Accused successfully rebuts Section 139 presumption by proving complainant lacked financial capacity to lend Rs.8,00,000

Madras HC dismissed an appeal in a dishonour of cheque case. The accused admitted signature and execution of the cheque but claimed it was issued as security and questioned complainant's financial capacity. Despite presumption under Section 139 NI Act favoring complainant, the accused successfully rebutted it by demonstrating complainant failed to prove financial capacity to lend Rs.8,00,000. Complainant claimed funds from savings and mother's sale proceeds but neither examined mother nor produced reliable documents. HC found no perversity in trial court's acquittal judgment and dismissed appeal.

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1. ISSUES PRESENTED and CONSIDERED

- Whether the appellant/complainant has established the offence under Section 138 of the Negotiable Instruments Act by proving the issuance and dishonour of the cheque issued by the respondent/accused towards discharge of a legally enforceable debt or liability.

- Whether the statutory presumption under Section 139 of the Negotiable Instruments Act arises upon admission of the signature and execution of the cheque by the accused, and whether the accused has successfully rebutted this presumption.

- Whether the appellant/complainant has adequately proved his financial capacity to lend the amount claimed and the genuineness of the loan transaction.

- Whether the defence of the respondent/accused that the cheque was issued only as security and not as payment of debt is substantiated by evidence.

- Whether the trial Court's acquittal of the respondent/accused was justified or warrants interference by the appellate Court.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Proof of offence under Section 138 NI Act and cheque dishonour

The legal framework mandates that for an offence under Section 138 of the Negotiable Instruments Act, the complainant must prove the existence of a legally enforceable debt or liability, issuance of a cheque in discharge of such debt, presentation of the cheque within validity, and its dishonour due to insufficient funds or other reasons. The complainant must also prove issuance of a legal notice and failure of the accused to make payment within the stipulated time.

The appellant/complainant produced the cheque bearing No.143727 dated 11.02.2019 for Rs.10,00,000/- drawn on IDBI Bank, which was dishonoured due to "Funds Insufficient." The complainant issued a legal notice dated 05.03.2019, which was duly received by the respondent. Despite this, the respondent did not repay the amount or respond to the notice. The complainant examined himself as P.W.1 and marked eight documents (Exs.P1 to P8) including the cheque, legal notice, and return memos.

The respondent/accused did not deny the signature and execution of the cheque but contended that the cheque was issued merely as security and not towards discharge of any debt. The trial Court found that the complainant failed to prove the financial capacity and genuineness of the loan transaction and accepted the defence that the cheque was for security.

Issue 2: Application of statutory presumption under Section 139 NI Act and rebuttal

Section 139 of the Negotiable Instruments Act creates a presumption in favour of the complainant that the cheque was issued for discharge of a debt or liability once the signature and execution of the cheque are admitted. This presumption is rebuttable by the accused by preponderance of probabilities.

The Court reiterated that since the respondent/accused admitted the signature and execution, the initial burden shifted to the accused to rebut the presumption. The accused raised the defence that the cheque was issued as security and questioned the complainant's financial capacity to lend Rs.8,00,000/-. The trial Court held that the complainant failed to prove his financial capacity and the genuineness of the loan, thereby accepting the accused's defence and holding that the presumption under Section 139 was rebutted.

The appellate Court noted that although the complainant need not initially prove financial capacity, once specifically challenged by the accused, it became the complainant's duty to establish this fact. The complainant failed to produce his mother as a witness or reliable documents to substantiate the source of funds. The absence of any explanation regarding interest for the interregnum period further cast doubt on the complainant's case.

Issue 3: Proof of financial capacity and genuineness of loan transaction

The complainant claimed that the loan amount was advanced out of his savings and sale proceeds received from his mother. However, the complainant did not produce his mother as a witness nor any credible documentary evidence to prove the source of funds. The Court observed that a prudent lender would not remain silent for nearly three years without receiving any interest, especially when the money was from his savings and his aged mother's sale proceeds.

This lacuna in proof created serious doubts regarding the genuineness of the loan transaction and the complainant's financial capacity. The Court found this significant in concluding that the accused successfully rebutted the statutory presumption.

Issue 4: Defence that cheque was issued as security

The respondent/accused's primary defence was that the cheque was given only as security to enable the complainant to obtain a loan from a financial institution and not as payment of any debt. The complainant failed to produce any substantial material to counter this defence. The trial Court accepted this defence, and the appellate Court found no reason to interfere with this finding given the lack of convincing evidence from the complainant's side.

Issue 5: Justification for acquittal and appellate interference

The trial Court acquitted the accused on the basis that the complainant failed to prove the financial capacity and genuineness of the loan, and that the accused had rebutted the presumption under Section 139 NI Act. The appellate Court reiterated the principle that interference with an acquittal is generally not warranted unless there is perversity or compelling reasons.

Upon reappreciation of the evidence, including the cross-examination of P.W.1, the appellate Court concurred with the trial Court's conclusion that the complainant failed to prove his case beyond reasonable doubt. The accused's rebuttal was found to be satisfactory in law. No perversity or compelling reason existed to disturb the acquittal.

3. SIGNIFICANT HOLDINGS

"It is an admitted fact that the respondent/accused has not denied the signature and execution of the cheque. Therefore, the appellant/complainant contended that once signature and execution of the cheque is admitted, presumption under Section 139 of NI Act would arise... But, the respondent/accused has taken a defence that the cheque was issued towards security and he also questioned the financial capacity of the appellant/complainant."

"Even though, the complainant need not say anything about his lending capacity at the initial stage, when the accused specifically questioned about the financial capacity, it is the bounded duty of the complainant to explain and prove his lending capacity."

"No prudent man will remain quite for a period of three years without receiving any interest, when he lent the money out of his savings and from the money received from his aged mother, which cause serious doubt in the case of the appellant/complainant."

"The cross examination of P.W.1/complainant by the defence counsel clearly show that the respondent has rebutted the presumption in the manner known to law and the complainant has not proved his case beyond reasonable doubt and there is no compelled reason to interfere with the judgment of acquittal and there is no perversity."

Core principles established include:

• The statutory presumption under Section 139 NI Act arises upon admission of signature and execution of the cheque but is rebuttable by the accused.
• Once the accused challenges the financial capacity of the complainant, the complainant must prove the genuineness of the loan transaction and his ability to lend the amount.
• Failure to produce credible evidence regarding source of funds and interest payments can create serious doubts and rebut the presumption.
• Defence that cheque was issued as security can be accepted if not disproved by the complainant with substantial evidence.
• Acquittal by the trial Court will not be interfered with by the appellate Court unless there is perversity or compelling reason.

Final determinations:

• The offence under Section 138 NI Act was not proved beyond reasonable doubt by the complainant.
• The accused successfully rebutted the statutory presumption under Section 139 NI Act.
• The trial Court's judgment of acquittal was upheld by the appellate Court.
• The criminal appeal was dismissed as devoid of merit and substance.

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