Supreme Court: Cheque Bounce Complaint Quashed for Suppression of Material Facts

Introduction

While cheque bounce cases under s.138 of the Negotiable Instruments Act, 1881 (‘NI Act’) are a staple in Indian courts, what often goes unnoticed is the importance of procedural fairness in how these cases are handled. It is not enough for a cheque to bounce; the complainant must be transparent and fair in placing all relevant facts before the court. In Rekha Sharad Ushir v. Saptashrungi Mahila Nagari Sahkari Patsanstha Ltd.[i], the Supreme Court dealt with a complaint where a co-operative credit society withheld crucial replies and correspondence from the accused while moving the court for process issuance. The judgment focuses on the fact that criminal law is not a tool for debt recovery by procedural shortcuts or omission of material facts.

Brief Facts

• Rekha Sharad Ushi (‘Appellant’) had obtained two loans from Saptashrungi Mahila Nagari Sahkari Patsanstha Ltd., a co-operative credit society (‘Respondent’), Rs. 3.5 lakh in 2006 and an allegedly separate Rs. 11.97 lakh in 2008. She had issued two security cheques while availing the first loan. One was deposited in 2007 and dishonoured. Rekha cleared the dues following a demand notice and was acquitted.

• In 2016, the Respondent deposited a second security cheque for Rs. 27.27 lakh, claiming it related to an overdraft of Rs. 11.97 lakh. This cheque was dishonoured on 14.10.2016. A statutory demand notice was issued on 11.11.2016 by the Respondent.

• In reply, Rekha’s advocate sent two letters on 28.11.2016 and 13.12.2016 disputing the claim and specifically demanding documents relied upon in the notice, including loan statements and executed agreements. Despite these demands, the Respondent neither provided the documents nor disclosed these letters in the subsequent complaint.

• On 15.12.2016, the Respondent filed a complaint under s. 138 before the Judicial Magistrate First Class (‘JMFC’) claiming Rekha had not replied to the demand notice. The JMFC issued the process on 02.032017. Rekha challenged this before the Bombay High Court, which dismissed her writ petition. She then approached the Supreme Court in appeal.

Issues

1. Whether a complaint under s. 138 of the NI Act can be sustained where material facts and documents are suppressed?

2. Whether the issuance of the process without disclosure of such facts amounts to an abuse of process of law?

Held

The Supreme Court allowed the appeal and set aside the Bombay High Court order and quashed the complaint pending before the JMFC at Kalwan. The Supreme Court held that:

• The Respondent had deliberately suppressed two crucial letters dated 28.11.2016 and 13.12.2016 sent by the Appellant’s Advocate in which she specifically demanded loan documents relied upon in the statutory demand notice. The Respondent, while filing the complaint and recording its statement under s. 200 of the Code of Criminal Procedure, 1973 (‘CrPC’) chose not to disclose these letters, instead falsely creating the impression that no reply had been received from the Appellant.

• The Supreme Court held that such suppression of material facts amounts to an abuse of the process of law. It emphasised that filing a criminal complaint involves serious consequences for the accused and the complainant has a duty to act with full disclosure and procedural fairness at the stage of filing the complaint and providing statements under oath.

• It was further held that Magistrates, while issuing process under s. 204 of the  CrPC are required to apply their judicial mind based on complete and candid disclosure of facts. Where material documents are deliberately withheld, the Magistrate is deprived of the opportunity to properly assess whether sufficient grounds exist for proceeding against the accused.

• The Supreme Court stressed that setting criminal law in motion by suppressing vital facts and correspondence violates settled legal principles and must be prevented at the threshold.

• To support this reasoning, the Supreme Court reaffirmed the principle from S.P. Chengalvaraya Naidu v. Jagannath[ii], where it was held that litigants who approach the court with unclean hands or suppress material facts have no right to seek relief. Applying this principle to the present case, the Court concluded that the Respondent’s conduct amounted to procedural dishonesty aimed at securing the criminal process unfairly.

• Accordingly, the Court quashed the complaint and clarified that this would not preclude the Respondent from pursuing other civil remedies available under law for recovery of any dues.

Our Analysis

A cheque bounce case might seem like a straightforward matter, but this judgment shows how procedural mistakes by complainants can cause even simple prosecutions to fall apart. The judgment clearly states that criminal law is not meant to be used as a quick fix for debt recovery by hiding important responses or correspondence from the accused. Banks and cooperative societies need to be careful when filing complaints, making sure they fully disclose all relevant information from the start, or else their case could be dismissed.

For borrowers, this case should be a reminder that sending timely and documented replies to demand notices, especially the ones asking for supporting documents, can be a strong way to challenge cheque bounce allegations and is requisite in such situations. This judgement may also shape judicial attitudes towards preventing automatic prosecutions under s. 138, especially when procedural fairness is not properly respected.

End Notes

[i] 2025 SCC OnLine SC 641 dated 26.03.2025.

[ii] (1994) 1 SCC 1.

Authored by Muskaan Jain, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.