A CRITICAL REFLECTION OF THE RECENT JUDICIAL TRENDS IN CHEQUE DISHONOUR CASES UNDER THE NI ACT

ABSTRACT

From the very inception of cheques, it is considered as a convenient mode of payment and it is utilized across a range of financial transactions. However, instances of cheques being returned unpaid has been a common issue and it is in this background the Negotiable Instruments Act, 1881, was enacted to rendering the dishonour of cheques a criminal offence and to prescribe penal consequences.

KEYWORDS 

Negotiable Instruments Act (NI) Act, sec 138, legally enforceable debt, presumption, cheque dishonour

INTRODUCTION

Over the years, the way cheques are viewed and handled both legally and commercially has changed considerably evolving with the nature of  banking in India. Along with this growth, there has also been a tremendous increase in cheque bounce cases as well. Sections 138 to 142 to the Negotiable Instruments Act, 1881 came into existence with the primary objective to protect the reliability of cheque transactions. These provisions aim to ensure accountability and uphold the smooth flow of commercial transactions.

DISSECTING THE NEGOTIABLE INSTRUMENTS ACT, 1881

Section 138 is central to the legal mechanism addressing cheque dishonour since it provides the statutory framework for addressing such dishonour, rendering it a criminal offence and empowers the aggrieved party to seek penal recourse. It makes it a criminal offence to issue a cheque for the settlement of a legally enforceable debt or liability when the cheque is later returned unpaid due to insufficient funds. A cheque is said to be dishonored when it is returned unpaid by the drawee bank due to insufficient funds in the drawer’s account, notwithstanding that it was issued in discharge of a subsisting debt or other “legal liability owed to the payee”.  Section 138 defines the offence and Section 142 deals with the procedural aspects of prosecution.

 SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881

The essential elements for constituting an offence under this provision are as follows:

1. Drawing of the Cheque: The accused must have drawn a cheque on an account maintained by him with a  banker. 
2.  Purpose of the Cheque: The cheque must have been issued in discharge of enforceable debt or other liability. 
3. Dishonour of the Cheque: The cheque must be returned unpaid by the bank  due to insufficient funds. Section 138 cannot be invoked in isolation and it must be read in conjunction with the procedural safeguards laid down in the proviso to Section 138 and Section 142.

This conditions includes timely presentation of the cheque, issuance of demand notice, failure to make payment: The drawer must fail to make payment of the cheque amount within 15 days from the date of receipt of the notice.  All the above mentioned conditions must be fulfilled upon which can the the aggrieved party initiate criminal prosecution under Section 142 of the Act. 

The drawer of a cheque upon cheque dishonour is punishable  with imprisonment for a term extending up to two years and a fine that may amount to twice the value of the cheque, or both. The punishment was enhanced through the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002. This undeniably reveals the  legislative intent to strengthen the enforceability of financial commitments made via cheque.

Section 138 was deliberately crafted to function without the requirement of proving mens rea, a guilty mind, which is usually an essential ingredient in criminal offences. This means that the complainant need not prove dishonest intent and the burden is imposed upon  the drawer to prove that the cheque  was not issued for legally enforceable debt. Once the accused admits the execution of cheque then Section 139 creates a statutory presumption  that the holder of the cheque received it for the discharge  of a “legally enforceable debt or liability.” 

JUDICIAL TRENDS IN CHEQUE DISHONOUR CASES

1. In Vijay Kumar v. Vishwanath Rao N., 2025 SCC OnLine SC 873, the Supreme Court upheld the Trial Court’s acquittal and reaffirmed the idea that, although the presumption under Sections 118 and 139 favors the complainant, the accused may refute it with a plausible defense. The High Court however found the the appellant guilty and also reversed the Trial Court’s order. The High Court rejected the appellant’s  contention that the cheque has been misused, but the Supreme Court firmly took the stand that unless the complainant proves the existence of a legally enforceable debt after rebuttal, conviction cannot be sustained under Section 138. The appeal was allowed and the High Court’s conviction  was set aside. 
2. In S.S. Production & Anr. v. Tr. Pavithran Prasanth, 2024 SCC OnLine SC 4935, the Supreme Court ruled that the burden of proof under Section 139 shifts to the accused to demonstrate that the cheque was not for a lawfully enforceable debt once it is issued and its signature is accepted. In summary, the petitioners were found guilty under Section 138 of the Negotiable Instruments Act, 1881 for writing five checks totaling ₹42.08 lakhs that were returned for lack of cash. The conviction was upheld by the Trial Court, First Appellate Court, and High Court, all of which determined that the cheque were made out to a lawfully enforceable obligation. The petitioners argued that the complainant had failed to show any kind of financial capacity for the grant of the loan amount but the Supreme Court rejected this contention. It held that merely denying the existence of a legally enforceable debt is not sufficient to disprove the statutory presumption. 
3. Additionally, in Rajesh Jain v. Ajay Singh, (2023) 10 SCC 148, the Supreme Court determined important principles pertaining to Section 138 read with Section 139 of the Act. The question was whether the accused had sufficiently refuted the presumption under Section 139, which shifts the evidentiary burden to the accused. This presumption can be refuted only upon  raising a probable defense which is based on the standard of preponderance of probabilities. This shifts the burden back to the complainant.
4. In Jain P. Jose v. Santosh and Others, 2022 SCC OnLine SC 2337, the Supreme Court reversed the Kerala High Court’s ruling and remanded the case for further review. The appellant’s complaint was dismissed by the lower court and the High Court on the grounds that he was unable to demonstrate that the loan amount of Rs. 9,32,000/-was advanced and that the differences in handwriting on the check rendered the presumption under Sections 118 and 139 of the N.I. Act inapplicable.  But given that the respondent acknowledged signing the check, the Supreme Court ruled that the High Court erred in failing to apply the statutory presumption under Section 139. 

CRITICAL ANALYSIS 

1. It is important to note that the Supreme Court observed that presumptions under Sections 118 and 139 NI Act are rebuttable through a probable defence. The standard of proof is based on preponderance of probabilities and not proof beyond reasonable doubt. 
2. Further, the drawer cannot disprove the presumptions under section 139 by mere denials or objections without providing substantive evidence 
3. Probable defence could be brought forth by the drawer of the cheque either through independent or circumstantial evidence. This is sufficient to rebut presumption, however, it is important to note that it must be credible and not speculative. 
4. Further once the signature on the cheque is admitted, the burden shifts to the accused to disprove the existence of a legally enforceable debt or liability. 
5. A signed blank cheque, if voluntarily handed over, attracts the presumption under Section 139 unless convincingly rebutted by the drawer of the cheque.

CONCLUSION

It could be summarized that the overarching aim of criminalising cheque dishonour is to promote the credibility of cheques in the settlement of monetary obligations. Keeping in mind this primary objective, the Supreme Court has over the years consistently emphasized that once a cheque is signed and issued, a presumption of liability arises. This can only be rebutted through a credible and probable defence, not mere denials, ensuring accountability in financial dealings and reinforcing trust in the judicial process.

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WRITTEN BY : AMYUKTA RAJAGOPAL