Supreme Court Clarifies Key Principles in Cheque Bounce Cases
Introduction:
In a significant ruling, the Supreme Court of India in Sri Dattatraya vs. Sharanappa (2024 INSC 586) has elaborated on critical legal nuances in cheque bounce cases under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). This judgment reiterates the delicate balance courts must maintain between protecting the credibility of negotiable instruments and safeguarding the rights of the accused.
Background of the Case:
The appellant, Sri Dattatraya, filed a complaint under Section 138 of the NI Act alleging that the respondent, Sharanappa, had issued a cheque of ₹2,00,000 which was dishonoured due to insufficient funds. The cheque, claimed to be issued as security for a loan, was presented and subsequently returned unpaid. Despite a statutory notice, the respondent failed to repay the amount.
However, both the Trial Court and the Karnataka High Court acquitted the respondent on grounds of lack of financial capacity on part of the complainant and inconsistencies in his evidence.
Key Legal Issues Examined:
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Presumption Under Section 139
The apex court reaffirmed that once the signature on the cheque is admitted, a statutory presumption arises under Section 139, which assumes that the cheque was issued for the discharge of a legal liability. However, this presumption is rebuttable. -
Standard of Proof for Rebuttal
The court emphasized that the accused can rebut this presumption on the basis of preponderance of probabilities, not proof beyond reasonable doubt. This can include contradictions in the complainant’s evidence, failure to explain the source of funds, or lack of documentation. -
Role of Financial Capacity and Tax Returns
Interestingly, the appellant's failure to reflect the loan amount in his Income Tax Returns played a key role in undermining his claim. The Court held that when the financial capacity is questioned, the complainant must produce credible evidence to support it. -
Reverse Onus Clause
Relying on precedents such as Rangappa vs. Sri Mohan, the judgment highlighted that the NI Act’s structure includes a reverse onus mechanism. Still, the accused is not required to conclusively prove innocence—reasonable doubt suffices.
Why This Judgment Matters:
This verdict carries important implications for cheque bounce litigation:
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Security cheques can still attract Section 138 if not returned and dishonored.
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Presumption in favor of the complainant is not automatic—robust documentation is essential.
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Courts will scrutinize financial credibility, especially in private lending without bank trail or IT disclosure.
Conclusion:
The 2024 Supreme Court decision reaffirms foundational principles while cautioning against blind invocation of Section 138. Litigants—whether complainants or accused—must be prepared with documentary evidence and a consistent case narrative.
It serves as a strong reminder: a signed cheque may raise presumption, but not proof.