When the Underlying Debt Is Not Proved, Section 138 Cheque Cases Collapse: What Courts Actually Require

A common question arise in cheque litigation: when the underlying transaction is not proved, does Section 138 of the Negotiable Instruments Act still attract? The short answer, reflected repeatedly in judicial decisions, is no — without proof of a legally enforceable debt or liability, a dishonoured cheque alone cannot sustain a criminal complaint. This post unpacks why transaction proof matters, how presumptions operate, and where the burden shifts between complainant and accused.

The Foundational Rule: Proof of Debt Comes First

The offence under Section 138 is not triggered merely because a cheque bounces. The statute requires that the cheque was issued for the discharge, in whole or in part, of any debt or other liability. Courts have consistently held that proof of a legally enforceable debt or liability is essential to establish the offence; without it, the provisions of Section 138 cannot be invoked, and the presumptions under Sections 118 and 139 cannot assist the complainant 0040007377.

This played out in a case where the trial court acquitted the accused because the complainant failed to provide sufficient evidence of the loan, and the cheque was found to have been issued merely as security for another transaction 0040007377. Similarly, in an acquittal appeal, the complainant failed to prove the alleged transaction, and doubts persisted about the exact date and nature of the deal — the court stressed that the complainant must discharge the basic requirements of proof through cogent evidence before any presumption under Section 139 can be drawn 2000 0 Supreme(Kar) 796. In another matter, the complainant himself admitted in cross-examination that he had no legally enforceable debt against the accused, and the acquittal was upheld 2021 0 Supreme(Guj) 1229.

The Two-Step Burden Framework

Cheque cases follow a broadly predictable evidentiary sequence:

1. Complainant's initial burden. An initial burden is cast upon the complainant to prove the transaction and the execution of the cheque so as to earn the benefit of the presumption under Section 139 2026 Supreme(Online)(Ker) 34554. Once execution of the cheque is proved or admitted, the burden shifts to the accused to rebut the presumption 2023 0 Supreme(Ker) 971.
2. Accused's rebuttal burden. The accused can discharge this burden by showing the absence of consideration, the non-existence of the original transaction, or the non-existence of any liability for which the cheque was issued 2023 0 Supreme(Ker) 971. The standard is preponderance of probabilities — the accused must raise a probable defence, since a mere bare or bald denial of consideration does not suffice 2022 0 Supreme(Mad) 1550.

Notably, the complainant need not specifically plead or disclose the nature of the transaction in the statutory notice; once signature, issuance, and dishonour are established, the presumption of a legally enforceable debt arises and the onus moves to the accused 2026 Supreme(Online)(Ker) 45593. But if the complainant never proves the foundational transaction at all, there is simply nothing for the presumption to rest upon.

Cheques Issued as Security: Not an Automatic Escape

A frequent defence argument is that the cheque was only security. The Supreme Court has held that a cheque issued as security pursuant to a financial transaction can still attract Section 138 — security, in its true sense, is a pledge of payment, and if a loan was advanced and instalments fell due, the cheque matures for presentation and its dishonour attracts the provision 2025 0 Supreme(HP) 408 and 2021 7 Supreme 508. The real question is not how the cheque is styled but whether a subsisting legally enforceable obligation exists at the time of dishonour 2025 0 Supreme(HP) 408.

The contrast is instructive: where a cheque accompanied a purchase order that was cancelled, no liability arose and Section 138 did not apply; where a loan was actually advanced and repayment instalments had fallen due, it did 2025 0 Supreme(HP) 408.

Quashing Where No Debt Exists

High Courts have quashed Section 138 complaints where cheques were held incapable of being termed a debt or liability, observing that the existence of a legally recoverable debt is not a matter of presumption under Section 139, and an accused cannot be fastened to a criminal trial where no debt or liability exists

J. haratbhai Patel VS State of Gujarat - Dishonour Of Cheque (2013)

Exceptions and Practical Limits

• Illegal purposes. A cheque issued for an illegal or immoral purpose, such as a bribe, does not constitute a legally enforceable debt, and Section 138 does not apply 2025 Supreme(Online)(HP) 6125.
• Accounting irregularities. A transaction not reflected in the payee's books of account or income tax returns may still be enforced under Section 138; violations of Sections 269-SS and 271-AAD of the Income Tax Act do not render the transaction unenforceable, given the presumption under Section 139 when execution is admitted 2023 0 Supreme(Bom) 1154.
• Stop payment. Once a cheque is issued and dishonoured, merely issuing a stop-payment notice does not preclude an action under Section 138 2013 0 Supreme(All) 1365.
• Valid service of notice. A demand notice sent to the drawer's correct address and returned unclaimed constitutes valid service, and once the transaction and execution are proved, the accused must rebut the presumption with cogent evidence 2026 Supreme(Online)(Ker) 34554.

Key Takeaways

• The existence of a legally enforceable debt or liability is the bedrock of every Section 138 prosecution; a dishonoured cheque without a proved transaction cannot sustain conviction 0040007377.
• The presumptions under Sections 118 and 139 are powerful but conditional — they arise only after the complainant proves execution and the foundational transaction 2026 Supreme(Online)(Ker) 34554 and 2000 0 Supreme(Kar) 796.
• An accused facing a complaint should, generally, test whether the complainant has proved the debt and raise the absence of a legally enforceable obligation as a defence at the earliest opportunity

  J. haratbhai Patel VS State of Gujarat - Dishonour Of Cheque (2013)

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• A cheque described as security may still attract Section 138 if a subsisting liability exists on the due date 2025 0 Supreme(HP) 408.

This article is intended as general information based on reported decisions and may not address the specifics of any individual case; readers should seek qualified counsel for advice on particular disputes.