Presumption as under Section 139 of the Negotiable Instruments Act, 1881 also applies to guarantor cheques

The High Court of Kerala in the matter of A. K Bhaskaran vs K.G Sheeba & Ors. (Crl. A 782 of 2006), decided on 08.01.2020 has held that the presumption under Section 139 of Negotiable Instruments Act applies even to a cheque issued by a guarantor.

Facts
In this case, a complaint was filed in the trial court against the prime accused, Ms. KG Sheeba alleging offence under Section 138 of the NI Act. In the said complaint it was alleged that Ms. Sheeba (wife of complainant’s friend) borrowed Rs. 1,30,000/- from the complainant, Mr. Bhaskaran by the end of November 2003 agreeing to discharge the debt within a month. Failed in her promise, she issued a cheque dated 13.02.2004 in favour of Mr. Bhaskaran for the amount borrowed. The cheque was dishonoured on the ground of insufficient funds.
The trial court ordered acquittal of the accused since the complainant failed to prove that accused had any financial transaction with him and that the disputed money transaction was only between Mr. Bhaskaran and his friend (husband of Sheeba).

Issue
Whether the drawer should have had transaction or dealing with the payee in whose name the cheque was drawn?

Ratio
The High Court held that a ‘holder’ of the cheque as per Section 8 of the Act is entitled to the benefit of legal presumption under Section 118(g) of the N.I.Act that he came into possession of the instrument in due course unless it is shown to have come to the custody of the possessor by means of an offence, fraud or other unlawful means.
It also observed that the definition of ‘payee’ as per Section 7 of the Act does not stipulate that he/she should necessarily be a person having direct dealing or financial transaction with the drawer. The ‘payee’ is a person to whom or to whose order money is made payable by the instrument. Payee, therefore, could be any person to whom the drawer of cheque may to his choice refer to his banker, no matter the drawer has not incurred any liability to the person named by him in the cheque. Further, most importantly Section 138 of the N.I.Act does not demand that drawer should have had transaction or dealing with the payee in whose name the cheque was drawn.
The Court thus, held that a guarantor’s cheque is also a cheque regarded under Section 138 of the Negotiable Instruments (NI) Act, 1881, as it is being issued in discharge of legally enforceable debt.