2025 (8) TMI 325 - HC - Indian Laws

Conviction upheld under Section 138 NI Act for cheque dishonour; presumption under Section 139 applies, accused liable as principal debtor

The HC upheld the conviction under Section 138 NI Act for cheque dishonour due to insufficient funds. The accused did not dispute signing the cheque but ... Dishonor of cheque - funds insufficient - discharge of legally enforceable debt or issuance of security cheque - rebuttal of presumptions u/s 139 of NI Act - 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 does not exercise an appellate jurisdiction 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 accused did not dispute his signatures on the cheque. He claimed that the cheque was issued as security at the time of taking the loan. 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. It was not necessary to take action against the guarantor and the bank was justified in taking action against the principal debtor. Moreover, the accused, being a principal debtor, had issued the cheque and only he could have been liable for its dishonour in the proceedings initiated under Section 138 of the NI Act - the learned Courts below had rightly held that the accused had failed to rebut the presumption attached to the cheque, and there is no infirmity in the findings recorded by the learned Courts below. The accused has not paid any money to the complainant; hence, it was duly proved that the accused had failed to repay the money despite the receipt of the notice - it was duly proved before the learned Trial Court that the cheque was issued in discharge of legal liability. It was dishonoured with an endorsement ‘funds insufficient’, and the accused had failed to repay the amount despite the receipt of the notice of demand. Hence, the complainant had proved its case beyond a reasonable doubt, and the learned Trial Court had rightly convicted the accused of the commission of an offence punishable under Section 138 of the NI Act. Keeping in view the deterrent nature of the sentence to be awarded, the sentence of three months’ imprisonment cannot be said to be excessive, and no interference is required with it - the compensation of Rs. 20,000/- on the principal amount of Rs. 60,000/- is not excessive. The present revision fails and the same is dismissed. ISSUES: Whether the issuance of a cheque, admitted by the accused, gives rise to a presumption under Section 139 of the Negotiable Instruments Act (NI Act) that it was issued for discharge of a legally enforceable debt or liability.Whether a cheque issued as security can be presented and if dishonoured, whether it attracts liability under Section 138 of the NI Act.Whether the accused successfully rebutted the presumption under Section 139 of the NI Act by adducing evidence or otherwise.Whether the dishonour of the cheque was duly proved by the complainant through the bank's memo and whether the notice of demand was properly served.Whether the liability of the principal debtor can be enforced without proceeding against the guarantor(s).The scope and limits of revisional jurisdiction under Section 397 of the Criminal Procedure Code (CrPC) in criminal cases, particularly in appeals against conviction under Section 138 of the NI Act.The appropriateness of the sentence and compensation awarded under Section 138 of the NI Act. RULINGS / HOLDINGS: The court held that once the accused admitted his signature on the cheque, 'a presumption under Section 139 of the NI Act arises that the cheque was issued in discharge of a legally enforceable debt or liability,' and the burden shifts to the accused to rebut this presumption.It was held that 'even if the cheque was issued as security,' the complainant had the right to present it to the bank, and dishonour thereof attracts liability under Section 138 of the NI Act.The accused failed to rebut the presumption under Section 139 as he did not lead any defence evidence beyond his statement under Section 313 CrPC, which is 'not substantive evidence of defence.'The dishonour of the cheque was duly proved by the bank's memo bearing the endorsement 'funds insufficient,' which is presumed correct under Section 146 of the NI Act, and the accused did not rebut this presumption.The notice of demand was properly served at the correct address, and the accused failed to repay the amount within the stipulated time despite receipt of the notice.The liability of the principal debtor is 'co-extensive' with that of the guarantor(s), and the creditor may proceed against either or both; thus, proceeding against the principal debtor alone is permissible.The revisional court reiterated that it 'does not exercise appellate jurisdiction' and may interfere only in cases of 'patent defect, errors of jurisdiction or law, perversity, or gross miscarriage of justice,' and no such grounds were found in this case.The sentence of three months' simple imprisonment and compensation of Rs. 80,000/- was held appropriate, considering the deterrent nature of Section 138 and the delay in recovery causing loss of interest and litigation expenses to the complainant. RATIONALE: The court applied the statutory presumptions under Sections 118(a) and 139 of the NI Act, which mandate that the court 'shall presume' the cheque was issued for discharge of debt or liability once the signature is admitted, shifting the evidential burden to the accused to prove otherwise on a 'preponderance of probabilities' standard.Precedents from the Supreme Court were extensively relied upon to emphasize that mere denial or a statement under Section 313 CrPC does not suffice to rebut the presumption; the accused must lead evidence.It was clarified that a cheque issued as security is not 'waste paper' and may be presented and enforced under Section 138 if there is a subsisting debt or liability on the date of issuance, consistent with the principle that the statute aims to deter dishonour of negotiable instruments.The court reiterated the limited scope of revisional jurisdiction under Section 397 CrPC, emphasizing that it is supervisory and not appellate, and interference is warranted only in cases of 'grossly erroneous' or 'perverse' findings, which were absent here.The presumption of correctness of the bank's dishonour memo under Section 146 NI Act was accepted, with the burden on the accused to rebut, which was not done.Regarding guarantors, the court followed the settled law that the creditor may proceed against the principal debtor without exhausting remedies against guarantors, as their liability is co-extensive.The sentencing and compensation were justified on the basis of the deterrent object of Section 138 and the complainant's loss of interest and litigation costs, consistent with Supreme Court guidelines prescribing compensation up to twice the cheque amount with interest.