2025 (9) TMI 1634 - SC - Indian Laws

Appeal allowed; conviction under Section 138 NI Act upheld as Sections 118 and 139 presumptions unrebutted; Rs.7.5L payment ordered

Sanjabij Tari Versus Kishore S. Borcar And Anr.

SC allowed the appeal, set aside the High Court order and restored the Trial and Sessions courts' findings convicting the accused under Section 138 NI ... Dishonour of Cheque - acquittal of Respondent No.1-Accused u/s 138 of the Negotiable Instruments Act, 1881 and reversing the concurrent judgments of the Trial Court and the Sessions Court - evidence on record to establish that the Appellant-Complainant did not have the financial means to advance a friendly loan or not - rebuttal of presumption under the NI Act - HELD THAT:- The provisions contained in Chapter XVII provide that where any cheque drawn by a person for the discharge of any liability is returned by the bank unpaid for the reason of the insufficiency of the amount of money standing to the credit of the account on which the cheque was drawn or for the reason that it exceeds the arrangements made by the drawer of the cheque with the banker for that account, the drawer of such cheque shall be deemed to have committed an offence. In that case, the drawer, without prejudice to the other provisions of the said Act, shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both. Consequently, this Court is of the view that the intent behind introducing Chapter XVII is to restore the credibility of cheques as a trustworthy substitute for cash payment and to promote a culture of using cheques. Further, by criminalizing the act of issuing cheques without sufficient funds or for other specified reasons, the law promotes financial discipline, discourages irresponsible practices and allows for a more efficient and timely resolution of disputes compared to the previous pure civil remedy which was found to involve the payee in a long-drawn out process of litigation. Once execution of cheque is admitted, presumptions u/s 118 and 139 of NI Act arise - HELD THAT:- In the present case, the cheque in question has admittedly been signed by the Respondent No.1-Accused. This Court is of the view 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 received the said cheque in discharge of a legally enforceable debt or liability arises against the accused - This Court is further of the view that by creating this presumption, the law reinforces the reliability of cheques as a mode of payment in commercial transactions. Needless to mention that the presumption contemplated under Section 139 of the NI Act, is a rebuttable presumption. However, the initial onus of proving that the cheque is not in discharge of any debt or other liability is on the accused/drawer of the cheque - The judgment of this Court in APS Forex Services Private Limited [2020 (2) TMI 629 - SUPREME COURT] relied upon by learned counsel for the Respondent No.1-Accused only says that presumption under Section 139 of the NI Act is rebuttable and when the same is rebutted, the onus would shift back to the complainant to prove his financial capacity, more particularly, when it is a case of giving loan by cash. This judgment nowhere states, as was sought to be contended by learned counsel for the Respondent No.1-Accused, that in cases of dishonour of cheques, in lieu of cash loans, the presumption under Section 139 of the NI Act does not arise. Approach of some courts below to not give effect to the presumptions u/s 118 and 139 of NI Act is contrary to mandate of Parliament - HELD THAT:- Recently, the Kerala High Court in P.C. Hari vs. Shine Varghese & Anr., [2025 (7) TMI 1628 - KERALA HIGH COURT] has taken the view that a debt created by a cash transaction above Rs. 20,000/- in violation of the provisions of Section 269SS of the Income Tax Act, 1961 is not a ‘legally enforceable debt’ unless there is a valid explanation for the same, meaning thereby that the presumption under Section 139 of the Act will not be attracted in cash transactions above Rs. 20,000/-. This Court is of the view that any breach of Section 269SS of the IT Act, 1961 is subject to a penalty only under Section 271D of the IT Act, 1961. Further neither Section 269SS nor 271D of the IT Act, 1961 state that any transaction in breach thereof will be illegal, invalid or statutorily void. Therefore, any violation of Section 269SS would not render the transaction unenforceable under Section 138 of the NI Act or rebut the presumptions under Sections 118 and 139 of the NI Act because such a person, assuming him/her to be the payee/holder in due course, is liable to be visited by a penalty only as prescribed. Consequently, the view that any transaction above Rs. 20,000/- is illegal and void and therefore does not fall within the definition of ‘legally enforceable debt’ cannot be countenanced. Accordingly, the conclusion of law in P.C. Hari is set aside. This Court also takes judicial notice of the fact that some District Courts and some High Courts are not giving effect to the presumptions incorporated in Sections 118 and 139 of NI Act and are treating the proceedings under the NI Act as another civil recovery proceedings and are directing the complainant to prove the antecedent debt or liability. This Court is of the view that such an approach is not only prolonging the trial but is also contrary to the mandate of Parliament, namely, that the drawer and the bank must honour the cheque, otherwise, trust in cheques would be irreparably damaged. No documents and/or evidence led with regard to the financial incapacity of the appellant - HELD THAT:- It is pertinent to mention that in the present case, the Respondent No.1- Accused has filed no documents and/or examined any independent witness or led any evidence with regard to the financial incapacity of the Appellant- Complainant to advance the loans in question. For instance, this Court in Rajaram S/o Sriramulu Naidu (Since Deceased) Through LRs. vs. Maruthachalam (Since Deceased) Through LRs. [2023 (1) TMI 794 - SUPREME COURT] has held that presumptions under Sections 118 and 139 of the NI Act can be rebutted by the accused examining the Income Tax Officer and bank officials of the complainant/drawee. When the evidence of PW-1 is read in its entirety, it cannot be said that the appellant-complainant had no wherewithal to advance loan - HELD THAT:- Most certainly, the accused can rely upon the evidence adduced by the complainant to rebut the presumption with regard to the existence of a legally enforceable debt or liability, yet in the present case, when the evidence of Appellant-Complainant (PW-1) is read in its entirety, like it should be, it cannot be said that the Appellant-Complainant had no wherewithal to advance any loan to the Respondent No.1-Accused - In fact, the Appellant-Complainant, in his statement, has stated that as the Respondent No.1-Accused was his friend, he had advanced part of the loan received by him and had also taken loan from his father to advance money to the Respondent No.1-Accused. In reviional jurisdiction, High Court does not in the absence of perversity, upset concurrent factual findings - HELD THAT:- It is well settled that in exercise of revisional jurisdiction, the High Court does not, in the absence of perversity, upset concurrent factual findings. This Court is of the view that it is not for the Revisional Court to re-analyse and re-interpret the evidence on record. As held by this Court in Southern Sales & Services and Others vs. Sauermilch Design and Handels GMBH [2008 (10) TMI 696 - SUPREME COURT], it is a well-established principle of law that the Revisional Court will not interfere, even if a wrong order is passed by a Court having jurisdiction, in the absence of a jurisdictional error - Consequently, this Court is of the view that in the absence of perversity, it was not open to the High Court in the present case, in revisional jurisdiction, to upset the concurrent findings of the Trial Court and the Sessions Court. Failure of accused to reply to notice leads to an inference - HELD THAT:- The fact that the accused has failed to reply to the statutory notice under Section 138 of the NI Act leads to an inference that there is merit in the Appellant-Complainant’s version. This Court in Tedhi Singh vs. Narayan Dass Mahant [2022 (3) TMI 797 - SUPREME COURT] has held that the accused has the initial burden to set up the defence in his reply to the demand notice that the complainant did not have the financial capacity to advance the loan - Also, after receipt of the legal notice, wherein the Appellant-Complainant alleged that the Respondent No.1-Accused’s cheque had bounced, no complaint or legal proceeding was initiated by the Respondent No.1-Accused alleging that the cheque was not to be encashed. Consequently, the defence of financial incapacity of Appellant-Complainant advanced by the Respondent No.1-Accused is an afterthought. Responcent no. 1 accused's defence that a signed blank cheque was issued to enable complainant to obtain a loan is unbelievable - HELD THAT:- The High Court’s finding that the Respondent No.1-Accused ’s defence that a signed blank cheque was issued by him so as to enable his friend/Appellant- Complainant to obtain a loan from a bank was sufficient to rebut the presumptions under Sections 118 and 139 of the NI Act is unbelievable and absurd. This Court agrees with the Sessions Court’s finding in the present case that, “It is funny to say that for obtaining loan from the bank, one can show a cheque which is issued on an account in which there are not sufficient funds. The case of the accused is unbelievable”. This Court is of the view that if the Accused is willing to pay in accordance with the aforesaid guidelines, the Court may suggest to the parties to go for compounding. If for any reason, the financial institutions/complainant asks for payment other than the cheque amount or settlement of entire loan or other outstanding dues, then the Magistrate may suggest to the Accused to plead guilty and exercise the power under Section 255(2) and/or 255(3) of the Cr.P.C. or 278 of the BNSS, 2023 and/or give the benefit under the Probation of Offenders Act, 1958 to the Accused. The impugned order passed by the High Court dated 16th April, 2009 is set aside and the judgment as well as the orders of Trial Court and Sessions Court are restored with a direction to the Respondent No.1-Accused to pay Rs. 7,50,000/- (Rupees Seven Lakhs Fifty Thousand) in 15 (fifteen) equated monthly instalment of Rs. 50,000/- (Rupees Fifty Thousand) each - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the presumption under Sections 118 and 139 of the Negotiable Instruments Act arises where execution of the cheque is admitted and whether such presumption can be rebutted by an accused alleging lack of financial capacity of the complainant to advance the loan. 2. Whether a revisional court, in exercise of revisional jurisdiction, can upset concurrent factual findings of Trial and Sessions Courts in the absence of perversity or jurisdictional error. 3. Whether breach of Section 269SS of the Income Tax Act (cash transaction limit) renders a cash transaction unenforceable such that the presumption under Section 139 of the Negotiable Instruments Act would not apply. 4. Whether failure of the accused to reply to the statutory demand notice under Section 138 creates an adverse inference for the complainant and shifts burdens between parties. 5. Whether the defence that a signed blank cheque was given as security to enable the complainant to obtain a bank loan is a probable defence sufficient to rebut the presumptions under Sections 118 and 139. 6. Directions and measures appropriate for expeditious disposal, service, settlement/compounding and case-management in mass pendency of Section 138 proceedings (including procedure at pre-cognizance, summary-trial conversion, interim deposit, e-service and online payment/compounding mechanisms). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Presumptions under Sections 118 and 139 where cheque execution is admitted Legal framework: Sections 118 and 139 of the Negotiable Instruments Act create, respectively, a presumption that a negotiable instrument was issued for consideration and a statutory presumption that a cheque, once shown to be drawn by accused and dishonoured, was received in discharge of a legally enforceable debt. Precedent treatment: Observations in earlier two-Judge bench authority declining such presumption were set aside by a larger Bench; subsequent authorities confirm the existence and rebuttable nature of the presumptions. Recent decisions recognise that once execution is admitted, the presumptions arise. Interpretation and reasoning: The Court reasons that the presumptions are integral to the objective of Chapter XVII to preserve credibility of cheques and restore their acceptability as payment instruments. The presumption under Section 139 is rebuttable, but the initial onus to set up a defence lies on the accused; only if the accused adduces materials sufficient to raise a probable defence does the onus shift back to the complainant to prove financial capacity. Ratio vs. Obiter: Ratio - Once execution of the cheque is admitted, presumptions under Sections 118 and 139 arise and operate unless successfully rebutted by admissible evidence establishing a probable defence. Obiter - Observations on the policy intent of Chapter XVII augment reasoning but are ancillary. Conclusion: Presumptions under Sections 118 and 139 arise on admission of execution; accused must lead evidence to rebut; mere bald assertions without independent proof do not suffice. Issue 2 - Revisional interference with concurrent findings Legal framework: Revisional jurisdiction is circumscribed; interference with concurrent factual findings requires perversity or jurisdictional error. Precedent treatment: The Court follows well-established principles that a revisional court should not re-appreciate evidence or disturb concurrent findings absent perversity. Interpretation and reasoning: The Court holds that the High Court, acting in revision, erred in upsetting concurrent findings of Trial and Sessions Courts which had accepted the complainant's testimony and found the accused failed to rebut presumptions. Ratio vs. Obiter: Ratio - In revision, absent perversity, concurrent factual findings should not be disturbed. Obiter - Remarks on reviewing approaches of some courts that effectively convert NI Act proceedings into civil recovery are persuasive context. Conclusion: High Court's interference was unjustified; concurrent convictions restored. Issue 3 - Effect of breach of Section 269SS (cash transaction limit) on applicability of Section 139 presumption Legal framework: Section 269SS of the Income Tax Act regulates receipt of cash beyond a threshold; Section 271D prescribes penal consequences for breach. Precedent treatment: Some courts have held that cash transactions above the prescribed limit are not 'legally enforceable' unless validly explained, thereby negating Section 139 presumption; this Court departs from that view. Interpretation and reasoning: The Court reasons that breach of Section 269SS only attracts penalty under Section 271D and does not render the underlying transaction illegal, void or unenforceable for purposes of the NI Act. Therefore, violation of Section 269SS cannot, as a matter of law, be treated as negating the presumption under Section 139. Ratio vs. Obiter: Ratio - Breach of Section 269SS does not, by itself, render a cash transaction unenforceable nor rebut the statutory presumption under Section 139. Obiter - Critique of decisions treating NI Act proceedings as pure civil recovery. Conclusion: Transactions in breach of Section 269SS remain enforceable for Section 138 purposes; contrary High Court view set aside. Issue 4 - Effect of accused's failure to reply to statutory notice Legal framework: Section 138 procedure requires statutory demand notice; jurisprudence establishes evidentiary consequences of non-reply. Precedent treatment: Authorities hold non-reply to demand notice presumes issuance of cheque towards discharge of liability and that accused must set up defence in reply. Interpretation and reasoning: The Court emphasises that failure to reply to the statutory notice permits an adverse inference in favour of the complainant; accused has initial burden to set up defence in reply and then to substantiate by independent evidence (witnesses, bank officials, income-tax officers) to establish financial incapacity of the complainant. Ratio vs. Obiter: Ratio - Non-reply to statutory notice strengthens presumption of discharge of liability and shifts the evidentiary onus to the accused to lead independent material to establish a probable defence. Obiter - Practical suggestions on how accused may adduce proof are illustrative. Conclusion: Non-response to demand notice is significant; absent timely and probative rebuttal, presumption stands. Issue 5 - Blank-signed cheque defence (security for bank loan) as a probable defence Legal framework: Accused may allege delivery of cheque as a security or that cheque was blank/misused; such contentions, if credibly established, can rebut Section 139 presumption. Precedent treatment: Accused is permitted to rely on materials produced by complainant or independent evidence; mere assertion unsupported by documents or witnesses is insufficient. Interpretation and reasoning: The Court finds the defence that a signed blank cheque was given to enable a loan is implausible where the cheque was issued on an account lacking funds; the Sessions Court's rejection of that defence as unbelievable is upheld. Since the accused adduced no independent documentary or witness evidence to prove complainant's financial incapacity or the security-nature of the cheque, the defence fails to raise a probable defence. Ratio vs. Obiter: Ratio - Implausible or unsupported contentions that do not produce independent evidence cannot rebut Section 139 presumption. Obiter - Remarks on credibility assessments in light of totality of evidence. Conclusion: Blank-cheque/security defence not credible on facts; did not rebut presumptions. Issue 6 - Procedural and case-management directions for Section 138 cases Legal framework: Powers under procedural codes and inherent jurisdiction to direct case-management for expeditious disposal; compounding under Section 147 and analogous provisions. Precedent treatment: Earlier guidelines for compounding and case-management were framed; Court updates and modifies those guidelines in view of current pendency and changed circumstances. Interpretation and reasoning: The Court takes judicial notice of massive pendency and prescribes multi-pronged measures: expanded modes of service (including dasti and electronic service), affidavit of service, mandatory synopsis in complaints, online payment/QR/UPI facilities, permission to take cogent preliminary admissions/questions at initial stage (to determine summary trial fitness), encouragement of early compounding with revised graded cost percentages, powers to order interim deposits, directives for physical listing post-service, enhanced oversight (dashboards, committees), and flexibility re pre-cognizance summons. Ratio vs. Obiter: Ratio - Directives constitute binding directions to facilitate expeditious disposal and settlement consistent with statutory scheme and prior guidelines. Obiter - Policy rationale and empirical pendency statistics are persuasive context. Conclusion: Comprehensive procedural, technological and compounding measures issued and earlier compounding guidelines revised (graded percentages reduced and stage-based) to promote prompt resolution and reduce backlog. Final Disposition (as a consequence of above legal conclusions) On the application of the foregoing legal principles and factual appraisal, the Court set aside the High Court's revisional order, restored concurrent Trial and Sessions Court findings, and directed payment terms as a means of ensuring enforcement consistent with compounding and sentencing jurisprudence.