Is a Bounced Blank Signed Cheque Still a Crime?

Bir Singh was an income tax practitioner. Mukesh Kumar was his client. Bir Singh's case was that he had advanced Mukesh a "friendly loan" of Rs. 15 lakh. In return, Mukesh issued Cheque No. 034212 dated March 4, 2012, drawn on Axis Bank, Palwal.

Bir Singh deposited the cheque on April 11, 2012. It came back unpaid with the endorsement "Insufficient Fund."

Bir Singh says Mukesh then assured him there would be enough money in the account. He presented the cheque again on May 23, 2012, and it bounced again for the same reason. On June 15, 2012, his lawyer sent a legal notice by registered post. Mukesh neither replied nor paid. Bir Singh then filed Case No. 106 of 2012 before the Judicial Magistrate 1st Class, Palwal, under Section 138.

Mukesh's defence had a few strands. He admitted the signature. His claim was that Bir Singh had misused a blank signed cheque that was handed over only for depositing income tax. He also relied on their professional relationship, and the High Court later noted there was no written record or receipt of the loan. But Mukesh also admitted that his taxes were paid in cash, and that Bir Singh used to take that cash from him.

The Palwal Magistrate convicted Mukesh on February 9, 2015. He was given one year's simple imprisonment and told to pay Rs. 15 lakh as compensation within one month. On February 20, 2016, the Additional Sessions Judge, Palwal, upheld the conviction and the compensation but cut the jail term to six months.

The High Court of Punjab & Haryana at Chandigarh then reversed both courts on November 21, 2017, and acquitted Mukesh. It held that because of the client-practitioner relationship, a "heavy burden" lay on Bir Singh. In its view, he had to prove he advanced the loan and that the blank cheque was given for it. It also pointed out that the loan was not shown in Bir Singh's income tax return. Mukesh had gone into the witness box, and a defence witness, Praveen Kumar, supported his version. Bir Singh challenged that acquittal in the Supreme Court.

The Supreme Court framed two questions. Could a High Court, in revision, overturn the concurrent factual findings of two lower courts without any perversity or jurisdictional error? And does a payee lose the benefit of the Section 139 presumption just because he is in a fiduciary relationship with the person who drew the cheque?

Both lower courts had found that Mukesh admittedly signed the cheque. They had also rejected his misuse story because of his own admission about paying taxes in cash.

Section 139 says it "shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability." The Court called this a presumption of law, not merely of fact. It is rebuttable, but the burden of rebutting it sits on the person who drew the cheque.

The Court also said presumptions do not clash with the presumption of innocence. It added, as held in Hiten P. Dalal v. Bratindranath Banerjee, that the prosecution's obligation may be discharged with the help of presumptions of law and presumptions of fact "unless the accused adduces evidence showing the reasonable possibility of the non-existence of the presumed fact."

The Court answered both questions "no." The High Court should not have re-analysed the evidence in revision when no perversity was shown. It was also wrong to place the burden on Bir Singh, and it had misconstrued Section 139.

Reading Sections 20, 87 and 139 of the Act together, the Court held that a person who signs a cheque and hands it to the payee stays liable unless he leads evidence to rebut the presumption. On the central point it said:

The Court also held that a signed, unfilled cheque voluntarily handed over towards some payment does not become invalid when the payee fills in the amount and other particulars. It added that there was no finding that the cheque was not signed by Mukesh or not voluntarily made over to Bir Singh. There was also no evidence about the circumstances in which a blank signed cheque had been given. In that situation, it said, it may reasonably be presumed that Bir Singh, as payee, filled in the cheque in the presence of Mukesh, the drawer, at his request and/or with his acquiescence. No change in amount, date or payee had been shown, so the later filling in was not an alteration.

• Closed loophole 1: A drawer cannot escape by pointing out that someone else wrote the amount. If he signed it and handed it over voluntarily, the presumption applies and he must prove it was not for a debt or liability.
• Closed loophole 2: A fiduciary or client relationship does not cancel the payee's benefit of Section 139. Only evidence of undue influence or coercion could change that. The Court also said it made no difference that the payee was an income tax practitioner, or that the loan was not advanced by cheque or demand draft or backed by a receipt.

On the sentence, the Court confirmed the conviction but imposed only a fine, enhanced to Rs. 16 lakh, payable as compensation to Bir Singh. The fine had to be deposited in the Trial Court within eight weeks. Otherwise the one-year imprisonment imposed by the Trial Court would revive.

• Gather first: the original cheque, the bank's return endorsement (here, "Insufficient Fund"), the dates of each presentation, the lawyer's notice with proof of registered-post delivery, and any reply or silence from the drawer. The Section 138 proviso quoted in the judgment requires presentation within six months of the cheque's date or within its validity, whichever is earlier. It also requires a written demand within thirty days of the bank's information about the return, and gives the drawer fifteen days from receipt of that notice to pay.
• Where to go: Bir Singh filed his complaint before the Judicial Magistrate 1st Class at Palwal, under Section 138 of the Negotiable Instruments Act.
• If you are the drawer: a bare denial is not enough. The Court recalled that the accused must prove by cogent evidence that there was no debt or liability. Mukesh's "misused for tax deposit" plea failed because he admitted paying taxes in cash and said Bir Singh used to take that cash from him.
• Mistake to avoid: do not assume that the lack of a loan receipt, a client relationship, or the fact that someone else wrote the amount defeats the payee's case. That reasoning led the High Court to acquit, and the Supreme Court called it wrong.