Absence of Legally Enforceable Debt and Improper Service of Notice Negate Section 138 Liability

The appellant (complainant) filed a case under Section 138 of the Negotiable Instruments (N.I.) Act alleging that he provided a friendly loan of ₹3,00,000 to the respondent, for which two cheques were issued on June 25, 2012.

The cheques were dishonored on June 26, 2012, due to "insufficient funds".

A demand notice was sent on July 20, 2012, but returned with the endorsement "7 days absent".

The respondent/accused contended that both parties were involved in a "Chit Fund" (TVI Express) and the cheques were given as security for business, not for a loan.

He further argued he was in Siliguri attending to his ill mother during the notice period.

The Trial Court acquitted the accused, leading to this appeal.

1. Whether the statutory demand notice was validly served or willfully avoided by the accused.

2. Whether the cheques were issued in discharge of a legally enforceable debt or liability.

3. Whether the respondent successfully rebutted the presumption under Section 139 of the N.I. Act.

Section 138 of the N.I. Act regarding the dishonor of cheques and the mandatory requirement of a demand notice.

Section 118(a) and Section 139 of the N.I. Act, which create a rebuttable presumption that every negotiable instrument is drawn for consideration and in discharge of a debt.

Reliance on D. Vinod Shivappa v. Nanda Belliappa, clarifying that while service is presumed if refused, an endorsement of "absent" requires the complainant to prove the drawer deliberately avoided service.

The "preponderance of probabilities" standard for rebuttal as established in Rangappa v. Sri Mohan and Bharat Barrel & Drum Mfg. Co. v. Amin Chand Payrelal.

The Court observed that the appellant failed to prove the specific date or time the loan was advanced, and no written agreement existed for the substantial sum of ₹3,00,000.

The hurriedness in depositing the cheques on the very date they were allegedly issued raised suspicion.

The Court found the respondent established his absence due to his mother's illness, meaning the "7 days absent" postal endorsement could not be deemed as "served" or "willfully avoided" since the appellant made no further attempt at service.

Evidence revealed both parties were involved in a Ponzi scheme (TVI Express), making the respondent’s defense—that the cheques were business security rather than loan repayments—highly probable.

The Court held that the respondent successfully raised a "probable defense," thereby shifting the burden back to the complainant, who failed to substantiate the underlying debt.

The Court held that the appellant failed to prove the cheques were issued for a legally enforceable debt and that the rebuttal of the statutory presumption was established through the preponderance of probabilities regarding the business relationship.

The order of the Judicial Magistrate, Tehatta, was upheld.