2017 (9) TMI 853 - HC - Indian Laws

Dishonour of cheques - Conviction for the offence under Section 138 of the Negotiable Instruments Act - Held that - True it is that in all cases where the loan transaction is not referred to or reflected in the Income Tax Returns, one cannot jump to a conclusion that the presumption under Section 139 of the N.I Act stand rebutted. In cases where the amount is small, the same principle may not apply. However, a huge amount of ₹ 50 lakhs has to be explained or else even when such transaction is in the realm of suspicion, an imprimatur of the Court would be given if such transaction is accepted as a valid transaction. There is no gainsaying that non reflection of the loan transaction in the ITR certainly makes the loan unaccounted for, for which penalty could be imposed on the person concerned but it does not become per se unrecoverable. In the present case, seen along with the other facts, this lapse on the part of the petitioner assumes significance. It is thus difficult to presume that there existed a debt liability. Though the petitioner has not stepped into the witness box to lead any evidence but in cases involving Section 138 of the Negotiable Instruments Act, the presumption of the existence of debt liability may be rebutted. The presumption could be rebutted even otherwise on the basis of attendant sets of circumstances and it may not be necessary in each case to expect the accused to lead evidence as in a criminal trial. A statement under Section 313 of the Cr.P.C may not be the evidence of an accused as it is only in the nature of an explanation of an accused of the incriminating circumstances. There is no presumption of law that an explanation given by the accused is always truthful but once a doubt has been created regarding the existence of the debt liability, the reverse onus requirement as has been seen in Rangappa (Supra), makes it incumbent upon the respondent/complainant to prove that loan was advanced and there existed a liability. This Court finds it difficult to believe that ₹ 50 lakhs would be advanced as loan to a person who is on litigating terms with the complainant and that also by selling off his property. We have no evidence whatsoever regarding the sale of the property or mortgage of another property to establish the liquidity/capacity of the complainant to advance loan. Cumulatively seen, the case of the respondent/complainant falls at the seams. There is no option for this Court but to set aside the same. The petitioner stands acquitted and is discharged of all his liability.

Summary

Issues Involved:
1. Legally enforceable debt under Section 138 of the Negotiable Instruments Act.
2. Validity and admissibility of the loan document (Exh.PW-1/F).
3. Impact of non-filing of Income Tax Returns on the credibility of the loan transaction.
4. Rebuttal of presumptions under Sections 118 and 139 of the N.I Act.
5. Procedural compliance under Section 313 of the Code of Criminal Procedure.

Detailed Analysis:

1. Legally Enforceable Debt under Section 138 of the Negotiable Instruments Act:
The petitioner challenged the conviction under Section 138 of the Negotiable Instruments Act, which requires three ingredients: a legally enforceable debt, a cheque drawn for discharge of the debt, and dishonour of the cheque due to insufficiency of funds. The court emphasized that the presumption under Section 139 of the N.I Act is that the holder of the cheque received it for discharge of a debt or liability unless proven otherwise.

2. Validity and Admissibility of the Loan Document (Exh.PW-1/F):
The loan document (Exh.PW-1/F) was scrutinized for its vagueness and lack of clarity. The document was undated and did not specify the terms of the loan clearly. The court noted that the document did not inspire confidence and was not registered, which affected its admissibility. The petitioner argued that the document was not put to him during his statement under Section 313 of the Cr.P.C., but the court found that this did not cause any prejudice to the petitioner.

3. Impact of Non-Filing of Income Tax Returns on the Credibility of the Loan Transaction:
The respondent/complainant did not file Income Tax Returns for the relevant years, and the loan transaction was not reflected in any tax documents. The court observed that while non-reflection of the loan in tax returns does not per se make it unrecoverable, it raises suspicion, especially for a large amount like ?50 lakhs. The lack of documentation regarding the sale of property and mortgage further weakened the complainant's case.

4. Rebuttal of Presumptions under Sections 118 and 139 of the N.I Act:
Sections 118 and 139 of the N.I Act create presumptions in favor of the holder of the cheque. However, these presumptions are rebuttable. The court referred to precedents like Goa Plast (P) Ltd. vs. Chico Ursula D'souza and Rangappa vs. Sri Mohan, which clarified that the holder of the cheque is presumed to have received it for discharge of a debt, but this presumption can be rebutted by the accused by raising a probable defense.

5. Procedural Compliance under Section 313 of the Code of Criminal Procedure:
The petitioner argued that the loan document was not put to him during his statement under Section 313, which should have been considered incriminating material. The court dismissed this argument, stating that the petitioner was not prejudiced by this omission, and the document was already part of the record.

Conclusion:
The court found that the complainant's case lacked credibility due to the vague and unregistered loan document, non-filing of tax returns, and absence of evidence regarding the sale and mortgage of properties. The judgment and order of the Trial Court and the Appellate Court were set aside, and the petitioner was acquitted and discharged of all liability. The applications for suspension of sentence were disposed of as infructuous.