2025 (7) TMI 1706 - HC - Indian Laws

Conviction Quashed Under NI Act for Dishonour of Cheque Due to Lack of Valid Debt Proof

G. Palanivel Versus K.P. Radhakrishnan

The HC set aside the conviction and sentence imposed on the accused for dishonour of cheque under the NI Act. The court held that the accused successfully ... Dishonour of Cheque - legally enforceable debt or not - rebuttal of presumption u/s 118 and 139 of NI Act - respondent failed to prove his case that he had source of income to lend such a huge amount - shifting of burden on respondent to prove his case - HELD THAT:- The accused has a right to demonstrate that the complainant in a particular case, did not have the capacity and therefore, the case of the accused would become acceptable when he can produce independent materials i.e., by examining his witness and producing documents in pursuance of proving his case. It is also upon the accused to establish the very same aspect by pointing to the materials produced by the complainant himself. He can further achieve this result through the cross-examination of the witnesses of the complainant. The petitioner categorically cross-examined the respondent and elicitated that he had no capacity to lend such a huge amount as loan. Moreover, the respondent had lent a sum of Rs.27 lakhs by cash only on receipt of post dated cheque. Except for the post dated cheque, no other documents were executed in favour of the respondent as security. Therefore, when the petitioner rebutted the presumption, the burden shifts on the shoulder of the respondent to prove his case. However, in this case, the respondent failed to prove that the cheque was issued for legally enforceable debt. Though the respondent is known to the petitioner, no prudent man would give such a huge amount by way of cash without any security. Further, the petitioner has not proved his capacity to advance such a huge amount to the respondent by producing documents before the trial court - the Trial Court as well as the Appellate Court mechanically convicted the petitioner. Therefore, the findings of both the Courts below are perverse, illegal and arbitrary, which cannot be sustained and the same are liable to be set aside. The conviction and sentence imposed on the petitioner/accused by the Trial Court and confirmed by the Appellate Court are set aside - the Criminal Revision Case is allowed. ISSUES: Whether the presumption under Sections 118 and 139 of the Negotiable Instruments Act (NI Act) can be rebutted by the accused without examining witnesses but by producing documents and cross-examining the complainant.Whether the complainant is required to prove his financial capacity or source of funds to establish a legally enforceable debt under Section 138 of the NI Act.Whether the issuance of a post-dated cheque without any security or written loan agreement can sustain a conviction under Section 138 of the NI Act.Whether non-service of notice as contemplated under Section 138(b) of the NI Act affects the validity of the complaint.The extent of the burden of proof on the complainant and accused in cases under Section 138 of the NI Act. RULINGS / HOLDINGS: The accused can rebut the presumption under Sections 118 and 139 of the NI Act by producing independent materials, including documents and through cross-examination of the complainant, even without examining witnesses, thereby shifting the burden back to the complainant to prove the case.The complainant is not initially required to prove financial capacity to lend the amount, but once the accused raises a probable defence questioning the complainant's capacity, the complainant must produce cogent material to establish financial capacity and that the cheque was issued for a legally enforceable debt.The issuance of a post-dated cheque as a security for a loan without any other supporting documents or security is insufficient to sustain conviction if the complainant fails to prove the existence of a legally enforceable debt.The failure to serve notice as contemplated under Section 138(b) of the NI Act was raised but not found decisive in this judgment; the focus remained on the evidentiary burden.The trial and appellate courts mechanically convicted the accused without properly considering the rebuttal of presumption and the failure of the complainant to prove the legally enforceable debt, rendering their findings perverse, illegal, and arbitrary. RATIONALE: The Court applied the legal framework under Sections 118, 138, and 139 of the NI Act, emphasizing the statutory presumption in favour of the holder of the cheque and the accused's right to rebut the same by producing independent evidence.The Court relied on the precedent that while the complainant need not initially prove financial capacity, once challenged, the complainant must produce cogent evidence to substantiate the claim of loan and enforceability of the debt.The Court noted that the accused effectively challenged the complainant's financial capacity through cross-examination and documentary evidence showing the complainant's property transactions, thereby raising a probable defence.The Court highlighted the necessity of appreciating the totality of evidence rather than mechanically applying presumptions, as underscored in the cited Supreme Court judgment.The decision represents adherence to the principle that the burden of proof can shift depending on the evidence and defence raised, ensuring fairness and preventing arbitrary convictions under Section 138 of the NI Act.