2025 (6) TMI 925 - HC - Indian Laws

Dishonour of Cheque - challenge to conviction and sentencing the accused - presumption that the cheque was issued in discharge of the legal liability for a valid consideration - accused failed to rebut presumption by leading any evidence - HELD THAT - It was laid down by the Hon ble Supreme Court in Malkeet Singh Gill v. State of Chhattisgarh 2022 (7) TMI 1455 - SUPREME COURT that the revisional court is not an appellate court and it can only rectify the patent defect errors of jurisdiction or the law. It was held in Kishan Rao v. Shankargouda 2018 (7) TMI 101 - SUPREME COURT that it is impermissible for the High Court to reappreciate the evidence and come to its conclusions in the absence of any perversity. The issuance of cheque is not disputed. It was asserted in the revision petition that a blank cheque was issued as security to raise the loan. Therefore learned Courts below had rightly proceeded on the basis that the accused had issued a cheque in favour of the complainant and once the execution of the cheque was admitted a presumption under Section 118 and Section 139 of the NI Act would arise. It was laid down by this Court in Naresh Verma vs. Narinder Chauhan 2019 (10) TMI 1578 - HIMACHAL PRADESH HIGH COURT that where the accused had not disputed his signatures on the cheque the Court has to presume that it was issued in discharge of legal liability and the burden would shift upon the accused to rebut the presumption. The complainant was not required to prove the advancement of the loan especially when the accused has not disputed the taking of the loan from the complainant - there is no infirmity in the findings recorded by the learned Courts below that the accused had issued a cheque to discharge his legal liability. In the present case no evidence was produced to rebut the presumption and the learned Courts below had rightly held that the cheque was dishonoured with an endorsement insufficient funds . The learned Trial Court sentenced the accused to undergo simple imprisonment for one year. It was laid down by the Hon ble Supreme Court in Bir Singh v. Mukesh Kumar 2019 (2) TMI 547 - SUPREME COURT that the penal provisions of section 138 is deterrent in nature - Keeping in view the deterrent nature of the sentence to be awarded the sentence of one year imprisonment cannot be said to be excessive and no interference is required with it. Learned Trial Court had ordered the accused to pay a compensation of Rs.2, 32000/-. The cheque was issued on 25.05.2019 whereas the sentence was imposed on 05.08.2024 after the lapse of 5 years. The complainant Bank lost interest on the amount and it had to pay the litigation expenses for filing the complaint. It was entitled to be compensated for the same - It was laid down by the Hon ble Supreme Court in Kalamani Tex v. P. Balasubramanian 2021 (2) TMI 505 - SUPREME COURT that the Courts should uniformly levy a fine up to twice the cheque amount along with simple interest at the rate of 9% per annum - Therefore the amount of Rs.72, 000/- awarded as compensation on the cheque amount of Rs.1, 60, 000/- is not excessive. Conclusion - The accused failed to rebut the statutory presumption of discharge of debt by the cheque. The plea of a blank cheque issued as security was unsupported by evidence and does not negate liability. The complainant was not required to prove the loan advancement or financial capacity absent a credible defence. The present revision is dismissed.

The core legal questions considered in this judgment are:

1. Whether the accused's issuance of a cheque that was dishonoured constitutes an offence under Section 138 of the Negotiable Instruments Act (NI Act).

2. Whether the presumption under Sections 118 and 139 of the NI Act arises upon admission of the cheque's issuance and signature, and if so, whether the accused successfully rebutted this presumption.

3. Whether issuing a blank cheque as security exempts the accused from liability under Section 138 of the NI Act.

4. Whether the complainant was required to prove the advancement of the loan or financial capacity to make the loan.

5. Whether the notice of demand was duly served and whether the accused failed to pay the cheque amount within the stipulated period.

6. Whether the sentence and compensation awarded by the trial court were appropriate and justified.

Issue-wise Detailed Analysis

1. Offence under Section 138 of the NI Act on issuance and dishonour of cheque

The legal framework mandates that if a cheque issued for discharge of a debt or liability is dishonoured due to insufficient funds, the drawer is liable under Section 138. The trial court found that the cheque was issued by the accused, was dishonoured with the endorsement 'insufficient funds', and the accused failed to pay the amount despite notice. The appellate court concurred with these findings.

The accused admitted issuance of the cheque but denied the rest of the case. The courts relied on the presumption under Sections 118 and 139 of the NI Act that the cheque was issued for discharge of a legal liability. The accused failed to present any evidence to rebut this presumption, leading to conviction.

Competing arguments included the accused's claim of issuing a blank cheque as security; however, this was not supported by evidence. The courts rejected this plea and held that the offence under Section 138 was made out.

2. Presumptions under Sections 118 and 139 of the NI Act and rebuttal

Sections 118(a) and 139 create a statutory presumption that a cheque is issued for consideration and discharge of debt or liability once the signature and issuance are admitted. The burden then shifts to the accused to rebut this presumption by adducing evidence of a probable defence on the preponderance of probabilities.

Precedents clarified that mere denial or statement under Section 313 CrPC is insufficient to rebut the presumption; affirmative evidence is required. The accused did not lead any defence evidence. The courts noted the accused's failure to rebut the presumption despite opportunities.

Further, the accused's contention that the cheque was a blank security cheque filled by the complainant was unsupported by evidence. The courts held that even a blank cheque voluntarily signed and handed over attracts the presumption under Section 139. The accused did not claim coercion, forgery, or theft of the cheque.

3. Issuance of cheque as security and its effect on liability

The accused argued that the cheque was issued as security and thus should not attract criminal liability. The courts referred to binding precedents holding that a cheque issued as security is not exempt from Section 138 liability if it represents discharge of an existing debt or liability.

It was emphasized that a security cheque can be presented once the loan or instalment matures. If the cheque is dishonoured, criminal liability arises unless the debt has been discharged or there is an altered agreement. The accused did not claim repayment of the loan or any altered arrangement.

The courts rejected the accused's argument that the cheque being a security cheque absolved him of liability, citing authoritative rulings that such a plea does not negate the offence under Section 138.

4. Requirement of proving advancement of loan or financial capacity

The complainant was not required to prove the actual advancement of the loan or financial capacity at the threshold. The presumption under Section 139 shifts the burden to the accused to rebut. Unless the accused raises a credible defence supported by evidence, the complainant's case stands established.

The complainant's witness admitted not being present at the time of loan sanction, but this did not vitiate the presumption of legal liability. The accused did not dispute the loan taken. The courts held that the complainant was not obliged to prove the financial capacity unless challenged with evidence by the accused.

5. Service of notice and failure to pay

The complainant proved service of statutory notice by postal receipts, and the accused did not rebut the presumption of service under Section 27 of the General Clauses Act and Section 114 of the Evidence Act. The accused also failed to pay the cheque amount within 15 days of receipt of notice, fulfilling the statutory requirements for offence under Section 138.

Precedents emphasized that failure to pay within 15 days of receipt of summons precludes the accused from claiming non-receipt of notice as a defence.

6. Appropriateness of sentence and compensation

The trial court sentenced the accused to one year simple imprisonment and imposed a fine of Rs. 2,32,000/- with an additional one month imprisonment in default. The courts held that Section 138 is deterrent in nature to ensure credibility of negotiable instruments.

The compensation awarded was justified considering the cheque amount, delay in adjudication, loss of interest, and litigation expenses. The courts referred to Supreme Court directions that compensation up to twice the cheque amount with interest at 9% per annum is appropriate.

Conclusions

The courts below correctly applied the legal framework and evidentiary presumptions under Sections 118 and 139 of the NI Act. The accused failed to rebut the statutory presumption of discharge of debt by the cheque. The plea of a blank cheque issued as security was unsupported by evidence and does not negate liability. The complainant was not required to prove the loan advancement or financial capacity absent a credible defence.

Notice was duly served, and the accused failed to pay within the prescribed period. The conviction and sentence under Section 138 were upheld as lawful and appropriate. The revision petition challenging these findings was dismissed.

Significant Holdings

"Once the execution of the cheque is admitted, Section 139 of the Act mandates a presumption that the cheque was for the discharge of any debt or other liability."

"The presumption under Section 139 is a rebuttable presumption, and the onus is on the accused to raise the probable defence. The standard of proof for rebutting the presumption is that of preponderance of probabilities."

"Even if the cheque was issued towards security, the accused will be liable under Section 138 if the cheque represents discharge of an existing debt or liability."

"The statement of the accused recorded under Section 313 of the Code is not substantive evidence of defence, but only an opportunity for the accused to explain incriminating circumstances. Mere denial is insufficient to rebut the presumption under Section 139."

"The High Court in criminal revision is not supposed to exercise jurisdiction like an appellate court; the scope of interference is extremely narrow and limited to patent defects, errors of jurisdiction or law."

"The object of Section 138 of the Negotiable Instruments Act is to infuse credibility into negotiable instruments and to deter callous issuance of cheques without intention to honour them."

"The complainant is not required to prove the advancement of the loan or financial capacity unless the accused raises a credible defence supported by evidence."

"The memo issued by the bank showing dishonour of cheque is presumed to be correct unless rebutted."

"Notice of demand is deemed served if sent to the correct address and failure to pay within 15 days of receipt of summons bars the accused from claiming non-receipt of notice."

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