Back
2026 Supreme(Online)(Tel) 18586
IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD
Tirumala Devi Eada, J
P.N.R.Gupta – Appellant
Versus
State of Telangana – Respondent
CRIMINAL APPEAL NO.1683 OF 2017
For the Appellants/Petitioners: A.Suryanarayana
For the Respondents: V.R.Reddy
An offence under Section 138 of the Negotiable Instruments Act requires the existence of a legally-enforceable debt; when the complainant fails to prove the financial capacity to advance the loan, fails to reconcile documentary inconsistencies, or fails to overcome evidence that the cheque was already encashed, the complaint is unsustainable.
Headnote:(A) Negotiable Instruments Act, 1881 - Section 138 - Dishonour of cheque - Existence of legally enforceable debt - Requirement of proof - Proof of source of funds - Failure to disclose - Impact - The court held that a crucial ingredient for an offence under S. 138 is a legally enforceable debt. Where the complainant fails to prove the existence of such debt through consistent pleadings, clear evidence, or proper documentation (such as ITRs), the presumption under the Act is effectively rebutted. The inability of the complainant, in a case involving an alleged hand loan of Rs.80 lakhs, to disclose names of lenders or reflect the transaction in tax returns creates significant suspicion regarding the veracity of the claim. (Paras (b), (c), (d), (e), (l), (n))
(B) Negotiable Instruments Act, 1881 - Section 138 - Proprietary firm - Liability of proprietor - Legal standing - The court clarified that while a proprietary firm does not necessarily need to be arrayed as an accused to prosecute the proprietor for an offence under S. 138, the failure of the trial court to correctly interpret this rule does not invalidate the entire judgment if the dismissal is otherwise justified on the merit of the evidence regarding the underlying debt. (Paras (n), (q))
Facts of the case:
The complainant filed a complaint alleging that the accused failed to repay a hand loan of Rs.80 lakhs, consolidated into a promissory note and supported by a post-dated cheque. The trial court dismissed the complaint, citing inconsistencies and failure to prove the debt. The complainant appealed.
Findings of Court:
The appellate court upheld the dismissal, concluding that the complainant failed to establish a legally enforceable debt. The evidence was internally contradictory, the cheque in question had allegedly been previously encashed according to bank statements, and the complainant could not provide sufficient proof of his financial capacity to lend such a large sum.
Issues: Whether the complainant established a legally enforceable debt under S. 138 NI Act; whether the judgment of the trial court was sustainable.
Ratio Decidendi: The court affirmed that the complainant bears the burden to prove the existence of a legally enforceable debt to sustain an offence under S. 138 NI Act. Inconsistencies in the date of the loan, the lack of corroboration of the source of funds, and evidence that the instrument had already been encashed rendered the debt unenforceable in the eyes of the court.
Result: Appeal dismissed.
: JUDGMENT :
This criminal appeal is filed by the appellant – complainant aggrieved by the judgment dated 26.09.2017 passed in C.C.No.503 of 2012 by the learned VIII Special Magistrate, Hyderabad (for short ‘the trial Court’).
The case of the complainant, in brief, is that the complainant and the accused are best friends and that, out of their acquaintance, the accused requested a hand loan, and that the complainant lent amounts to him on various occasions to meet the urgent needs of the accused in business. It is the case of the complainant that, though he did not have enough money, since the accused was his best friend, he raised money from his family members and relatives and facilitated the payment to the accused towards a hand loan on various occasions, and that the accused used to invest the same in his business and used to execute promissory notes. Accordingly, on 01.08.2010, the accused executed a consolidated promissory note for a sum of Rs.80 lakhs in the presence of two witnesses. Apart from the promissory note, the accused had also addressed a letter to the complainant narrating the entire sequence of events and had issued one postdated cheque bearing No.021056, dated 01.08.2011, for Rs.99,20,000/- drawn on Union Bank of India, Tirupati Branch, in favour of the complainant towards the principal amount of Rs.80 lakhs along with 24% interest from 01.08.2010 to 01.08.2011. Subsequently, the complainant presented the cheque at Padmavathi Co-operative Bank, Subash Road Branch at Secunderabad, but the same was returned on 03.08.2011 for the reason of “insufficient funds” in the account. The complainant issued a legal notice on 18.08.2011, and on receipt of the legal notice, the accused issued a reply notice dated 23.08.2011 but failed to pay any amount under the cheque. Thus, the complaint under Section 138 of the N.I. Act has been filed.
Before the trial Court, PWs 1 to 3 were examined on behalf of the complainant and Exs.P1 to P11, Exs.C1 to C4 were marked. On behalf of the defence, DW1 was examined, Exs.D1 to D8 were marked.
Based on the evidence on record, the trial Court dismissed the complaint. Aggrieved by the said judgment, the complainant has preferred the present appeal.
Heard the submissions of Sri A.Suryanarayana, learned counsel for the appellant and V.R.Reddy, learned counsel for respondent No.2.
The learned counsel for the appellant has submitted that the trial Court failed to consider the legal provisions and failed to evaluate the evidence in a proper perspective. He further submitted that the trial Court ought not to have dismissed the complaint and that the observations made by the trial Court are contrary to law. He further submitted that the observation of the trial Court that the proprietary firm had to be served with a legal notice and that the proprietary firm has to be arrayed as an accused, apart from the proprietor in his individual capacity, is unsustainable in legal parlance, and that a proprietor of the firm can be prosecuted in his individual capacity and that the respondent No.2 herein is very much liable to pay the amount due under the cheque. He further submitted that the accused, having borrowed the amount for his necessities, is bound to pay back the same to the complainant. He further submitted that through the evidence on record, the complainant could discharge his initial burden of proving the legally enforceable debt, but the accused failed to discharge his burden of rebutting the presumption under Section 138 of the N.I. Act; but still, the trial Court could not appreciate the same and erroneously dismissed the complaint. He further submitted that the trial Court delivered the judgment on a wrong premise that a proprietary firm has to be made an accused and that, for not mentioning the proprietary firm as an accused, the complaint was dismissed by the trial Court, which is not at all just and proper. He therefore prayed to set aside the judgment dated 26.09.20
