Reaffirming the Presumption of Legally Enforceable Debt under Section 138 of the NI Act

1. Introduction

This commentary examines the landmark judgment delivered by the Supreme Court of India in Ashok Singh v. State of Uttar Pradesh & Anr. (2025 INSC 427). The case revolved around a cheque dishonour dispute under Section 138 of the Negotiable Instruments Act, 1881 (“the Act”). The complainant (Ashok Singh, the appellant) alleged that the accused (respondent no.2) had borrowed a substantial sum of money and issued a cheque in discharge of this debt, which was later dishonoured upon presentation.

The Trial Court and the Appellate Court had concurrently found the accused guilty and imposed both imprisonment and fine. However, the High Court set aside the conviction, citing the complainant’s failure to produce evidence that established his financial capacity to lend the amount in question. The Supreme Court ultimately restored the conviction, albeit modifying the penalty. In doing so, it reaffirmed that once the statutory presumption under Section 139 of the Act is activated—by virtue of the accused’s admitted signature on the cheque—the burden to rebut that presumption falls squarely on the accused. This commentary explores the background, key issues, the judgment’s findings, and the legal analysis fostering this pivotal conclusion.

2. Summary of the Judgment

The Supreme Court had to decide whether the High Court was justified in overturning two concurrent findings of guilt rendered by the Trial Court and the Appellate Court under Section 138 of the Negotiable Instruments Act. The High Court had held that the complainant failed to prove his source of funds and capacity to lend money. Examining the record, the Supreme Court concluded that:

The statutory presumption of the debt’s existence is attracted under Section 139 of the Act once the cheque’s execution and signature are admitted.
The complainant is not required to prove his financial capacity at the outset, unless the accused raises a credible defence specifically challenging it.
The High Court improperly sought detailed documentary proof from the complainant regarding his bank account and timing of the withdrawal.
The accused’s version that the cheque was lost and that he had filed a missing report lacked credibility because of suspicious dates and circumstances.
The Supreme Court restored the conviction but modified the punishment to a fine of Rs.32,00,000/-, imposing imprisonment only if the accused defaulted on this payment.

3. Analysis

A. Precedents Cited

Several decisions were cited to analyze the scope of presumption under Section 138 of the Act:

BIR SINGH v. MUKESH KUMAR (2019) 4 SCC 197 and RAJESH JAIN v. AJAY SINGH (2023) 10 SCC 148: These cases highlight that once the drawer admits signature on the cheque, the presumption of debt or liability arises under Sections 118 and 139 of the Act, which the accused must rebut.
Kishan Rao v. Shankargouda (2018) 8 SCC 165: Clarifies that the onus of proving a “probable defence” lies on the accused, who must raise tangible evidence to shift the burden back to the complainant.
Utam Ram v. Devinder Singh Hudan (2019) 10 SCC 287: Emphasizes that speculative defences without corroborative evidence cannot rebut the strong statutory presumption favoring the complainant.
Aneeta Hada v. Godfather Travels and Tours Private Limited (2012) 5 SCC 661 and SMS Pharmaceuticals Ltd. v. Neeta Bhalla (2005) 8 SCC 89: Discuss the necessity of having the drawer of the cheque and/or the company or partnership firm as parties if the cheque is issued in the name of a corporate or firm. However, where the partner or director is the signatory (and the person “in charge”), the complaint is maintainable against them directly.
Rohitbhai Jivanlal Patel v. State of Gujarat (2019) 18 SCC 106: Reiterates that, unless the defence specifically challenges the financial capacity of the complainant, the complainant need not furnish elaborate evidence of his source of funds.
Tedhi Singh v. Narayan Dass Mahant (2022) 6 SCC 735: Explains that it is not the complainant’s initial burden to prove the capacity to lend; the responsibility shifts only if the defence meaningfully contests this issue.

B. Legal Reasoning

The Supreme Court reaffirmed the principle that Section 139 of the Act gives rise to a statutory presumption favoring the validity of the cheque, such that the cheque is presumed to have been issued in discharge of a legally enforceable debt. Once the drawer’s signature is admitted, there is prima facie evidence that the cheque was executed for consideration. Consequently:

The accused bears the onus of rebutting this presumption with a “probable defence”. A mere assertion that there was no debt is not sufficient; it must be supported by evidence such as bank statements, communication records, or other credible materials.
The Court found that the High Court’s insistence on the complainant proving at the outset the source of Rs.22,00,000/- reversed the burden of proof, contrary to the statutory presumption under Section 139.
The accused’s story that the cheque was lost, especially given the discrepancy in police report timing, did not amount to a “probable defence.”
The Supreme Court concluded that the High Court erred by equating the presumption under Section 139 with a civil-law requirement of proving every element of financial capacity in the first instance.

C. Impact of the Judgment

This decision reinforces the established doctrinal position that a cheque, once signed and presented, carries a strong presumption of legitimacy and that the duty to rebut such presumption shifts to the accused. Some immediate ramifications include:

Future complainants in cheque dishonour cases under Section 138 can rely on the presumption that a signed cheque was issued for a debt, without having to prove their financial capacity from the outset.
Accused individuals will need to produce more cogent evidence when claiming that no debt existed or that the cheque was lost, forged, or obtained under suspicious circumstances.
Trial and appellate courts are likely to adopt a more cautious approach in demanding proof of financial capacity from the complainant unless the accused raises a well-founded and supported challenge.
The judgment also clarifies that if the drawer is a partner of a firm or a key individual in charge, the proceeding under Section 138 can be maintained against that individual even if the business entity is not separately arrayed.

4. Complex Concepts Simplified

Under Section 138 of the Negotiable Instruments Act, when a cheque is dishonoured, the law presumes that it was issued for the valid repayment of a debt or liability (due and legally enforceable). This built-in assumption is referred to as a “statutory presumption.” Because the bank returns the cheque with a refusal to pay, the law steps in to protect the interests of the payee or holder of the cheque.

The accused (the drawer of the cheque) must then rebut this presumption—above a threshold of mere denial—by showing a believable or “probable” reason to question whether the debt truly existed. While the complainant must state sufficient facts to trigger the presumption, it does not require them to exhaustively prove how they acquired the money they lent (unless the accused convincingly disputes the complainant’s financial capacity). Hence, the law in effect places a higher burden on the drawer of a dishonoured cheque once signature and issuance are admitted.

5. Conclusion

The judgment in Ashok Singh v. State of Uttar Pradesh & Anr. (2025 INSC 427) reasserts the Supreme Court’s consistent stance that Section 138 of the Negotiable Instruments Act creates a robust presumption in favor of the payee. The judgment is significant for three primary reasons:

It reiterates that defendants (accused) must do more than simply deny the existence of the debt; they must produce credible, contrary material to rebut the presumption.
It underscores that courts should not insist on burdensome documentation from complainants unless the accused powers a genuine challenge concerning the complainant’s capacity to lend money.
It clarifies that liability for partners or directors can be direct if they are signatories or have direct charge of the firm’s or company’s affairs.

In sum, the Supreme Court’s decision not only corrects the misapplication of the burden of proof by the High Court but also serves as a guiding precedent ensuring the uniform application of the NI Act’s presumption in cheque dishonour cases. By simplifying the standard for establishing a legally enforceable debt and clarifying the threshold for rebuttal, this ruling will likely inform future judgments and promote consistency across courts in India.