The Delhi High Court in Dhruv Varma & Anr. v. J.K. Varma & Anr. (2026) examined the scope of revisional jurisdiction in cheque dishonour cases under Section 138 of the Negotiable Instruments Act, 1881. The Court upheld the conviction of the accused for cheque dishonour while modifying the sentence imposed by the appellate court and restoring the sentence originally awarded by the trial court.
The judgment provides important clarification on statutory presumptions under Sections 118 and 139 of the Negotiable Instruments Act and the evidentiary burden on the accused to rebut such presumptions.
Facts of the Case
The dispute arose from a property transaction between the complainant J.K. Varma and the accused persons, including Dhruv Varma and M/s Ratan Lal Varma & Sons (HUF).
The complainant entered into an agreement to sell dated 19 October 2001 for the purchase of approximately 4000 square feet space on the fourth floor of Gopal Das Bhawan, Barakhamba Road, New Delhi, for a total consideration of ₹40 lakhs. An advance amount of ₹5 lakhs was paid through cheque, and the remaining ₹35 lakhs was paid partly in cash and partly through other arrangements.
The premises were already under tenancy. It was agreed that the rent would be assigned to the complainant. However, the accused requested the complainant to allow them to utilise the rental income as a financial advance for their company, M/s Vasu Tech Ltd., which was developing a technological project.
In return, the accused issued post-dated cheques and promissory notes acknowledging the debt. Over time, cheques were periodically replaced at the request of the accused due to delays in the project.
The accused also agreed to compensate the complainant for losses arising from failure to refund a tenant’s security deposit in another jointly owned property, which prevented the complainant from letting out his portion for several years.
In 2006, several cheques were issued, including:
- Six cheques of ₹35 lakhs each
- One cheque of ₹25 lakhs
- One cheque of ₹16 lakhs
These cheques represented rental dues and compensation for loss of rent. All eight cheques were dishonoured due to insufficient funds. Despite a statutory legal notice, payment was not made, and complaint cases under Section 138 of the Negotiable Instruments Act were filed.
The revision petitions were concerned with three dishonoured cheques of ₹35 lakhs each.
Procedural History
The Trial Court convicted the accused persons on 11 October 2012 for an offence under Section 138 of the Negotiable Instruments Act.
The petitioner Dhruv Varma was sentenced to:
- One year simple imprisonment
- Compensation of ₹50 lakhs
- Additional imprisonment in default of payment
The company was fined ₹5,000, and the HUF was directed to pay ₹1 lakh as compensation. The Appellate Court upheld the conviction but modified the sentence and directed payment of:
- ₹1 crore by Dhruv Varma
- ₹25 lakhs each by the company and the HUF.
Aggrieved by the conviction and modified sentence, the petitioners filed revision petitions before the Delhi High Court.
Evidence Led Before the Trial Court
The complainant examined himself as CW-1 and relied on documentary evidence, including:
- Agreement to sell
- Receipt of consideration
- Flat buyer agreement
- Dishonoured cheques
- Return memos
- Promissory notes
- Legal notice
- Postal receipts
- Reply to the legal notice
The accused denied liability in statements under Section 313 CrPC (Section 351 BNSS). Dhruv Varma examined himself as the sole defence witness.
Issues Before the Court
- Whether the cheques were issued towards the discharge of a legally enforceable liability.
- Whether the statutory presumptions under Sections 118 and 139 NI Act were rebutted.
- Whether the revision petitions disclosed any illegality in the concurrent findings.
- Whether the appellate court was justified in modifying the sentence.
Arguments by the Petitioners
The petitioners argued that the alleged property transaction was false and never acted upon.
They contended that:
- The cheques were issued only as security for cash loans.
- The loans had been repaid.
- The agreements were merely collateral documents.
- No sale of property ever took place.
- No consideration was proved.
- No mutation or registration was done.
- Rental income was never received by the complainant.
- The complainant failed to prove source of funds.
- The statutory presumption stood rebutted.
The petitioner also argued that the courts wrongly relied on transactions not forming part of the complaint.
Arguments by the Respondent
The respondent argued that the scope of revisional jurisdiction is limited and does not permit re-appreciation of evidence.
It was argued that:
- Issuance of cheques was admitted.
- Signatures were not disputed.
- Service of legal notice was admitted.
- Liability was acknowledged.
- Presumption under Section 139 NI Act applied.
- Defence of security cheques was unsupported.
The respondent also relied on:
- Admissions made in reply to the legal notice
- Memorandum of Understanding dated 20 August 2009
- Undertakings before courts
- Settlement payments made by the petitioner.
Section 138 NI Act
The Court referred to Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel (2023) and reiterated that the essential ingredients of Section 138 are:
- Drawing of a cheque
- Legally enforceable debt
- Dishonour due to insufficient funds
- Valid notice
- Failure to pay within the prescribed time.
Findings of the Court
Admission of Cheques
The Court observed that the petitioner did not dispute:
- Signatures on cheques
- Issuance of cheques
- Execution of documents.
Therefore, the statutory presumption under Section 139 applied.
Failure to Rebut Presumption
The defence that cheques were security cheques was rejected.
The Court noted:
- Cash loans were not proved
- No records of loans existed
- Interest rate was never fixed
- Loans not shown in accounts.
The Court held that the defence was not probable.
Documentary Evidence Supported Complainant
The Court found that the petitioner admitted:
- Agreement to sell
- Receipt of payment
- Flat buyer agreement
- Promissory note
- Assignment of rent clause.
These admissions strengthened the complainant’s case.
Admission of Liability
The petitioner admitted that approximately ₹2–2.5 crores were payable at the time of dishonour. This corresponded to the total value of cheques. The Court held that this admission strongly supported the existence of liability.
Memorandum of Understanding
The Court relied on the Memorandum of Understanding dated 20 August 2009 where the petitioner agreed to pay ₹4.10 crores in settlement. The petitioner had also made substantial payments pursuant to the MOU. The Court held that the petitioner could not deny liability after acknowledging it in settlement proceedings.
Revisional Jurisdiction
The Court held that:
- Two courts had already recorded concurrent findings.
- No perversity or illegality was shown.
- Re-appreciation of evidence is not permitted in revision.
Decision
The High Court dismissed the revision petitions and upheld the conviction under Section 138 NI Act. However, the Court restored the sentence imposed by the Trial Court and set aside the modified sentence passed by the Appellate Court. The Trial Court’s sentence of compensation of ₹50 lakhs per case and ₹1 lakh by the HUF was reinstated.
Conclusion
The Delhi High Court in Dhruv Varma v. J.K. Varma & Anr. (2026), upheld the conviction of the petitioner for cheque dishonour under Section 138 of the Negotiable Instruments Act and restored the sentence imposed by the Trial Court. The Court held that the petitioner failed to rebut the statutory presumption of a legally enforceable debt and that the defence of security cheques was unsupported by evidence. The judgment strengthens the legal position that admission of cheque issuance creates a strong presumption of liability and that revisional courts will not interfere with concurrent findings in the absence of manifest illegality.
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