Supreme Court Restores Trial Court Acquittal in Cheque Bounce Case, Holds Accused Raised Probable Defence

A bench of Justices Pankaj Mithal and Sanjay Karol heard an appeal against a Karnataka High Court judgment which had reversed a trial court acquittal and convicted the accused under Section 138 of the Negotiable Instruments Act. The petition challenged the High Court’s conclusion that the statutory presumption under Sections 118 and 139 of the NI Act remained unrebutted and that the accused was liable to pay Rs 22 lakh with consequential sentence in default.

The Court allowed the appeal, set aside the High Court judgment and restored the Trial Court’s order of acquittal. The Court held that the presumptions under Sections 118 and 139 were rebuttable and that the accused had raised a “probable defence” on a preponderance of probabilities, shifting the onus back on the complainant who then failed to prove the debt beyond reasonable doubt. The Court observed that Section 139 is “an example of a reverse onus clause” and that the standard to rebut the presumption was that of “preponderance of probabilities,” not proof beyond reasonable doubt. The Court, in its reasoning, observed: “Therefore, in fine, it can be said that once the accused adduces evidence to the satisfaction of the Court that on a preponderance of probabilities there exists no debt/liability in the manner pleaded in the complaint or the demand notice or the affidavit-evidence, the burden shifts to the complainant and the presumption ‘disappears’ and does not haunt the accused any longer.” The Court further noted that “once such a defence is established, the burden again shifts upon the complainant to now establish his case beyond a reasonable doubt.”

Background

The dispute arose from a cheque (No. 015138 dated 14 October 2008) which the complainant presented for encashment and which was dishonoured with an endorsement “Refer to Drawer.” The complainant alleged that he had extended Rs 20 lakh as a hand loan to the accused for producing a Kannada film and that the cheque was issued in discharge of that debt. The accused disputed liability, contending that he had earlier availed a smaller hand loan of Rs 3,50,000 and had given two blank signed cheques as security; he asserted that the loan was settled by a Memorandum of Understanding dated 29 March 2008 recording payment of Rs 5,50,000 inclusive of interest and that the cheques had been misplaced or misused by the complainant. The accused also filed a police complaint in July 2008 alleging misuse and non-return of the cheques.

The Trial Court, on oral and documentary evidence, accepted the defence and acquitted the accused in November 2010, holding that the accused had rebutted the statutory presumption. The High Court, on appeal, reversed that finding in December 2020, relying on contradictions in defence witnesses’ testimony and handwriting expert opinion regarding the purported settlement document, and convicted the accused under Section 138, directing payment of Rs 22 lakh and a sentence in default. This Court stayed the High Court order on condition of deposits which were placed in the Registry.

In the Supreme Court, the bench reviewed the law on Sections 118 and 139, reiterating settled principles from precedents including Rangappa, Mallavarapu, Kumar Exports, Basalingappa and Rajesh Jain that the presumptions are rebuttable and the accused need only raise a probable defence on the preponderance of probabilities. The Court found that the accused had produced evidence of prior repayment, the MoU recording settlement, the earlier police complaint about misuse of cheques and material chronology (including that presentation and dishonour occurred after the police complaint). The Court concluded that these facts constituted a probable defence and that on the totality of evidence the complainant failed to discharge the burden after the presumption fell away. Consequentially, the Supreme Court ordered release of the amounts deposited in the Registry with interest and restored the Trial Court acquittal.

Case Details: Case No.: Crl. Appeal No. 5305 of 2024 (Citation: 2025 INSC 537) Case Title: N. Vijay Kumar v. Vishwanath Rao N. Appearances: For the Petitioner(s): Not indicated in the judgment For the Respondent(s): Not indicated in the judgment