Court affirms presumption of legally enforceable debt despite contention of lost cheque and cash hand-loan, dismisses revision plea citing no perversity in concurrent findings
In a significant judgment dated September 30, 2026, the Bombay High Court, presided over by Justice M.M. Sathaye, dismissed a criminal revision application challenging the conviction and sentence imposed under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The case involved Manoj Punamchand Oswal (Revision Applicant/Accused) and Vijay Omkarmal Gandhi (Respondent/Complainant), wherein the accused was convicted for dishonour of cheque amounting to Rs. 8,50,000/-.
The background of the case is that the accused, a businessman dealing in woods and plywood, allegedly obtained a cash hand-loan of Rs. 8,50,000/- from the complainant, who was engaged in supplying building materials. The accused issued a cheque dated February 4, 2002, drawn on Muslim Co-operative Bank Ltd., Pune, which was dishonoured with the remark "refer to drawer." Despite issuing a demand notice, the accused failed to make payment, leading to prosecution under Section 138 of the NI Act.
The accused admitted the signature on the cheque but denied the loan transaction, claiming that he neither carried on any business nor had any service, and that the cheque was either lost or stolen and misused. The defence further contended that the cheque was issued in the name of Vijay O. Gandhi but deposited into a different account (Vijay Industries), thereby breaking the statutory chain required for prosecution. Additionally, objections were raised regarding the complainant's financial capacity and alleged illegality of the cash hand-loan under Income Tax provisions.
Justice Sathaye, after a detailed analysis, upheld the concurrent findings of the trial court and appellate court, emphasizing that in revisional jurisdiction, the High Court would not ordinarily reappreciate evidence unless perversity is shown. The court reiterated the settled legal position that once the execution or signature on the cheque is admitted, a statutory presumption arises under Sections 118 and 139 of the NI Act that the cheque was issued for discharge of a legally enforceable debt or liability. The burden then shifts to the accused to rebut this presumption on the balance of probabilities.
The court rejected the defence's inconsistent claims of the cheque being lost or stolen as insufficient to rebut the presumption. It also held that the remark "refer to drawer" on the dishonour memo is covered under Section 138, citing that insufficiency of funds is a genus which includes such reasons for dishonour. The argument about the cheque being deposited into a different account was negated by the bank witness's testimony that the cheque was credited to the complainant's account (Vijay O. Gandhi), maintaining the statutory chain.
Regarding the complainant's financial capacity, the court observed that the accused himself, through cross-examination, admitted the complainant had sufficient funds, including amounts kept at home and borrowed from his brother. The court also dismissed the contention that violation of Income Tax provisions rendered the debt unenforceable, referring to a recent Division Bench ruling in Prakash Madhukarrao Desai v. Dattatraya Sheshrao Desai (2023) which clarified that such violations do not affect the enforceability of debts under Section 138.
The judgment further clarified that the accused failed to establish a probable defence and that the proceedings were not a mere civil dispute converted into criminal prosecution. The court dismissed the revision application, canceled the accused's bail bond, and granted three weeks for surrender.
This decision reaffirms the strict approach towards cheque dishonour cases under the NI Act, emphasizing the importance of statutory presumptions and the limited scope of revisional interference in concurrent factual findings.
Bottom Line:
Negotiable Instruments Act, 1881 Section 138 Once signature on cheque is admitted, presumption under Sections 118 and 139 operates in favour of complainant - Mere plea that cheque was lost/stolen, without consistent and probable defence, is insufficient to rebut presumption - Dishonour with endorsement "refer to drawer" attracts Section 138 - Cash hand-loan, even if not reflected in income tax records or allegedly in violation of Income Tax provisions, does not by itself render debt unenforceable.
Statutory provision(s): Negotiable Instruments Act, 1881 Sections 118, 138, 139; Criminal Procedure Code, 1973 Sections 397, 401; Income Tax Act, 1961 Sections 269S, 271A
Manoj Punamchand Oswal v. Vijay Omkarmal Gandhi, (Bombay) : Law Finder Doc Id # 2989111
