When Accused Neither Denies Signature Nor Rebuts Presumption, Conviction Must Follow Under Section 138 NI Act: Karnataka High Court

“Accused Cannot Remain Silent and Escape Conviction Under Section 138 NI Act” – In a strongly reasoned judgment delivered on 18th December 2025, the Karnataka High Court set aside the acquittal of the accused in a cheque dishonour case and convicted him under Section 138 of the Negotiable Instruments Act, 1881, imposing a fine of ₹8,00,000. Justice G. Basavaraja held that the trial court had completely erred in placing the burden on the complainant to prove financial capacity when the accused had not even denied the issuance or signature of the cheque, nor led any defence evidence.

“The trial Court has not properly appreciated the material on record in its proper perspective… the complainant has proved the guilt of the accused beyond all reasonable doubt,” the Court held while convicting the respondent.

“Presumption under Section 139 NI Act remains unless rebutted – Accused’s silence fatal to his defence”

The case arose from a cheque dated 6th November 2016 issued by the respondent for ₹5,00,000, which bounced due to insufficient funds. The cheque was issued in repayment of a friendly loan allegedly advanced by the complainant, Smt. Parvathamma, in January 2016. The complainant had claimed that the funds came from the proceeds of sale of her property at Kumaraswamy Layout, Bengaluru – money she had initially set aside for her daughter’s marriage.

When the cheque was dishonoured, the complainant sent a legal notice, which was returned as “unclaimed.” No reply was given by the accused, nor was any amount repaid. The complainant then filed a private complaint under Section 138 NI Act. The trial court, however, acquitted the accused, observing that the complainant had failed to prove her financial capacity to lend such an amount.

The High Court reversed this finding. Referring to the binding precedent of the Supreme Court in Ashok Singh v. State of Uttar Pradesh, 2025 SCC OnLine SC 706, the Court reiterated:

“Only if an objection is raised that the complainant was not in a financial position to pay the amount... only then the complainant would have to bring before the Court cogent material to indicate financial capacity.”

In the present case, the accused had not even entered the witness box nor submitted any reply to the legal notice. He had not led any evidence to rebut the statutory presumption under Section 139, which mandates that the Court shall presume that the cheque was issued in discharge of a legally enforceable debt or liability.

“The accused has not placed any cogent and acceptable legal evidence before the Court to rebut the statutory presumption under Section 139 of the NI Act,” Justice Basavaraja observed.

“Legal notice returned as unclaimed – Deemed service stands”

A key procedural contention raised was the alleged non-service of the legal notice issued under Section 138. However, the Court held that once the notice is returned with the postal endorsement “unclaimed,” it shall be presumed to have been duly served. Relying on settled law, the Court emphasized that the burden to show non-service lies upon the accused, who did not challenge or respond to the notice.

The complainant had complied with all the procedural requirements – timely presentation of cheque, issuance of legal notice, and filing of the complaint within limitation. Hence, all legal conditions under Section 138 NI Act were satisfied.

“Financial capacity adequately explained – Trial Court erred in demanding more”

Addressing the core ground of acquittal – the alleged lack of financial capacity – the Court found that the complainant had sufficiently explained the source of the ₹5,00,000 advanced as loan. She had stated that she received the amount from the sale of a house, part of which was returned by her daughter in January 2016.

Though the documents evidencing the sale and lease were not formally marked as exhibits, they were available on record and corroborated her claim. The High Court refused to penalize the complainant for lack of documentary exhibits when the accused had failed to mount even a basic rebuttal.

“The trial Court committed a manifest error by acquitting the accused despite no rebuttal being offered,” Justice Basavaraja concluded.

Accused Convicted, ₹7.8 Lakh Compensation Ordered, 3-Month Sentence in Default

Having held that the statutory presumption had not been rebutted and that all legal conditions under Section 138 were satisfied, the High Court proceeded to convict the accused. The Court imposed a fine of ₹8,00,000, of which ₹7,80,000 was directed to be paid as compensation to the complainant under Section 357A of the Code of Criminal Procedure, and the remaining ₹20,000 was to be credited to the State.

“Keeping in mind the prevailing interest rate of the nationalised Bank, and the litigation expenses, it is just and proper to impose a fine of ₹8,00,000,” the Court held.

In default of payment, the accused shall undergo simple imprisonment for three months.

Silence of the Accused Cannot Override Legal Presumptions

This judgment sends a strong signal that mere denial or silence by the accused will not suffice in dishonour of cheque cases. The Karnataka High Court has reinforced that the presumption under Section 139 NI Act is a powerful legal tool that shifts the burden on the accused – and if he fails to rebut it with credible evidence, conviction is inevitable.

“The accused neither denied the signature, nor rebutted the presumption, nor responded to legal notice. In such a case, the acquittal could not be sustained,” the Court declared while allowing the appeal.

Date of Decision: 18 December 2025