2018 (8) TMI 2148 - HC - Indian Laws

Dishonour of Cheque - failure to take into consideration the provisions of Section 269 SS of the Income Tax Act 1961 while taking cognizance of offence - HELD THAT - In the instant case the prosecution is initiated against the petitioner for the alleged dishonor of a cheque. The case of the complainant is that in repayment of the hand loan advanced by him the petitioner/accused issued the cheque in question which has been dishonored. No doubt the sources from which the complainant paid the loan amount may be required to be established during the trial but the prosecution under Section 138 of N.I. Act cannot be stalled for non-compliance of Section 269 SS of the Income Tax Act. Any cash transaction in violation of Section 269 SS of Income Tax Act may give rise to an independent criminal offences but on account of violation of the said provision the prosecution of the petitioner for the alleged dishonour of cheque under Section 138 of Act does not become bad in law. Even otherwise the contention urged by the petitioner could be decided only during the trial. Petition dismissed.

Summary

Issues:
1. Quashing of proceedings under Section 138 of Negotiable Instruments Act, 1881.
2. Consideration of Section 269 SS of the Income Tax Act, 1961 in the proceedings.
3. Applicability of the decision in G.Pankajakshi Amma case.
4. Legal implications of alleged dishonor of a cheque and cash transactions.

Analysis:

1. The petitioner sought to quash the proceedings under Section 138 of the Negotiable Instruments Act, 1881. The contention was that the Magistrate failed to consider Section 269 SS of the Income Tax Act, 1961. The petitioner relied on the decision in G.Pankajakshi Amma case, where it was held that in illegal transactions, no court can aid a party, and losses must lie where they fall.

2. The case referred to involved suits for recovery based on promissory notes, where the transactions were deemed illegal. However, the High Court reversed the trial court's findings and decreed the suits. The Supreme Court observed that illegal transactions cannot be aided by the court. In the present case, the prosecution was initiated for dishonor of a cheque, and while the source of the loan amount may need to be established during trial, the prosecution under Section 138 of the N.I. Act cannot be stopped for non-compliance with Section 269 SS of the Income Tax Act.

3. The prosecution for dishonor of a cheque does not become invalid due to cash transactions violating Section 269 SS of the Income Tax Act. Such cash transactions may lead to separate criminal offenses, but they do not render the prosecution under Section 138 of the Act unlawful. The petitioner was given liberty to raise this plea during the trial, and the petition to quash the proceedings was dismissed.

This detailed analysis covers the issues raised in the judgment, addressing the legal aspects and implications of the petitioner's contentions regarding the proceedings under the Negotiable Instruments Act and the Income Tax Act.