2009 (2) TMI 901 - HC - Indian Laws

Complaint Dismissed: Unaccounted Cash Not a Legally Enforceable Debt Under Section 138 of Negotiable Instruments Act

The Court rejected the applicant's complaint under Section 138 of the Negotiable Instruments Act, 1881, due to failure to prove the cheque was issued for ... Section 138 of the Negotiable Instruments Act, 1881 - Dishonour of Cheque - acquittal of the accused - amount advanced was an ''unaccounted amount'' which was not disclosed to the Income Tax Authority - cheques issued towards discharge of legally enforceable debt or not? - 1st respondent accepted the liability to repay the loan but denied her signatures on the bill of exchange as well as the cheque - presumption u/s 139 - HELD THAT:- The presumption u/s 139 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 [2008 (1) TMI 827 - SUPREME COURT] there is no presumption u/s 139 that the debt is a legally recoverable debt. In the case of Goa Plast (P) Ltd. v. Chico Ursula D'Souza [2003 (11) TMI 336 - SUPREME COURT], the Apex Court reiterated that a debt or liability subject-matter of Section 138 means a legally enforceable debt or liability. Admittedly 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. The alleged debt cannot be said to be a legally recoverable debt. Considering the admission of the applicant, the conclusion recorded by the ld trial Judge that the applicant has failed to establish that the cheque was issued towards discharge of a legally recoverable debt is correct. Therefore, Application is rejected. Issues Involved:1. Legally enforceable debt under Section 138 of the Negotiable Instruments Act, 1881.2. Rebuttal of presumption under Section 139 of the Negotiable Instruments Act, 1881.3. Impact of unaccounted money on the enforceability of debt.4. Admission of unaccounted cash in Income Tax returns.Issue-wise Detailed Analysis:1. Legally enforceable debt under Section 138 of the Negotiable Instruments Act, 1881:The applicant filed a complaint under Section 138 of the Negotiable Instruments Act, 1881, alleging that the 1st respondent issued a cheque for Rs. 15 lacs, which was dishonored. The trial Judge acquitted the 1st respondent, holding that the applicant failed to establish that the cheque was issued in discharge of a legal liability. The learned Judge also noted that the amount advanced was unaccounted and not disclosed to the Income Tax Authority.2. Rebuttal of presumption under Section 139 of the Negotiable Instruments Act, 1881:The learned Senior Counsel for the applicant argued that the presumption under Section 139, which favors the holder of the cheque, was not rebutted merely because the amount was unaccounted. The counsel cited a decision of the Court to support this argument. However, the Court emphasized that Section 139 raises a presumption regarding the cheque being issued for discharge of debt or liability but does not presume the existence of a legally enforceable debt.3. Impact of unaccounted money on the enforceability of debt:The Court scrutinized the applicant's admission that the amount advanced was unaccounted cash. The Court noted that the applicant admitted the amount was kept at his residence and not disclosed in the Income Tax returns till 2006. The Court reasoned that a large unaccounted amount not disclosed in Income Tax returns could rebut the presumption under Section 139. The Court cited the Apex Court's decision in Krishna Janardhan Bhat v. Dattatraya G. Hegde, which highlighted that for Section 138 to apply, the debt must be legally enforceable.4. Admission of unaccounted cash in Income Tax returns:The Court stressed that the applicant's categorical admission that the amount was unaccounted and not disclosed in Income Tax returns until 2006 rendered the debt unenforceable. The Court held that liability to repay unaccounted cash is not legally enforceable under Section 138. The Court cited the Apex Court's observation that the object of Section 138 is to ensure healthy commercial activities, which would be defeated if unaccounted amounts were considered legally enforceable.Conclusion:The Court concluded that the applicant failed to establish that the cheque was issued towards discharge of a legally recoverable debt. The application for leave was rejected, emphasizing that efforts to misuse Section 138 for recovery of unaccounted amounts must be discouraged.