Appeal
Complainant preferred this appeal
2. On a complaint filed under Section 138 of the Negotiable Instruments Act, 1881, learned Metropolitan Magistrate on being satisfied that there was prima-facie material to proceed against the second respondent issued process on 17th June 2022. The second respondent invoked the revisional jurisdiction of the Sessions Court for challenging the said order. The Sessions Court was of the view that on the date of issuance of the cheque in question, there was no legally enforceable debt to be satisfied by the drawer. By the order dated 30th December 2022, it set aside the order passed by the learned Metropolitan Magistrate issuing process. The complainant approached the High Court of Bombay by filing a writ petition under Article 227 of the Constitution of India and challenged the order passed by the Sessions Court. The learned Single Judge, however, dismissed the writ petition observing that no error of jurisdiction was found in the impugned order. Being aggrieved, the complainant has challenged the aforesaid orders in this Criminal Appeal.
Facts
3. Shorn of necessary details, the facts relevant for considering the challenge as raised are that it is the case of the appellant that she had some disputes with her husband, Mr. Ashwin Natwarlal Sheth in the matter of alleged illegal and fraudulent transfer of shares pertaining to Sheth Developers and Realtors (India) Limited and Sheth Developers Private Limited. She had filed various complaints after which her husband commenced negotiations for amicable settlement of the disputes. On 12th January 2022, a final draft settlement agreement was finalised and drawn up between the parties. One of the terms of the settlement was that the appellant’s husband would gift to the appellant the fifth, sixth and seventh floor premises of Natwar Bungalow along with interest in a plot located in a Co-operative Housing Society. He also agreed to pay the appellant a sum of ₹50 crores on executing a Declaration-cum Indemnity document so as to withdraw the complaints filed by her against her husband. With a view to safeguard the interest of the appellant, the second respondent, who was a close friend of the appellant’s husband, agreed to act as a mediator and to keep the amount of ₹50 crores in an escrow account till the actual payment was made by the appellant’s husband. Accordingly, on 12th January 2022, the second respondent issued Cheque No.080261 for an amount of ₹50 crores in favour of the appellant. The appellant claims to have signed the document titled as Declaration cum-Indemnity on 13th January 2022. It is the further case of the appellant that the sale of shares of the concerned entity was completed contrary to the settlement agreement and the appellant’s husband received the sale consideration. The appellant accordingly deposited the cheque that had been issued by the second respondent for encashment. However, on 06th April 2022, the said cheque was dishonoured and returned with the remark ‘payment stopped by drawer’. The appellant, on 20th April 2022, issued a notice under Section 138 of the N.I. Act to the second respondent. The said notice was replied by the second respondent on 04th May 2022, denying any liability to make such payment. The appellant gave her further reply to the second respondent and again called upon him to make the necessary payment. Since no further steps were taken by the second respondent, the appellant on 16th June 2022 filed a complaint against the second respondent under Section 138 of the N.I. Act.
Analysis
Both the High Court and the Revisional (sessions) court were not right in dismissing the complaint in the pretrial stage
6. We have heard the learned Senior Advocates appearing for the parties at length and we have also perused the relevant documentary material on record. Having given due consideration to the rival submissions, we are of the view that the Sessions Court as well as the High Court were not justified in coming to the conclusion that the complaint as filed by the appellant under Section 138 of the N.I. Act was liable to be dismissed at the pretrial stage on the ground that the cheque issued by the second respondent was not towards any legally enforceable debt.
Perusal of the complaint shows that the prima facie ingredients are satisfied under section 138 N.I Act
7. Perusal of the complaint filed by the appellant under Section 138 of the N.I. Act indicates reference to an amicable settlement of various disputes between the appellant and her husband, pursuant to which the appellant’s husband executed a registered irrevocable Power of Attorney dated 10th December 2022 in favour of the appellant. It was agreed under the settlement agreement that the appellant’s husband would transfer by way of gift three properties and also pay an amount of ₹50 crores on the execution of a Declaration-cum Indemnity document. In reciprocation, complaints made by the appellant as regards fraudulent transfer of her shares in two companies were to be withdrawn. To ensure execution of the Declaration-cum-Indemnity document, the second respondent acted as a guarantor and issued the cheque in question drawn in favour of the appellant. The appellant accordingly signed the Declaration-cum Indemnity document on 13th January 2022. On getting knowledge of the sale of certain shares contrary to the settlement agreement, the appellant presented the cheque issued by the second respondent for being honoured. It has been further stated that said cheque was dishonoured with the remark ‘payment stopped by drawer’. A reference is thereafter made to the issuance of a statutory notice under Section 138 of the N.I. Act dated 20th April 2022, its service on the second respondent and his reply dated 04th May 2022 denying any liability. Accordingly, the said complaint came to be filed by the appellant. The appellant’s statement was duly verified by the learned Metropolitan Magistrate and on being prima facie satisfied that the ingredients of Section 138 of the N.I. Act were present, process came to be issued to the second respondent.
Statutory presumption under section 139 N.I Act cannot be removed in a summary manner
8. It is to be borne in mind that at the stage of issuance of process by the learned Metropolitan Magistrate, what is prima facie required to be seen is the issuance of cheque by the drawer in favour of the complainant, its dishonour on presentation by the payee, issuance of statutory notice under Section 138 of the N.I. Act and filing of the complaint within the prescribed statutory period. If the drawer does not dispute issuance of such a cheque nor does he deny his signature on the dishonoured cheque, the statutory presumption as contemplated under Section 139 of the N.I. Act comes into play. As a result, the burden would shift on the drawer of the cheque to prove that the cheque was not issued for any legally enforceable debt or liability. This exercise has to be undertaken during the trial either by relying upon the material brought on record by the complainant or by the drawer leading evidence in rebuttal. At the stage of issuance of process, the statutory presumption under Section 139 of the N.I. Act cannot be dislodged in a summary manner merely by contending that the cheque issued was not for any legally enforceable debt or liability.
Reference of Rangappa vs. Sri Mohan and Rajesh Jain vs. Ajay Singh cases
9. We may in this regard refer to two decisions of this Court that have reiterated the view that once the basic ingredients of Section 138 of the N.I. Act are duly satisfied by the complainant, the rebuttal of statutory presumption by the drawer can only be made during the course of trial. In Rangappa Vs. Sri Mohan, it has been explicitly reiterated that the presumption mandated by Section 139 of the N.I. Act includes the presumption as regards existence of a legally enforceable debt or liability. It has been held that Section 139 is an example of a reverse onus clause that has been included in furtherance of the legislative object of improving the credibility of negotiable instruments. The presumption is rebuttable and the accused can raise a defence wherein the existence of a legally enforceable debt or liability can be contested.
The ingredients of section 138 NI Act were satisfied to the extent of issuance of process; thus, it is unjustified to set aside the summoning order
10. A perusal of the revisional order passed by the learned Judge of the Sessions Court indicates that he has given much importance to the fact that the agreement dated 12th January 2022 was not signed by the second respondent and, hence, the issuance of the cheque in question was not for any enforceable debt. He also appears to have given importance to the dispute between the appellant and her husband by stating that it was a matrimonial dispute and civil litigation between the said parties was pending in various Courts. In our view, the learned Judge misdirected himself when he proceeded to give more weightage to the document dated 12th January 2022 and in the process, ignored the fact that the basic ingredients for attracting the provisions of Section 138 of the N.I. Act had been duly satisfied by the appellant, at least for issuance of process. The drawing of the cheque by the second respondent, its presentation and subsequent dishonour at the instructions of the second respondent is not in dispute. The second respondent does not also dispute that he had issued the said cheque and that it was duly signed by him. The issuance of statutory notice as well as filing of the complaint within the prescribed period are also not in dispute. In such a situation, when the basic ingredients of Section 138 stand duly satisfied and the statutory presumption under Section 139 gets triggered, coming to a conclusion that the cheque was not issued for a legally enforceable debt at the pre-trial stage itself without granting an opportunity to the complainant to substantiate her case by leading evidence would amount to ignoring the statutory presumption that the cheque had been issued for a legally enforceable debt or liability. As a consequence, the presumption under Section 139 of the N.I. Act gets washed away even prior to commencement of the trial. We are of the view that in the facts of the present case, the dismissal of the complaint as a consequence of setting aside the order issuing process is totally unjustified in the absence of any material being brought on record by the second respondent to rebut the statutory presumption and prove his contention that the cheque was issued not towards any enforceable debt or liability.
Conclusion
Complaint has been restored to determine the question of fact during the trial
Since we are inclined to restore the complaint for being tried on merits, it is not necessary to deal with the decision in Sunil Todi and others (supra) in detail. Suffice it to observe that even in the said decision, it has been held that disputed questions as regards existence of outstanding liability are questions of fact that have to be determined at the trial on the basis of evidence.
Both the Sessions and High Courts orders were set aside
11. For all these reasons, we are of the view that the learned Judge of the Sessions Court committed an error in setting aside the order dated 17th June 2022 passed by the learned Metropolitan Magistrate issuing process under Section 138 of the N.I. Act. The High Court also fell into error in upholding the order passed by the learned Sessions Judge. Accordingly, both the aforesaid orders are set aside. The complaint filed by the appellant being CC1831/SC/2022 stands restored for its adjudication on merits.
We clarify that the complaint shall be decided on its own merits and in accordance with law after giving due opportunity to all parties concerned. Any observations made in this judgment shall not be construed as an expression of opinion on the merits of the said case.
References
Judgment cited or involved
- Sunil Todi and Others vs. State of Gujarat and Another (2021 INSC 823): Cited by both the appellant and the respondent regarding whether a cheque issued for a liability dependent on an unfulfilled event constitutes a legally enforceable debt. The Supreme Court noted that this case clarifies that disputed questions of outstanding liability are facts to be determined at trial.
- Rangappa vs. Sri Mohan (2010 INSC 289): Quoted to reiterate that the presumption under Section 139 includes the existence of a legally enforceable debt and serves as a “reverse onus clause” to improve the credibility of negotiable instruments.
- Rajesh Jain vs. Ajay Singh (2023 INSC 888): Extensively quoted to explain that once the issuance of a cheque is admitted or proven, the court “shall presume” it was for the discharge of a debt, shifting the evidential burden to the accused.
- Bharat Barrel vs. Amin Chand ((1999) 3 SCC 35): Cited within the Rajesh Jain excerpt regarding the activation of the presumptive clause when the execution of a negotiable instrument is established.
Acts and Sections
Negotiable Instruments Act, 1881 (N.I. Act)
- Section 138: This is the core provision regarding the “Dishonour of cheque for insufficiency, etc., of funds in the account.” It establishes the criminal liability for a drawer when a cheque is returned by the bank unpaid.
- Section 139: This section creates a rebuttable statutory presumption in favor of the holder of the cheque. It mandates that, unless the contrary is proved, it shall be presumed that the holder received the cheque for the discharge of a debt or liability.
- Section 118: Cited via the Rajesh Jain precedent, this section provides a general presumption that every negotiable instrument was made or drawn for “consideration.
Constitution of India
- Article 227: This Article pertains to the “Power of superintendence over all courts by the High Court.” The appellant had originally approached the High Court of Bombay under this Article to challenge the Sessions Court’s order that had set aside the trial court’s proceedings.
Summary of Legal Application
The Supreme Court clarified that at the pre-trial stage (issuance of process), the Magistrate only needs to see if the basic ingredients of Section 138 are met. Once issuance and signatures are not in dispute, the presumption under Section 139 triggers automatically. The burden then shifts to the accused to disprove the “legally enforceable debt” during the actual trial, not before it.
Party
Renuka vs. The State of Maharashtra and Another - Criminal Appeal No. of 2026 (@SLP (CRL.) NO.7829 OF 2023) - 2026 INSC 327 - April 7, 2026 – Hon’ble Mr. Justice J.K. Maheshwari and Hon’ble Mr. Justice Atul S. Chandurkar.
Author’s note
Step-by-step fact of this case
To understand this case, first understand the parties involved; wife (Renuka-complainant), her husband (Ashwin-no role but the entire case revolves around him), and the husband’s friend (the Mediator-accused).
Here are the facts in step-by-step:
1. The Family Dispute
Renuka and her husband, Ashwin, had serious legal battles over property and shares in their family companies i.e., Sheth Developers. Renuka accused her husband of fraudulently transferring shares that belonged to her.
2. The Peace Treaty (The Settlement)
To stop the legal fighting, the couple negotiated a settlement on January 12, 2022. The deal was:
- Property: Ashwin would gift Renuka three floors of a bungalow.
- Cash: Ashwin would pay Renuka ₹50 crores.
- Renuka’s Part: In exchange, she had to sign a “Declaration-cum-Indemnity” and withdraw all her criminal complaints against him.
3. The Friend Steps In (The Guarantee)
Because Renuka likely didn’t trust her husband to pay the money, her husband’s close friend (the accused) acted as a mediator.
- To “safeguard” Renuka’s property, the friend issued a personal cheque for ₹50 crores from his own account.
- This cheque was meant to be held “in escrow” (as a security deposit) until the husband made the actual payment.
4. The Deal Breaks Down
On January 13, 2022, Renuka signed the required documents. However, she soon discovered that her husband was selling company shares behind her back, violating their agreement. Realising the deal was being damaged, she tried to cash the accused’s (mediator) friend’s ₹50 crore cheque.
5. The “Payment was Stopped” by the accused/mediator/husband’s friend
When the cheque hit the bank on April 6, 2022, it bounced. The friend had instructed the bank to “stop payment”. He argued that since he never signed the final settlement paper and the “deal” wasn’t officially finished, he didn’t owe her anything.
6. The Legal Battle
- Lower Courts: The Sessions Court and High Court agreed with the friend. They felt that since the settlement wasn’t fully executed, the cheque wasn’t for a “legally enforceable debt” and dismissed Renuka’s case.
- Hon’ble Supreme Court: This judgment changed everything. The Supreme Court ruled that because the friend admitted to signing and giving her the cheque, the law automatically presumes he owes the money.
