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TMI Blog2023 (11) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... awer for the discharge of any debt or other liability, execution of the cheque being admitted. Violation of Sections 269-SS and/or Section 271-AAD of the Act of 1961 would not render the transaction unenforceable under Section 138 of the Act of 1881. The decisions in Krishna P. Morajkar [ 2013 (7) TMI 1163 - BOMBAY HIGH COURT] , Bipin Mathurdas Thakkar and Pushpa Sanchalal Kothari [ 2015 (2) TMI 1351 - BOMBAY HIGH COURT] lay down the correct position and are thus affirmed. The decision in Sanjay Mishra [ 2009 (2) TMI 901 - BOMBAY HIGH COURT] with utmost respect stands overruled. - A. S. Chandurkar And Mrs Vrushali V. Joshi, JJ. For the Appellant : Shri Pushkar Deshpande, counsel For the Respondent : Shri Rahul Kurekar, counsel ORDER The question referred to the Division Bench for being answered reads as under :- Whether in case the transaction, is not reflected in the Books of account and/or the Income Tax Returns of the holder of the cheque in due course and thus is in violation to the provisions of Section 269-SS of the Income Tax Act, 1961 whether such a transaction, can be held to be a legally enforceable debt and can be permitted to be enfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be permitted to recover unaccounted cash when such transaction is prohibited by Section 269-SS of the Income Tax Act, 1961 (for short, the Act of 1961 ) being an issue of seminal importance having wide ramifications, the aforesaid question was framed for being answered by the Division Bench vide order dated 25.01.2023. It is in this manner that we are called upon to answer the aforesaid question. 4. Shri Pushkar Deshpande, learned counsel appearing for the appellant-complainant referred to the judgments rendered by the learned Single Judges that have led to the making of the reference. Relying upon the decisions in Krishna P. Morajkar, Bipin Mathurdas Thakkar and Pushpa Sanchalal Kothari (supra), he submitted that there was no legal bar for seeking enforcement of the liability that is incurred on the dishonour of an instrument notwithstanding the fact that the amount advanced is not shown in the Income Tax returns of the person advancing such amounts. Referring to the decision of the Hon ble Supreme Court in Rangappa Versus Sri Mohan [(2010) 11 SCC 441], it was submitted that the Hon ble Supreme Court partly overruled its earlier decision rendered by the two learned Judge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent-accused submitted that the question as referred for being answered was required to be answered in the negative. According to him, the view as taken in Krishna Janardhan Bhat (supra) as followed by the learned Single Judge in Sanjay Mishra (supra) ought to be accepted since the object behind that view was to prevent the recovery of such amount that was stated to have been advanced without being reflected in the Income Tax returns of the complainant. Having violated the provisions of the Act of 1961, the complainant could not seek to take advantage of the situation in such manner. The learned counsel placed reliance on the judgment of the Hon ble Supreme Court in Rajaram Sriramulu Naidu (Since deceased) through L.Rs. Versus Maruthachalam (Since deceased) through L.Rs. [2023 Live Law (SC) 46] and Criminal Appeal No.268 of 2011 [Dilip Virumal Ahuja Versus Rekha Vithal Patil Another]. Since it was open for the accused to rely upon the material submitted by the complainant for raising a probable defence and rebutting the presumption, absence of disclosing the amount advanced/lent in the Income Tax returns was a material circumstance going to the root of the matter and was suffici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a holder in due course: Provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him. Sections 138 and 139 of the Act of 1881 read as under :- 138. Dishonour of cheque for insufficiency, etc., of funds in the account. Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for [a term which may be extended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by, (a) the Government; (b) any banking company, post office savings bank or cooperative bank; (c) any corporation established by a Central, State or Provincial Act; (d) any Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013); (e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette: Provided further that the provisions of this Section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act: [Provided also that the provisions of this section shall have effect, as if for the words twenty thousand rupees , the words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer who produced the certified copies of the complainant s Income Tax returns for the relevant period. On that premise the trial Court held that from the income shown in the Income Tax returns it was clear that the complainant did not have financial capacity to lend the money in question. The accused further examined the Officers from the Bank to substantiate his defence. After considering all this evidence, the trial Court found that the case of the complainant that he had given a loan to the accused from his agricultural income was unbelievable. The defence raised by the accused was found to be a possible defence and the accused was held entitled to the benefit of doubt. On this principle the trial court held that the accused had rebutted the presumption and acquitted him. The Hon ble Supreme Court observed that the defence raised by the appellant satisfied the standard of preponderance of probabilities. It therefore did not interfere with the acquittal of the accused. Though the learned counsel for the accused sought to rely upon the aforesaid decision to urge that absence of the income being disclosed in the Income Tax returns was sufficient to hold that the debt was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power. The challenge to the validity of Section 271-D of the Act of 1961 was also turned down. It is thus clear that acceptance of an amount exceeding Rupees Twenty Thousand in cash attracts penalty under Section 271-D of the Act of 1961 but such acceptance does not nullify the transaction. Infact, the penalty can be waived on showing reasonable cause. Hence, violation of Section 269-SS by the drawer of the cheque would not render the amount in question non-recoverable. 11. In Krishna Janardhan Bhat (supra) an amount of Rupees One Lakh Fifty Thousand was advanced by the complainant. The cheque drawn towards aforesaid amount came to be dishonoured. The case of the complainant came to be accepted principally on the ground that the accused did not step into the witness box. This order of the trial court was affirmed by the Appellate Court. The Karnataka High Court maintained the aforesaid decision. Before the Hon ble Supreme Court, it was held that the Courts committed an error in proceeding on the basis that for proving the defence an accused was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the accused to raise a defence wherein the existence of a legally enforceable debt or liability can be contested. However, there can be no doubt that there is an initial presumption which favours the complainant. From the aforesaid it can be seen that in Rangappa (supra) it has been held that the presumption mandated by Section 139 of the Act of 1881 includes the existence of a legally enforceable debt or liability. The observations in Krishna Janardhan Bhat (supra) to that extent were held to be not correct. It has been further held that the offence made punishable by Section 138 of the Act of 1881 could be described as a regulatory offence as bouncing of a cheque was largely in the nature of a civil wrong whose impact was usually confined to the private parties involved in commercial transactions. Reverse onus clauses were stated to usually impose evidentiary burden and not a persuasive burden. If the accused is able to raise a probable defence that creates a doubt about the existence of a legally enforceable debt or liability, the prosecution could fail. 14. We find that the ratio of the decision in Rangappa (supra) is clear that the presumption mandated by Section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvances that he has made. The decision in Sanjay Mishra (supra) was also cited but since the learned Single Judge therein had based his decision on Krishna Janardhan Bhat (supra) the same was excluded from consideration. The learned Single Judge then proceeded to decide the appeal on its merits and after setting aside the judgment of the appellate Court, the judgment of the trial Court convicting the accused was restored. The aforesaid decision in Krishna P. Morajkar has been followed in the subsequent decisions in Bipin Mathurdas Thakkar and Pushpa Sanchalal Kothari (supra). In Dilip Virumal Ahuja (supra) the acquittal of the accused was ordered as he had successfully rebutted the presumption under Section 139 of the Act of 1881. This was after considering the evidence led by the parties. 16. At this stage, it would be necessary to refer to certain decisions that are relevant in the context of the question to be answered. In Jayantilal M. Jain Vs. M/s. J.M.Sons Others [(1991) 3 BCR 694], a learned Single Judge of this Court was seized with two summary suits based on a bill of exchange. While seeking leave to defend, a plea was raised by the defendants that the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking the loan or deposit, the rigor of Section 271D was whittled down by Section 273B on the proof of bona fides. Hence such transactions could not be declared to be illegal, void and unenforceable. Similar view has been taken by the learned Single Judge of the Himachal Pradesh High Court in Criminal Appeal No.295 of 2017 (Surinder Singh Versus State of H. P. Another) decided on 03.11.2017. These decisions have been thereafter followed by the said High Courts in their subsequent decisions. 17. It can thus be said that the validity of Section 269-SS of the Act of 1961 having been upheld in Assistant Director, Inspection Investigation (supra), breach thereof being subjected to penalty under Section 271-D with a further provision for waiving the penalty under Section 273-B of the Act of 1961, it will have to be held that such transaction in violation of Section 269-SS of the Act of 1961 at the behest of the drawer of a cheque cannot be treated as null and void. Similar is the case when there is an omission of any entry relevant for computation of total income of such person to evade tax liability under Section 271-AAD of the Act of 1961. Such person, assuming him to be the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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