Monday 20 June 2016

Whether prosecution for dishonour of cheque is tenable if amount paid by complainant is not disclosed in Income Tax?

The Apex Court has held that the laws relating
 to the said Act are required to be interpreted in the
 light of the object intended to be achieved by it
 despite there being deviation from general law. The
 Apex Court expressed that the object of section 138 of
 the said Act was to ensure that commercial and
 mercantile activities are conducted in smooth and
 healthy manner. The explanation to section 138 of the
 said Act clearly provides that a debt or other liability

 referred to in section means a legally enforceable debt
 or other liability. The alleged liability to repay an
 unaccounted cash amount admittedly not disclosed in the
 Income Tax Return cannot be a legally recoverable
 liability. If such liability is held to be a legally
 recoverable debt, it will render the explanation to
 section 138 of the said Act nugatory. It will defeat
 the very object of section 138 of the Act of ensuring
 that the commercial and mercantile activities are
 conducted in a healthy manner. The provision of section
 138 cannot be resorted to for recovery of an unaccounted
 amount. A cheque issued in discharge of alleged
 liability of repaying "unaccounted" cash amount cannot
 be said to be a cheque issued in discharge of a legally
 enforceable debt or liability within the meaning of
 explanation of section 138 of the said Act. Such an
 effort to misuse the provision of section 138 of the
 said Act has to be discouraged.
 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
 CRIMINAL APPELLATE JURISDICTION
 CRIMINAL APPLICATION NO.4694 OF 2008
 Sanjay.. Mishra 
 Versus
 Ms.Kanishka Kapoor @ Nikki
 &.. Anr.
 Ms.A.T.Jhaveri, A.P.P for the State.
CORAM : A.S.OKA, J.
DATE : 24th February 2009.
Citation: 2009 (4) MHLJ155

 The submissions of the learned senior counsel
 appearing for the applicant were heard in support of
 this application under sub-section 4 of section 378 of
 the Code of Criminal Procedure, 1973.
 2.The applicant is the complainant. The applicant
 filed a complaint against the 1st respondent alleging
 commission of offence under section 138 of the
 Negotiable Instruments Act, 1881 (hereinafter referred
 to as the said Act).
 3.With a view to appreciate the submissions made

 by the learned senior counsel appearing for the
 applicant, it will be necessary to refer to the facts of
 the case in brief. According to the case of the
 applicant the 1st respondent approached him in September
 2004 through one Mrs.Kalayni Singh. The said
 Mrs.Kalyani Singh was known to the applicant. The 1st
 respondent represented that she was in need of financial
 assistance and she agreed to return the amount advanced
 within a period of three months to the 1st respondent.
 The applicant advanced a friendly loan of Rs.15 lacs to
 the 1st respondent. She executed a hundi on 15th
 September 2004 in the sum of Rs.15 lacs and also issued
 a cheque dated 28th December 2004 favouring the
 applicant. The said cheque was dishonoured and after
 issuing notice, the present complaint was filed by the
 applicant. The learned trial Judge passed an order of
 acquittal. The learned Judge held that the applicant
 has failed to establish that the cheque was issued by
 the 1st respondent in discharge of legal liability of
 the loan amount. The learned Judge observed that the
 1st respondent has denied her signatures on the bill of
 exchange as well as the cheque subject matter of the
 complaint. The learned Judge has taken into account
 various circumstances borne out by the evidence on
 record and has passed order of acquittal. The learned

 Judge also considered the admission of the applicant
 that the amount advanced was an unaccounted amount which
 was not disclosed to the Income Tax Authority.
 4.The learned senior counsel appearing for the
 applicant submitted that there is evidence on record to
 show that the 1st respondent accepted the liability to
 repay the loan of Rs.15 lacs. He submitted that the
 defence that the cheque and bill of exchange has not
 been signed by the 1st respondent has not been
 substantiated. When attention of the learned senior
 counsel appearing for the applicant was invited to the
 categorical admission of the applicant that the entire
 amount subject matter of the loan was an unaccounted
 cash amount which was not disclosed in the Income Tax
 Return, he submitted that this is no ground to hold that
 the presumption under section 139 of the said Act stands
 rebutted. He submitted that even assuming that the
 amount advanced was an unaccounted money, at the most
 the applicant will face an action under the Income Tax
 Act, 1961 but this is not a ground to say that the
 presumption under section 139 of the said Act stood
 rebutted. He submitted that as the liability to repay a
 sum of Rs.15 lacs on the part of the 1st respondent was
 established, the learned Judge has committed an error by

 acquitting the 1st respondent.
 5.He submitted that mere fact that the amount
 advanced is not disclosed in the Income Tax Returns by
 itself cannot rebut the presumption under section 139 of
 the said Act in every case. He has placed reliance on a
 decision of this Court dated 16th January 2009 in
 Criminal Application No.3964 of 2007 (R.R.Dubey Vs.
 Shamprakash Mishra & Ors.).
 6.I have given careful consideration to the
 submissions. I have perused a copy of the complaint and
 notes of evidence. In the cross-examination, the
 applicant has categorically stated thus:
 ".... The entire amount was given in cash. The
entire amount was my cash amount. The cash
amount was kept at my Chembur’s residence. At
that time, it was unaccounted. I had not
disclosed this amount to the Income Tax after
giving the loan till date. There was no
 agreement for interest on the amount given.
 ....." (Emphasis added)

 The complaint was filed in the year 2005. The evidence
 of the applicant was recorded on 28th February 2006.
 The applicant admitted that the amount allegedly paid by
 him to the 1st respondent by way of loan was a cash
 amount kept at his residence and at that time it was an
 unaccounted amount. He categorically admitted that till
 date (i.e. till 28th February 2006) he has not
 disclosed the amount to the Income Tax. According to
 the case of the complainant, he had advanced loan on
 14th September 2004 which was repayable within 90 days.
 Thus, on 14th September 2004 the amount allegedly paid
 by him to the 1st respondent was stated to be an
 unaccounted amount which was kept at the residence of
 the applicant. Moreover, till February 2006, when the
 evidence was recorded, the said amount was not disclosed
 in the Income Tax Returns of the applicant. Thus it
 continued to be an unaccounted amount.
 7.It is true that merely because amount advanced
 is not shown in Income Tax Return, in every case, one
 cannot jump to the conclusion that the presumption under
 section 139 of the said Act stands rebutted. There may
 be cases where a small amount less than a sum of
 Rs.20,000/- is advanced in cash by way of loan which may

 be repayable within few days or within few months. A
 complainant may not show the said amount in the Income
 Tax Return as it is repayable within few days or few
 months in the same financial year. In such a case the
 failure to show the amount in the Income Tax Return may
 not by itself amount to rebuttal of presumption under
 section 139 of the said Act. If in a given case the
 amount advanced by the complainant to the accused is a
 large amount and is not repayable within few months, the
 failure to disclose the amount in Income-Tax return or
 Books of Accounts of the complainant may be sufficient
 to rebut the presumption under section 139 of the said
 Act.
 8.In the present case, the amount was allegedly
 advanced in September 2004. The amount is a large
 amount of Rs.15 lacs. This is a case where not only
 that there is a failure to disclose the amount of loan
 in the Income Tax Return of the applicant till the year
 2006 but there is a categorical admission on the part of
 the applicant that the amount was an "unaccounted"
 amount.
 9.Before dealing with the aspect of rebuttal of
 presumption, it will be necessary to refer to the

 ingredients of section 138 of the said Act. It will be
 necessary to refer to a recent decision of the Apex
 Court in the case of Krishna Janardhan Bhat Vs.
 Dattatraya G. Hegde [(2008) 4 Supreme Court Cases 54].
 The case before the Apex Court arose out of a complaint
 under section 138 of the said Act. The applicant before
 the Apex Court was accused of an offence under section
 138 of the Act. The submission before the Apex Court
 was that the essential requirement of section 138 was
 that there has to be a legally enforceable debt. The
 Apex Court referred to the provisions of section 271D of
 the Income Tax Act, 1961 which reads thus:
 "271-D. Penalty for failure to comply with the
 provisions of section 269-SS.-(1) If a person
 takes or accepts any loan or deposit in
 contravention of the provisions of section
 269-SS, he shall be liable to pay, by way of
 penalty, a sum equal to the amount of the loan
 or deposit so taken or accepted.
 (2)Any penalty imposable under sub-section
 (1) shall be imposed by the Joint Commissioner."

 In paragraph 29 of the decision, the Apex Court referred
 to the ingredients of the offence under section 138.
 Paragraph 29 reads thus:
 "29.Section 138 of the Act has three
 ingredients viz.:
 (i)that there is a legally enforceable
 debt;
 (ii)that the cheque was drawn from the
 account of bank for discharge in whole or in
 part of any debt or other liability which
 presupposes a legally enforceable debt; and
 (iii)that the cheque so issued had been
 returned due to insufficiency of funds."
 In paragraphs 30 and 31 the Apex Court dealt with the
 presumption under section 139 of the said Act.
 Paragraphs 30 and 31 read thus:
 "30.The proviso appended to the said section

 provides for compliance with legal requirements
 before a complaint petition can be acted upon by
 a court of law. Section 139 of the Act merely
raises a presumption in regard to the second
aspect of the matter. Existence of legally
recoverable debt is not a matter of presumption
under section 139 of the Act. It merely raises
a presumption in favour of a holder of the
cheque that the same has been issued for
discharge of any debt or other liability.
 31.Thecourts below,as noticed
 hereinbefore, proceeded on the basis that
 section 139 raises a presumption in regard to
 existence of a debt also. The courts below, in
 our opinion, committed a serious error in
 proceeding on the basis that for proving the
 defence the accused is required to step into the
 witness box and unless he does so he would not
 be discharging his burden. Such an approach on
 the part of the courts, we feel, is not
 correct." (Emphasis added)
 10.Thus, what has been held by the Apex Court is

 that section 139 of the said Act merely raises a
 presumption in regard to the second aspect of the
 matter, namely, that the cheque was drawn in discharge
 of debt or other liability. The Apex Court specifically
 held that the existence of legally recoverable debt is
 not a matter of presumption under section 139 of the
 said Act. The Apex Court specifically held that section
 139 merely raises a presumption in favour of holder of
 cheque that the same has been issued for discharge of
 any debt or liability. Thus, even if presumption is not
 rebutted, in order to attract section 138 of the said
 Act, the debt has to be a "legally enforceable debt" as
 is clear from the explanation to section 138 which
 provides that for the purposes of the said section the
 debt or other liability means a legally enforceable debt
 or other liability.
 11.The Apex Court also reiterated well established
 legal position that for rebutting the presumption under
 section 139 of the said Act, it is not necessary in
 every case for the accused to step into the witness box.
 The Apex Court held that the standard of proof on the
 part of the accused and that of prosecution in a
 criminal case is different. The prosecution has to
 prove the guilt of an accused beyond reasonable doubt,

 but the standard of proof so as to prove a defence is
 "preponderance of probability". Inference of
 preponderance of probabilities can be drawn even by
 reference to circumstances. In paragraph 44 the Apex
 Court observed thus:
 ".The presumption of innocence is a human
 right (See Narendra Singh v. State of M.P.,
 Ranjitsing Brahmajeetsing Sharma v. State of
 Maharashtra and Rajesh Ranjan Yadav v. CBI.)
 Article 6(2) of the European Convention on Human
 Rights provides: "Everyone charged with a
 criminal offence shall be presumed innocent
 until proved guilty according to law." Although
 India is not bound by the aforementioned
 Convention and as such it may not be necessary
 like the countries forming European countries to
 bring common law into land with the Convention,
 a balancing of the accused’s rights and the
 interest of the society is required to be taken
 into consideration. In India, however, subject
 to the statutory interdicts, the said principle
 forms the basis of criminal jurisprudence. For
 the aforementioned purpose the nature of the
 offence, seriousness as also gravity thereof may

 be taken into consideration. The courts must be
on guard to see that merely on the application
of presumption as contemplated under section 139
of the Negotiable Instruments Act, the same may
not lead to injustice or mistaken conviction.
 ..." (Emphasis added)
 In paragraph 45 the Apex Court held thus:
 "45.We are not oblivious of the fact that
 the said provision has been inserted to regulate
 the growing business, trade, commerce and
 industrial activities of the country and the
 strict liability to promote greater vigilance in
 financial matters and to safeguard the faith of
 the creditor in the drawer of the cheque which
 is essential to the economic life of a
 developing country like India. This, however,
 shall not mean that the courts shall put a blind
 eye to the ground realities. Statute mandates
raising of presumption but it stops at that. It
does not say how presumption drawn should be
held to have rebutted. Other important to have rebutted. Other important

principles of legal jurisprudence, namely,
presumption of innocence as human rights and the
doctrine of reverse burden introduced by section
139 should be delicately balanced. Such
balancing acts, indisputably would largely
depend upon the factual matrix of each case, the
materials brought on record and having regard to
legal principles governing the same." (Emphasis
 added)
 The Apex Court held that presumption of innocence forms
 part of human rights and therefore the doctrine of
 reverse burden introduced by section 139 has to be
 delicately balanced.
 12.Now turning back to the facts of the present
 case, assuming that the presumption under section 139 of
 the said Act regarding existence of debt or liability is
 not rebutted, in order to attract section 138, the debt
 or liability has to be a "legally recoverable" debt or
 liability. As held by the Apex Court in the case of
 Krishna Bhat (supra) there is no presumption under
 section 139 of the said Act that the debt is a legally
 recoverable debt. In the case of Goa Plast (P) Ltd.

 Vs. Chico Ursula D’Souza [(2004) 2 Supreme Court Cases
 235] the Apex Court reiterated that a debt or liability
 subject matter of section 138 means a legally
 enforceable debt or liability.
 13.In the present case, there is a categorical
 admission that the amount allegedly advanced by the
 applicant was entirely a cash amount and that the amount
 was "unaccounted". He admitted not only that the same
 was not disclosed in the Income Tax Return at the
 relevant time but till recording of evidence in the year
 2006 it was not disclosed in the Income Tax Return. By
 no stretch of imagination it can be stated that
 liability to repay unaccounted cash amount is a legally
 enforceable liability within the meaning of explanation
 to section 138 of the said Act. The alleged debt cannot
 be said to be a legally recoverable debt.
 14.In the case of Dalmia Cement (Bharat) Ltd Vs.
 Galaxy Traders & Agencies Ltd & Ors. [(2001) 6 Supreme
 Court Cases 463], the Apex court has referred to the
 object of section 138. Paragraph 3 of the said decision
 reads thus:

 "3.The Act was enacted and section 138
 thereof incorporated with a specified object of
 making a special provision by incorporating a
 strict liability so far as the cheque, a
 negotiable instrument, is concerned. The law
 relating to negotiable instruments is the law of
 commercial world legislated to facilitate the
 activities in trade and commerce making
 provision of giving sanctity to the instruments
 of credit which could be deemed to be
 convertible into money and easily passable from
 one person to another. In the absence of such
 instruments, including a cheque, the trade and
 commerce activities, in the present day world,
 are likely to be adversely affected as it is
 impracticable for the trading community to carry
 on with it the bulk of the currency in force.
 The negotiable instruments are in fact the
 instruments of credit being convertible on
 account of legality of being negotiated and are
 easily passable from one hand to another. To
 achieve the objectives of the Act, the
 legislature has, in its wisdom, thought it
 proper to make such provisions in the Act for
 conferring such privileges to the mercantile

 instruments contemplated under it and provide
 special penalties and procedure in case the
 obligations under the instruments are not
 discharged. The laws relating to the Act are,
therefore, required to be interpreted in the
light of the objects intended to be achieved by
it despite there being deviations from the
general law and the procedure provided for the
redressal of the grievances to the litigants.
Efforts to defeat the objectives of law by
resorting to innovative measures and methods are
to be discouraged, lest it may affect the
commercial and mercantile activities in a smooth
and healthy manner, ultimately affecting the
economy of the country." (Emphasis added)
 15.The Apex Court has held that the laws relating
 to the said Act are required to be interpreted in the
 light of the object intended to be achieved by it
 despite there being deviation from general law. The
 Apex Court expressed that the object of section 138 of
 the said Act was to ensure that commercial and
 mercantile activities are conducted in smooth and
 healthy manner. The explanation to section 138 of the
 said Act clearly provides that a debt or other liability

 referred to in section means a legally enforceable debt
 or other liability. The alleged liability to repay an
 unaccounted cash amount admittedly not disclosed in the
 Income Tax Return cannot be a legally recoverable
 liability. If such liability is held to be a legally
 recoverable debt, it will render the explanation to
 section 138 of the said Act nugatory. It will defeat
 the very object of section 138 of the Act of ensuring
 that the commercial and mercantile activities are
 conducted in a healthy manner. The provision of section
 138 cannot be resorted to for recovery of an unaccounted
 amount. A cheque issued in discharge of alleged
 liability of repaying "unaccounted" cash amount cannot
 be said to be a cheque issued in discharge of a legally
 enforceable debt or liability within the meaning of
 explanation of section 138 of the said Act. Such an
 effort to misuse the provision of section 138 of the
 said Act has to be discouraged.
 16.Considering the aforesaid admission of the
 applicant, the conclusion recorded by the learned trial
 Judge that the applicant has failed to establish that
 the cheque was issued towards discharge of a legally
 recoverable debt is correct.

 17.No case is made out for grant of leave.
 Application is rejected.
 (A.S. Oka, J)

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