Complainant Has No Onus To Prove Financial Capacity At The Threshold : Supreme Court

Introduction

The Supreme Court of India reaffirmed in a landmark decision that complainants are exempt from demonstrating their ability to repay debts at the threshold stage of the trial under Section 138 of the Negotiable Instruments Act, 1881.  In Ashok Singh v. State of Uttar Pradesh & Anr., the Supreme Court reversed a High Court ruling and upheld the accused’s conviction for dishonour of cheque, reinforcing this principle.

The decision given by a Bench consisting of Hon’ble Justices Sudhanshu Dhulia and Ahsanuddin Amanatullah has upheld that the established legal presumption under Section 139 of the NI Act, which states that the court will assume that a check was written to pay a legally enforceable obligation or liability once the drawer acknowledges its issuance, unless the opposite is proven by the accused.

Background of the Case

The issue came before the Hon’ble Court when Ashok Singh, the appellant, claimed to have given the respondent a loan of ₹22 lakhs.  The respondent sent a check to cover this sum.  But when the check was brought to the bank, it was returned unpaid with the notation, “payment stopped by drawer.”

After this dishonor, the complainant demanded reimbursement in a legal notice sent within the 30-day window allowed by the NI Act.  However, a criminal complaint was filed under Section 138 of the NI Act because the respondent did not reply to the notice or pay the sum within the allotted 15 days.In the final outcome, the appellate court upheld the trial court’s conviction of the accused.  The Allahabad High Court, however, overturned these concurrent conclusions and cleared the accused by raising questions about the complainant’s ability to afford to contribute such a substantial amount.The appellant contested this reversal in front of the Supreme Court.

Legal Issues Before the Court

While considering the facts and issues in the present case, the Hon’ble Supreme Court noted that a pivotal issue which arises before the Bench is whether the complainant, at the very threshold of its proceedings under Section 138 of the Negotiable Instruments Act is required to prove his/her financial capacity in order to extend the loan, especially in cases wherein the accused has not raised any such defence in response to the statutory notice of demand.

Court’s Reasoning

Justices Sudhanshu Dhulia and Ahsanuddin Amanullah constituted the two-judge panel that overturned the High Court’s ruling and reinstated the trial court’s conviction, but with a different sentence. 

The court noted that the accused bears the burden of rebuttal because the statutory presumption under Section 139 of the NI Act is a strong one.  The court declared that at the threshold, it is not the complainant’s responsibility to demonstrate his ability or financial resources to make the payment for which the check is purportedly issued in his favour.The bench stated that the complainant cannot be expected to proactively lead evidence on that front from the beginning unless the accused expressly raises a defense—at least in response to the statutory demand notice—that the complainant lacked the financial capacity to lend money.

The respondent in this instance did not react to the statutory notice that was delivered in accordance with Section 138.  The court believes that the late-filed defense that the complainant lacks funds is inadmissible as a reason to place the initial burden on the complainant.The judgment delivered by Justice Amanullah overturned the High Court’s ruling and supported the appellant’s position that he could not be initially burdened with demonstrating his ability to pay his debts.  The Court underlined that the accused still bears this responsibility because they did not reply to the demand to provide proof that the complainant lacked the funds to make the loan and they did not refute the presumption of a legally enforceable debt.

The High Court erred in interfering with two concurrent findings of conviction that were issued by the lower courts, according to the Supreme Court.  The legal notice was sent on time, the accused did not provide any counter evidence, and the trial and appellate courts determined that the check was legitimately issued. The argument about the complainant’s financial capacity, on the other hand, was given excessive weight by the High Court—even though there was no pleading or supporting evidence.

The Supreme Court used its discretion to change the punishment while upholding the conviction.  The court ordered the accused to pay a fine of ₹32 lakhs within four months in lieu of upholding the jail term.  If payment is not received, the trial court’s initial sentence will be reinstated. As long as the complainant receives sufficient restitution, this change reflects the court’s recent tendency to prioritize monetary compensation above incarceration in cases involving bounced checks.

Conclusion

The established legal stance on the evidence burden in matters involving check dishonor is critically reaffirmed by this ruling. The court gives criminal procedures under the NI Act much-needed clarity and predictability by holding that a complainant need not prove financial competence unless the accused expressly disputes it.

Additionally, it cautions judges not to consider speculative defenses without supporting facts or evidence earlier than necessary, especially if the accused does not respond to statutory notices or provide significant rebuttal evidence during the trial.This modification reflects the court’s recent trend of focusing on monetary compensation in cheque bounce cases over imprisonment—provided the complainantreceivesadequate restitution. Additionally, in context of the Indian Judicial System where there is already an existing pendency of numerous matters before the Hon’ble Courts, such an expedited trial of 138 – NI cases would be beneficial for not only the accused but also those who seek recovery in monetary terms.

King Stubb & Kasiva,
Advocates & Attorneys

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