Failure to Rebut Statutory Presumptions Under NI Act Renders Defense of Financial Capacity Irrelevant

The Respondent No. 2 (complainant) filed a complaint under Section 138 of the Negotiable Instruments Act (NI Act) alleging that the Petitioner issued a cheque for Rs. 2,50,000/- dated May 4, 2019, to repay a loan, which was returned unpaid with the remark "Account Closed" on May 7, 2019

Despite a legal notice dated June 4, 2019, the Petitioner failed to pay. The Petitioner admitted to signing the cheque and receiving the notice but contended the loan was only for Rs. 50,000/- (repaid with interest) and that the cheque was a blank security cheque misused by the complainant

The Trial Court convicted the Petitioner on July 7, 2023, sentencing him to three months' imprisonment and a fine of Rs. 3,50,000/-; this was upheld by the Appellate Court on December 22, 2023

1. Whether the impugned order upholding the conviction under Section 138 of the NI Act suffers from any error, illegality, or perversity warranting interference under the court's revisional jurisdiction

2. Whether the Petitioner successfully rebutted the statutory presumptions under Sections 118 and 139 of the NI Act regarding the existence of a legally enforceable debt

The court applied Section 138 of the NI Act, which criminalizes the dishonor of cheques issued for the discharge of debt

It specifically relied on the statutory presumptions under Section 118 (presumption of consideration) and Section 139 (presumption that the holder received the cheque for the discharge of debt)

The court followed the precedent in Rohitbhai Jivanlal Patel v. State of Gujarat, establishing that once signatures are admitted, the onus shifts to the accused to rebut the presumption with cogent evidence

It further noted that under Kishan Rao v. Shankargouda, failure to provide transaction records or police complaints regarding misused cheques weakens the defense

The court reasoned that all essential ingredients of Section 138 were satisfied: the cheque was issued from the Petitioner's account, presented timely, dishonored, and followed by a legal notice to which the Petitioner failed to comply

The court found that because the Petitioner admitted his signature on the cheque and the receipt of the legal notice, a mandatory legal presumption arose in favor of the complainant

The court observed that the Petitioner provided only "bald denials" and "unsubstantiated claims" regarding the repayment of the loan and the status of the cheque as "security"

Crucially, the Petitioner failed to produce any documentary evidence (receipts, bank records) of the alleged repayment or any police complaint regarding the alleged misuse of his security cheque

Consequently, arguments regarding the complainant's financial capacity or tax returns were deemed irrelevant as the Petitioner failed to discharge the initial evidentiary burden to shift the onus back to the complainant

The court held that there was no perversity in the findings, as the Petitioner failed to rebut the statutory presumptions under Sections 118 and 139 of the NI Act

The Petitioner was ordered to serve the remainder of his three-month simple imprisonment and pay the fine of Rs. 3,50,000/- to the Respondent No. 2