Section 138 NI Act Acquittal Does Not Bar Civil Suit On Same Cheque Or Transaction: Kerala High Court

The Court was hearing a regular first appeal filed by the defendant against a decree of the Sub Court, Kottarakkara, in a money suit. The plaintiff had filed the suit for recovery of ₹3.31 lakh, alleging that the defendant and her husband had borrowed money for business purposes and that the defendant issued a cheque towards repayment.

A Bench of Justice Mohammed Nias C.P. observed: “ … the findings rendered by the criminal court in the proceedings under Section 138 are not relevant under Section 43 of the Evidence Act. The acquittal of an accused in a prosecution under Section 138 of the Negotiable Instruments Act does not by itself bind a civil court trying a suit involving the same cheque or transaction. Criminal and civil proceedings are independent. A prosecution under Section 138 is a criminal proceeding requiring proof of guilt beyond reasonable doubt, whereas a civil suit is decided on the preponderance of probabilities. Consequently, an acquittal in the criminal case does not operate as res judicata or issue estoppel in the civil proceedings.”

Advocate G. Sreekumar appeared for the appellant. Advocate B.S. Swathi Kumar appeared for the respondent.

Background

The plaintiff claimed that the defendant and her husband had approached him and borrowed money for business purposes. According to him, the defendant issued a cheque for repayment of the amount. The cheque was dishonoured on presentation.

A criminal complaint under Section 138 of the Negotiable Instruments Act was filed, but the defendant was acquitted. Thereafter, the plaintiff pursued the civil suit claiming the principal amount of ₹2.15 lakh with interest at 15% per annum, totalling ₹3.31 lakh.

The defendant denied borrowing any amount or issuing the cheque. Her case was that her husband, whose whereabouts were not known, may have handed over a cheque leaf from their joint account, leading to the fabrication of the cheque. She also alleged a substantial difference in the signature.

The Trial Court held that the defendant had drawn the cheque in favour of the plaintiff and that it was dishonoured for want of sufficient funds. It decreed the suit, directing payment of the cheque amount with interest.

Court’s Observations

The defendant argued that since the Magistrate Court had found in the Section 138 proceedings that there was no execution of the cheque and that the transaction itself was not proved, the civil suit was barred by issue estoppel and re-litigation.

Rejecting this contention, the Court held that findings in criminal proceedings under Section 138 are not relevant under Section 43 of the Evidence Act so as to bind the civil court.

The Court clarified that even a categorical finding by the Magistrate on execution or transaction would not bind the civil court.

It held: “Even where the Magistrate records a categorical finding that the cheque was not executed by the accused or the alleged loan or transaction is not proved, the civil court is not legally bound by that finding. The civil court must independently appreciate the evidence adduced before it and arrive at its own conclusion on the issues.”

The Court further observed: “Even where the same documents are produced, and the very same witnesses are examined in both the prosecution under Section 138 of the Negotiable Instruments Act and the civil suit, the criminal court’s judgment does not become binding on the civil court merely for that reason.”

The Court emphasised that the criminal court applies the standard of proof beyond a reasonable doubt, whereas the civil court decides on the preponderance of probabilities.

It observed: “It is also to be understood that there is a difference in the standard of proof and an acquittal may merely signify that the complainant failed to establish the offence beyond reasonable doubt; it does not necessarily mean that the defendant has disproved the existence of the debt or liability. The same evidence may still satisfy the lower standard applicable in a civil suit.”

Accordingly, the Court held that the defendant’s reliance on issue estoppel, res judicata and re-litigation necessarily failed.

After rejecting the bar based on acquittal, the Court examined whether execution of the cheque had been proved in the civil suit. It held that the defendant’s plea was not merely that there was no liability, but that she had not voluntarily executed or delivered the cheque.

The Court explained: “When an accused admits to signing a cheque but denies its execution, the approach under the Negotiable Instruments Act, 1881 hinges on the specific denial. Signing refers to the physical act of affixing one's signature, which does not imply delivery or intention to act upon the cheque. A signed, unissued cheque does not create liability under Section 138.”

It further stated: “Issuance involves delivering the cheque to the payee with the intent for it to be acted upon, while execution is broader, encompassing both signing and the cheque being recognised as an operative instrument through voluntary delivery and intention.”

The Court held that if the signature is admitted but execution is denied, the court must examine the basis of denial. If the cheque was signed but not voluntarily delivered, execution may not be proved unless voluntary delivery is established.

The Court held that where the accused directly denies execution, the plaintiff must first establish the foundational fact of execution before invoking statutory presumptions.

It observed: “This distinction is decisive in the present case. The defence is not one of admitting execution while disputing the liability or consideration. The consistent case of the defendant is that she neither borrowed any amount from the plaintiff nor voluntarily executed or delivered Ext.A1, and that her husband, who was operating their joint account, might have handed over the cheque leaf to the plaintiff.”

The Court added: “Such a plea is a direct denial of execution. Therefore, the statutory presumptions under Sections 118(a) and 139 of the Negotiable Instruments Act could arise only after the plaintiff had first established the foundational fact of execution.”

The Court found that the evidence was, at best, sufficient to establish the defendant’s signature on the cheque but not its execution in the legal sense. It noted that the witness evidence was weakened in cross-examination, including admissions relating to the role of the defendant’s husband and uncertainty about who filled up the cheque.

The Court held: “On an appreciation of the evidence, both oral and documentary, it is only to be concluded that the foundational fact has not been satisfactorily established as the plaintiff was first required to prove the execution before invoking the presumptions under Sections 118(a) and 139 of the Negotiable Instruments Act.”

It further stated: “Since there is no satisfactory evidence regarding the voluntary delivery of Ext.A1 by the defendant or the circumstances under which it became an operative instrument, the statutory presumptions do not arise, and the finding of the trial court that execution stood proved cannot be sustained. The trial court conflated proof of signature with proof of execution, overlooking the distinction between the two.”

Conclusion

The High Court allowed the appeal and set aside the Trial Court’s decree.

It held that the execution of the cheque and the transaction pleaded by the plaintiff were not proved. Consequently, the money suit was dismissed.

Cause Title: Prameela Varghese v. Abraham Samuel (Neutral Citation: 2026:KER:57049)

Appearances:

Appellant: Advocate G. Sreekumar.

Respondent: Advocates B.S. Swathi Kumar, Harisankar N. Unni and Anitha Ravindran.

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