Court Observes That Mere Denial Of Loan Liability Or Allegation Of Blank Cheque Misuse Cannot Displace Presumption Under Sections 118 And 139 Of Negotiable Instruments Act
LawDaily.org | Banking & Financial Laws
The Delhi High Court has refused to interfere with the conviction of an accused in a cheque dishonour case under Section 138 of the Negotiable Instruments Act, 1881, holding that the accused failed to rebut the statutory presumption that the cheque was issued towards discharge of a legally enforceable liability.
Justice Saurabh Banerjee of the Delhi High Court dismissed a criminal revision petition filed by Pardeep Kumar, who had challenged the orders of the Trial Court and the Appellate Court convicting him for dishonour of cheque. The High Court held that once issuance of cheque and signature on the cheque are admitted, the burden shifts upon the accused to prove that no legally enforceable debt or liability existed.
The Court observed that the accused had merely taken a defence that he had received only ₹50,000/- as loan, had already repaid the amount, and that the cheque was given as a blank security cheque which was allegedly misused. However, the accused failed to produce any documentary evidence proving repayment or misuse of the cheque.
Background Of The Case
The proceedings originated from a complaint filed by the respondent under Section 138 of the Negotiable Instruments Act alleging dishonour of cheque issued by the accused. According to the complainant, the accused had taken a loan amounting to ₹2,00,000/- in cash and ₹50,000/- through cheque in December 2017. Towards repayment of this liability, the accused issued a cheque bearing No. 717458 dated 04.05.2019 for ₹2,50,000/- drawn on State Bank of India, Jhajjar Chungi, Rohtak.
When the cheque was presented for encashment, the same was returned unpaid by the bank on 07.05.2019 with the remark “Account Closed”. Following dishonour of the cheque, the complainant issued a statutory legal notice dated 04.06.2019 calling upon the accused to make payment of the cheque amount within the prescribed period. However, the accused neither replied to the legal notice nor made payment within the statutory period of 15 days, resulting in initiation of proceedings under Section 138 of the Negotiable Instruments Act.
Defence Taken By Accused
During trial, the accused admitted that the cheque contained his signature. However, he disputed the liability claimed by the complainant. The accused claimed that he had not taken a loan of ₹2,50,000/- and that the actual loan amount was only ₹50,000/- received through cheque. He further claimed that he had already repaid the said amount along with interest through daily instalments amounting to approximately ₹1,00,000/-.
The accused also argued that the cheque was given as a blank security cheque and was later misused by the complainant. However, the Trial Court did not accept these submissions and found that the accused failed to produce any evidence showing repayment of the alleged loan amount or any complaint regarding misuse of the cheque.
Trial Court Convicts Accused Under Section 138 NI Act
After examining the evidence, the Trial Court held that all essential ingredients required for establishing an offence under Section 138 of the Negotiable Instruments Act were fulfilled. The Court noted that the accused had admitted issuance of the cheque and his signatures on it. The cheque was presented within the prescribed period, dishonoured by the bank, legal notice was issued, and payment was not made within the statutory period.
The Trial Court further held that the accused failed to rebut the legal presumptions available in favour of the complainant under Sections 118 and 139 of the Negotiable Instruments Act. Accordingly, the accused was convicted and sentenced to undergo three months simple imprisonment and directed to pay a fine of ₹3,50,000/- to the complainant. In default of payment of fine, he was directed to undergo further simple imprisonment for two months.
Appeal And Revision Before Delhi High Court
The accused challenged the conviction before the Appellate Court. However, the Appellate Court dismissed the appeal and upheld the judgment of conviction dated 07.07.2023 and sentence order dated 22.07.2023 passed by the Trial Court. Thereafter, the accused approached the Delhi High Court by filing a criminal revision petition under Section 397 of the Code of Criminal Procedure, 1973.
The main contention before the High Court was that both the Trial Court and Appellate Court failed to properly appreciate the defence of the accused and wrongly relied upon the statutory presumptions under the Negotiable Instruments Act.
Arguments Raised By Accused Before High Court
The counsel appearing for the accused argued that the complainant failed to establish the financial capacity to advance a cash loan of ₹2,00,000/-. It was submitted that the complainant did not produce any loan agreement, receipt, account records, income tax documents or other material showing payment of the alleged cash amount.
The accused also argued that the complainant failed to prove the source of funds and therefore the existence of legally enforceable liability was doubtful. Reliance was placed upon judgments including John K. Abraham vs Simon C. Abraham, Irshad Ahmed vs Sukhe Singh, and Kulvinder Singh vs Kafeel Ahmed to support the argument that the complainant must prove the transaction. The accused further submitted that he had already repaid the actual loan amount and therefore the cheque could not have represented any outstanding liability.
Complainant Opposes Revision Petition
The complainant opposed the revision petition and supported the findings of the Trial Court and Appellate Court. The complainant argued that all necessary documents had been produced before the courts, including the cheque, bank return memo, legal notice and proof of service. It was submitted that the accused had admitted his signature on the cheque and receipt of legal notice.
Accordingly, the presumptions under Sections 118 and 139 of the Negotiable Instruments Act operated in favour of the complainant. The complainant argued that the accused had failed to produce any evidence showing repayment of the loan amount or proving that the cheque was misused.
Delhi High Court’s Analysis
The Delhi High Court examined the scope of interference in revision proceedings and observed that revisional jurisdiction is limited. The Court noted that interference is required only when there is any illegality, perversity or serious error in the findings recorded by the lower courts. Justice Saurabh Banerjee observed that Section 138 of the Negotiable Instruments Act is a complete code and requires certain conditions to be fulfilled before an offence is made out.
These include issuance of cheque towards discharge of debt or liability, presentation of cheque within limitation period, dishonour by bank, issuance of legal notice and failure to make payment within the prescribed period.
Presumption Under Sections 118 And 139 NI Act
The High Court explained that once the basic requirements of Section 138 are established, the law raises a presumption in favour of the cheque holder. Under Section 118 of the Negotiable Instruments Act, it is presumed that every negotiable instrument was made for consideration. Similarly, Section 139 NI Act provides that the holder of cheque is presumed to have received it for discharge of debt or liability unless the contrary is proved.
The Court held that the accused had failed to rebut these presumptions through reliable evidence. Mere denial of liability, without supporting documents, was not sufficient to shift the burden back upon the complainant.
Court Rejects Defence Of Blank Security Cheque
The High Court rejected the accused’s argument that the cheque was only a blank security cheque. The Court observed that although the accused claimed that the cheque had been misused, he failed to take any legal action against the complainant or produce any evidence supporting his allegation. The Court noted that there was no evidence showing repayment of the loan amount or any attempt by the accused to recover the alleged security cheque.
Therefore, the defence raised by the accused remained unsupported and could not displace the statutory presumption.
Delhi High Court Dismisses Revision Petition
After considering the entire material on record, the Delhi High Court concluded that there was no error, illegality or perversity in the judgments passed by the Trial Court and Appellate Court. The Court held that the complainant had successfully proved the cheque, bank return memo, legal notice and failure of payment. On the other hand, the accused failed to establish his defence through credible evidence.
Accordingly, the High Court upheld the conviction and dismissed the criminal revision petition filed by Pardeep Kumar. The accused was directed to undergo the remaining sentence of three months simple imprisonment and pay the fine amount of ₹3,50,000/- as ordered by the Trial Court.
Legal Significance Of The Judgment
The judgment reiterates the importance of statutory presumptions under the Negotiable Instruments Act in cheque dishonour cases. The ruling makes it clear that once execution of cheque is admitted, the accused cannot escape liability merely by making allegations regarding blank cheque misuse or questioning the complainant’s financial capacity without producing supporting evidence.
The decision also reinforces that courts must protect the credibility of cheque transactions, which form an important part of commercial and financial dealings. The judgment serves as a reminder that accused persons in cheque bounce cases must provide a probable and supported defence to rebut the presumptions created under Sections 118 and 139 of the Negotiable Instruments Act.
Published by: LawDaily.org