Cheque Dishonour under S.138 of Negotiable Instruments Act, 1881 and Method to Rebut Presumption under S.139 of NI Act

Cheque Dishonour under Section 138 of Negotiable Instruments Act, 1881 and Method to Rebut Presumption under S.139 of NI Act

In an important case it was held that though security cheques are per se not shut out from the ambit of Negotiable Instruments Act but they are in the nature of an acceptance of the fact that in case “debt” crystallizes in to existence and becomes “in presenti”, nonetheless the background in which such security cheques are given are of relevance.

In this case accused had successfully rebutted the presumption under Section 139 of the NI Act, namely, the existence of a legally enforceable debt by establishing that the cheques were never given as security margin and no intimation was given to him about the use of such cheques.

Three Factor Test

For the application of provision of Section 138 of the NI Act, 3 ingredients are required to be satisfied, i.e., 

I. That there should be a legally enforceable debt; 

II. That the cheque should have been drawn from the account of the bank for discharge in whole or in part of any debt or other liability which pre-supposes a legally enforceable debt; and 

III.That the cheques so issued are dishonoured for insufficiency of funds. 

Holder of Cheque and Presumptions

Under Section 139 of NI Act, unless the contrary is proved, the holder of the cheque shall be presumed to have received the cheque in discharge of any debt or liability. 17. Sub-clause (a) of Section 118 of the NI Act, inter-alia, provides that unless the contrary is proved, the drawn up negotiable instrument, if accepted, has to be presumed to be for consideration. 

Provisions of section 138 to 142 of the NI Act, is for the purpose of giving credibility to negotiable instruments in business transactions. In view of section 139 of the NI Act, it had to be presumed that a cheque is always issued in discharge of any debt or other liability. The presumption could be rebutted by adducing evidence and the burden of proof is on the person who wants to rebut the presumption. 

Debt and Presumption under S.139

Section 139 of the NI Act merely raises a presumption in regard to the cheque having been issued in discharge of any debt or liability but not the existence per se of a legally recoverable debt. 

Section 139 of the NI Act includes the presumption regarding the existence of a legally enforceable debt or liability and that the holder of a cheque is also presumed to have received the same in discharge of such debt or liability.

Section 139 of the NI Act, 1881 is stated to be an example of a reverse onus clause which is in tune with the legislative intent of improving the credibility of negotiable instruments. Section 138 of the NI Act provides for speedy remedy in a criminal forum, in relation to dishonour of cheques.

Case : Varun Capital Services Ltd v. Rajesh Kumar [2015] GCtR 6664 (Delhi)