Tedhi Singh v. Narayan Dass Sharma

In this influential precedent on financial capacity defenses in cheque bounce litigation, Justice K.M. Joseph clarified the boundary between the statutory presumption under Section 139 NI Act and the accused's right to challenge the complainant's lending ability. The Supreme Court held that the law does not require a complainant to attach bank statements, tax returns, or proof of source of funds to the complaint when initiating Section 138 proceedings. However, the accused is entitled to set up a defense questioning whether the complainant had the financial resources to advance the alleged cash loan. If the accused raises this plea in the reply to the statutory notice or establishes probable doubt during cross-examination, the burden shifts to the complainant to lead affirmative evidence proving his financial capacity. On the facts, the Court upheld the conviction as the complainant proved his solvency.

• No Threshold Proof of Capacity: Complainant is not required to plead or annex proof of financial capacity in the initial complaint.
• Activation of Financial Capacity Defense: Accused can trigger the challenge by specific averments in the reply notice or during cross-examination.
• Shifting Evidentiary Burden: Once probable doubt is raised regarding capacity, complainant must demonstrate source of funds.
• Harmonization with Basalingappa (2019): Integrated and clarified the 3-Judge Bench principles in Basalingappa v. Mudibasappa.
• Weight of Non-Reply: Failure of the accused to reply to the demand notice weakens a belated challenge to financial capacity raised for the first time at trial.

The appellant Tedhi Singh borrowed Rs. 5,00,000/- as a friendly loan from respondent Narayan Dass Sharma in Himachal Pradesh, issuing a cheque in December 2010.

The cheque was dishonored for 'insufficient funds'. The appellant did not reply to the statutory demand notice issued under Section 138(b).

At trial, the appellant admitted his signature on the cheque, but contended that the complainant was a person of meager means who lacked the financial capacity to advance a cash loan of Rs. 5 lakhs.

The complainant stepped into the witness box and produced evidence showing that he was an agriculturist and had obtained a bank loan of Rs. 9 lakhs around the same time, establishing ample liquid capacity.

The trial Magistrate convicted Tedhi Singh, and the Sessions Court and High Court affirmed the conviction. Tedhi Singh appealed to the Supreme Court.

The trial court and the appellate courts have held that the appellant did not reply to the statutory notice. While it is true that the complainant is not expected to state in the complaint as to what his financial capacity was, it is open to the accused to question the financial capacity of the complainant. If the accused questions the financial capacity of the complainant in the reply notice, the complainant would be put on guard and would lead evidence to show that he had the financial capacity. But even if no reply notice is sent, the accused is not precluded from raising the question of financial capacity in the course of the cross-examination of the complainant. Once the financial capacity of the complainant is questioned and a probable doubt is created, the burden shifts to the complainant to establish his financial capacity. In the present case, though the accused did not reply to the notice, he cross-examined the complainant on his capacity. However, the complainant successfully discharged that burden by proving that he was an agriculturist, owned properties, and had recently raised a bank loan of Rs. 9 lakhs, giving him ample liquidity to lend Rs. 5 lakhs. The conviction is therefore just and warrants no interference.

• Rajesh Jain v. Ajay Singh (2023) 10 SCC 148: Extensively analyzed Tedhi Singh on when the burden shifts to the complainant to prove funds.
• Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel (2023) 1 SCC 578: Cited Tedhi Singh on standard of proof in commercial defenses.
• K. Ramesh v. K. Kothandaraman (2024) 2 SCC 332: Applied Tedhi Singh to evaluate bank statements produced by a lender to prove solvency.
• K.S. Ranganatha v. Vittal Shetty (2022) 17 SCC 172: Followed Tedhi Singh, upholding acquittal where complainant failed to prove source for a massive cash loan.