Supreme Court Clarifies: Complainant Need Not Prove Financial Capacity at Outset in Cheque Bounce Cases

Introduction

In a significant ruling, the Supreme Court of India has reiterated that complainants under Section 138 of the Negotiable Instruments Act, 1881 are not required to prove their financial capacity to lend money at the threshold stage of trial. This principle was reaffirmed in the case of Ashok Singh v. State of Uttar Pradesh & Anr., where the apex court overturned a High Court decision and restored the conviction of the accused for dishonour of cheque.

The verdict reinforces the settled legal presumption under Section 139 of the NI Act, which mandates that once the issuance of a cheque is admitted by the drawer, the court shall presume that it was issued for the discharge of a legally enforceable debt or liability—unless the contrary is proved by the accused.

Background of the Case

The dispute originated when the appellant, Ashok Singh, alleged that he had extended a loan of ₹22 lakhs to the respondent. To repay this amount, the respondent issued a cheque. However, when presented to the bank, the cheque was returned unpaid with the endorsement "payment stopped by drawer."

Following this dishonour, the complainant issued a legal notice within the stipulated 30-day window under the NI Act, demanding repayment. The respondent, however, failed to respond to the notice or to pay the amount within the statutory 15-day period, triggering a criminal complaint under Section 138 of the NI Act.

The trial court convicted the accused, a decision that was subsequently upheld by the appellate court. However, the Allahabad High Court reversed these concurrent findings, acquitting the accused by casting doubt on the complainant’s financial capacity to lend such a large sum.

It was this reversal that the appellant challenged before the Supreme Court.

Key Legal Question

The pivotal issue before the Supreme Court was whether a complainant, at the very threshold of proceedings under Section 138, is required to prove their financial capacity to extend a loan, especially in cases where the accused has not raised such a defence in response to the statutory demand notice.

Supreme Court's Reasoning

A two-judge bench comprising Justices Sudhanshu Dhulia and Ahsanuddin Amanullah set aside the High Court’s order and restored the trial court's conviction—albeit with a modification in sentence.

The court strongly emphasized that the statutory presumption under Section 139 NI Act is a robust one, placing the burden of rebuttal squarely on the accused. According to the court:

“The onus is not on the complainant at the threshold to prove his capacity or financial wherewithal to make the payment in discharge of which the cheque is alleged to have been issued in his favour.”

The bench noted that unless the accused specifically raises a defence—at least in reply to the statutory demand notice—that the complainant lacked the financial capacity to lend money, the complainant cannot be expected to proactively lead evidence on that front from the outset.

In this case, the respondent failed to issue any reply to the statutory notice sent under Section 138. The defence that the complainant lacked financial means was raised only belatedly, which, according to the court, cannot be a valid ground to shift the initial burden onto the complainant.

Presumption of Legally Enforceable Debt

Section 139 of the NI Act reads:

“It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque... for the discharge, in whole or in part, of any debt or other liability.”

The judgment highlights that this presumption is a rebuttable presumption of law, but the burden to rebut it lies with the drawer (accused), not the complainant. The court reiterated that mere denial or vague allegations do not constitute sufficient rebuttal. The accused must lead concrete evidence or cross-examination to discredit the presumption.

To bolster its view, the court referred to the precedent laid down in Tedhi Singh v. Narayan Dass Mahant, (2022) 6 SCC 735, wherein it was held:

“In proceedings under Section 138, the complainant need not show at the first instance that he had the financial capacity to lend the amount. The proceedings are not civil suits. Unless a defence is raised in the reply notice regarding the complainant’s financial means, he is not obliged to lead such evidence initially.”

Criticism of High Court’s Approach

The Supreme Court observed that the High Court had erred in interfering with two concurrent findings of conviction delivered by the lower courts. Both the trial and appellate courts had found that the cheque was validly issued, the legal notice was served in time, and no rebuttal evidence was furnished by the accused.

In contrast, the High Court gave undue weight to the argument regarding the complainant's financial capability—despite the absence of any pleading or evidence on record to support such a theory. The apex court stated:

“We find that the appellant succeeded in establishing his case. The orders passed by the Trial Court and the Appellate Court did not warrant any interference. The High Court erred in overturning the concurrent findings of guilt.”

Final Verdict and Sentencing

While restoring the conviction, the Supreme Court exercised discretion to modify the sentence. Instead of upholding the custodial sentence, the court directed that the accused shall pay a fine of ₹32 lakhs within four months. In the event of non-payment, the original sentence imposed by the trial court would revive and apply.

This modification reflects the court's recent trend of focusing on monetary compensation in cheque bounce cases over imprisonment—provided the complainant receives adequate restitution.

Significance of the Ruling

This judgment serves as a critical reaffirmation of the settled legal position regarding the evidentiary burden in cheque dishonour cases. By ruling that a complainant is not required to demonstrate financial capacity unless the accused specifically contests it, the court provides much-needed clarity and predictability to criminal proceedings under the NI Act.

It also cautions courts against prematurely entertaining speculative defences raised without foundational facts or evidence, particularly when the accused fails to reply to statutory notices or lead substantial rebuttal evidence during trial.