Supreme Court Overturns High Court, Reaffirms Acquittal in Cheque Bounce Case.


22 April 2025 Acquittal >> Criminal Law   |   Negotiable Instruments Act >> Criminal Law   |   Cheque Bounce >> Debt Recovery  

In a recent judgment, the Supreme Court of India overturned a Karnataka High Court decision, reinstating the acquittal of an accused in a case filed under Section 138 of the Negotiable Instruments Act, 1881 (N.I. Act). The case revolved around a dishonored cheque of Rs. 20 lakh, allegedly issued as a hand loan for a Kannada feature film.

The appellant (accused) and respondent (complainant) had a friendly relationship spanning over a decade. The complainant claimed to have extended a hand loan of Rs. 20 lakh for the production of a film titled 'Indian Police History'. In discharge of this loan, the accused allegedly issued a cheque for the said amount, which was dishonored due to insufficient funds.

 
 

Upon receiving a legal notice, the accused denied liability, asserting that the cheque was merely security for a smaller loan of Rs. 3.5 lakh taken for the same film, which was completed in 2003. This smaller loan, the accused contended, had already been settled for Rs. 5.5 lakh, inclusive of interest, as per a Memorandum of Understanding (MoU) dated March 29, 2008. The accused further claimed that two blank signed cheques, including the one in question, were given as security for the Rs. 3.5 lakh loan and that the complainant failed to return them despite requests, leading to a police complaint filed by the accused on July 24, 2008, reporting the loss of the cheques and alleging misuse.

The Trial Court, after considering oral and documentary evidence, acquitted the accused in November 2010, ruling that the accused had successfully rebutted the presumption under Section 139 of the N.I. Act. The Trial Court expressed doubt about the alleged Rs. 20 lakh loan, concluding that the accused had proven the non-existence of a legally recoverable debt.

However, the High Court of Karnataka reversed this acquittal in December 2020, convicting the accused and directing him to pay Rs. 22 lakh, or face simple imprisonment. The High Court cited material contradictions in the defense witnesses' evidence regarding the repayment of Rs. 5.5 lakh and found the MoU (Exhibit D2) to be forged, relying on an unchallenged handwriting expert's opinion. The High Court also held that the accused had not rebutted the presumption in favor of the complainant.

The Supreme Court, in its review, focused on whether the accused had discharged the burden under Sections 118(a) and 139 of the N.I. Act and if the High Court's reversal of acquittal was justified.

The Court reiterated the established legal position regarding presumptions under the N.I. Act:
  • Section 118(a) presumes that every negotiable instrument is made for consideration.
  • Section 139 presumes that the holder of a cheque received it for the discharge of a debt or liability.
  • Both presumptions are rebuttable, and the accused can rebut them by raising a "probable defense". The standard of proof for rebuttal is "preponderance of probabilities".
  • The accused can rely on evidence presented by themselves or even from the complainant's materials to raise a probable defense.
Applying these principles to the current case, the Supreme Court acknowledged that the accused had admitted to issuing two blank signed cheques for a loan of Rs. 3.5 lakh. This admission, the Court noted, meant the cheques were initially issued against an enforceable debt, shifting the onus to the accused to raise a probable defense.

The Court then identified several aspects that constituted the accused's "probable defense":

  • The friendly relationship between the parties.
  • The completion of the film, for which the loan was allegedly taken, years before the cheque's presentation.
  • The existence of the MoU dated March 29, 2008, recording the settlement of Rs. 3.5 lakh by a payment of Rs. 5.5 lakh.
  • The accused's police complaint lodged on July 24, 2008, requesting the return of the cheques after the loan was repaid.
  • The fact that the cheque was presented for encashment and dishonored after the police complaint was lodged by the accused.
The Supreme Court concluded that the accused had successfully established a "probable defense" based on these factors. Once this probable defense was established, the burden shifted back to the complainant to prove his case beyond a reasonable doubt.

The Court found that the complainant failed to discharge this shifted burden. During cross-examination, the complainant stated he had loaned money multiple times to the accused and maintained an account book, but he did not produce this book or any income tax documents to substantiate the Rs. 20 lakh loan. Furthermore, the alleged "common well-wishers" who witnessed the cheque transaction were not examined.

In light of these findings, the Supreme Court determined that the Trial Court was correct in acquitting the accused, and the High Court's reversal was unjustified. The Supreme Court, therefore, allowed the appeal, set aside the High Court's judgment, and restored the Trial Court's acquittal. The amount previously deposited by the appellant in the Registry of the Supreme Court was ordered to be released back to him with accrued interest.


Section 138, Negotiable Instruments Act - 1881  

Negotiable Instruments Act, 1881