Signing Cheque Alone Does Not Create Section 138 NI Act Liability; Presumptions Arise On Admitted Or Proved Execution: Kerala High Court

The Court was hearing a regular first appeal filed by the plaintiff against the dismissal of a suit for realisation of money by the Principal Sub Court, Ernakulam. The suit was based on an alleged promissory note for ₹14.15 lakh and a cheque for ₹16.13 lakh, which was dishonoured on the ground of “payment stopped by drawer.”

A Bench of Justice Mohammed Nias C.P. observed: “The expressions' signing', 'issuance', and 'execution' of a cheque are closely related but are not synonymous. The distinction is important in proceedings under the Negotiable Instruments Act, 1881, particularly in deciding when the statutory presumptions under Sections 118(a) and 139 arise. Signing is merely the act of affixing one's signature to the cheque. It is a physical act which by itself does not necessarily mean that the cheque has been delivered or intended to be acted upon. A person may sign a blank cheque or an incomplete cheque and retain it in its possession. In such a case, the cheque is signed but has not yet been issued. Signing alone does not create liability under Section 138 of the N.I. Act.”

Senior Advocates V.V. Asokan and K.I. Mayankutty Mather appeared for the appellant. Advocate Dinesh R. Shenoy appeared for the respondent.

Background

The plaintiff, a Chartered Accountant, claimed that the defendant, who ran a travel business, was his close friend and had borrowed ₹14.15 lakh on four occasions for business needs. According to the plaintiff, the defendant executed a demand promissory note on April 19, 2011 and later issued a cheque for ₹16.13 lakh dated June 18, 2012.

The defendant denied borrowing any money. His case was that the plaintiff had acted as his Chartered Accountant and had taken signatures on blank papers and signed cheques for filing returns and tax-related purposes. He alleged that unused signed papers and cheques were misused by the plaintiff.

The Trial Court dismissed the suit, finding that the plaintiff failed to prove execution of the cheque and the underlying transaction. It also found suspicious circumstances around the promissory note, acknowledgment and cheque.

In appeal, the plaintiff argued that the defendant had admitted his signatures on the documents and that the Trial Court wrongly proceeded on assumptions. The defendant maintained that mere admission of signature could not prove execution or legal liability, particularly when the plaintiff’s own evidence did not establish who wrote the cheque or how it was executed.

Court’s Observations

The Court explained that signing, issuance and execution of a cheque are related concepts but carry different legal consequences.

The Court stated: “Issuance means putting the cheque into circulation by voluntarily delivering it to the payee or holder with the intention that it be acted upon. It involves signing the cheque, delivering it to another person and intending that the recipient may use or present it. Without delivery, there is generally no issuance. Execution is a broader legal concept. It means completing the cheque as an operative legal instrument by consciously signing it and delivering or authorising its delivery so that it becomes effective.”

It added: “Execution generally comprehends both signing and issuance.”

The Court held that if the account holder denies the signature, the complainant must first prove that the cheque was signed by the accused before presumptions can arise. However, where the signature and voluntary delivery are admitted, the burden shifts.

The Court observed: “If the account holder admits the signature but denies execution, the court examines what is actually meant by that denial. If the defence is that the cheque was signed but never voluntarily delivered (for example, it was stolen or lost), the accused is disputing execution. If the court finds that the cheque was voluntarily delivered, execution is established.”

It further stated: “If the accused admits signing and issuing the cheque but disputes the existence of the underlying debt, execution is no longer in issue. The presumptions under Section 118(a) and 139 apply and the accused must rebut them.”

The Court clarified that execution concerns whether the cheque became the act of the drawer, while enforceability concerns whether the transaction was supported by a legally enforceable debt or liability.

The Court held: “Legally speaking, execution concerns whether the cheque became the act of the drawer. Coercion, fraud, undue influence, absence of consideration or failure of consideration concern whether the transaction creating liability is legally enforceable. Thus a person may fully admit execution while accepting that the legal obligation is unenforceable because it was procured by coercion or lacked consideration.”

The Court added: “The distinction is significant because the presumptions under the Negotiable Instruments Act attach to the admitted execution of the cheque, while the accused remains entitled to rebut those presumptions by showing that despite execution the cheque was not supported by a legally enforceable debt or liability or that the transaction was otherwise vitiated.”

Applying these principles, the Court found that the Trial Court had not properly examined whether execution was proved with reference to the pleadings and evidence.

The Court noted that the Trial Court assumed that blank cheques and signed papers would probably have been handed over to the plaintiff because he had been the defendant’s auditor. However, the Court found that this reasoning was not properly supported by evidence.

It observed: “Thus, on an appreciation of the pleading and evidence on record, I hold that the trial court has not considered the correctness or otherwise of the execution pleaded with reference to the pleadings/evidence on record. It has rather gone by certain presumptions/assumptions.”

The Court further held: “The entire approach of the trial court appears to be flawed. The principles of law stated above, in a case of this nature, were not adverted to while arriving at the findings.”

The Court also allowed applications for the reception of additional evidence under Order XLI Rule 27 CPC. The plaintiff produced documents, including a certified copy of a Section 138 NI Act conviction judgment, a criminal appeal, a sale deed and income tax records to show financial capacity. The defendant also produced documents to show that the plaintiff continued as his Chartered Accountant beyond the period claimed.

Since these documents were produced for the first time in the appeal, the Court held that the Trial Court should reconsider the case afresh on the complete evidence.

Conclusion

The High Court set aside the judgment and decree dismissing the suit and remanded the matter to the Trial Court for a fresh decision on the merits.

Considering that the suit was of 2012, the Trial Court was directed to endeavour to dispose of it within five months from the date of first appearance. The parties were directed to appear before the Trial Court on September 9, 2026. The Court also directed a refund of the court fee paid by the appellant under Section 67 of the Kerala Court Fees and Suits Valuation Act.

Cause Title: Francis T. Chacko v. T.K. Sajeevan (Neutral Citation: 2026:KER:57175)

Appearances:

Appellant: V.V. Asokan, Senior Advocate; K.I. Mayankutty Mather, Senior Advocate; Advocate P. Rahul.

Respondent: Advocates Dinesh R. Shenoy, Sanil Jose.

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