Section 138 conviction unsustainable if liability not crystallized or aware of on date of cheque presentation.

The Appellant (Complainant) entered into a contract with Respondent Nos. 1 and 2 (Accused) for the supply of 40,000 MT of iron ore

The Appellant paid a demand draft of ₹35,00,000 as a deposit to be adjusted against the last delivery

A cheque dated 24.05.2004 for the same amount, allegedly held as security, was presented by the Appellant and subsequently dishonored on 02.06.2004

The Appellant claimed the Respondents breached the contract by supplying inferior quality ore (below 62% iron content)

However, the Respondents contended that the cheque was a blank security cheque and that no enforceable debt existed at the time of presentation

While the JMFC, Panaji originally convicted the Respondents on 11.09.2014, the Sessions Judge, North Goa, set aside the conviction on 30.09.2015

The Appellant challenged this acquittal in the High Court of Bombay at Goa

1. Whether there existed a legally enforceable debt or liability under Section 138 of the Negotiable Instruments Act at the time the cheque was presented for encashment

2. Whether the Appellant established the foundational facts necessary to invoke the statutory presumptions under Sections 118 and 139 of the Negotiable Instruments Act

The court applied Section 138 of the Negotiable Instruments Act, 1881, regarding the dishonor of cheques for discharge of debt or liability

It relied on the statutory presumptions under Sections 118 (presumption as to negotiable instruments) and 139 (presumption in favor of holder) of the N.I. Act

Regarding the standards for reversing an acquittal, the court followed principles from C. Antony v. Raghavan Nair, K. Prakashan v. P. K. Surendran, and State of Goa v. Sanjay Thakran, which dictate that an appellate court should not interfere with an acquittal if the trial court’s view is a "possible view" and the presumption of innocence is strengthened by the acquittal

The court found that as of 24.05.2004 (date of presentation), the Appellant had no objective basis to claim a debt because the official analysis report from S.K. Mitra Pvt. Ltd.—the only binding analyst per the contract—was dated 09.07.2004

Consequently, the Appellant was unaware if the ore was "inferior" at the time of deposit, meaning no liability had crystallized

Furthermore, the court noted significant discrepancies between the Appellant’s 138 complaint and a separate cheating complaint filed against one Pandurang alias Bhai Naik regarding how the cheque was obtained

This variance undermined the "foundational facts" required to trigger the Section 139 presumption

The court also observed that since the Respondents had supplied some ore (1393.10 MT), the dispute was a matter of contract price adjustment or arbitration (Clause 12), rather than a clear-cut liquidated debt enforceable via criminal proceedings

The Appeal was dismissed, and the acquittal of Respondent Nos. 1 and 2 was upheld