A cheque bearing an admitted signature may ordinarily trigger the statutory presumption of a legally enforceable debt. But what happens when the accused establishes that the same cheque had been reported lost more than a year before the alleged loan transaction? The Karnataka High Court confronted this question in Sri Muniraju v. Sri S Devaraj (CRL.RP No. 1600 of 2024), where a ₹10 lakh cheque dishonour prosecution rested on an alleged cash loan that the complainant could neither convincingly explain nor financially substantiate.
Setting aside two concurrent judgments of conviction, Justice Geetha K.B. found that the courts below had placed excessive reliance on the presumptions under Sections 118 and 139 of the Negotiable Instruments Act, 1881, while overlooking material evidence that undermined the alleged transaction. The case turned not merely on the accused’s denial of liability, but on earlier complaints regarding missing cheque books, contradictions in the complainant’s testimony and the absence of credible proof of financial capacity.
The judgment, delivered on 17 October 2026, illustrates the limits of statutory presumptions in cheque dishonour proceedings and the circumstances in which a revisional court may intervene to correct a conviction founded on an erroneous appreciation of evidence.
A ₹10 Lakh Loan, a Dishonoured Cheque and a Disputed Transaction
The controversy originated from an alleged financial transaction between Sri S Devaraj, the complainant, and Sri Muniraju, the accused, who was described as an employee of the postal department.
According to the complainant, the parties were family friends and had known each other for several years. On 10 September 2021, the accused allegedly approached him seeking financial assistance for family requirements and legal necessities.
The complainant claimed that he advanced a hand loan of ₹10,00,000 on 25 September 2021, on the understanding that the amount would be repaid within two months.
Towards repayment of the alleged loan, the accused purportedly issued cheque No. 368127 dated 20 December 2021, drawn on Cauvery Grameena Bank, Kulkunte Branch.
The complainant presented the cheque for encashment through Pragathi Krishna Grameena Bank, Chintamani Branch, on 21 December 2021. However, the cheque was dishonoured, with the bank endorsement dated 22 December 2021 recording “insufficient funds”.
Following the dishonour, the complainant issued a legal demand notice dated 6 January 2022, calling upon the accused to pay the cheque amount within 15 days.
The notice sent to the accused’s residential address was returned as unclaimed, while the notice addressed to his office was returned with the endorsement insufficient address.
As the amount remained unpaid, the complainant instituted criminal proceedings under Section 138 of the Negotiable Instruments Act on 8 February 2022.
The Principal Civil Judge and JMFC, Chintamani, convicted the accused on 5 September 2023, holding that he had failed to rebut the statutory presumptions available in favour of the complainant.
The conviction was subsequently confirmed by the II Additional District and Sessions Judge, Chikkaballapur, sitting at Chintamani, in Criminal Appeal No. 61/2023 on 9 September 2024.
Aggrieved by the concurrent findings, the accused approached the Karnataka High Court through a criminal revision petition.
The principal defence raised by Muniraju was that he had never borrowed any amount from Devaraj and that the complainant was a complete stranger to him.
More importantly, he asserted that the disputed cheque formed part of a cheque book that had been lost in 2020, considerably before the alleged loan transaction.
According to the accused, while travelling on a two-wheeler on 20 June 2020, he lost certain banking documents, including cheque books, passbook and ATM cards.
To substantiate his defence, he relied upon a complaint dated 22 June 2020, addressed to Bellanduru Police Station and marked as Ex.D.2, concerning the loss of those documents.
He also produced a communication dated 2 November 2020, addressed to Cauvery Grameena Bank, Kulkunte Branch, requesting that the missing cheque leaves and ATM card be blocked.
The bank communication, marked Ex.D.1, contained particulars of 44 missing cheque leaves belonging to three cheque books. Significantly, the disputed cheque was included among the cheque numbers mentioned in the document.
The accused, therefore, contended that the cheque had already been reported lost before the alleged loan was advanced in September 2021.
The complainant disputed the defence documents, arguing that the interval between the police complaint and the bank communication raised doubts regarding their authenticity.
He also questioned why the accused would have been carrying three cheque books containing 44 cheque leaves and pointed out that the bank had returned the cheque for insufficient funds rather than recording that it had been blocked.
However, the High Court found that the evidence concerning the reported loss of the cheque books had not been effectively disputed during the proceedings.
Statutory Presumptions Under Sections 118 and 139 Are Rebuttable
The High Court examined the requirements of Section 138 of the Negotiable Instruments Act and the presumptions available to the holder of a dishonoured cheque.
The Court observed that the offence under Section 138 requires the existence of a legally enforceable debt or other liability for which the cheque was drawn, apart from compliance with the statutory requirements concerning presentation, dishonour, demand notice and failure to make payment.
Under Section 118 of the NI Act, a presumption arises concerning consideration in relation to a negotiable instrument. Section 139 provides a statutory presumption that the cheque was received towards discharge, wholly or partly, of a legally recoverable debt or liability.
The Court emphasised that these presumptions are rebuttable. In the present case, the accused did not dispute that the cheque belonged to his bank account or that it contained his signature.
The High Court also found that the statutory requirements relating to presentation of the cheque, dishonour and issuance of the demand notice had been satisfied.
Although the notice sent to the accused’s residential address was returned as unclaimed, the Court held that there was deemed service because the address mentioned in the notice corresponded with the address appearing in the accused’s evidence and documents.
Accordingly, the presumptions under Sections 118 and 139 initially operated in favour of the complainant. However, the Court clarified that the accused could rebut those presumptions by replying to the legal notice, cross-examining the complainant, producing defence evidence or employing all these methods.
In the present case, Muniraju had not replied to the legal notice, maintaining that he had not received it. The Court nevertheless examined the defence raised through cross-examination and documentary evidence.
The High Court noted that Ex.D.1 contained details of the missing cheque leaves, including the cheque involved in the prosecution.
The complainant had argued that the bank communication did not bear the signature of a banking authority. However, upon examining the document, the Court found an endorsement directing that the cheques be blocked, together with the signature of a banking official and the bank’s round seal.
The Court also considered the manner in which the accused had been cross-examined. Although the complainant’s counsel had extensively cross-examined Muniraju, no specific suggestion was put to him denying that he had lodged complaints with the bank and police concerning the missing cheque books.
Consequently, the High Court found that the lodging of those complaints had been established. The Court also addressed the complainant’s argument that the cheque had been dishonoured for insufficient funds rather than because it was blocked.
Despite this discrepancy, the High Court observed that the fact concerning the reported loss of the cheque had not been seriously disputed.
Another circumstance considered by the Court was the appearance of the disputed cheque. It noticed that the accused’s signature appeared on both sides of the instrument and that the signatures and other particulars were written in different ink.
These circumstances were examined alongside the documentary evidence concerning the missing cheque books. The Court’s findings did not establish how the disputed cheque subsequently came into the complainant’s possession. Rather, the evidence relating to its reported loss formed an important part of the accused’s defence against the alleged financial liability.
Contradictions in the Complainant’s Evidence and Failure to Establish Financial Capacity
Apart from the documentary evidence concerning the missing cheque, the High Court examined several inconsistencies in the complainant’s testimony.
Devaraj claimed that he had known Muniraju for approximately five or six years. However, he could not clearly explain how the acquaintance began.
He subsequently stated that he had come into contact with the accused through a person named Anand, but Anand was not examined as a witness.
The complainant also claimed to have spoken with the accused over the telephone on several occasions during their acquaintance. Despite stating that he could produce supporting documents, no records of those communications were placed before the Court.
The High Court further noted that the accused resided in Kalkunte village, whereas the complainant resided in Chintamani, approximately 70 kilometres away.
Another important contradiction concerned the place where the alleged loan had been advanced.
During cross-examination on 31 March 2023, the complainant stated that the accused had never visited his house.
However, during further cross-examination on 11 July 2023, he claimed that he had advanced money to the accused at his house.
The Court questioned how the complainant could have advanced money to the accused at his residence when he had earlier stated that the accused had never visited it.
The complainant also lacked clarity regarding the accused’s employment.
Although he had described Muniraju as a Central Government employee, he could not state whether the accused was a regular or contractual employee when questioned during cross-examination.
The High Court considered this lack of knowledge significant because the complainant claimed to have advanced a substantial amount without obtaining documentary proof.
The complainant’s financial capacity was another important issue.
According to Devaraj, he had advanced ₹10 lakh entirely in cash. However, during cross-examination, he admitted that his monthly income was approximately ₹40,000 to ₹50,000.
The Court also noted that the complainant was not an income-tax assessee and had not obtained a licence to conduct his business.
Despite the accused specifically challenging his financial capacity, the complainant made no satisfactory effort to establish that he possessed sufficient funds to advance the alleged loan.
In paragraph 42, the High Court observed:
“Mere denial of financial capacity is not sufficient but some cogent evidence is to be produced”
The Court found that, in the present case, the accused had elicited material concerning the complainant’s financial capacity through cross-examination.
The complainant, however, failed to satisfactorily establish his ability to lend ₹10 lakh.
The High Court also referred to RBI guidelines and the provisions of the Income-tax Act, 1961, concerning transactions exceeding ₹2 lakh.
In paragraph 41, the Court noted that although the alleged loan amounted to ₹10 lakh, the complainant claimed to have advanced the entire amount in cash.
This circumstance was considered along with the other evidence concerning the alleged transaction and the complainant’s financial capacity.
The Court further noted that the complainant claimed to have advanced ₹10 lakh without obtaining any documentary acknowledgment from the accused.
According to his testimony, the cheque was received approximately two to two-and-a-half months after the alleged advancement of money.
The High Court also considered that the complainant did not know the reason for the borrowing or the accused’s employment structure.
In paragraph 43, the Court observed:
“Without knowing the financial capacity of borrower nobody would lend money.”
Considering these circumstances, the High Court concluded that the accused had successfully rebutted the presumptions operating in favour of the complainant.
The Court recorded:
“These facts clearly establishes that the accused has rebutted the presumptions available in favour of the complainant.”
It further observed that, after such rebuttal, the complainant had not produced evidence to prove his contention.
Thus, the Court found that the complainant had failed to establish the alleged loan after the accused successfully challenged the statutory presumptions through the evidence on record.
High Court Finds Gross Errors in Concurrent Judgments of Conviction
The High Court also examined whether interference with the concurrent judgments of conviction was permissible in revisional jurisdiction.
Justice Geetha K.B. acknowledged that the scope of revisional jurisdiction is limited and that a revisional court ordinarily cannot undertake a fresh appreciation of evidence merely because another conclusion may be possible.
In this regard, the Court relied upon the Supreme Court’s decision in Kuntegowda vs Thurubaiah, Criminal Appeal No. 3654 of 2026, decided on 4 August 2026 and reported as 2026 SCC OnLine SC 1485.
The Supreme Court judgment, as reproduced in the High Court’s decision, explained that interference in revision is permissible where the findings of the lower courts are perverse, grossly erroneous, glaringly unreasonable, wholly unreliable or untenable in law.
It also recognised interference where the lower courts have considered irrelevant material, failed to consider relevant evidence or exercised judicial discretion arbitrarily.
Applying these principles, the Karnataka High Court found that the Trial Court and Appellate Court had failed to properly appreciate the evidence elicited during the complainant’s cross-examination.
In particular, the courts below had not adequately considered the complainant’s financial capacity and his knowledge of the accused’s employment structure.
The High Court also examined the documentary evidence concerning the loss of cheque books and the circumstances in which the accused had challenged the alleged loan.
The Court concluded that the judgments of the courts below suffered from serious errors in the appreciation of evidence and the application of the statutory presumptions under Sections 118 and 139 of the NI Act.
In paragraph 45, the High Court described the judgments as:
“grossly erroneous and wrong appreciation of evidence”
The Court further found that the reasoning adopted by the Trial Court and Appellate Court was wholly unreliable and untenable because of their incorrect appreciation of the statutory presumptions and the material available on record.
Accordingly, the High Court held that the case warranted interference in revisional jurisdiction.
The Court’s decision was based on its finding that the accused had successfully rebutted the presumptions, while the complainant had failed to establish the alleged financial liability after such rebuttal.
Karnataka High Court Sets Aside Conviction and Acquits Accused
Having examined the evidence and the findings recorded by the courts below, the Karnataka High Court concluded that the accused had successfully rebutted the presumptions under Sections 118 and 139 of the Negotiable Instruments Act.
The Court found that the evidence concerning the reported loss of the cheque books, contradictions in the complainant’s testimony and the failure to establish financial capacity had not been properly appreciated.
It further held that the complainant had failed to prove the alleged loan after the accused rebutted the statutory presumptions.
Consequently, by judgment dated 17 October 2026, the High Court allowed Criminal Revision Petition No. 1600 of 2024.
The Court set aside the judgment of conviction and order of sentence dated 5 September 2023 passed by the Principal Civil Judge and JMFC, Chintamani, in CC No. 84/2022.
It also set aside the judgment dated 9 September 2024 passed by the II Additional District and Sessions Judge, Chikkaballapur, in Criminal Appeal No. 61/2023.
The accused, Sri Muniraju, was acquitted of the offence punishable under Section 138 of the Negotiable Instruments Act.
The High Court further directed that the amount deposited in connection with the proceedings be refunded to the accused upon proper identification.
The judgment reiterates that although Sections 118 and 139 provide statutory presumptions in favour of the holder of a cheque, those presumptions remain subject to rebuttal through evidence.
In the present case, the accused relied upon complaints concerning the loss of his cheque books and the evidence elicited during cross-examination to challenge the alleged liability.
The High Court found that these circumstances successfully rebutted the presumptions and that the complainant had failed to establish the alleged ₹10 lakh loan thereafter.
The decision consequently affirms that a conviction under Section 138 of the Negotiable Instruments Act cannot be sustained solely on statutory presumptions once they have been successfully rebutted and the complainant fails to prove the underlying debt.