The Supreme Court interpreted that whenever the Accused questions the financial capacity of the Complainant in support of his probable defence, despite the presumption of a legally enforceable debt under Section 139 of the Act, the onus shifts back to the Complainant to prove his financial capacity, more particularly, when it is a case of giving loan by cash and thereafter issuance of a cheque. In the present case, the cheque in question has admittedly been signed by the Respondent. For this, the Supreme Court held that “once the execution of the cheque is admitted, the presumption under Section 118 of the Act that the cheque in question was drawn for consideration and the presumption under Section 139 of the Act that the holder of the cheque received the said cheque in discharge of a legally enforceable debt or liability arises against the accused”. The Supreme Court reaffirmed the principles laid down in Bir Singh v. Mukesh Kumar (2019) 4 SCC 197 and APS Forex Services Private Limited v. Shakti International Fashion Linkers and Ors. (2020) 12 SCC 724 with respect to rebuttable nature of presumption under Section 139 of the Act but the Court emphasised that the initial onus of proving that the cheque is not in discharge of any debt or other liability is on the accused/drawer of the cheque.
Further the Supreme Court held that with respect to any cash transaction above Rs. 20,000/- ‘any breach of Section 269SS of the Income Tax Act, 1961 is subject to a penalty only under Section 271D of the Income Tax Act, 1961’ and does not make the transaction illegal and thereby the Supreme Court set aside the conclusion arrived at by the Kerala High Court in P.C. Hari v. Shine Varghese & Anr. 2025 SCC OnLine Ker 5535 and Court also expressed its dissatisfaction about Trial Courts and District Courts regularly directing Complainant to prove his financial capacity as if the proceedings are civil recovery in nature.
As in the current case, the Respondent has failed to reply to the statutory notice under Section 138 of the Act, the Supreme Court referred to Tedhi Singh v. Narayan Dass Mahant, (2022) 6 SCC 735 wherein it was held that “the accused has the initial burden to set up the defence in his reply to the demand notice that the complainant did not have the financial capacity to advance the loan”. Also, referring to MMTC Ltd. and Another v. Medchl Chemicals & Pharma (P) Ltd. and Another (2002) 1 SCC 234 wherein it has been held that “when a statutory notice is not replied, it has to be presumed that the cheque was issued towards the discharge of liability”.