Rathish Babu Unnikrishnan vs The State (Govt. of NCT of Delhi) & Anr.
Background
The complainant had invested money in the appellant's company and received shares. When a dispute arose, it was agreed the invested money would be returned and the complainant's shares transferred back. Four post-dated cheques were issued by the appellant as part of this arrangement, but when the complainant presented one of them, it was dishonoured for "insufficient funds," leading to a criminal complaint under Section 138 of the N.I. Act. The appellant argued the cheques were only security/contingent cheques for a share buyback and should not have been encashed before the shares were transferred back, and sought to have the case quashed by the Delhi High Court, which refused.
Decision Breakdown
The Supreme Court upheld the Delhi High Court's refusal to quash the criminal proceedings. It held that once a cheque and signature are undisputed, Section 139 of the N.I. Act raises a legal presumption that it was issued in discharge of a debt, and this presumption can only be rebutted by evidence at trial, not weighed away by the High Court at a pre-trial quashing stage under Section 482 CrPC. The Court explained that share transfers in India typically involve a time lag between payment and formal transfer, so the "shares not yet transferred" defence was a factual dispute for trial, not grounds for quashing. The power to quash under Section 482 must be exercised sparingly, and factual defences of this kind must be tested through evidence, not assumed true at the threshold.
Lesson Learnt
If you issue a cheque that bounces, courts will presume it was for a genuine debt unless you can prove otherwise at trial. You cannot get a cheque-bounce case dismissed at the outset merely by raising a factual defence; that defence must be proved through evidence before the trial court.