TMI Blog2016 (8) TMI 1589X X X X Extracts X X X X X X X X Extracts X X X X ..... is taken note of by the Court as relevant to hold that the presumption under Section 118 and 139 of the NI Act stands rebutted - In the present case, the loan transaction, though not recorded in an agreement, or a receipt or acknowledgement executed by the accused, and though not reflected in the income-tax returns of the complainant, is evidenced by the oral testimony of CW-2, who is an independent witness and highly credible. The cheque in question cannot be said to be merely a security cheque for the reason that the same was issued in consideration of the loan of Rs. 10 lacs taken by the respondent/accused from the appellant/complainant. Merely because the debt may have been repayable subsequently in instalments, it cannot be said that on the date of issuance of the cheque, the debt did not exist. The mode and manner of its repayment was all that was postponed. In any event, on the date of presentation of the cheque, the debt was crystallised and ascertained. It is unheard of, that in the normal course of transactions, the drawer of the cheque issues separate instructions to the holder/payee authorising him to deposit the cheque for encashment. Absence of such authorisati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th. The remaining amount of Rs. 1,60,000/- was to be paid by the accused to the complainant on 03.10.2010. The accused, with a view to secure his liability, issued a post-dated cheque bearing No. 159064 dated 21.07.2011 for Rs. 10 lakhs drawn on Axis Bank, Shakti Nagar branch, in favour of the complainant and assured that the said cheque would be honoured on presentation. The accused, however, did not comply with the said agreement. Consequently, the accused was informed that the complainant shall proceed to deposit the cheque for encashment. The same was not objected to by the accused. When the cheque was deposited, the same was returned unpaid for insufficient funds vide cheque returning memo dated 09.08.2011. Consequently, a legal notice dated 23.08.2011 was sent to the accused which was despatched on 01.09.2011, making a demand for payment of the cheque amount within 15 days. The same was sent by registered A.D., UPC and Speed Post. The complainant stated that the accused did not reply to the notice, nor made payment of the cheque amount and, consequently, the complaint was preferred. 6. The Learned Magistrate took cognizance of the offence on 24.09.2011 and issued summons t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of Rs. 10 lakhs was arranged by her husband by selling his house and by their own savings. She had claimed that the amount had been advanced in the presence of CW2-Raghubir Singh Chaudhary. CW2 had deposed that the complainant handed over Rs. 10 lakhs to the accused in cash and at that time, the accused handed over the fully filled cheque of Rs. 10 lakhs in the name of the complainant, to the complainant. The trial court was, however, not impressed with this version, on the ground that no written agreement had been entered into between the parties. It was also hard to believe that a person would sell his property and give his savings to another person by way of a friendly loan to the tune of Rs. 10 lakhs. (c) A perusal of the cheque revealed that the cheque was signed and the amount in figures was written in one handwriting, and the name of the payee and the date and the amount in words was written in another handwriting. (d) Though, CW2 Raghubir Singh Chaudhary had stated that the cheque in question was handed over to the complainant on the same day when the loan was advanced to the accused, no written instruction was placed on record by the complainant to show th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan was given as a friendly loan. Learned counsel for the appellant, therefore, points out that even according to the respondent/accused, the loan had been given to him by the complainant, though, according to the accused, the same was given on interest and not as a friendly loan. 12. Learned counsel submits that whether loan in cash had been advanced, or not, is a matter of fact. Merely because the same was not advanced by way of an account payee cheque and there may have been contravention of Section 269SS of the Income Tax Act, the transaction does not become illegal. If the advancement of the loan, in cash, as a matter of fact is established, violation of Section 269SS of the Income Tax Act would not render the loan as not recoverable through a legal process. He also submits that it was not necessary that the parties should have entered into a written agreement at the time of advancement of the loan. 13. The Trial Court also erred in assuming that the appellant's husband has sold his property only to give a friendly loan to the respondent. The husband of the appellant has sold his property, and at that stage, the respondent had sought a loan. Since the said amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. Having heard learned counsel, perused the record and considered the rival submissions, I am inclined to allow the present appeal and convict the respondent. 19. Firstly, the Trial Court has completely ignored and glossed over the testimony of CW-2 Raghubir Singh Chaudhary. CW-2 was an independent witness. The respondent could not establish any reason to doubt the testimony of CW-2. CW-2 stated that he, the husband of the complainant, and the accused worked for LIC. He had known both the husband of the complainant and the accused for two decades and more. He stated that they all had friendly and family relations. Thus, there is no reason to doubt the testimony of CW-2. CW-2 in his examination-in-chief, inter alia, deposed: ... ... ... Accused requested Late Sh. Y.S. Sharma for giving friendly loan of Rs. 10 lakhs as he is an urgent requirement of the same. That considering the friendly relationship, Late Mr. Y.S. Sharma got read to grant a loan of Rs. 10 lakhs to the accused. In the first week of October, 2008, accused and I went to the house of complainant. Sh. Y.S. Sharma asked the complainant to give Rs. 10 lakhs to the accused. The complainant handed over Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant reflected the availability of the said amount in her income-tax returns, is also not a matter of concern for this Court. That would again be an aspect to be considered by the income-tax authorities. The advancement of loan, in cash, to the tune of Rs. 10 Lakhs is not prohibited in law. The transaction of advancement of loan of Rs. 10 Lakhs, in cash, does is not illegal. Such a transaction is enforceable at law. 25. Breach of Section 269SS of the Income Tax Act provides the penalty to which the person would be subjected to under Section 271D of the Income Tax Act. Section 271D does not provide that such a transaction would be null void. The payer of the money in cash - in violation of Section 269SS of the Income Tax Act would, therefore, be entitled to enforce an agreement of advancement of money in cash beyond Rs. 20,000/-. 26. In this regard, I may refer to, firstly, the decision of the Bombay High Court in Jayantilal M Jain v. M/s. J.M. Sons Ors. This was a summary suit based on a bill of exchange. The defendant in his affidavit, inter alia, raised the plea that the transaction was barred under Section 269SS of the Income Tax Act, 1961. It was contended on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties at the time when the transaction was entered into to circumvent or to defeat the provisions of the Income Tax, the contract is not void. 28. In the present case, the object of the parties when the transaction was entered into cannot be said to be to circumvent or defeat the purpose of the Income Tax Act. The defendant would not have issued the cheque in question had the object of the loan transaction been to defeat the provisions of the Income Tax Act. 29. Lastly, I may refer to the judgment of the Karnataka High Court in Mohammed Iqbal v. Mohammed Zahoor,. The issue that arose before the court in this case was whether the provision of Section 269SS of the Income Tax Act disentitle the plaintiff from filing the recovery suit. The said issue was answered by the court by holding that breach of Section 269SS did not tantamount to the transaction being null and void and unenforceable. The relevant extract from this decision reads as follows: 6. The Apex Court in the case of the Asst. Director of Inspection Investigation v. Kum. A.B. Shanth [(2002) 6 SCC 259 : AIR 2002 SC 2188.] while upholding the constitutional validity of Sec. 269SS observed thus:-- The object o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the transaction of loan is not evidenced by any other documentary or other reliable evidence, no doubt, the aspect whether the availability of funds in cash with the complainant/lender, and its advancement as loan to the accused have been reflected in the income tax returns of the complainant/lender, or not, become relevant. If, the availability of funds, and the loan transaction itself is not so reflected, that factor is taken note of by the Court as relevant to hold that the presumption under Section 118 and 139 of the NI Act stands rebutted. However, these considerations would not be relevant, where loan transaction itself is otherwise established, either through documentary evidence - such as, a receipt or a loan agreement, or acknowledgement executed by the accused, or by oral evidence of an independent witness who is found to be credible. In the present case, the loan transaction, though not recorded in an agreement, or a receipt or acknowledgement executed by the accused, and though not reflected in the income-tax returns of the complainant, is evidenced by the oral testimony of CW-2, who is an independent witness and highly credible. 31. The cheque in question canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en agreement with regard to the loan transaction, does not raise a doubt about the existence of such a transaction, when the same has been established by the unimpeached testimony of CW-2, who is an independent and credible witness. The cheque in question was, admittedly, delivered by the accused himself. Even in his examination-in-chief, the accused DW-1 merely states that the husband of the complainant visited my house and took the cheque in question in lieu of security with the assurance that he would provide the requisite friendly loan to the tune of Rs. 10 Lakhs . He does not state that he delivered a blank cheque, merely signed by him, to the husband of the appellant/complainant. The Trial Court has also taken as relevant, the consideration that there was no written instruction given by the accused, authorising the presentation of the cheque in question for encashment by the complainant/appellant. In my view, this reasoning of the learned Magistrate is absurd. It is unheard of, that in the normal course of transactions, the drawer of the cheque issues separate instructions to the holder/payee authorising him to deposit the cheque for encashment. Absence of such authorisation ..... 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