Cheque dishonour prosecution failed for lack of proved financial capacity and non-service of mandatory demand notice.

In a prosecution under Section 138 of the Negotiable Instruments Act, the conviction could not be sustained where the complainant failed to prove the source of funds and financial capacity to advance the alleged loan; the absence of bank statements, income-tax returns, or similar material weakened the statutory presumptions under Sections 118 and 139, and the finding went in favour of the accused. The conviction also failed because the statutory demand notice was not duly served on the drawer, as the notice was received by another person and mandatory compliance with clause (b) of the proviso to Section 138 was not shown. The accused was therefore acquitted.

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Issues: (i) Whether the conviction under Section 138 of the Negotiable Instruments Act, 1881 could be sustained when the complainant failed to establish the source of funds and financial capacity to advance the alleged loan. (ii) Whether the statutory demand notice required by clause (b) of the proviso to Section 138 of the Negotiable Instruments Act, 1881 was duly served on the drawer of the cheque.

Issue (i): Whether the conviction under Section 138 of the Negotiable Instruments Act, 1881 could be sustained when the complainant failed to establish the source of funds and financial capacity to advance the alleged loan.

Analysis: The evidence showed that the complainant did not produce bank statements, income-tax returns, or other material to explain the source from which the alleged loan amount was arranged. The Court found that the complainant failed to satisfactorily demonstrate the financial capacity required to advance the money, and that this omission undermined the foundation for invoking the presumptions under Sections 118 and 139 of the Negotiable Instruments Act, 1881.

Conclusion: The finding of guilt could not be sustained on the basis of the evidence relating to source of funds and financial capacity, and this issue was decided in favour of the petitioner.

Issue (ii): Whether the statutory demand notice required by clause (b) of the proviso to Section 138 of the Negotiable Instruments Act, 1881 was duly served on the drawer of the cheque.

Analysis: The material on record, including the postal correspondence and the complainant's evidence, indicated that the notice was received by another person and not by the petitioner. Applying the governing requirement that notice must be given to the drawer within the prescribed period, the Court found non-compliance with the mandatory notice requirement.

Conclusion: The statutory notice was not duly served on the petitioner, and this issue was decided in favour of the petitioner.

Final Conclusion: The concurrent conviction and sentence were held unsustainable, and the petitioner was acquitted of the offence under Section 138 of the Negotiable Instruments Act, 1881.

Ratio Decidendi: In a prosecution under Section 138 of the Negotiable Instruments Act, 1881, the complainant must establish both compliance with the mandatory notice requirement and a credible basis for the alleged loan, including the financial capacity and source of funds, failing which the presumption in favour of the cheque holder cannot sustain the conviction.

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