Cheques under Section 138 fail when later readjustment removes any subsisting debt or liability at presentation.

A cheque will not attract section 138 of the Negotiable Instruments Act if, after issuance, the parties readjust their obligations and the cheque no longer represents a subsisting debt or liability on the relevant date. The statutory presumptions under sections 118 and 139 are rebuttable, and can be displaced by defence evidence showing instalment payments, accepted interest, and a failed loan arrangement that altered the original transaction. On the facts stated, the cheque was not in discharge of any live liability when presented, so prosecution under section 138 could not succeed and the acquittal was upheld.

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Issues: Whether the cheque, in the changed factual matrix after issuance, still represented discharge, in whole or in part, of a debt or other liability so as to attract section 138 of the Negotiable Instruments Act, 1881, and whether the statutory presumptions under sections 118 and 139 stood rebutted.

Analysis: The factual finding accepted by the Court was that although the cheque originally represented an amount payable towards the shop transaction, the parties subsequently readjusted their obligations, the anticipated bank loan was not disbursed, and the drawer thereafter made payments by instalments and interest, which were accepted by the complainant. On that evidence, the cheque on the relevant date did not represent the whole or part of any subsisting debt or liability. The presumptions under sections 118 and 139 are rebuttable, and the defence evidence was found sufficient to displace the statutory inference in the circumstances of the case.

Conclusion: The cheque did not attract section 138 on the facts proved, and the acquittal was upheld; the appeal failed.

Ratio Decidendi: Where evidence shows that, after issuance of a cheque, the parties lawfully readjusted their mutual obligations and the cheque no longer represented a subsisting debt or liability on the date relevant for section 138, the statutory presumptions under sections 118 and 139 stand rebutted and prosecution under section 138 cannot succeed.

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