The Supreme Court has reaffirmed that once the accused admits to signing a cheque, the presumption under Section 139 of the Negotiable Instruments Act, 1881 ("NI Act") cannot be rebutted merely by questioning the complainant’s financial capacity, especially if this defense was not raised in the initial reply to the legal notice.

"The onus is not on the complainant at the threshold to prove his capacity/financial wherewithal to make the payment in discharge of which the cheque is alleged to have been issued in his favor. Only if an objection is raised that the complainant was not in a financial position to pay the amount so claimed by him to have been given as a loan to the accused, only then the complainant would have to bring before the Court cogent material to indicate that he had the financial capacity and had actually advanced the amount in question by way of loan.” – Supreme Court

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Case Background

A bench comprising Justices Sudhanshu Dhulia and Ahsanuddin Amanullah was hearing an appeal challenging the Allahabad High Court's verdict, which overturned a trial court's conviction of the accused for cheque dishonor under Section 138 of the NI Act.

The complainant alleged that he had given a loan of ₹22 lakhs to the accused. However, when the accused issued a cheque for repayment, it was dishonored by the bank with the remark: “payment stopped by drawer.”

Following this, the complainant took the necessary legal steps:

• The cheque was presented within the stipulated time.
• A statutory notice was sent within 30 days of dishonor.
• The accused was required to make payment within 15 days, failing which a case was filed under Section 138 NI Act.

Notably, the accused did not reply to the legal notice.

The Supreme Court overturned the High Court’s decision and reinstated the trial court’s conviction. The judgment, authored by Justice Ahsanuddin Amanullah, emphasized that the burden of proving financial capacity does not initially lie with the complainant. Instead, the onus is on the accused to rebut the presumption of a legally enforceable debt.

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The court referred to Tedhi Singh vs. Narayan Dass Mahant, (2022) 6 SCC 735, stating:

"In a case under Section 138 of the NI Act, the complainant need not show in the first instance that he had the financial capacity. The proceedings under Section 138 are not a civil suit. If the accused does not raise the issue of financial incapacity in the reply to the statutory notice, the complainant cannot be expected to initially produce evidence of financial capacity."

Considering the facts of the case, the Supreme Court ruled in favor of the complainant and restored the trial court's conviction. However, the court modified the punishment by imposing a fine of ₹32 lakhs, to be paid within four months, failing which the original sentence would apply.

"On an overall analysis of the case, we find that the appellant successfully established his claim. The High Court erred in reversing the trial and appellate courts' findings of guilt and conviction." – Supreme Court

Case Title: ASHOK SINGH Vs. STATE OF UTTAR PRADESH & ANR.

Appearance:

For Appellant(s) Mr. Pinaki Addy, Adv. Ms. Arpita Singh, Adv. Mr. Chandrakant Sukumar Sarkar, Adv. Mr. C M Dwivedi, Adv. M/S. Mukesh Kumar Singh And Co., AOR

For Respondent(s) Mr. Shadan Farasat, Sr. Adv. Mr. Ashish Kumar Pandey, Adv. Mr. Harshit Anand, Adv. Mr. Vedant Sharma, Adv. Mr. Shadab Azhar, Adv. Mr. Mayank Pandey, AOR