2025 (7) TMI 1628 - HC - Indian Laws

Dishonour of Cheque - legally enforceable debt or not - insufficient funds - payment of Rs. 9, 00, 000/- by the complainant to the accused in cash - rebuttal of presumptions. Whether the presumption under Section 139 of the NI Act cover the legally enforceable debt ? - HELD THAT - From a reading of Section 139 of the NI Act it is clear that it shall be presumed unless the contrary is proved that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge in whole or in part of any debt or other liability. Therefore the holder of the cheque is presumed that he received the cheque in discharge in whole or in part of any debt or other liability and in the explanation to the section it is stated that the debt or other liability is a legally enforceable debt. Therefore there is no doubt to the fact that the presumption under Section 139 of the NI Act covers legally enforceable debt also. Therefore the holder of a cheque is presumed that he received the cheque in whole or in part of any legally enforceable debt. It is true that in Krishna Janardhan Bhat v. Dattatraya G. Hegde 2008 (1) TMI 827 - SUPREME COURT the Apex Court observed that there is no presumption as far as legally enforceable debt under Section 139 of the NI Act is concerned - 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. How can a presumption under Section 139 of the NI Act be rebutted by an accused? - HELD THAT - 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 2010 (5) TMI 391 - SUPREME COURT 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 - therefore the accused can rebut the presumption under Section 139 of the NI Act by the standard of proof of a probable defence through preponderance of probabilities which creates doubts about the existence of a legally enforceable debt. Whether debt created by a cash transaction above Rs. 20, 000/- in violation of the provisions of the Act 1961 can be treated as a legally enforceable debt ? - HELD THAT - It is clear that no person shall take or accept from any other person 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 or through such other electronic mode as may be prescribed if the amount is above Rs. 20, 000/- provided that such transactions will not come within the purview of the exemptions mentioned in the section. Similarly Section 269ST also prohibit that no person shall receive an amount of two lakh rupees or more in aggregate from a person in a day; or in respect of 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. 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 explanation to the complainant under Section 273B of the Act 1961. Hereafter if anybody pays an amount in excess of 20, 000/ to another person by cash in violation of Act 1961 and thereafter receives a cheque for that debt he should take responsibility to get back the amount unless there is a valid explanation for such cash transactions. If there is no valid explanation in tune with Section 273B of the Act 1961 the doors of the criminal court will be closed for such illegal transactions. Whether the presumption under Section 139 of the NI Act is rebutted in the facts and circumstances of the case and whether the complainant established that there is any legally enforceable debt ? - HELD THAT - The complainant has not paid any income-tax for the amount paid to the accused in cash. He has no explanation for the payment of the amount in cash to the accused. It is a settled position that the ignorance of the law is not an excuse. The accused specifically cross-examined about the same when PW1 was in the box as far as the legally enforceable debt is concerned. He has absolutely no explanation regarding the payment of the amount above Rs. 20, 000/- by cash. In such circumstances in the light of the principle laid down by the Apex Court in Rangappa s case the accused rebutted the presumption. The debt alleged to be due to the complainant cannot be treated as a legally enforceable debt. This is a case in which the complainant fails to prove that there is legally enforceable debt. The accused rebutted the presumption under Section 139 of NI Act. Consequently the conviction and sentence imposed on the accused are to be set aside. The conviction and sentence imposed on the revision petitioner/accused on the file of the Judicial First Class Magistrate Court-II Pathanamthitta and the judgment dated 30.11.2023 in Crl. Appeal No.59/2019 on the file of the Additional District Sessions Court-III Pathanamthitta is set aside and the revision petitioner is acquitted - this Criminal Revision Petition is allowed.

Summary

ISSUES:

Whether the presumption under Section 139 of the Negotiable Instruments Act (NI Act) covers the existence of a "legally enforceable debt"?How can the presumption under Section 139 of the NI Act be rebutted by the accused'Whether a debt created by a cash transaction exceeding Rs. 20,000/- in violation of Section 269SS of the Income-Tax Act, 1961 (Act 1961) can be treated as a "legally enforceable debt"?Whether the presumption under Section 139 of the NI Act is rebutted on the facts of the case, and whether the complainant established the existence of a "legally enforceable debt"?

RULINGS / HOLDINGS:

Section 139 of the NI Act includes a presumption in favour of the holder that the cheque was issued for the discharge, in whole or in part, of a legally enforceable debt or other liability.The accused can rebut the presumption under Section 139 by raising a probable defence that creates doubts about the existence of a legally enforceable debt or liability, on the standard of preponderance of probabilities.A debt arising from a cash transaction above Rs. 20,000/- made in violation of Section 269SS of Act 1961 is not a "legally enforceable debt" unless a valid explanation is provided under Section 273B of Act 1961.On the facts, where the complainant admitted payment of Rs. 9,00,000/- in cash without paying income tax or providing a valid explanation, the accused successfully rebutted the presumption under Section 139; thus, the alleged debt cannot be treated as legally enforceable.

RATIONALE:

The Court relied on the statutory language of Section 138 (including its Explanation) and Section 139 of the NI Act, as well as authoritative Supreme Court precedents, notably the three-judge bench decision in Rangappa v. Sri Mohan, which overruled the earlier contrary view in Krishna Janardhan Bhat v. Dattatraya G. Hegde regarding the presumption of legally enforceable debt.The Court applied the principle that Section 139 creates a rebuttable presumption favoring the holder, which the accused may rebut by adducing a probable defence on a preponderance of probabilities, consistent with Rangappa.Section 269SS of Act 1961 mandates that loans or deposits above Rs. 20,000/- must be accepted by cheque, draft, or prescribed electronic mode; violation attracts penalty under Section 271D but does not per se render the transaction void.The Court distinguished between penalty as a civil obligation under the Income-Tax Act and the criminal enforceability of debt under the NI Act, emphasizing that criminal courts should not "legalise cash transactions" in violation of Section 269SS, as it would undermine the legislative intent to curb unaccounted cash transactions and support the "Digital India" initiative.The Court rejected the view that violation of Section 269SS is merely a matter between revenue and defaulter, holding that debt arising from such illegal transactions cannot be treated as legally enforceable debt for the purpose of Section 138 NI Act proceedings unless a valid explanation under Section 273B is shown.The Court noted that the accused rebutted the presumption by highlighting absence of income tax payment and lack of explanation for the cash transaction, thus negating the existence of a legally enforceable debt.The Court clarified that this ruling applies prospectively and only in cases where the issue is specifically raised and no valid explanation under Section 273B is provided; concluded trials need not be reopened absent such a point.