2026 (1) TMI 561 - HC - Indian Laws

Dishonour of cheque case where lack of proof of a legally enforceable debt led to acquittal and release of deposited amounts

Dishonour of cheque prosecution failed for want of proof that a legally enforceable debt existed at the time of cheque presentation; the defence ... Dishonour of Cheque - respondent/complainant failed to prove the existence of a legally enforceable debt at the time of drawing and presentation of the cheques - petitioners failed to discharge the burden cast upon him to probabilise his defence - HELD THAT:- The evidence of D.W.1 probabilises the loan transaction between Jeeva and the defacto complainant. The FIR allegations lodged by Jeeva disclose that seven persons were required to stand as guarantors for the loan availed by her. However, the defacto complainant failed to adduce any independent evidence to disprove or rebut the said defence. Further, the income tax statements relied upon by the petitioners do not reflect any transaction of alleged loan amounts with the petitioners for the assessment years 2016–2017. Admittedly, the complainant is an unregistered financier and had allegedly advanced money at an exorbitant rate of interest. These facts cast serious doubt on the existence of a legally enforceable debts. The complaint lodged by D.W.1 before the police, along with other rebuttal evidence, clearly establishes that there was no legally enforceable debts subsisting on the date of issuance or presentation of the cheques. On the contrary, the defacto complainant failed to state the specific date on which the cheques were allegedly issued by the petitioners. Further, the evidence on record establishes that there was no cordial relationship between the petitioners and the defacto complainant at the time of the alleged presentation of the cheques, as D.W.1 had already lodged complaints against the defacto complainant alleging threats and misuse of blank cheques obtained from the guarantors. In such circumstances, the averment in the complaints that the petitioners voluntarily approached the complainant and requested representation of the cheques for a second time in August 2018 appears to be highly improbable. The courts below failed to appreciate the rebuttal evidence adduced on the side of the petitioners and erroneously recorded a conviction. The complainant failed to establish that a legally enforceable debt existed between himself and the petitioners on the date of presentation of the cheques. Therefore, the findings rendered by the courts below are liable to be set aside. The authorities relied upon by the respondent are not applicable to the facts of the present cases. All petitioner / accused are acquitted. Any amount deposited by them permitted to withdraw - the Criminal Revision cases are allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the petitioners/accused rebutted the statutory presumption attaching to the cheques so as to negate the existence of a legally enforceable debt in favour of the complainant, particularly where the defence case was that the cheques were given as blank security in a surety/guarantor arrangement. (ii) Whether, on the evidence on record, the complainant proved that a legally enforceable debt existed between the complainant and the petitioners on the date of issuance/presentation of the cheques, so as to sustain conviction under Section 138 of the Negotiable Instruments Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Rebuttal of presumption and probability of defence that cheques were security/surety cheques Legal framework: The Court proceeded on the basis that while a presumption arises in favour of the complainant upon proof/admission of execution of the cheque, such presumption is rebuttable and can be displaced by a probable defence, after which the burden shifts back to the complainant to establish a legally enforceable debt. Interpretation and reasoning: The Court accepted that the defence evidence through D.W.1 probabilised a different underlying transaction, namely that D.W.1 had borrowed a loan and that seven persons, including the petitioners, were required to stand as sureties, for which blank cheques and documents were taken as security. The Court treated the FIR allegations and the surrounding circumstances as supporting the defence version and undermining the complainant's theory of voluntary issuance of cheques by the petitioners towards their personal loans. The Court found it highly improbable that the petitioners would have voluntarily issued the cheques in July 2018 when the record indicated that disputes and threats had already arisen between the parties from July 2018 onwards. The Court also noted the absence of a specific date of issuance of cheques in the complainant's case, which added to the probability of misuse of security cheques. Conclusions: The Court held that the petitioners successfully rebutted the statutory presumption by placing on record probable defence evidence, shifting the burden back to the complainant. Issue (ii): Proof of legally enforceable debt between complainant and petitioners at the time of cheque presentation Legal framework: The Court applied the requirement that, to attract Section 138, the dishonoured cheque must represent a legally enforceable debt subsisting at the relevant time, and once the presumption is rebutted, the complainant must prove such debt by acceptable evidence. Interpretation and reasoning: The Court found that the complainant failed to adduce independent evidence to disprove the defence narrative that the petitioners were only sureties and that the cheques were security instruments. The Court relied on admissions elicited in cross-examination that supported the probability of a loan transaction involving D.W.1's family and security arrangements, including execution of a mortgage deed, and repayment assertions. The Court further noted that the complainant's income statements relied upon by the petitioners did not disclose possession of such huge cash amounts, while the complainant relied mainly on a self-maintained ledger and claimed to be a financier without proof of being registered 'as required under law.' These circumstances, along with pre-existing disputes reflected in the police complaint material and the complainant's failure to state a specific date of cheque issuance, created serious doubt about the complainant's assertion of personal loans to the petitioners and about any subsisting enforceable liability of the petitioners when the cheques were presented. Conclusions: The Court concluded that the complainant failed to establish that a legally enforceable debt existed between himself and the petitioners on the date of presentation of the cheques. Consequently, the concurrent findings of conviction were set aside, the petitioners were acquitted, and withdrawal of any deposited amounts was permitted.