The Gauhati High Court has reaffirmed that the presumption of a legally enforceable debt under Section 138 of the Negotiable Instruments Act arises upon issuance of a dishonoured cheque, and that allegations of absence of debt must be tested at trial, not during pre-trial quashment proceedings. This ruling reinforces the procedural boundaries of judicial intervention in cheque bounce cases.
Background & Facts
The Dispute
The present criminal petition seeks quashment of proceedings under Section 138 of the Negotiable Instruments Act, 1881, initiated by the respondent, Sri Vir Vijay Garodia, against the petitioner, Sri Rajesh Kumar More. The dispute arises from a business arrangement concerning the production of video advertisements for the Department of State Level Advisory Committee of Student's and Youth Welfare, Assam.
Key Facts
- On 26.07.2023, the petitioner was awarded a Work Order for preparation of a 1.05-minute and 30-minute video advertisement with a sanctioned budget of Rs. 13,50,000.
- The respondent invested Rs. 8,50,000 in three installments via NEFT/RTGS into the petitioner’s bank account for the project.
- The parties entered into a Memorandum of Understanding (MOU) dated 18.08.2023, witnessed by Pawan Kumar More and Pankaj Kumar Dutta, stipulating that the respondent’s investment would be returned with profit in a 40:60 ratio upon completion of the project.
- The MOU further provided that the petitioner would return the invested amount along with profit within 60 days after completion of the first 45 days.
- On 04.03.2025, the petitioner issued Cheque No. 992053 for Rs. 8,50,000 drawn on State Bank of India, Six Mile, Guwahati, in favour of the respondent.
- The cheque was presented on 05.03.2025 and returned unpaid on 06.03.2025 due to "Funds Insufficient".
- The same cheque was re-presented on 20.03.2025 and again dishonoured on 21.03.2025 for the same reason.
- The respondent received return memos and a certificate from ICICI Bank confirming dishonour.
- A legal notice under Section 138 was sent via Speed Post on or about 25.03.2025, which the petitioner failed to respond to.
- On 07.07.2025, the Judicial Magistrate First Class, Kamrup (M), took cognizance of the offence and issued summons.
Procedural History
- 26.07.2023: Work Order awarded to petitioner by State Level Advisory Committee.
- 18.08.2023: MOU executed between parties detailing investment and profit-sharing terms.
- 04.03.2025: Cheque No. 992053 issued by petitioner for Rs. 8,50,000.
- 05.03.2025: First presentation of cheque; dishonoured on 06.03.2025.
- 20.03.2025: Second presentation; dishonoured on 21.03.2025.
- 25.03.2025: Legal notice issued under Section 138 NI Act.
- 07.07.2025: Magistrate takes cognizance and issues summons.
- 23.03.2026: Judgment reserved.
- 30.03.2026: Judgment pronounced.
The Parties' Positions
For the Petitioner
The petitioner contends that no legally enforceable debt existed at the time the cheque was issued because the contract amount from the State Department had not yet been received. He argues that the MOU conditions precedent were unfulfilled, and therefore, the cheque was issued as a security or advance, not in discharge of an existing liability. He asserts that the Magistrate erred by not examining the MOU before taking cognizance.
For the Respondent
The respondent argues that the MOU clearly created a binding obligation to return the investment with profit within 60 days of project completion. The cheque was issued as a mechanism to discharge this liability. The dishonour of the cheque, coupled with the failure to respond to the legal notice, satisfies all ingredients under Section 138. The MOU was annexed to the complaint and thus formed part of the material before the Magistrate.
Relief Sought
The petitioner seeks quashment of N.I. Case No. 2486/2025 and all proceedings arising therefrom, on the ground that no offence under Section 138 NI Act is made out.
The Legal Issue
The central question was whether the presumption under Section 139 of the Negotiable Instruments Act applies when a cheque is issued pursuant to a conditional agreement, and whether the High Court may quash proceedings at the threshold on the basis of an alleged absence of debt, before trial.
Arguments Presented
For the Petitioner
The petitioner’s counsel relied on the terms of the MOU dated 18.08.2023 to argue that the liability to repay the investment was contingent upon receipt of the contract amount from the State Department. Since that payment had not been received as of 04.03.2025, no legally enforceable debt existed at the time of cheque issuance. He contended that the Magistrate committed a jurisdictional error by ignoring the MOU and taking cognizance without assessing whether the conditions precedent were satisfied. He urged the Court to invoke its inherent powers under Section 482 CrPC (now Section 528 BNSS) to prevent abuse of process.
For the Respondent
The respondent’s counsel, Mr. A.K. Bhuyan, relied on Sumit Bansal v. M/s MGI Developers and Another (2026 INSC 40) and Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd. (2000) 2 SCC 745 to argue that the burden of proving absence of debt lies on the accused, and that such proof must be adduced at trial. He emphasized that the MOU was annexed to the complaint and thus formed part of the prima facie material. The statutory presumption under Section 139 operates as soon as the cheque is issued and dishonoured, and the accused must rebut it with evidence, not mere averments.
The Court's Analysis
The Court examined the statutory framework under Section 138 and Section 139 of the Negotiable Instruments Act, 1881, and the binding precedent of the Supreme Court in Sumit Bansal v. M/s MGI Developers and Another. The Court noted that Section 139 creates a rebuttable presumption that a cheque issued for consideration is in discharge of a legally enforceable debt or liability. This presumption is not a mere procedural formality but a substantive evidentiary rule.
"The burden of proving that there was no existing debt or liability was on the respondents. This they have to discharge in the trial. At this stage, merely on the basis of averments in the petitions filed by them the High Court could not have concluded that there was no existing debt or liability."
The Court held that the petitioner’s reliance on the MOU to argue absence of debt is a defence that must be raised and substantiated during trial, not at the stage of quashment. The High Court’s jurisdiction under Section 528 BNSS (equivalent to Section 482 CrPC) is not meant to act as a trial court or to weigh evidence prematurely. The existence of the MOU, which was annexed to the complaint, indicates that the Magistrate had sufficient material to form a prima facie opinion.
The Court further observed that the MOU’s terms - requiring repayment within 60 days of project completion - suggest a clear obligation, not a contingent promise. The fact that the petitioner had not received payment from the State Department does not negate the liability he voluntarily undertook towards the respondent. The cheque was issued as a mechanism to discharge this obligation, and its dishonour triggered the statutory presumption.
The Court emphasized that quashing proceedings at the threshold on speculative grounds undermines the legislative intent behind Section 138, which is to ensure prompt settlement of financial obligations through credible commercial instruments.
The Verdict
The petition was dismissed. The Court held that the proceedings under Section 138 NI Act shall continue before the Magistrate. The petitioner must raise his defence regarding the absence of a legally enforceable debt during trial, and the burden of rebutting the presumption under Section 139 lies squarely on him. No stay or quashment of proceedings was granted.
What This Means For Similar Cases
Presumption Under Section 139 Is Not Conditional on Contractual Performance
- Practitioners must treat any cheque issued under a commercial agreement as prima facie evidence of liability under Section 139, regardless of whether the underlying contract is fully performed.
- Defence arguments based on unfulfilled conditions precedent must be advanced at trial, not in quashment petitions.
Quashment Under Section 528 BNSS Is Not a Substitute for Trial
- Courts must refrain from dissecting contractual terms or evaluating evidence at the pre-trial stage.
- A complaint with annexed documents (like an MOU) is sufficient to trigger the presumption; the accused must rebut it with evidence, not pleadings.
MOUs Are Critical Evidence - But Not for Quashment
- Drafters of MOUs should ensure clarity on timing of liability and payment obligations.
- In cheque bounce cases, the presence of an MOU strengthens the complainant’s case by showing a clear commercial context for the cheque issuance.
