TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1628
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....the Hon'ble Prime Minister of India is leading the battle for complete digital transactions by every citizen of this country. Nowadays, we can see digital transactions even in small tea shops, paan shops, etc. In Kerala, even coolie workers accept their wages through digital transactions of Unified Payments Interface(UPI) like Google Pay, PhonePe, Paytm etc. I am of the considered opinion that, when the government of India aims a goal of complete digital transactions by every citizen of this country instead of cash transactions, a court of law cannot turn its face and legalise cash transactions. 2. I will first consider the facts of this case. The revision petitioner was an accused in S.T. No. 387/2013 on the file of the Judicial First Class Magistrate Court, Pathanamthitta. It was a prosecution initiated by the 1st respondent against the revision petitioner alleging offences punishable under Section 138 of the Negotiable Instruments Act, 1881 (for short "NI Act"). (Hereinafter, the revision petitioner and the 1st respondent are mentioned as the accused and the complainant, respectively.) 3. According to the complainant, the accused owed an amount of Rs. 9,00,000/- (Rupees Ni....
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....rd Adv. D. Kishore, the learned counsel appearing for the accused and Adv. Manu Ramachandran, the learned counsel appearing for the complainant. 7. The main contention raised by Adv. D. Kishore, who appeared for the accused, is that the admitted transaction, according to the complainant, is by cash. The counsel relied on Section 269SS of the Act 1961 and submitted that any transaction above Rs. 20,000/- can only be made through an account transaction or by issuance of a cheque or a draft. The counsel submitted that, in this case, admittedly Rs. 9,00,000/- is alleged to be paid by the complainant to the accused in cash. Therefore, the counsel submitted that the same violates Section 269SS of Act 1961, and consequently, a penalty is to be imposed as per Section 271D of Act 1961. The counsel submitted that, if this Court accept the contentions of the complainant, the accused is bound to pay a penalty under Section 271D of Act 1961. The accused completely denies the transaction. The counsel submitted that, even in the reply notice sent by the accused to the statutory notice, it is specifically stated that the accused has no source to advance an amount of Rs. 9,00,000/-. The counsel su....
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....e NI Act is to be considered first. Section 138 of the NI Act reads like this: "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 to two years, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless- (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due cou....
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....ight of the above authoritative judgment and also in the light of the clear wording in Section 139 of the NI Act, it is clear that there is a presumption under Section 139 of the NI Act as far as legally enforceable debt is concerned. The first point is answered accordingly. 15. Point No. 2 The presumption under Section 139 of the NI Act can be rebutted by an accused by raising a probable defence which creates doubts about the existence of a legally enforceable debt or liability. In Rangappa's case (supra) itself, this point is considered by the Apex Court about the manner in which an accused can rebut the presumption under Section 139. Therefore, it is clear that the accused can rebut a presumption under Section 139 of the NI Act by a probable defence by preponderance of probability as stated in Rangappa's case (supra). It will be beneficial to extract paragraph No.18 of Rangappa's case (supra): "18. In light of these extracts, we are in agreement with the respondent-claimant that the presumption mandated by S.139 of the Act does indeed include the existence of a legally enforceable debt or liability. To that extent, the impugned observations in Krishna Janardhan B....
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....e second point is also answered accordingly. 17. Point No. 3 The next point to be decided is whether a debt created by a cash transaction in violation of the Act 1961 can be treated as a legally enforceable debt. For deciding that, Section 269SS of Act 1961 is to be considered. Section 269SS is extracted hereunder: "269SS. Mode of taking or accepting certain loans, deposits and specified sum.- No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if,- (a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or (b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggreg....
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.... a single transaction; or in respect of transactions relating to one event or occasion from a person otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed. Section 271D of Act 1961 says that if a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of Section-269SS, shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken or accepted. Of course, Section 273B deals with situations in which 'penalty not to be imposed in certain cases'. It will be better to extract Section 273B of Act 1961: "273B. Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271, section 271A, section 271AA, section 271B, section 271BA, section 271BB, section 271C, section 271CA, section 271D, section 271E, section 271F, section 271FA, section 271FAA, section 271FAB, section 271FB, section 271G, section 271GA, section 271GB, section 271GC, section 271H, section 271-I, section 271J, clause (c) or clause (d) of sub-section (1) or....
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....] considered the impact of Section 269SS of the Act 1961. It will be better to extract the relevant portion of the above judgment: "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 S.138 of the said Act. The alleged debt cannot be said to be a legally recoverable debt." 23. It is true that the Bombay High Court relied on the judgment of Krishna Janardhan Bhat's case (supra) to conclude that there is no presumption as far as legally enforceable debt is concerned. That is already overruled in Rangappa's case (supra). But the dictum laid down in Sanjay Mishra's case (supra) is relevant here also. The Bombay High Court observed that by no stretch of imagination, it can be stated that l....
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....nt and/or Income-tax returns of the holder of the cheque in due course can be permitted to be enforced by instituting proceedings under section 138 of the Act of 1881 in view of the presumption under section 139 of the Act of 1881 that such cheque was issued by the drawer for the discharge of any debt or other liability, execution of the cheque being admitted. Violation of section 269SS and/or section 271AAD 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, Bipin Mathurdas Thakkar and Pushpa Sanchalal Kothari (supra) lay down the correct position and are thus affirmed. The decision in Sanjay Mishra (supra) with utmost respect stands overruled." 24. The Hon'ble Division Bench of the Bombay High Court observed that the penalty referred to in Section 271 of Act 1961 is a civil liability and not one which is criminal or quasi criminal in nature. In effect, the Bombay High Court observed that transaction not reflected in the books of account/ income tax returns of the holder of the cheque in due course can be permitted to be enforced by instituting proceedings under Section 138 of the NI Act....
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....lure to do so entails the imposition of penalty and also imprisonment as provided in S.276 CC of the IT Act. Thus, a person is under statutory obligation, under the pain of penalty or imprisonment to furnish a return of his income for the previous year before the due date. The term 'legal' would mean what is permissible by a statute and the term 'illegal', would mean what is prohibited by a statute or something done contrary to the manner as postulated by the provisions of a statute. Thus, when S.139 of the IT Act casts a burden upon a person to file a return, not doing so, or filing a return, not showing an entry of a transaction, would mean that the statutory requirement, in that regard stands violated, thereby making such person liable for penalty and / or imprisonment, thereby making such act as illegal i.e. not legal. In this sense of the view, in case a complainant (under S.138 of NI Act), has not filed a return, or has filed a return in which the entry in respect of which the complaint is not reflected, the transaction, would be of unaccounted cash and therefore would be illegal i.e. not legal. 8.1. Then the provision of S.269 SS of the Income-tax Act prohi....
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.... observations of the learned Single Judge in the above reference order, which leads to the Division Bench judgment. 26. Another contention raised by the complainant is that, even if it is stated that there is a violation of Section 269SS of Act 1961, the penalty is only to be paid by the person who received the amount in cash. Here, the accused received the amount in cash. No penalty is to be paid by the complainant because he paid the amount in cash to the accused, and only the accused is liable to pay a penalty because he received the amount in cash. But the question to be decided in a proceedings under Section 138 of the NI Act is whether there is any legally enforceable debt. Debt is not defined in the NI Act. Therefore, the ordinary meaning of debt is to be considered. A debt is generally understood as a sum of money owed by one party to another, often arising from a contract or agreement. If the debt arises through an illegal transaction, that debt cannot be treated as a legally enforceable debt. If the court regularises such transactions, that will encourage illegal transactions by the citizens. Even black money will be converted into white money through the criminal courts....
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....d in the light of the object intended to be achieved by it, despite there being a deviation from the general rule. The Apex Court expressed that the object of Section 138 of the NI Act is to ensure that commercial and mercantile activities are conducted in smooth and healthy manner. In Sanjay Mishra's case (supra), the Bombay High Court extracted the above judgment of the Apex Court in Dalmia Cement's case (supra) and observed that the alleged liability to repay an unaccounted cash amount, admittedly not disclosed in the income-tax return, cannot be a legally recoverable liability. I perfectly agree with the above observation of the learned Judge of the Bombay High Court. Accordingly, it is declared that debt created by a cash transaction above Rs. 20,000/- in violation of the provisions of Act 1961 is not a "legally enforceable debt" unless there is a valid explanation for the same. But the accused should challenge such transactions in evidence, and he has to rebut the presumption under section 139 of NI Act, of course, through preponderance of probability. If there is no challenge, it is presumed, in the light of Section 139 of the NI Act that, there is a valid explanatio....
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....ill make the transaction itself unenforcible through Court of law. It was only observed in that decision that, that has to be taken into consideration while considering the facts of that case to arrive at a conclusion, as to whether the transaction alleged by the complainant is believable or not. It was a case where the complainant was a partner of a money lending firm having money lending licence and doing business in money lending, who is expected to do transaction in accordance with law. Further the evidence of the complainant in that case was that, this amount was not shown in the account of the firm and it was not mentioned in the Income Tax return of the firm and he had only informed about the same to his son alone, coupled with the fact that, such a huge amount was paid by cash / by a partner of the firm, when a loan was taken was viewed by this Court, as a suspicious one to disbelieve the case of the complainant. So that cannot be taken as a proposition laid down that, any transaction by a hand loan given by ordinary persons, will make it an unenforcible one and any cheque given in discharge of such liability cannot be treated as a cheque issued in discharge of a legally en....
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....rs case (supra) is not as such applicable to the facts of this case, to disbelieve the case of the complainant, so as to give the benefit of acquittal to the revision petitioner as claimed by the counsel for the revision petitioner. " [underline supplied] 31. I am of the considered opinion that the above judgment of this Court is without adverting the decisions of the Apex Court in Rangappa's case (supra) and Krishna Janardhan Bhat's case (supra). Therefore, the dictum laid down by this Court in the above judgment is per incuriam. 32. Counsel for the petitioner relied on an article of late Adv. Sri. Alex M. Scaria. Adv. Alex M. Scaria was a lawyer with innovative thinking on all legal issues. I heard him arguing several complicated legal issues with an 'Alex touch'. The present article is also like that. We, the legal fraternity, miss such a great lawyer in his early age. Adv. Alex considered a point, "whether presumption under Section 118 or Section 139 of NI Act would be born, if the disputed transaction is not in tune with Section 269SS of the Income Tax Act, 1961?." Adv. Alex concluded the article with the following observations: "i. It is impossible to presume co....