concurrent findings of the Trial Court and the High Court of Karnataka, which had both ruled in favor of the accused, citing inconsistencies in the complainant's claims.

The appellant, who had known the respondent for six years, claimed that he had lent INR 2,00,000 to the respondent, who issued a cheque as a guarantee for repayment. The cheque was dishonored due to insufficient funds, leading the appellant to file a complaint under Section 138 of the NI Act. The Trial Court, however, acquitted the respondent, a decision later upheld by the Karnataka High Court, on the grounds of contradictions in the appellant's statements and a lack of evidence regarding the loan transaction.

The Supreme Court emphasized that in cases under Section 138 of the NI Act, the burden of proof lies on the complainant to establish the existence of a legally enforceable debt or liability. The court reiterated that the presumption under Section 139 of the NI Act is rebuttable and that the accused is not required to conclusively prove their defense but only to raise a probable defense that creates doubt about the complainant's claims.

The court observed that the appellant failed to prove his financial capacity to lend the claimed amount, as there was no evidence of the transaction in his Income Tax Returns. The appellant also provided contradictory statements regarding when the cheque was issued—whether as a security at the time of the loan or upon a demand for repayment.

The judgment underscores the principle that mere possession of a signed cheque by the complainant does not automatically raise a presumption of liability against the accused. The court cited precedents, including Rangappa v. Sri Mohan and Bir Singh v. Mukesh Kumar, to emphasize that the accused can rebut the presumption under Section 139 through evidence or circumstantial indications, without needing to prove their case beyond a reasonable doubt.

"The presumption under Section 139 of the NI Act does not relieve the complainant from the responsibility of proving the transaction and the financial capacity to extend the loan," Justice Augustine George Masih noted. "The contradictions in the appellant's statements and the lack of financial documentation cast a shadow of doubt that the respondent successfully leveraged to rebut the statutory presumption."

The Supreme Court's decision to dismiss the appeal reinforces the judiciary's stance on ensuring that complainants in cheque bounce cases must provide clear and consistent evidence of the financial transaction. The judgment serves as a reminder that the legal burden of proof in such cases remains on the complainant, with the accused required only to raise a credible defense to rebut the presumption of liability. The ruling is expected to influence future cases by reiterating the necessity for detailed financial evidence when pursuing claims under the NI Act.

Date of Decision: August 7, 2024

Sri Dattatraya v. Sharanappa