Kerala HC Sets Aside Acquittal in Cheque Dishonour Case, Convicts Accused Under Section 138 NI Act
Justice A. Badharudeen reverses a Magistrate's acquittal, holding that advancing a second loan to a relative during a subsisting liability is not inherently improbable, and orders a fine of Rs. 4,75,000 to be paid as compensation to the complainant.
The High Court of Kerala at Ernakulam has set aside an order of acquittal passed by the Judicial First Class Magistrate Court–III, Mavelikkara, in a cheque dishonour complaint under Section 138 of the Negotiable Instruments Act, 1881. Justice A. Badharudeen, sitting singly, allowed the appeal filed by the complainant Shiny S. Nair and convicted the accused Sreekala of the offence. The Magistrate had acquitted Sreekala on the ground that a second loan to the same person, whose earlier borrowing remained unpaid, was improbable. The High Court found that reasoning unsound, particularly where the parties were admittedly relatives, and held that the complainant had discharged her initial burden so as to attract the twin presumptions under Sections 118 and 139 of the NI Act.
The Dispute Before the High Court
The complainant Shiny S. Nair alleged that the accused Sreekala, wife of Satheesh Kumar, borrowed Rs. 1,75,000 from her on 14 June 2012. For that advance, Shiny had pledged 13.5 sovereigns of gold ornaments with the Co-operative Bank, Chennithala, and passed on the proceeds to Sreekala without charging interest, for a repayment period of two months. Sreekala did not repay within that period and sought an extension of one more month.
About five months after the first advance, on 12 November 2012, Sreekala borrowed a further Rs. 3,00,000 in cash at Shiny's residence. On the same date, Sreekala executed a cheque dated 13 December 2012 drawn on Indian Overseas Bank, Mavelikkara Branch, for Rs. 4,75,000 — covering both advances — in favour of the complainant. When the cheque was presented for encashment, it was dishonoured with the endorsement “Drawer's signature differs.”
A statutory demand notice was issued on 10 January 2013 and accepted by Sreekala on 12 January 2013. She did not pay within the statutory period. This led to the complaint before the Magistrate, registered as CC No. 38 of 2014.
What the Trial Court Found
During trial, the complainant examined four witnesses and produced exhibits P1 to P6, along with bank account statements marked as Ext.X1 and Ext.X2. No defence evidence was led. Ext.X1, the statement of account from State Bank of Travancore, Mavelikkara Branch, showed transactions involving substantial amounts in Shiny's account consistent with her capacity to advance the cheque amount. Ext.X2, the statement from Indian Overseas Bank relating to Sreekala's account, showed a balance of just Rs. 554.55 as on 15 December 2012 — the date of the cheque's dishonour.
Despite this evidence, the Magistrate acquitted Sreekala. The primary reason was that the complainant had advanced a fresh and larger sum of Rs. 3,00,000 while the earlier loan of Rs. 1,75,000 remained outstanding. The Magistrate considered this improbable. Additionally, the Magistrate doubted PW4, a building contractor who deposed that he had witnessed Sreekala borrowing the Rs. 3,00,000, because he had not mentioned the exact amount in his chief affidavit and was regarded as a surprise witness introduced at the last stage of proceedings.
Aggrieved by the acquittal, Shiny S. Nair filed the present criminal appeal under Section 378 of the Code of Criminal Procedure, 1973.
The Legal Issue
The central legal question before the High Court was whether the Magistrate was correct in declining to draw the presumptions under Sections 118 and 139 of the NI Act, and in finding that the complainant had failed to prove the underlying transaction beyond reasonable doubt.
A subsidiary issue was whether dishonour of a cheque with the endorsement “Drawer's signature differs” — rather than “insufficient funds” — can constitute an offence under Section 138 of the NI Act. The accused also argued that since Ext.P1 was a typewritten cheque, even though both parties were capable of filling in a cheque manually, this cast doubt on the genuineness of the transaction.
How the Bench Reasoned
Justice Badharudeen addressed each of the Magistrate's reasons for disbelief in turn.
On the improbability of a second loan, the court held that advancing money to a relative while an earlier liability remained unpaid is not, by itself, a sufficient ground to reject the complainant's case. The gap between the two transactions was only about five months. The parties being relatives made it entirely plausible that trust persisted despite the earlier debt remaining unsettled.
On the typewritten cheque, the court accepted that typewritten cheques are not common. However, it held that issuance of a typewritten cheque is not prohibited by law. Where the complainant otherwise succeeds in establishing the transaction and the execution of the cheque, the fact that it was typewritten alone cannot be a reason to disbelieve her case.
On the dishonour ground, the court affirmed that dishonour on the basis of “Drawer's signature differs” attracts an offence under Section 138 of the NI Act when there was no sufficient fund in the account of the drawer to honour the cheque and the other statutory requirements are satisfied. Ext.X2 established that Sreekala's account held only Rs. 554.55 at the relevant time.
The court placed weight on the accused's own admissions. During cross-examination of PW1, the defence itself suggested that Sreekala had borrowed Rs. 2,00,000 from the complainant in the year 2010 and that Rs. 1,00,000 from that transaction remained outstanding. No suggestion denying the execution of Ext.P1 cheque was put to PW1 at all. In her statement under Section 313 of the Cr.P.C., Sreekala admitted borrowing Rs. 2,00,000 in 2010, though she claimed to have paid interest and contended that she had issued a blank cheque for that old transaction which had been misused in the present case.
The High Court found the accused's shifting defence — from suggesting an earlier partially-repaid loan in cross-examination, to pleading misuse of a blank cheque in the Section 313 statement — further weakened any challenge to the complainant's version. The court held that the complainant had proved the transactions and the execution of Ext.P1, so as to attract the presumptions under Sections 118 and 139 of the NI Act. The Magistrate, by demanding proof beyond reasonable doubt at the stage of the complainant's initial burden, had applied an incorrect standard.
Outcome
The High Court allowed CRL.A No. 705 of 2015 by its judgment dated 16 July 2026. The acquittal recorded by the Judicial First Class Magistrate Court–III, Mavelikkara on 30 December 2014 in CC No. 38 of 2014 was set aside.
Sreekala was convicted of the offence punishable under Section 138 of the NI Act and sentenced to simple imprisonment for one day till the rising of the court, and to pay a fine of Rs. 4,75,000. If paid or realised, the entire fine amount is to be given as compensation to PW1 (the complainant Shiny S. Nair) under Section 357(1)(b) of the Cr.P.C. In default of payment of fine, Sreekala is to undergo six months’ default imprisonment.
Sreekala was directed to appear before the Judicial First Class Magistrate Court–III, Mavelikkara within two weeks from the date of judgment to undergo the sentence. In case of failure, the Magistrate was directed to execute the sentence without fail. Any amount paid during the pendency of the appeal is to be deducted while reckoning the fine. The Registry was directed to forward a copy of the judgment to the trial court forthwith for information and compliance.