2025 (6) TMI 838 - HC - Indian Laws

Delhi HC upholds acquittal under Section 138 NI Act after accused successfully rebutted presumption under Section 139

Barun Bhanot Versus M/s. Annie Impexpo Marketing Pvt Ltd & Anr.

Delhi HC dismissed petition challenging acquittal under Section 138 NI Act. Court held that once accused raises probable defence on preponderance of ... Dishonour of Cheque - discharge of debt or not - acquittal of an accused in a complaint under Section 138 of the NI Act - applicability of presumption under Section 139 of the NI Act - rebuttal of presumption by raising a probable defence on a preponderance of probabilities - HELD THAT:- The present case relates to acquittal of an accused in a complaint under Section 138 of the NI Act. The restriction on the power of Appellate Court in a petition seeking leave to appeal against order of acquittal in regard to other offence does not apply with same vigor in the offence under NI Act which entails presumption against the accused. The Hon’ble Apex Court in the case of Rohitbhai Jivanlal Patel v. State of Gujarat [2019 (3) TMI 769 - SUPREME COURT] upheld the High Court's conviction of the accused under Section 138 of the NI Act but modified the sentence to provide the accused an opportunity to pay the fine within two months, failing which he would face imprisonment. It is well settled that once the execution of the cheque is admitted, the presumption under Section 118 of the NI Act that the cheque in question was drawn for consideration and the presumption under Section 139 of the NI Act that the holder of the cheque/ respondent received the cheque in discharge of a legally enforceable debt or liability are raised against the accused. It is relevant to note that the presumption under Section 139 of the NI Act is not absolute, and may be controverted by the accused. In doing so, the accused only ought to raise a probable defence on a preponderance of probabilities to show that there existed no debt in the manner so pleaded by the complainant in his complaint/ demand notice or the evidence. Once the accused successfully raises a probable defence to the satisfaction of the Court, his burden is discharged, and the presumption ‘disappears.’ The burden then shifts upon the complainant, who then has to prove the existence of such debt as a matter of fact. It is pertinent to note that the object of a legal demand notice is to afford an opportunity to the drawer of the cheque to rectify his omission and also to protect the interests of an honest drawer. For this reason, the service of demand notice under Section 138(b) of the NI Act is a condition precedent to the filing of complaint under Section 138 of the NI Act. Further, since Section 138 of the NI Act mandates the imposition of criminal liability and is penal in nature, the same ought to be strictly construed. In the opinion of this Court, even if the petitioner’s case is taken at the highest, yet, since the respondents had already raised a probable defence to dislodge the presumptions raised against them, the onus was on the petitioner to show that there existed a debt/liability in the manner as pleaded by him. The respondents having already dislodged their burden, it was on the petitioner to show the existence of the debt, that too, as a matter of fact. For this reason, the petitioner having failed to do so, his contention that the presumption under Section 139 of the NI Act was in his favour, does not bolster the case of the petitioner - It is pertinent to note that a decision of acquittal fortifies the presumption of innocence of the accused, and the said decision must not be upset until the appreciation of evidence is perverse. Conclusion - This Court finds no such perversity in the impugned judgment so as to merit an interference in the finding of acquittal. Consequently, this Court finds no reason to entertain the present petition. Petition dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court were:Whether the petitioner complied with the statutory requirement under Section 138(b) of the Negotiable Instruments Act, 1881 (NI Act) by issuing a valid legal demand notice specifying the amount due under the dishonoured cheques;Whether the presumption under Section 139 of the NI Act in favour of the holder of the cheque applies and if so, whether the respondents successfully rebutted this presumption by raising a probable defence on a preponderance of probabilities;Whether the learned Metropolitan Magistrate (MM) erred in acquitting the respondents on the grounds of invalid legal notice and existence of probable defence;The extent of appellate court's interference in an order of acquittal in a Section 138 NI Act case, especially in light of statutory presumptions and evidentiary burdens;Whether discrepancies in the amounts claimed in the legal demand notice and the documents produced by the petitioner affect the validity of the complaint under Section 138 of the NI Act.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Legal Demand Notice under Section 138(b) of the NI ActRelevant legal framework and precedents: Section 138(b) mandates that the payee or holder in due course of a dishonoured cheque must make a demand for payment of 'the said amount of money' by giving a written notice to the drawer within thirty days of receiving information from the bank regarding the cheque's dishonour. The Supreme Court in Rahul Builders v. Arihant Fertilizers & Chemicals emphasized that the demand notice is imperative and must specify the amount due under the cheque. It must not be vague or ambiguous, as the provision is penal in nature and must be strictly construed.Court's interpretation and reasoning: The Court noted that the legal demand notice in the present case failed to specifically demand the cheque amount of Rs. 1,00,000/- (two cheques of Rs. 50,000/- each). Instead, it demanded 'all the dues' without quantifying the amount payable under the dishonoured cheques. This was held to be insufficient to meet the statutory requirement under Section 138(b).Key evidence and findings: The demand notice referred to the total outstanding dues of Rs. 2,64,689/- and requested payment of all dues, without specifying the cheque amount or distinguishing it from other dues. The MM held this to be vague and non-compliant with the statutory mandate.Application of law to facts: Since the demand notice did not specifically demand payment of the cheque amount, it was held invalid. The Court reiterated that a valid legal notice is a condition precedent for maintaining a complaint under Section 138.Treatment of competing arguments: The petitioner argued that the notice was sufficient as it mentioned the dues and the cheques issued towards part payment. The respondents contended that the notice was vague and failed to comply with the statutory requirement. The Court sided with the respondents, emphasizing strict compliance.Conclusion: The legal demand notice was invalid for failing to specify the cheque amount, justifying dismissal of the complaint on this ground alone.Issue 2: Applicability and Rebuttal of Presumption under Section 139 of the NI ActRelevant legal framework and precedents: Section 139 creates a statutory presumption that the cheque was issued in discharge of a legally enforceable debt or liability once the cheque's execution is admitted. This presumption shifts the evidentiary burden to the accused to raise a probable defence on a preponderance of probabilities. The Supreme Court in Rangappa v. Sri Mohan and Rajesh Jain v. Ajay Singh clarified that the accused need not prove a negative but must show that it is probable that no debt existed as pleaded.Court's interpretation and reasoning: The Court acknowledged that the signatures on the cheques were admitted, thus attracting the presumption under Section 139. However, the respondents successfully raised a probable defence by highlighting discrepancies and irregularities in the petitioner's billing and accounts, including issuance of incorrect and double bills and failure to maintain proper account statements.Key evidence and findings: The respondents pointed out that the petitioner's own documents showed an outstanding amount of Rs. 2,43,982/-, which contradicted the Rs. 2,64,689/- mentioned in the legal notice and complaint. The petitioner failed to explain this discrepancy. These contradictions cast doubt on the existence and quantum of debt.Application of law to facts: The respondents' defence was held sufficient to rebut the presumption under Section 139. Once the presumption is rebutted, the burden shifts back to the complainant to prove the existence of debt as a matter of fact, which the petitioner failed to do.Treatment of competing arguments: The petitioner argued that the presumption stood unrebutted and the respondents failed to raise a plausible defence. The respondents contended that they raised a probable defence on a preponderance of probabilities. The Court agreed with the respondents, noting that the petitioner's failure to explain discrepancies weakened his case.Conclusion: The presumption under Section 139 was rebutted by the respondents' probable defence, and the petitioner failed to prove the debt independently, warranting acquittal.Issue 3: Scope of Appellate Review in Acquittal under Section 138 NI ActRelevant legal framework and precedents: Generally, appellate courts are slow to interfere with acquittals unless the trial court's decision is perverse or wholly unsustainable. However, in NI Act cases, the presumption under Section 139 requires the appellate court to examine whether the accused has successfully rebutted the presumption by raising a probable defence on a preponderance of probabilities (Rohitbhai Jivanlal Patel v. State of Gujarat).Court's interpretation and reasoning: The Court noted that the MM's judgment was not perverse or unsustainable. The MM had carefully considered the evidence and found that the respondents raised a probable defence and the legal notice was invalid. The appellate court found no reason to disturb this finding.Key evidence and findings: The impugned judgment was based on the petitioner's failure to issue a valid legal notice and the respondents' credible defence regarding the disputed bills and accounts.Application of law to facts: The appellate court applied the correct legal principles and did not substitute its own view for that of the trial court where two views were possible.Treatment of competing arguments: The petitioner urged interference based on the statutory presumption and proof of cheque issuance. The respondents relied on the validity of the acquittal grounded on the invalid notice and raised defence. The Court upheld the acquittal.Conclusion: The appellate court upheld the acquittal, finding no perversity or illegality in the trial court's findings.Issue 4: Discrepancies in Claimed Outstanding Amount and Its ImpactRelevant legal framework and precedents: The existence of a legally enforceable debt or liability is a sine qua non for prosecution under Section 138. Discrepancies in amounts claimed undermine the credibility of the complainant's case (Rajesh Jain v. Ajay Singh).Court's interpretation and reasoning: The Court observed that the petitioner's complaint and legal notice stated Rs. 2,64,689/- as outstanding, but documents produced showed Rs. 2,43,982/-. The petitioner did not explain this contradiction, which raised doubts about the debt's existence and quantum.Key evidence and findings: The unexplained discrepancy between the amounts in legal notice and court documents was a material factor in assessing the credibility of the petitioner's claim.Application of law to facts: This discrepancy contributed to the respondents' successful rebuttal of the presumption under Section 139, as it supported their probable defence that the debt was not as pleaded.Treatment of competing arguments: The petitioner did not address this discrepancy effectively. The respondents used it to demonstrate infirmities in the petitioner's case.Conclusion: The discrepancy undermined the petitioner's claim and supported the acquittal.3. SIGNIFICANT HOLDINGS'The learned MM held that the petitioner failed to raise a demand for money in the legal notice as is stipulated under Section 138 (b) of the NI Act and vaguely mentioned to clear all the outstanding dues which does not meet the requisite under Section 138 of the NI Act.''While the accused can be prosecuted even when the cheque gets dishonoured for the reason 'payment stopped by drawer', the accused is liable to acquitted where he is able to raise a probable defence on a preponderance of probabilities to show that there existed no debt in the manner so pleaded by the complainant.''Once the execution of the cheque is admitted, the presumption under Section 118 of the NI Act that the cheque in question was drawn for consideration and the presumption under Section 139 of the NI Act that the holder of the cheque received the cheque in discharge of a legally enforceable debt or liability are raised against the accused.''The presumption under Section 139 of the NI Act is not absolute, and may be controverted by the accused. In doing so, the accused only ought to raise a probable defence on a preponderance of probabilities to show that there existed no debt in the manner so pleaded by the complainant.''Once the accused successfully raises a probable defence to the satisfaction of the Court, his burden is discharged, and the presumption 'disappears.' The burden then shifts upon the complainant, who then has to prove the existence of such debt as a matter of fact.''A decision of acquittal fortifies the presumption of innocence of the accused, and the said decision must not be upset until the appreciation of evidence is perverse.'Core principles established include:Strict compliance with the requirements of Section 138(b) is mandatory for maintainability of complaint;The presumption under Section 139 is rebuttable by raising a probable defence on a preponderance of probabilities;Discrepancies in the amounts claimed and failure to explain them can amount to a valid probable defence;Appellate courts should not interfere with acquittals unless the trial court's decision is perverse or wholly unsustainable;Once the presumption under Section 139 is rebutted, the complainant must independently prove the existence of debt/liability.Final determinations on each issue were:The legal demand notice was invalid for failing to specify the cheque amount;The respondents successfully rebutted the presumption under Section 139 by raising a probable defence;The learned MM did not err in acquitting the respondents under Section 138 of the NI Act;The appellate court declined to interfere with the acquittal as it was neither perverse nor unsustainable;The petitioner failed to prove the debt independently after the presumption was rebutted, justifying dismissal of the complaint.