A cheque for a time-barred debt does not attract Section 138 liability absent an enforceable debt.

The complainant alleged that he lent the accused ₹9,00,000 on 18 May 2019—₹7,44,000 in cash and ₹1,56,000 by cheque—and that the accused subsequently issued four cheques, the last dated 27 June 2022 for ₹9,00,000.

The cheques were dishonoured, and the complainant issued a statutory notice before filing a complaint under Section 138 of the Negotiable Instruments Act, 1881 (NI Act).

The Magistrate convicted the accused and ordered payment of a fine of ₹9,05,000, including ₹9,00,000 as compensation.

On the accused’s appeal, the Sessions Court set aside the conviction and acquitted him.

The complainant appealed to the High Court, seeking restoration of the Magistrate’s judgment.

Section 138 of the NI Act applies where a cheque is issued in discharge of a legally enforceable debt or liability and the statutory requirements for dishonour, notice, and non-payment are met.

Section 139 creates a rebuttable presumption in favour of the cheque holder; the accused may rebut it on a preponderance of probabilities, including by relying on the complainant’s evidence, and need not necessarily adduce defence evidence.

The Court referred to Rangappa v. Mohan, (2010) 11 SCC 441; Rajaram v. Maruthachalam, 2023 LiveLaw (SC) 46; MMTC Ltd. v. Medchi Chemicals & Pharma (P) Ltd., (2002) 1 SCC 234; and Kumar Exports v. Sharma Carpets, (2009) 2 SCC 513, in considering the presumption and its rebuttal.

It also applied the requirement that the debt be legally recoverable when the cheque is issued.

The High Court concluded that the complainant’s own testimony supported the defence that the accused had borrowed only ₹2,00,000, had given a promissory note and six blank cheques for that transaction, and had received ₹1,56,000 by cheque after deduction of interest.

The complainant admitted that the cheque contents were in his handwriting, which the Court considered consistent with the cheques having been filled in later.

The Court also regarded the repeated alleged lending and cheque exchanges, the absence of a loan agreement, and the complainant’s account of advancing further cash after earlier cheques had been dishonoured as undermining the asserted ₹9,00,000 loan.

Further, it found the alleged later cheques drawn on the State Bank of Hyderabad implausible because that bank had merged with the State Bank of India in 2017.

On these circumstances, it held that the accused had rebutted the Section 139 presumption.

It additionally found that the alleged debt was time-barred by the date of the final cheque and therefore not legally recoverable.

It dismissed the criminal appeal, confirmed the Sessions Court’s judgment, set aside the Magistrate’s conviction and sentence, and affirmed the accused’s acquittal under Section 138 of the NI Act.