Delhi High Court Upholds Acquittal in Cheque Bounce Case, Cites Defective Legal Notice and Probable Defence

New Delhi: The Delhi High Court has upheld the acquittal of a company in a cheque bounce case, emphasizing that a complaint under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) is not maintainable if the legal demand notice is vague and fails to demand the specific cheque amount. Justice Amit Mahajan, while dismissing the leave to appeal, affirmed that once an accused raises a probable defence, the burden shifts back to the complainant to prove the existence of a legally enforceable debt.

The ruling came in the case of Barun Bhanot vs M/s Annie Impexpo Marketing Pvt Ltd & Anr , where the petitioner challenged a 2017 trial court judgment acquitting the respondents.

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Background of the Case

The petitioner, Barun Bhanot, proprietor of M/s A. B. Consultants, filed a complaint alleging that M/s Annie Impexpo Marketing Pvt Ltd owed him ₹2,64,689 for consultancy services. In partial discharge of this liability, the company issued two cheques of ₹50,000 each. Both cheques were dishonoured with the remark "payment stopped."

After the company failed to pay despite a legal notice, the petitioner initiated proceedings under Section 138 of the NI Act. The Metropolitan Magistrate acquitted the respondents, citing two primary reasons: the legal notice was invalid, and the respondents had successfully raised a probable defence regarding the actual liability.

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Arguments Before the High Court

Petitioner's Counsel argued that the trial court erred by overlooking the statutory presumption under Section 139 of the NI Act, which arises once the issuance of the cheque is admitted. They contended that the respondents failed to rebut this presumption, and thus, the acquittal was unjustified.

Respondents' Counsel supported the trial court's decision, submitting that the complaint was fundamentally flawed due to an invalid legal notice. They highlighted that the notice vaguely demanded clearance of "all outstanding dues" instead of the specific cheque amount of ₹1,00,000. Furthermore, they argued that a probable defence was established by pointing out discrepancies in the complainant's accounts, such as double billing and inconsistencies in the total outstanding amount claimed.

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Court's Analysis and Legal Principles

Justice Mahajan conducted a thorough analysis of the legal requirements under the NI Act, focusing on the validity of the legal notice and the nature of the presumption of liability.

On the Validity of the Legal Notice

The Court underscored that Section 138(b) of the NI Act is a mandatory pre-condition for filing a complaint. It requires the payee to make a demand for "the said amount of money," which refers to the amount on the cheque.

The judgment quoted the Supreme Court in Rahul Builders v. Arihant Fertilizers & Chemicals , stating:

“An omnibus notice without specifying as to what was the amount due under the dishonoured cheque would not subserve the requirement of law…”

In the present case, the legal notice demanded the entire alleged outstanding due of ₹2,64,689, not the ₹1,00,000 covered by the two cheques. The Court noted, "The legal notice sent by the petitioner... does not qualify as a demand for money as is stipulated under Section 138 of the NI Act." This failure to comply with the statutory requirement was deemed a fatal flaw.

On Rebuttal of Presumption under Section 139

The High Court affirmed that while Section 139 creates a presumption in favour of the cheque holder, it is rebuttable. The accused only needs to raise a "probable defence" based on a "preponderance of probabilities."

The respondents successfully did so by: 1. Challenging the bills raised by the petitioner, alleging incorrect and double billing. 2. Highlighting a significant discrepancy: the complaint and legal notice claimed an outstanding amount of ₹2,64,689, whereas the petitioner's own documents produced in court showed the due amount as ₹2,43,982. The petitioner offered no explanation for this variance.

The Court observed:

"Once the accused successfully raises a probable defence to the satisfaction of the Court, his burden is discharged, and the presumption ‘disappears.’ The burden then shifts upon the complainant, who then has to prove the existence of such debt as a matter of fact."

Since the respondents had dislodged the presumption, the onus was on the petitioner to independently prove the debt, which he failed to do.

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Final Decision

The High Court concluded that the trial court's decision to acquit was well-reasoned and not perverse. It found no grounds to interfere with the finding of acquittal, which fortifies the presumption of innocence.

"Upon a consideration of the facts and circumstances of the case, this Court finds no such perversity in the impugned judgment so as to merit an interference in the finding of acquittal," Justice Mahajan stated while dismissing the petition.