Specific Loan Details Absent; Parties' Involvement in Ponzi Scheme Rebuts Presumption U/S 139 NI Act: Calcutta High Court Affirms Acquittal In Cheque Bounce Case

The Court highlighted that the absolute lack of documentation or specific loan details, paired with the active involvement of both parties as agents in a "Chit Fund" Ponzi scheme, strongly supported the defence’s stance that the blank cheques were meant for business promotion rather than the liquidation of a personal loan.

Holding that the respondent successfully met the threshold of a preponderance of probabilities to rebut the statutory presumption under Section 139 of the Act, the High Court determined that the onus had shifted back to the appellant, who failed to substantiate the transaction, thereby leading to the final dismissal of the criminal appeal.

The Bench of Justice Chaitali Chatterjee Das observed, “In the instant case the question was not about the source of fund but whether at all any amount was taken as a loan and the cheque were issued in discharge of any debt or liability. The issuance of the cheque was admitted and it is settled proposition of law that once the holder of a cheque received the cheque the evidential burden lies on the accused to prove that the cheque was not received by the Bank towards the discharge of any debt or liability. Apparently no date is disclosed either by the complainant or by the witness who in fact denied about witnessing anything .Therefore the factual aspect both the parties were engaged in a Ponzy scheme which raises the probability of issuance of the cheque for the purpose of their business and this court find substance in the view taken by the Learned Magistrate that presumption under Section 139 of the Negotiable Instrument Act cannot be said to be substantiated.”

Advocate Kusal Kumar Mukherjee appeared for the Petitioner, while Advocate Manas Kumar Das appeared for the Respondent.

Facts of the Case

The Appellant filed a criminal complaint against the Respondent under Section 138 read with Section 142 of the Negotiable Instruments Act, 1881, alleging the dishonour of two cheques. The Appellant and the Respondent shared a friendly relationship. Upon a personal necessity and request made by the Respondent, the Appellant advanced a friendly loan of a specified amount in good faith, which was paid in the presence of witnesses. The Respondent assured the repayment of the loan amount within three months. However, despite multiple demands made by the Appellant after the expiry of the stipulated period, the Respondent delayed the repayment on various pretexts.

The Appellant presented both cheques for encashment at the State Bank of India, but they were returned unpaid by the bank due to insufficient funds, and a return memo/certificate was issued to that effect. Since the respondent failed to make the payment despite the notice, the criminal case was initiated.

The Respondent surrendered before the Trial Court and obtained bail. The substance of the accusation under Section 251 of the Code of Criminal Procedure was read over and explained to the respondent, who pleaded not guilty and claimed to be tried. Following the completion of the complainant's evidence, the statement of the respondent was recorded under Section 313 of the Code of Criminal Procedure, and defence evidence was adduced. After hearing arguments, the Judicial Magistrate passed an order of acquittal, against which the present criminal appeal was preferred.

Contention of Parties

The Appellant contended that the respondent never denied the execution of the two cheques. Once the cheques were dishonoured, the statutory presumption under Section 139 of the Negotiable Instruments Act operated heavily in favor of the appellant, establishing that the cheques were issued toward a legally enforceable debt. It was submitted that the statutory demand notice was issued within the prescribed legal framework. The return of the notice with the endorsement "seven days absent" indicated that the respondent intentionally avoided service, which amounted to deemed service.

The appellant argued that the statutory presumption could only be rebutted through a reply to the demand notice or by leading cogent evidence during the trial. Since the respondent failed to do either to show that the cheques were not issued against an existing debt or liability, the initial burden was never discharged by the defence.

The Respondent argued that the Appellate Court must exercise extreme caution and restraint while interfering with an order of acquittal passed by the Trial Court. It was submitted that the appellant failed to produce any formal loan agreement or acknowledgement receipt regarding the transaction. Furthermore, it was argued that the appellant made material admissions during the proceedings, indicating that the cheques were issued for business promotion rather than the liquidation of a personal loan. In the examination under Section 313 of the Code of Criminal Procedure, the respondent categorically denied borrowing any money, thereby proving that the cheques were not issued in discharge of any legally enforceable debt or liability, which justified the order of acquittal.

Observations of the Court

The Court took note of the fact that both parties were actively engaged as agents in an unregistered financial business or Ponzi scheme ("Chit Fund"). It was observed that the cheques were highly probable to have been issued blank without dates as part of their mutual business operations to attract lower-tier investors, rather than toward the liquidation of a personal loan.

The Court observed that while an addressee's refusal to accept a notice creates a clear presumption of service, a return endorsement stating "seven days absent" due to non-availability or a locked premise does not automatically equate to deliberate or wilful evasion.

The Court remarked that the appellant failed to examine any witness from the postal department to prove that the endorsement was incorrect or that the respondent had knowingly avoided service.

Conversely, the Court observed that the respondent successfully established a plausible reason for his absence during the relevant period by leading defence evidence to prove that he had travelled to Siliguri to attend to his ailing mother.

The Court observed that the statutory presumption under Section 139 of the Act is a reverse onus clause that operates on the standard of a preponderance of probabilities. The accused is not required to discharge an unduly high or absolute standard of proof; raising a probable defence that creates a reasonable doubt regarding the existence of a legally enforceable debt is sufficient to defeat the prosecution.

“Therefore from the above it is a settled proposition of law as can be found that the cheque to be drawn by the drawer for discharge of any legally enforceable debt or other liability. Even if it is considered that in the instant case the cheques were issued by the respondent which were placed and it was dishonoured Section 138 of Negotiable Instrument Act cannot be attracted since the complainant/ appellant failed to prove that the cheque was drawn by the drawer for discharge of any enforceable debt or other liability”, the Court said.

The Court held that once the respondent brought on record attending circumstances showing that the existence of consideration was highly improbable, the onus shifted back heavily onto the appellant to prove the loan as a matter of fact, which the appellant failed to do.

The Court concluded, “Considering the nature of business in which both of them were engaged coupled with absence of any specific details of the loan when paid to the accused in absence of any agreement between the parties and non-service of demand notice upon the respondent who has primarily established his absence on the ground of the illness of his mother he never had any occasion to give the reply to the said notice and his denial in examination under Section 313 Cr.P.C. about taking any loan, gives this court to draw a statutory conclusion that the rebuttal is conclusively established.”

In conclusion, the High Court held that the essential ingredient of Section 138—that the cheque must be drawn for the discharge of a legally enforceable debt or liability—was not satisfied. Finding that the respondent conclusively established his rebuttal through his statement under Section 313 of the Code of Criminal Procedure, corroborative defence evidence, and the cross-examination of prosecution witnesses, the High Court found no merit in the appeal, affirmed the order of acquittal, and dismissed the criminal appeal.

Cause Title: Anup Agarwala v. Piyotosh Biswas [CRA 94 of 20214]

Appearances:

Petitioner: Advocate Kusal Kumar Mukherjee

Respondent: Advocate Manas Kumar Das, Aritra Kumar Thokdar and Prabal Das

Click here to read/download the Order