A) ABSTRACT / HEADNOTE

The appeal challenges the High Court’s acquittal of the drawer-signatory of a dishonoured cheque for offence under Section 138 of the Negotiable Instruments Act, 1881. The complainant claimed he advanced Rs. 22,00,000 as a loan and relied on a cheque dated 17.03.2010 which, when presented, was returned with endorsement “payment stopped by drawer”. Trial and first-appeal courts found a legally enforceable debt and convicted the accused. The High Court set aside conviction primarily because the complainant had not produced documentary evidence of the source of funds (bank withdrawal particulars) and because the partnership-firm drawer was not arrayed. This Court reversed the High Court: it held that the statutory presumption under Sections 118 and 139 in favour of the payee signatory once the cheque, its genuineness and dishonour are proved, is not displaced by the mere absence of documentary evidence about the payee’s source of funds unless the accused raises such specific defence.

The Court also explained that where the signatory is the person in charge of a partnership firm, prosecution need not separately arraign the firm. Because the accused’s explanation (cheque lost; stop-payment) was demonstrably inconsistent (police intimations dated 2011 though back-dated 12.03.2010), the presumption survived. Considering age and antecedents, the Court modified the sentence to a monetary fine of Rs. 32,00,000 payable within four months, failing which the original sentence would revive. Key authorities relied upon include Rohitbhai Jivanlal Patel, Sunita Palita, Aneeta Hada, S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Tedhi Singh v. Narayan Dass Mahant.

Keywords: Cheque dishonoured; Section 138 NI Act; statutory presumption; source of funds; person in charge; partnership firm; stop payment.

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The dispute arises from a commercial transaction in which the complainant alleges he advanced Rs. 22,00,000 to the accused and took a cheque as security/repayment instrument. The cheque dated 17.03.2010 was presented but returned 07.05.2010 with the bank endorsement “payment stopped by drawer”. Statutory notices were issued within the timelines prescribed by Section 138 and a complaint followed. At trial the accused admitted his signature on the cheque but maintained that the cheque had been lost and that he had stopped payment; he also contended the underlying transaction never constituted a legally enforceable debt and that the partnership firm (the drawer) was not arrayed.

Trial and appellate courts convicted the accused, relying on the statutory presumption under Sections 118/139 that a cheque drawn and returned unpaid is in discharge of a legally enforceable debt unless rebutted by the drawer. The High Court, however, quashed the conviction, placing emphasis on the complainant’s failure to produce documentary proof of having the financial wherewithal and of withdrawal particulars. On appeal, this Court examined whether the High Court misapplied the burden and presumption framework under the NI Act and whether the complaint against the signatory-partner was maintainable in the absence of the firm being formally arrayed. The Court also scrutinised the accused’s stop-payment / lost cheque account against the timeline of police intimations and presentation.

D) FACTS OF THE CASE

The complainant asserted a loan of Rs. 22,00,000 advanced to respondent no.2. The accused allegedly issued Cheque No. 726716 dated 17.03.2010 drawn on Bank of Baroda. The complainant presented the cheque at IDBI Bank, Lucknow; it was dishonoured on 07.05.2010 with endorsement “payment stopped by drawer”. A legal notice dated 18.05.2010 was sent by registered post. No reply was received and complaint under Section 138 NI Act was filed. The accused admitted his signature, denied receipt of the loan, and claimed the cheque was lost while travelling and that he had intimated police (an intimation dated 12.03.2010). The Trial Court convicted and awarded one year’s simple imprisonment and a combined fine/compensation order. The Appellate Court confirmed conviction. The High Court, on revision, accepted the complainant’s alleged failure to evidence the source of his funds and the absence of account particulars, and held the complaint unsustainable; it set aside the conviction. This appeal followed.

E) LEGAL ISSUES RAISED

i. Whether the High Court erred in displacing concurrent findings of guilt by requiring the complainant at the threshold to prove source of funds/financial capacity for advancing the alleged loan?
ii. Whether Sections 118/139 statutory presumptions operate in favour of the complainant once cheque genuineness, presentation and dishonour are established?
iii. Whether a complaint against a partner/signatory alone is maintainable where the drawer is a partnership firm and the signatory is person in charge?
iv. Whether the accused’s plea of lost cheque and stop payment was a credible rebuttal in light of the documentary timeline?

F) PETITIONER / APPELLANT’S ARGUMENTS

i. The appellant contended he proved the cheque, its presentation and dishonour, and that the statutory presumption arose under Sections 118/139, shifting burden to the accused.
ii. He argued that his oral testimony that he withdrew the amount for advancement, reinforced in cross-examination, was never seriously controverted by corroborative defence evidence.
iii. He submitted the police intimation said to be dated 12.03.2010 was back-dated and actually sent in 2011, undermining the lost-cheque plea.
iv. He urged that absence of bank withdrawal particulars does not displace presumption unless the accused adduces material to show the complainant lacked capacity.

G) RESPONDENT’S ARGUMENTS

i. Counsel for respondent contended the complainant failed to prove he had financial capacity to lend Rs. 22 lakh no bank records, ledger, ITRs or receipts were produced.
ii. It was argued the cheque belonged to M/s Sun Enterprises (a partnership) and the firm was not arraigned thereby rendering complaint not maintainable; respondent claimed he never handed over a signed cheque it was lost.
iii. The accused relied on authorities emphasising complainant’s evidentiary burden where the presumption under Section 139 is to be tested.

H) JUDGEMENT

The Court examined the statutory scheme. It reiterated that once cheque genuineness, presentation within time and dishonour are proved along with statutory notice, Sections 118/139 create a rebuttable presumption in favour of the complainant; thereby the initial onus does not require the complainant to produce bank withdrawal particulars unless the accused raises a specific defence that complainant lacked financial capacity. The Court found the accused admitted the signature and could not satisfactorily prove the lost-cheque story: the alleged police intimation, though dated 12.03.2010, was sent only in 2011 and was never converted into an FIR. That sequence was inconsistent with the accused’s narrative, especially given the high amount involved. The Court harmonised precedent Rohitbhai Jivanlal Patel and Tedhi Singh to stress that absence of documentary proof of the complainant’s source of funds is not decisive once statutory presumption is attracted; the accused must produce materials to create a preponderance of probabilities in his favour.

On maintainability, relying on Sunita Palita and principles from S.M.S. Pharmaceuticals, the Court held that where the signatory is the person in charge of the firm, prosecution against him is maintainable even if the firm is not arrayed. The High Court’s approach which reversed concurrent findings on the basis that the complainant failed to show bank withdrawal details was held to be erroneous and to constitute re-appreciation amounting to unacceptable interference. The concurrent findings of Trial and Appellate Courts were restored. Considering age and antecedents, sentence was modified from imprisonment to fine of Rs. 32,00,000 to be paid within four months, failing which the original sentence and fine as earlier ordered would revive.

a. RATIO DECIDENDI

The decisive legal ratio is twofold:

first, procedural and evidentiary once the complainant proves the cheque’s genuineness, timely presentation, dishonour and service of statutory notice, the presumption under Sections 118/139 applies and the onus shifts to the accused to rebut it by producing credible, independent material; mere absence of documentary proof of the complainant’s source of funds is not fatal unless the accused specifically raises and substantiates that defence.

Second, maintainability prosecution may lie against the signatory/partner who is the person in charge of the drawer firm without separately arraigning the partnership where it is not contested that the accused was in charge. These propositions guide conviction when an accused’s explanations are implausible on temporal and documentary scrutiny.

b. OBITER DICTA 

The Court observed that courts must be careful not to convert Section 138 proceedings into a civil proof exercise requiring exhaustive documentary proof from the complainant at the threshold. It emphasised commercial efficacy of Sections 138/139 to curb cheque bouncing and protect transactional reliance. The Court noted that a back-dated or delayed police intimation can be cogent evidence to test the accused’s narrative. The remarks caution High Courts against re-evaluating concurrent findings without demonstrating perversity.

c. GUIDELINES

i. Complainant need only establish genuineness of cheque, timely presentation and statutory notice to invoke presumption under Sections 118/139.
ii. If accused raises incapacity/absence of debt, he must produce independent documentary/oral material to create a probable defence.
iii. Courts should avoid requiring complainants to establish bank account withdrawal particulars at threshold unless that specific issue is pressed.
iv. Where signatory is person in charge of firm, complaint against signatory is maintainable without separately naming firm, subject to the accused’s role being apparent on record.
v. Temporal inconsistencies (e.g., back-dated police intimation) are relevant to test credibility of a defence of lost cheque/stop payment.

I) CONCLUSION & COMMENTS

On an appraisal anchored in statutory presumptions and precedents, the Supreme Court restored the conviction and substantially vindicated the commercial policy embedded in Section 138. The judgment clarifies evidentiary allocation: it affirms that the statutory presumption is potent and meaningful, and that the accused must do more than make bald denials or suggest documentary lacunae in the complainant’s case. The decision pragmatically balances safeguarding honest commercial claims and protecting accuseds from frivolous conviction by insisting on credible rebuttal material. The modification of sentence on humanitarian grounds preserves proportionality. This judgment will assist trial and High Courts by restricting premature acquittals grounded on absence of civil-style documentation and by reiterating the threshold for maintainability when signatories act for partnerships.

J) REFERENCES

a. Important Cases Referred

1. Ashok Singh v. State of Uttar Pradesh & Anr., [2025] 4 S.C.R. 504 : 2025 INSC 427.

2. Sunita Palita v. Panchami Stone Quarry, [2022] 14 SCR 458 : (2022) 10 SCC 152.

3. Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd., [2012] 5 SCR 503 : (2012) 5 SCC 661.

4. S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89.

5. Rohitbhai Jivanlal Patel v. State of Gujarat, (2019) 18 SCC 106.

6. Tedhi Singh v. Narayan Dass Mahant, (2022) 6 SCC 735.

7. M/s S. S. Production v. Tr. Pavithran Prasanth, 2024 INSC 1059.

b. Important Statutes Referred

Negotiable Instruments Act, 1881: Section 118; Section 138; Section 139; Section 141; Section 142.