Section 138 NI Act | Mere Assertion of Cheque as Security Insufficient to Rebut Statutory Presumption : HP HC Upholds Conviction

The High Court of Himachal Pradesh has reaffirmed that the mere assertion that a cheque was issued as security is insufficient to rebut the statutory presumption under Section 139 of the Negotiable Instruments Act. The judgment underscores that without credible evidence, such a defence cannot defeat a prosecution under Section 138, even where partial payment is made during pendency.

Background & Facts

The Dispute

The complainant, a partner of M/s Shilpi Jewellers, sold gold jewellery worth ₹1,84,000 to the accused on 08.11.2019, against Invoice No. 1227. In payment, the accused issued a cheque dated 08.11.2019 (Ex.C2), drawn on State Bank of India, for ₹1,84,000. The cheque was presented to the bank and dishonoured on 15.11.2019 with the endorsement "insufficient funds" (Ex.C4). The complainant issued a legal notice dated 03.12.2019 (Ex.C5), which was served upon the accused on 04.12.2019, with acknowledgment received (Ex.C7). The accused failed to make payment within 15 days of service of notice. Consequently, a complaint was filed before the Chief Judicial Magistrate, Kangra, on 18.01.2020.

Key Facts

• The cheque (Serial No. 651308) was issued on 08.11.2019 for ₹1,84,000
• Dishonour memo dated 15.11.2019 (Ex.C4) was received by the complainant
• Legal notice dated 03.12.2019 served on 04.12.2019 (Ex.C7)
• Complaint filed on 18.01.2020
• During pendency of proceedings, the accused deposited ₹1,76,000
• The complainant produced a detailed statement of account (Ex.C8) showing an outstanding liability of ₹5,05,141
• The accused did not produce any evidence in defence
• The accused claimed in his Section 313 CrPC statement that the cheque was issued as security and misused
• No registration certificate of M/s Shilpi Jewellers was produced on record
• The accused alleged that the same cheque was subject of another case (No. 21-3/2020), but no document was filed to substantiate this

Procedural History

• 08.11.2019: Cheque issued for purchase of gold
• 15.11.2019: Cheque dishonoured by bank
• 03.12.2019: Legal notice issued by complainant
• 04.12.2019: Notice served on accused; acknowledgment received
• 18.01.2020: Complaint filed under Section 138 NI Act
• 26.05.2025: Learned Chief Judicial Magistrate convicted accused under Section 138 NI Act; sentenced to one year simple imprisonment, fine of ₹2,60,000, with one month additional imprisonment in default
• 16.09.2025: Additional Sessions Judge (I), Kangra dismissed appeal; upheld conviction
• 23.03.2026: High Court of Himachal Pradesh dismissed revision petition

The Parties' Positions

For the Accused (Petitioner):

• The cheque was issued as security, not for discharge of debt
• The complaint was barred by limitation
• The complainant, being part of an unregistered firm, lacked locus standi
• No authorisation was produced for the partner to file the complaint
• The payment of ₹1,76,000 during pendency extinguished the offence
• The same cheque was subject of another pending case
• The fine and default sentence were illegal

For the Complainant (Respondent):

• The cheque was issued for consideration and in discharge of a legally enforceable debt
• The notice was served on 04.12.2019; complaint filed on 18.01.2020 was within limitation
• An unregistered firm can file a complaint under Section 138 NI Act
• Any partner of a firm can file such a complaint under Section 19(2) of the Indian Partnership Act
• The payment of ₹1,76,000 was adjusted against a larger outstanding liability of ₹5,05,141
• The accused failed to rebut the presumption under Section 139 NI Act
• The fine and default sentence were lawful

Relief Sought

The accused sought quashing of the conviction and sentence, setting aside the orders of the Trial Court and Appellate Court, and dismissal of the complaint on grounds of limitation, lack of maintainability, and extinguishment of offence by payment.

The Legal Issue

The central question was whether the accused’s bare assertion that a cheque was issued as security, without leading any evidence, is sufficient to rebut the presumption under Section 139 of the Negotiable Instruments Act, and whether a complaint filed by an unregistered partnership firm is maintainable under Section 138.

Arguments Presented

For the Appellant/Petitioner

The petitioner’s counsel contended that the complaint was barred by limitation because the notice was served on 04.12.2019 and the complaint was filed on 18.01.2020, exceeding the one-month period prescribed under Section 142(b). He argued that the cheque was issued as security and not for discharge of debt, and that the complainant, being a partner of an unregistered firm, could not maintain the complaint under Section 69(2) of the Indian Partnership Act. He further submitted that the payment of ₹1,76,000 during pendency extinguished the offence, citing Rajneesh Aggarwal v. Amit J. Bhalla. He also challenged the imposition of imprisonment in default of fine, arguing it was not permissible under Section 357 CrPC.

For the Respondent/State

The respondent did not appear, but the Court examined the record and upheld the findings of the lower courts. The Court held that the complainant, as a partner of the firm, was competent to file the complaint under Section 19(2) of the Partnership Act. It further held that the presumption under Section 139 NI Act arose upon admission of the cheque’s issuance and signature, and that the accused’s uncorroborated statement under Section 313 CrPC was insufficient to rebut it. The Court relied on Uttam Traders Ranghri v. Tule Ram to hold that Section 69(2) does not bar criminal proceedings under Section 138. It also held that the payment of ₹1,76,000 was appropriately adjusted against a larger liability under Section 60 of the Indian Contract Act, and that the limitation period was correctly calculated by excluding the date of service of notice, as per Saketh India Ltd. v. India Securities Ltd.

The Court's Analysis

The Court began by emphasizing the limited scope of revisional jurisdiction under Section 397 CrPC, citing Malkeet Singh Gill v. State of Chhattisgarh and Bir Singh v. Mukesh Kumar. It held that revisional courts cannot reappreciate evidence or act as appellate forums unless there is perversity, jurisdictional error, or gross miscarriage of justice.

The Court then addressed the core legal presumption under Section 139 of the NI Act. It held that since the accused admitted the issuance of the cheque and his signature, the presumption that the cheque was issued for discharge of a legally enforceable debt arose automatically. The Court relied on APS Forex Services (P) Ltd. v. Shakti International Fashion Linkers and Sanjabij Tari v. Kishore S. Borcar, observing that the burden shifted to the accused to rebut this presumption by leading evidence. The Court noted that the accused’s statement under Section 313 CrPC, without corroboration or documentary proof, could not constitute evidence to rebut the presumption, citing Sumeti Vij v. Paramount Tech Fab Industries.

"The statement of the accused recorded under Section 313 of the Code is not substantive evidence of defence, but only an opportunity for the accused to explain the incriminating circumstances appearing in the prosecution's case against the accused. Therefore, there is no evidence to rebut the presumption that the cheques were issued for consideration."

Regarding limitation, the Court applied Saketh India Ltd. v. India Securities Ltd. and Econ Antri Ltd. v. Rom Industries Ltd., holding that the date of service of notice (04.12.2019) must be excluded from the calculation of the one-month period under Section 142(b). The complaint filed on 18.01.2020 was therefore within time.

On the maintainability of the complaint by an unregistered firm, the Court relied on Uttam Traders Ranghri v. Tule Ram, holding that Section 69(2) of the Partnership Act bars only civil recovery proceedings, not criminal complaints under Section 138. It further held that any partner of a firm can file such a complaint under Section 19(2) of the Partnership Act, citing Padmavati Finance v. Md. Yosuf Ali and Reshmi Constructions v. Laxman Vithal Chunekar.

On the payment of ₹1,76,000, the Court applied Sections 59 and 60 of the Indian Contract Act. It held that in the absence of any direction from the accused as to which debt the payment was to be applied, the creditor (complainant) was entitled to appropriate the amount towards any lawful debt due, including the larger liability of ₹5,05,141 shown in Ex.C8. The Court cited Amazing Research Laboratories Ltd. v. Krishna Pharma and Anmol Steel Processors Private Limited v. Colour Roof (India) Limited to affirm this principle.

On the fine and default sentence, the Court held that Section 357(3) CrPC permits imposition of imprisonment in default of payment of compensation, citing K.A. Abbas v. Sabu Joseph and R. Mohan v. A.K. Vijaya Kumar. It further held that the fine of ₹2,60,000 (approximately 1.4 times the cheque amount) was within the bounds of Kalamani Tex v. P. Balasubramanian, which recommends fines up to twice the cheque amount with 9% interest.

The Court dismissed the allegation that the same cheque was subject of another case, noting that no document was produced to substantiate this claim.

The Verdict

The revision petition was dismissed. The conviction under Section 138 of the Negotiable Instruments Act and the sentence of one year simple imprisonment were upheld. The fine of ₹2,60,000 and the additional one-month imprisonment in default of payment were confirmed. The Court held that the complaint was not barred by limitation, the complainant was competent to file it, the presumption under Section 139 was not rebutted, and the payment made during pendency did not extinguish the offence. All pending miscellaneous applications were also dismissed.

What This Means For Similar Cases

Presumption Under Section 139 NI Act Cannot Be Rebutted by Mere Denial

• Practitioners must advise clients that a bare denial in Section 313 CrPC statement, without supporting evidence, will not defeat a Section 138 prosecution
• Defence counsel must prepare and lead evidence - such as written agreements, emails, or witness testimony - to rebut the presumption of debt
• Courts will not accept oral assertions of "security" without corroboration

Complaint by Unregistered Firm Is Maintainable

• Firms operating without registration can still initiate criminal proceedings under Section 138 NI Act
• Any partner may file the complaint under Section 19(2) of the Indian Partnership Act
• Defence arguments based on Section 69(2) of the Partnership Act are legally untenable in criminal cheque bounce cases

Payment During Pendency Does Not Extinguish Offence

• Payment made after the cause of action arises does not absolve the accused of criminal liability
• The creditor may appropriate such payments towards other outstanding debts under Section 60 of the Indian Contract Act
• Accused must specify at the time of payment which debt is being discharged; otherwise, creditor’s appropriation prevails

Limitation Period Calculation Is Strictly Interpreted

• The date of service of notice must be excluded from the one-month limitation period under Section 142(b)
• The period begins from the day after the 15-day notice period expires
• Courts must apply Saketh India Ltd. and Econ Antri Ltd. consistently to avoid dismissal on technical grounds

Compensation and Default Sentence Are Lawful

• Fines up to twice the cheque amount, with 9% interest, are now the norm under Kalamani Tex
• Imprisonment in default of payment of compensation is permissible under Section 357(3) CrPC
• This ensures enforceability and deters non-compliance