In a significant ruling on cheque dishonour proceedings, the Supreme Court has clarified that an accused person who intends to challenge the complainant’s financial capacity to grant a loan must ordinarily raise that objection in response to the statutory demand notice itself. Failing to do so may strengthen the complainant’s case and relieve them of the burden of proving their financial standing during trial.
A bench comprising Justices B.V. Nagarathna and Ujjal Bhuyan delivered the verdict while overturning a Karnataka High Court judgment that had acquitted an accused in a cheque bounce dispute.
The court observed that when an accused does not dispute the complainant’s financial capacity in the reply to a notice issued under Section 138 of the Negotiable Instruments Act, an inference may be drawn that the complainant’s version carries substance. According to the bench, the initial responsibility to question the lender’s ability to advance the money rests squarely on the accused.
The dispute stemmed from allegations that the accused had borrowed ₹4.5 lakh as a hand loan and later issued a cheque to repay the amount. The cheque was returned unpaid because of insufficient funds. A trial court found the accused guilty under Section 138 of the Negotiable Instruments Act, and the conviction was later upheld by the appellate court, albeit with modifications to the sentence.
However, the Karnataka High Court subsequently set aside the conviction, reasoning that the complainant had failed to establish the financial means to lend such a sum.
The Supreme Court disagreed with that approach. Writing for the bench, Justice Nagarathna stated that proving financial capacity is not, by itself, an essential condition for initiating proceedings under Section 138. The law primarily requires the complainant to establish the statutory ingredients of the offence, including the issuance of the cheque, its dishonour by the bank, and compliance with the mandatory notice requirements.
The court explained that criminal proceedings under the provision can commence once the complainant demonstrates that the cheque was presented within the prescribed time, that a demand notice was issued within thirty days of dishonour, and that payment was not made within the stipulated period after receipt of the notice.
Importantly, the judgment emphasized that unless the accused specifically contests the complainant’s financial capacity at the outset, the complainant cannot later be expected to produce independent evidence proving the ability to advance the loan.
The bench noted that an accused seeking to rebut the statutory presumptions available under the law may rely on documentary evidence, independent witnesses or even contradictions emerging from the complainant’s testimony during cross-examination. Mere assertions, however, would not suffice.
In the present case, the court found that the accused had failed to place any convincing material on record to demonstrate that the complainant lacked the resources to provide the loan in question. Consequently, the defence based on financial incapacity could not stand.
The judges also reiterated that once the accused admits his signature on the cheque, the presumptions contained in Sections 118 and 139 of the Negotiable Instruments Act automatically come into play, shifting the burden onto the accused to rebut them.
Allowing the appeal, the Supreme Court restored the conviction and reaffirmed that objections relating to the complainant’s financial capability must be raised at the earliest opportunity rather than being introduced as an afterthought during the proceedings.
