"The onus is not on the complainant at the threshold to prove his capacity/financial wherewithal... Only if an objection is raised..." In a recent judgment, the Supreme Court examined the evidentiary inconsistencies surrounding a dishonoured cheque in a long-pending dispute under the Negotiable Instruments Act, 1881 (hereinafter referred to as “NI Act”). The case originated from a challenge to the High Court's decision that reversed a conviction upheld by two lower courts, compelling the apex court to revisit the principles of statutory presumption, the burden of proof, and the liability of a partner in a firm issuing the cheque.
Brief Facts:
The appellant challenged the judgment dated 21.02.2024 passed by the Allahabad High Court dated 21.02.2024 in Criminal Revision No. 619 of 2020, which overturned the conviction of the respondent under Section 138 of the NI Act.
The complainant alleged that he had lent ₹22,00,000 to the respondent, who issued a cheque dated 17.03.2010 for repayment. The cheque was dishonoured with the endorsement “payment stopped by drawer.” Despite a legal notice, no payment was made, prompting the complainant to file a case.
The Trial Court convicted the respondent, sentencing him to one year of simple imprisonment and imposing a fine of ₹35,00,000, with ₹30,00,000 to be paid as compensation. This was affirmed by the Appellate Court.
However, the High Court allowed the revision petition, observing that the complainant failed to prove the existence of a lawful debt, citing inconsistencies and lack of evidence regarding the source and payment of the loan.
Contentions of the Petitioner:
Appearing for the appellant, Mr. Pinaki Addy argued that the High Court erred in reappreciating evidence and overturning concurrent findings of the Trial and Appellate Courts. He submitted that the accused’s claim of cheque loss was dubious, as the police intimation was created in 2011 and backdated to 2010, without being converted into an FIR.
He contended that the cheque was issued towards a lawful debt and, under Section 118 and Section 139 of the NI Act, a presumption arises in the appellant’s favour. The accused, having admitted his signature, failed to rebut this presumption with any credible evidence.
Relying on precedents including Bir Singh v. Mukesh Kumar (2019), counsel urged the Court to allow the appeal and restore the conviction.
Contentions of the Respondent:
Senior Advocate Shadan Farasat, appearing for the accused, supported the High Court's decision and contended that the complainant failed to prove the alleged ₹22 lakh loan. No documentary proof like ITRs, ledgers, or bank records was submitted to establish financial capacity or any business relationship between the parties.
He claimed the cheque was never issued for repayment and was instead lost during travel, with a missing report filed on 12.03.2010. The accused denied handing over the cheque and asserted that the presumption under Section 118 and Section 139 of the NI Act could not apply without foundational evidence.
Farasat also argued that the complaint was defective as the drawer, M/s Sun Enterprises, was not impleaded. He submitted that if the Court finds the accused guilty, a monetary penalty may suffice considering the accused’s age and family circumstances.
Observation of the Court:
The Supreme Court reiterated the essentials under Section 138 of the NI Act, observing that once the cheque is shown to be genuine and dishonoured, with notice served and no payment received, the complainant can proceed under Section 142. The main defence available is to deny a "legally enforceable debt."
The accused admitted signing the cheque but claimed it was lost, leading to a stop-payment instruction. The Court noted that the cheque was dishonoured on 07.05.2010 with "payment stopped by drawer," and a legal notice was issued on 18.05.2010. The accused never replied, which allowed a rebuttable inference that no valid defence existed. Though the accused said he didn’t receive the notice, the Court did not find this convincing.
The accused's intimation of the lost cheque to the police was also questionable, as it was only sent in 2011, despite being dated 12.03.2010. The Court observed: "It cannot be believed that a cheque having been lost on/about 12.03.2010, the respondent no.2 would intimate the police thereof only in the year 2011, moreso, when the amount involved was a princely sum of Rs.22,00,000/-."
Further, no FIR was ever lodged, casting further doubt on the defence.
On the issue of maintainability, the Court discussed whether the accused, as a partner of M/s Sun Enterprises, could be held liable. The Court cited Sunita Palita v. Panchami Stone Quarry (2022), observing: "A signatory of a cheque is clearly liable under Sections 138/141 of the NI Act." And emphasized: "Liability depends on the role one plays in the affairs of a company and not on designation or status alone."
The Court harmonized the decisions in Aneeta Hada v. Godfather Travels and Tours Private Limited (2012) and S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005), holding that since the accused was both the signatory and in charge of the firm, the complaint was maintainable.
The High Court’s reasoning on the complainant’s failure to prove the source of funds was also rejected. Referring to Rohitbhai Jivanlal Patel v. State of Gujarat (2019), the Court stated:
"After such presumption, the onus shifted to the accused and unless the accused had discharged the onus... any doubt on the complainant’s case could not have been raised for want of evidence regarding the source of funds."
It further held: "These considerations... do not stand in conformity with the presumption existing in favour of the complainant by virtue of Sections 118 and 139 of the NI Act."
The Court stated that the High Court erred in requiring the complainant to prove bank withdrawals at the threshold. It clarified: "The onus is not on the complainant at the threshold to prove his capacity/financial wherewithal... Only if an objection is raised... would the complainant have to bring before the Court cogent material."
The complainant had testified to withdrawing money from his Faizabad bank and this was not effectively rebutted by the accused. The Court disapproved the High Court's approach of disbelieving the complainant’s sworn statement while accepting the accused’s unsubstantiated denial.
The decision of the Court:
The appeal was allowed, and the Impugned Order was set aside. Although the natural consequence would have been the revival of the original conviction and sentence of one-year simple imprisonment and a fine of ₹35,00,000, the sentence was modified in view of the respondent’s age and the request made by his senior counsel.
Accordingly, only a fine of ₹32,00,000 was imposed, to be paid to the appellant within four months, failing which the original sentence, along with the full fine amount of ₹35,00,000, would stand restored. The parties were left to bear their own costs, and the pending interlocutory applications were allowed.
Case Title: Ashok Singh v. State of Uttar Pradesh & Anr.
Case no: CRIMINAL APPEAL NO.4171 OF 202 4
Citation: 2025 Latest Caselaw 323 SC
Coram: Hon'ble Mr. Justice Ahsanuddin Amanullah and Hon'ble Mr. Justice Prashant Kumar Mishra
Advocate for Petitioner: Mukesh Kumar Singh And Co.
Advocate for Respondent: Adv. Mayank Pandey
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