Producing Dishonoured Cheque Alone Does Not Prove Enforceable Debt: Kerala High Court

The Kerala High Court upheld the acquittal of a chit subscriber in a cheque bounce case, holding that a chit company must prove the underlying transaction and not merely produce the cheque.

In a prosecution under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), merely tendering the dishonoured cheque in evidence does not discharge the complainant’s initial burden to show a legally enforceable debt, the Kerala High Court has held [A.M. Gopalan v. State of Kerala & Ors., 2026-juristway.com-3428-HC(Kerala)-INDLAW].

Justice A. Badharudeen dismissed an appeal by the managing director of Sree Gokulam Chit and Finance Co. (P) Ltd. against a 2010 acquittal by a Judicial First Class Magistrate at Vatakara. Section 138 makes the dishonour of a cheque issued for a legally enforceable debt an offence.

The company’s case was that the accused had subscribed to a chit with a sala of ₹3 lakh, taken the prize amount by auction and defaulted on instalments, which stood at ₹1,83,611 on 1 Aug 2006. A cheque dated 1 Aug 2006 issued in discharge was dishonoured for want of funds. The accused, who admitted the chit transaction, said he had given a blank cheque on joining the chit and that it was not issued for any enforceable debt.

The Court noted that the company’s witness, a power of attorney holder, could not give details of the chit without the records, could not say how much had been repaid, and did not produce the chit documents or statements of account.

The company’s own affidavit said the chit was auctioned on 1 Sep 2006. The Court held it an “absolute improbability” that a cheque dated a month earlier was issued for a liability worked out on a chit auctioned later. Non-production of the account statements was therefore fatal.

The initial burden, the Court said, includes proof of the transaction that led to the cheque, and that transaction must be established convincingly. As the complainant had not proved its case and the defence was probable, the acquittal was confirmed and the appeal dismissed.

2026-juristway.com-3428-HC(Kerala)-INDLAW