Statutory cheque presumptions stand rebutted where financial capacity is unproved and material evidence withheld.

The complainant alleged that he had advanced a friendly cash loan of ₹1,20,000 to the petitioner and that the petitioner issued a cheque towards repayment. The cheque was dishonoured on 1 December 2015 for insufficiency of funds. A statutory demand notice was issued on 9 December 2015, followed by a complaint under Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”) after non-payment within the prescribed period.

The Additional Chief Judicial Magistrate convicted the petitioner on 16 August 2019 and sentenced him to one month’s simple imprisonment with compensation of ₹2,00,000. The appellate court, by judgment dated 1 June 2022, set aside the substantive imprisonment but affirmed the conviction and compensation.

In revision, the petitioner contended that no legally enforceable debt existed, that the complainant had misused a blank signed cheque, that the complainant lacked proof of financial capacity, and that a material witness cited as Witness No. 4 had not been examined.

Whether the concurrent findings of conviction under Section 138 of the NI Act were legally sustainable when the complainant allegedly failed to establish the existence of a legally enforceable debt or his financial capacity to advance the loan?

Whether the petitioner rebutted the presumptions under Sections 118(a) and 139 of the NI Act on a preponderance of probabilities?

Whether the complainant’s failure to examine Witness No. 4, cited as an eyewitness to the loan transaction and delivery of the cheque, warranted an adverse inference under Section 114(g) of the Indian Evidence Act, 1872?

Whether the findings of the courts below suffered from perversity, illegality, or misapplication of the burden of proof warranting interference in revision under Sections 397 and 401 of the Code of Criminal Procedure, 1973?

The Court applied Sections 118(a) and 139 of the NI Act, under which consideration and the existence of a legally enforceable debt are presumed upon proof of the cheque and the accused’s signature, subject to rebuttal by the accused on a preponderance of probabilities.

Relying on Rangappa v. Sri Mohan, (2010) 11 SCC 441, the Court held that the Section 139 presumption is mandatory but rebuttable and may be displaced through probable defence, inherent improbabilities, or weaknesses in the complainant’s case.

Relying on Basalingappa v. Mudibasappa, (2019) 5 SCC 418, it held that a credible challenge to the complainant’s financial capacity and the absence of supporting documentary or banking evidence may shift the evidentiary burden back to the complainant.

Under Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, filling in the particulars of a voluntarily signed blank cheque does not invalidate it, although the accused may still prove that it was not issued in discharge of any debt or liability.

The Court also applied Section 114(g) of the Indian Evidence Act, permitting an adverse inference where material evidence is withheld, and recognised the limited but applicable revisional jurisdiction under Sections 397 and 401 CrPC in cases of perversity, illegality, or gross misappreciation of evidence.

The Court accepted that the petitioner’s admitted signature initially attracted the statutory presumption under Section 139 of the NI Act.

However, it held that the petitioner had raised a probable defence by asserting misuse of a blank signed cheque, challenging the complainant’s capacity to advance ₹1,20,000 in cash, and relying on defence evidence from DW-1 and DW-2.

The complainant produced no bank statement, receipt, or other documentary evidence demonstrating the loan transaction or his financial capacity, and the Court considered this omission significant once the petitioner had raised a credible challenge.

The Court further found that the complainant’s failure to examine Witness No. 4—allegedly an eyewitness to both the loan and delivery of the cheque—justified an adverse inference under Section 114(g) of the Evidence Act.

It also held that the lower courts had mechanically relied on the statutory presumption and improperly treated the petitioner’s answers under Section 313 CrPC as adverse, instead of assessing whether the complainant had established the foundational transaction after rebuttal of the presumption.

These errors were held to constitute perversity and a misapplication of the burden of proof warranting revisional interference.

The revision petition was allowed; the appellate judgment dated 1 June 2022 and the trial court judgment dated 16 August 2019 were set aside; and the petitioner was acquitted of the offence under Section 138 of the NI Act.

The petitioner’s bail bonds were discharged, and any fine or compensation deposited pursuant to the courts’ orders was directed to be refunded in accordance with law.

No order as to costs was made.