Cheque Bounce Cases: Presumptions And Procedure Under The NI Act

Supreme Court in Sanjabij Tari v. Kishore S. Borcar & Anr¹

I. Introduction

Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”) was introduced to enhance the credibility of cheque-based transactions and ensure financial discipline in commercial dealings by criminalising the dishonour of cheques issued towards the discharge of legally enforceable debts. However, over the years, prosecutions under Section 138 have constituted a substantial portion of the criminal caseload across courts in India, raising concerns regarding delay, procedural inefficiencies, and inconsistent approaches to the application of statutory presumptions.

In this context, the Supreme Court’s decision in Sanjabij Tari v. Kishore S. Borcar & Anr.² assumes considerable significance. The judgment revisits key principles governing prosecutions under Section 138, including the operation of statutory presumptions under Sections 118 and 139 of the NI Act, the evidentiary burden on the accused, and the relevance of the complainant’s financial capacity. Importantly, the Court also issued a consolidated set of procedural directions intended to streamline the adjudication of cheque dishonour complaints and to address the persistent backlog of such cases.

II. Background of the Case

The Appellant-Complainant (“Complainant”) alleged that he had advanced a friendly loan of Rs. 6,00,000 to the Respondent No. 1-Accused (“Accused”), partly from personal savings and partly through assistance from his father. A cheque issued towards repayment was dishonoured for insufficient funds, following which the Complainant initiated proceedings under Section 138 of the NI Act. The Trial Court convicted the accused, and the Sessions Court upheld this view, noting that the accused had sought leniency at the sentencing stage by expressing willingness to pay the cheque amount.

Aggrieved by the Sessions Court’s decision, the Accused approached the High Court of Bombay at Goa in revision. In the absence of the Complainant’s counsel, the High Court passed an ex-parte order acquitting the Accused on the ground that the Complainant lacked the financial means to lend such a sum. The Complainant’s subsequent Application filed under Section 482 of the Code of Criminal Procedure, 1973 (“CrPC”) for recall of the ex-parte order came to be dismissed, with the High Court holding that it had become functus officio.

III. Decision of the Supreme Court

Aggrieved by the decision of the High Court, the Complainant approached the Supreme Court, challenging the High Court’s interference with concurrent findings and its acceptance of the Accused’s defence. The Supreme Court allowed the appeal and set aside the High Court’s ex parte order of acquittal, restoring the concurrent convictions recorded by the Trial Court and the Sessions Court. It held that the High Court had exceeded the scope of revisional jurisdiction by reappreciating evidence in the absence of perversity or jurisdictional error.

Reaffirming the settled position under Section 138, the Court noted that once the execution and signature on the cheque are admitted, the presumptions under Sections 118 and 139 of the NI Act arise, and the evidentiary burden shifts to the accused. It further clarified that a violation of Section 269SS of the Income Tax Act, 1961 (“IT Act”) does not render a cash loan unenforceable nor dilute these presumptions. The Court also drew an adverse inference from the Accused’s failure to reply to the statutory notice and rejected as implausible the defence that a blank cheque had been issued merely to facilitate a bank loan.

The Supreme Court issued a consolidated set of procedural directions that have evolved across various NI Act decisions into a single judgment. It also modified the compounding framework. These interventions were prompted by the persistently high pendency of cheque dishonour cases, recurring delays, the need to encourage early settlement and ensure a more streamlined and uniform approach to NI Act trials.

IV. Jurisprudential Developments

While the judgment lays down several overarching principles, this article examines two key principles in particular.

1. Presumptions under Sections 118 & 139 of the NI Act

Section 118(a) of the NI Act presumes that every negotiable instrument was made or drawn for consideration and that every such instrument was accepted or endorsed for consideration. Section 139 of the NI Act specifically provides that the court shall presume that the cheque was issued for the discharge, in whole or in part, of a legally enforceable debt or liability. However, the presumption under Section 118 arises only when the execution of the cheque, particularly the signature of the drawer, is either proved or admitted. The presumptions under Sections 138 and 139 of the NI Act are rebuttable in nature and may be displaced by evidence demonstrating the absence of consideration or other circumstances negating the existence of a legally enforceable liability.

Judicial decisions have reflected some divergence regarding the nature of evidence required to rebut the statutory presumption. The conflict is between the requirement of producing “cogent evidence” and the standard of rebuttal based on the “preponderance of probabilities”.

In Bir Singh v. Mukesh Kumar³, the Supreme Court adopted a comparatively stricter approach while examining the rebuttal of the presumption under Section 139. The Court observed that “Even a blank cheque leaf, voluntarily signed and handed over by the accused, which is towards some payment, would attract presumption under Section 139 of the Negotiable Instruments Act, in the absence of any cogent evidence to show that the cheque was not issued in discharge of a debt.”

However, the weight of judicial authority supports the view that the presumption may be rebutted on the standard of preponderance of probabilities, and the accused is not required to prove the defence beyond a reasonable doubt. The accused may rebut the presumption by raising a probable defence, which may be established not only through direct evidence but also through circumstantial evidence, suggestions made during cross-examination, or by pointing out inconsistencies in the complainant’s case.

In Kumar Exports v. Sharma Carpets⁴, the Supreme Court explained the nature of statutory presumptions in the following terms:

“a presumption is not in itself evidence, but only makes a prima facie case for a party for whose benefit it exist.”

The position was further clarified in Rangappa v. Sri Mohan⁵, wherein the Court held that the accused is not required to conclusively establish the defence and cannot be expected to discharge an unduly onerous burden by producing direct evidence. The Court observed that “it is a settled position that when an accused has to rebut the presumption under Section 139, the standard of proof for doing so is that of “preponderance of probabilities”. Therefore, if the accused is able to raise a probable defence which creates doubts about the existence of a legally enforceable debt or liability, the prosecution can fail.”

In practice, the rebuttal of the statutory presumption often operates through the invocation of another presumption or by raising circumstances that render the complainant’s case improbable. One of the commonly raised probable defences relates to the source of funds and the financial capacity of the complainant to advance the alleged loan. In Basalingappa v. Mudibasappa⁶, the Supreme Court held that the financial capacity of the complainant can become a relevant consideration when specifically questioned by the accused, and in such circumstances, the complainant bears the burden of explaining his financial capacity to advance the loan.

2. Accused’s failure to reply to statutory notice undermines the defence

The Courts have consistently placed considerable significance on the failure of an accused to respond to a statutory notice issued under Section 138 of the NI Act. Consequently, defences such as financial incapacity of the complainant or alleged misuse of the cheque, when raised for the first time during trial, are viewed with suspicion. In several decisions, courts have held that the absence of a timely reply to the statutory notice may strengthen the presumption in favour of the complainant.

However, the Supreme Court in John K. Abraham v. Simon C. Abraham⁷ cautioned against placing undue reliance on this factor alone. The Court deprecated the High Court’s findings, which were primarily based on the accused’s failure to respond to the complainant’s legal notice, and held that the statutory presumption under Sections 118 and 139 of the NI Act cannot be drawn solely on that basis.

Similarly, in Basheer v. Usman Koya⁸, the Kerala High Court observed that the accused’s failure to reply to the statutory notice demanding payment may constitute a circumstance supporting the complainant’s case or weakening the defence.

Subsequent judicial decisions have clarified that while failure to reply to a statutory notice may strengthen the complainant’s case, it remains merely a corroborative circumstance and cannot, by itself, be determinative of liability under Sections 118 and 139 of the NI Act.

In M.M.T.C. Ltd. v. Medchl Chemicals and Pharma (P) Ltd.⁹, the Supreme Court observed that when a statutory notice is not replied to, it has to be presumed that the cheque was issued towards the discharge of liability. A similar view was taken by the Court in Tedhi Singh v. Narayan Dass Mahant¹⁰, where the Court held that the accused has the initial burden of setting up the defence, including the plea that the complainant lacked the financial capacity to advance the alleged loan, preferably in response to the statutory demand notice.

V. Procedural Directions Issued by the Supreme Court

Besides some of the principles discussed above, the Court also took note of the persistent delays in the adjudication of cheque dishonour cases and the mounting pendency across trial courts. Accordingly, it issued a comprehensive set of procedural directions aimed at streamlining the process and ensuring expeditious disposal of complaints under Section 138 of the NI Act.

1. Expanded modes of service: Summons should no longer be restricted to traditional modes. Trial courts must permit dasti service by the complainant and use electronic modes such as email or messaging platforms under the Bhartiya Nagarik Suraksha Sanhita, 2023 (“BNSS”). At the time of filing, complainants must provide verified digital contact details of the accused through an affidavit.
2. Affidavit of service: After effecting service, the complainant must file an affidavit confirming service. Courts may take action if such an affidavit is later found to be inaccurate or misleading.
3. Digital payment facilities: District courts must create secure digital channels, such as QR codes or UPI links, by which the accused can immediately pay the cheque amount. Summons should clearly state this option. Once payment is confirmed, courts may record compounding or close the proceedings at the threshold.
4. Synopsis in complaints: Each and every complaint under Section 138 must begin with a brief synopsis in the prescribed format, placed before the main body of the complaint to assist the Court in understanding the case at a glance.
5. No pre-cognizance summons: The Supreme Court accepted the view of the High Court of Karnataka in Ashok v. Fayaz Aahmad¹¹, clarifying that Magistrates need not issue summons under Section 223 of the BNSS before taking cognizance of a Section 138 complaint, as the NI Act is a special statute with its own procedure.
6. Summary trial as default rule: Trial courts must ordinarily adopt the summary trial procedure under Section 143 of the NI Act. If they decide to convert a matter into a summons trial, they must record reasons. At the initial stage, Magistrates may pose structured questions¹² to identify the core issues and the nature of the defence.
7. Recording responses: The responses of the accused to these preliminary questions must be recorded in the order sheet to assist the court in determining whether the matter is fit for summary disposal.
8. Interim compensation: The Trial Court should consider directing early payment of the interim deposit under Section 143A of the NI Act, wherever appropriate.
9. Physical hearing after service: Once service is complete, the matter should ordinarily be listed before physical courts, which the Court viewed as more conducive to meaningful engagement and settlement. Digital hearings may be used only until service is effected.
10. Realistic pecuniary limit for evening courts: High Courts should re-evaluate the pecuniary limits of evening courts hearing NI Act matters. Current limits, such as Rs. 25,000 in Delhi, are too low and should be revised upward.
11. Dashboard monitoring: District and Sessions Judges in major metropolitan jurisdictions must maintain dashboards tracking pendency, disposal, adjournments, settlements, and stage-wise progress of NI Act cases, and conduct monthly reviews.
12. Administrative Committees: The Chief Justices of the Delhi, Bombay and Calcutta High Courts should form dedicated committees to monitor pendency, encourage ADR mechanisms such as mediation and Lok Adalats, and consider appointing experienced Magistrates exclusively for NI Act cases.

The Supreme Court updated the guidelines for compounding offences under the NI Act in Damodar S. Prabhu v. Sayed Babalal H.¹³ to reflect current economic conditions and promote early settlement:

• Before defence evidence: If the accused pays the cheque amount before defence evidence begins, compounding may be allowed without any additional costs.
• After defence evidence but before judgment: Compounding at this stage may be permitted on payment of an additional 5% of the cheque amount to the Legal Services Authority or another designated body.
• At the appellate or revisional stage: If payment is made before the Sessions Court or High Court, costs of an additional 7.5% of the cheque amount may be imposed.
• Before the Supreme Court: If the matter reaches the Supreme Court, compounding may be allowed on payment of 10% of the cheque amount.

The Supreme Court observed that if the Accused is willing to pay in accordance with the aforesaid guidelines, the Court may suggest to the parties to go for compounding. If financial institutions insist on terms beyond the cheque amount, Magistrates may advise the accused to consider pleading guilty and seek relief under Section 255 CrPC/Section 278 BNSS or even under the Probation of Offenders Act, 1958.

VI. Conclusion

The Supreme Court’s decision in Sanjabij Tari v. Kishore S. Borcar & Anr.¹⁴ reinforces the established principles governing statutory presumptions under the NI Act and reiterates the limited scope of revisional scrutiny. The procedural directions issued by the Court, particularly on expanding modes of service, promoting summary trials, and encouraging early settlement, have the potential to reduce the systemic delays in cheque-bounce litigation.

Overall, the judgment advances the objective of ensuring consistency and efficiency in the adjudication cases under the NI Act. However, its long-term effectiveness will largely depend on how uniformly trial courts implement the procedural directions issued by the Supreme Court and the manner in which future jurisprudence addresses the remaining areas of uncertainty.

Footnotes

^{1. 2025 SCC OnLine 2069.}

^{2. Supra note 1.}

^{3. (2019) 4 SCC 197.}

^{4. (2009) 2 SCC 513.}

^{5. (2010) 11 SCC 441.}

^{6. (2019) 5 SCC 418.}

^{7. (2014) 2 SCC 236.}

^{8. 2021 SCC OnLine Ker 16322.}

^{9. (2002) 1 SCC 234.}

^{10. (2022) 6 SCC 735.}

^{11. 2025 SCC OnLine Kar 490.}

^{12. Rajesh Agarwal v. State and Anr., 2010 SCC OnLine Del 2511.}

^{13. (2010) 5 SCC 663.}

^{14. Supra note 1.}

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