The Karnataka High Court (Bengaluru Bench) has asserted that the discrepancy regarding the denomination of currency notes allegedly used for the loan transaction is insufficient to dislodge the statutory presumption under Sections 118 and 139 of the NI Act. The Court found no material to disbelieve the complainant’s claim that he had sufficient means through agriculture, livestock-related activities, and family income sources to advance the loan amount.
The Court said that once the foundational requirements of Section 138 of the Negotiable Instruments Act are satisfied, the statutory presumptions under Sections 118 and 139 operate in favour of the complainant. These presumptions can be displaced only through credible and cogent rebuttal evidence.
Briefly, the case arose from a cheque dishonour complaint filed by Chikka Hanumanthappa against K. Venkataswamy under Section 138 of the Negotiable Instruments Act. According to the complainant, the accused had borrowed Rs. 2.5 lakh in October 2016 for family and legal necessities and issued a cheque towards repayment. When the cheque was presented for encashment, it was returned unpaid with the remark ‘funds insufficient’.
Despite receipt of a statutory demand notice, the accused neither paid the amount nor replied to the notice, leading to the filing of the complaint. The Trial Court convicted the accused under Section 138 NI Act and imposed a fine of Rs 3.5 lakh, with a default sentence of one year’s simple imprisonment. This conviction was subsequently affirmed by the Appellate Court.
A Single Judge Bench of Justice Geetha K.B. noted that the statutory presumptions available under Sections 118 and 139 of the NI Act operate in favour of the holder of the cheque once the foundational requirements of Section 138 are established. The burden then shifts to the accused to rebut those presumptions through credible evidence.
Examining the defence, the Court found that the accused had initially claimed that the cheque had been given to one Devaraju as security for another transaction. However, the evidence of Devaraju did not support this version and, in fact, contradicted the defence case. The Court therefore held that the documents and evidence relied upon by the accused failed to establish his defence.
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The Court further observed that the complainant’s financial capacity to advance the loan was not effectively challenged. The complainant had deposed that he earned income from agriculture and animal husbandry, while his son was employed as an engineer. Nothing substantial emerged in cross-examination to discredit his ability to lend the money. Moreover, the accused had not even raised this plea in his evidence and had not replied to the statutory notice.
The High Court also held that merely because the complainant stated during cross-examination that the loan amount was paid in Rs. 500 and Rs. 2,000 denomination notes during October 2016, when Rs. 2,000 notes were not yet in circulation, that discrepancy alone was insufficient to rebut the statutory presumption arising in favour of the complainant.
