Karnataka HC Sets Aside Timber Trader’s ₹5 Lakh Cheque Conviction: Cheque Was Stopped Before Alleged Loan, Complainant’s Cash-Lending Capacity Unproved

The complainant alleged that the accused borrowed ₹5,00,000 and issued a cheque towards repayment. The cheque was returned with the endorsement “payment stopped by drawer”; after notice and non-payment, she brought a complaint under Section 138 of the Negotiable Instruments Act.

The trial court convicted the accused and imposed a fine of ₹8,00,000, including ₹7,98,000 as compensation; the appellate court affirmed the conviction.

In revision, the accused relied on evidence that he had instructed his bank to stop payment on the cheque in 2013, that the cheque had earlier been presented and a sum of ₹5,00,000 mistakenly credited to the complainant’s account, and that the complainant had not established her financial capacity to make the alleged cash loan.

1. Whether the concurrent findings of guilt were perverse, grossly erroneous, or otherwise within the limited grounds for interference in revision

2. Whether the accused raised a probable defence sufficient to rebut the presumptions under Sections 118 and 139 of the Negotiable Instruments Act, including by relying on the stop-payment instruction, the earlier bank credit, and the challenge to the complainant’s financial capacity

Section 138 of the Negotiable Instruments Act applies where a cheque issued towards a legally enforceable debt or liability is dishonoured and the statutory notice and payment requirements are met; Sections 118 and 139 raise rebuttable presumptions as to consideration and legally enforceable debt once the relevant foundational facts are established.

The accused may rebut those presumptions on a preponderance of probabilities; where the complainant’s financial capacity is specifically challenged in a cash-loan case, the complainant may be required to establish that capacity.

Revisional jurisdiction is supervisory, not a second appeal: interference is warranted where the lower courts’ findings are perverse, grossly erroneous or untenable, based on irrelevant or no material, or reached without considering relevant material.

The High Court found that the lower courts had focused on the mistaken credit of ₹5,00,000 without adequately addressing the other defence evidence.

The bank records showed that the amount was not debited from the accused’s account, and the accused’s counsel accepted that the credit was a bank error; nevertheless, the complainant had withdrawn the amount before the subsequent presentation of the cheque.

The Court also considered the undisputed stop-payment instruction concerning the subject cheque and two others, the evidence of prior business dealings between the accused and the complainant’s husband, and the complainant’s admissions that she was a homemaker, had not shown a source for the alleged cash loan, and had produced no evidence of her capacity to lend ₹5,00,000.

It held that these circumstances raised a probable defence and that the trial and appellate courts had failed to assess material evidence relevant to rebuttal of the statutory presumptions; that failure justified revisional intervention.