Prakash Madhukarrao Desai vs Dattatrya Sheshrao Desai(Prop. ...
2023 Latest Caselaw 827 Bom

                                                         CRIMINAL APPEAL 795 of 2018.odt
                                              1

             IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                     NAGPUR BENCH AT NAGPUR

                        CRIMINAL APPEAL NO.795/2018

APPELLANT :               Prakash Madhukarrao Desai
                          Aged about 38 years, Occu : Service
                          R/o Bhartipura, Karanja (Lad),
                          Tq. Karanja (Lad), Distt. Washim

                                        ...VERSUS...

RESPONDENT :               Dattatraya Sheshrao Desai,
                           Aged about 40 years,
                           Occu : Business (Proprietor of Tanmay Beer
                           Shopee) R/o Infront of Shetkari Niwas,
                           Mangrulpir Road, Tq. Karanja
                           Distt. Washim.
----------------------------------------------------------------------------------------------
                 Shri Digvijay Khapre, Advocate for appellant
                 Shri R.S. Kurekar, Advocate for respondent
----------------------------------------------------------------------------------------------

                                       CORAM : AVINASH G. GHAROTE, J.

Order reserved on                          : 22/07/2022
Order pronounced on                        : 25/01/2023

1. This is an appeal against acquittal under Section 378 (4)

of the Code of Criminal Procedure, filed by the original complainant

challenging the judgment dated 09/03/2018 in Summary Criminal

Case No.933/2016, whereby the learned Magistrate has acquitted

the accused/respondent for the offence punishable under Section CRIMINAL APPEAL 795 of 2018.odt

138 of the Negotiable Instruments Act, 1881 (for short "the NI Act")

on the ground that the cheque in question was in respect of an

unaccounted amount which was not shown by the complainant in his

Income Tax Returns and therefore cannot be said to be a legally

enforceable debt or liability as contemplated under Section 138 of

the NI Act.

2. The facts of the case are as under :-

(a) The complainant and the accused are cousins.

(b) The accused runs a beer shopee at Karanja

(c) On 23/03/2016 the accused is claimed to have

taken a hand loan of Rs.1,50,000/- for his business purpose from the

complainant without any interest, for the repayment of which, it is

claimed that the accused had issued a cheque bearing No.159114

dated 19/05/2016 in favour of the complainant in the sum of

Rs.1,50,000/- on his account No.1003031000425 with the Akola

Urban Cooperative Bank Limited, Branch at Karanja.

(d) The said cheque was presented on 07/07/2016

and was dishonoured for want of sufficient funds in the account of

the accused as per the advice dated 11/07/2016 of the complainant's CRIMINAL APPEAL 795 of 2018.odt

bank which was accompanied with the memo of the accused/Bank

indicating this.

(e) On 13/07/2016 a statutory notice was issued

through counsel making a demand, which was not claimed, leading

to filing of the complaint on 10/08/2016.

(f) During the trial, the complainant examined

himself alone and none else.

(g) The accused did not examine himself or any other

witness.

(h) During his statement under Section 313 of the

Code of Criminal Procedure (pg.26 of the paper-book), the accused

stated that the complainant used to come to his residence and had

taken the cheque from his house and has filed a false complaint.

(i) He admitted that he was running a beer shopee at

Karanja.

3. Shri Digvijay Khapre, learned counsel for the appellant

submits that the sole ground, for dismissal of the complaint, as is

apparent from the impugned judgment, was that the amount was not

shown in the Income Tax Returns of the complainant. It is contended

that this cannot be the ground to dismiss the complaint when the CRIMINAL APPEAL 795 of 2018.odt

learned Magistrate categorically found that the cheque in question

has been signed by the accused and the plea put forth regarding the

relationship between the complainant and the accused as well as the

fact that the accused was running a beer shopee under the name of

Tanmay Beer Shopee, was found to be correct. It is also submitted

that since there was no dispute that the cheque was dishonoured for

insufficient funds in the account of the accused, the presumption

under Section 139 of the NI Act, clearly became attracted, and that

being so, the contention, that the amount was not shown in the

Income Tax Returns, would not be of such a consequence so as to

dispel the presumption under Section 139 of the NI Act. He therefore

submits that once the learned Magistrate having found that the

cheque was signed by the accused and the dishonour having been

proved, the accused could not have been acquitted and the judgment

impugned, is therefore liable to be quashed and set aside. He further

submits that the complainant, was never put to notice, regarding this

plea of being required to prove the entry in regard to the loan in his

Income Tax Returns, on account of the presumption being attracted

under Section 139 the NI Act, on account of which also the

impugned judgment stands vitiated.

CRIMINAL APPEAL 795 of 2018.odt

4. Shri R.S. Kurekar, learned counsel for the respondent

supports the impugned judgment and submits, that for the

presumption under Section 139 of the NI Act to be attracted it was

necessary for the complainant to demonstrate that the cheque was

received in discharge, in whole or in part of any debt or other

liability which would only be demonstrated, by an entry, in the books

of account or for that matter in the Income Tax Returns, failing

which, the presumption would not be attracted, in view of the

explanation, to Section 138 of the NI Act, which indicates that "debt

or other liability", means a legally enforceable debt or other liability.

5. He further invites my attention to the provisions of

Sections 269 SS & 271 D of the Income Tax Act, 1961 (for short, "the

IT Act" hereinafter) to submit that since there is a statutory

prohibition to receive cash in excess of Rs.20,000/- any amount paid

in excess thereof has to be accounted for, and in case such amount is

not reflected as an entry in the profit and loss account or the audited

statement of account, where it is so required, the amount paid

cannot be held to be a legally enforceable debt or liability within the

meaning the phrase as occurring in the explanation to Section 138 of CRIMINAL APPEAL 795 of 2018.odt

the NI Act and the process of law then cannot be permitted to be

resorted to, as the same would amount to putting a premium upon

an illegality, which is not permissible in law.

6. There appears to be dichotomy of opinions in regard to

the expression "legally enforceable debt or other liability" as

occurring in the explanation of Section 138 of the NI Act so as to

attract the presumption under Section 139 of the NI Act which again

uses the same expression in relation to the provisions of the Income

Tax Act. The use of the expression "legally enforceable debt or other

liability" would prima facie mean that a debt or liability, which is

legal, in all sense of the term. There cannot be any distinction insofar

as legality is concerned to hold that what would be not legal under a

particular statute may be considered as legal for the purpose of

provisions of another statute.

7. In the instant case, the provisions of Section 139 of the

IT Act enjoins an assessee to file a return of Income, which would

mandate disclosure of all income so that the same is taxable. This

taxability of the income is in turn dependent upon a correct profit CRIMINAL APPEAL 795 of 2018.odt

and loss account with the proper entries being shown therein, which

would then be the measure of the existence of a legal transaction,

which is subject to tax. The provisions of the Income Tax Act, are to

ensure, the financial stability of the economic condition of the

country, by imposing tax, which then can be utilized for the purpose

of public welfare. Thus, the liability to pay tax, is not only a statutory

liability, but a societal one also, considering that one lives in a society

and utilizes all the benefits, arising therefrom. Thus, the liability to

pay tax, is cast upon each and every citizen of the country and non-

payment of the same, has not only been made an offence,

punishable with penalty. Thus, the Income Tax Act is very much part

and parcel of the legal framework by which the citizens of the county

are governed and are enjoined to obey and comply with.

7.1. The provisions of Sections 138 to 147 of the NI Act,

have been enacted, with the purpose of ensuring that there is a

speedy remedy, for financial issues such as dishonour of cheque

which in turn also affect the economy. Can it be said, that the

provisions of Sections 138 to 147 of the NI Act can and/or be

permitted to function and operate, de hors the provisions of the CRIMINAL APPEAL 795 of 2018.odt

Income Tax Act and the obligations it imposes upon the citizens of

the country. There is already a parallel economy flourishing in the

country, which is wholly illegal, under which a number of citizens

though they are liable to pay tax, either do not file any returns

altogether or file returns, by not disclosing the correct position. Can

it be said, that such transactions, which have not been indicated in

the Income Tax Returns and therefore kept out of the tax purview

can be legal in the true sense of the word, so that the recourse to law

can then be resorted to, by such a person/s, to recover money, which

has not been disclosed to be his income.

7.2. In M.S. Narayana Menon Alias Mani Vs. State of Kerala

and another (2006) 6 SCC 39, the Hon'ble Apex Court while

considering the presumption under Section 139 of the NI Act in light

of the background that the complainant had deliberately not

produced his books of accounts and had not been maintaining the

statutory books of accounts and other registers in terms of the stock

exchanged bye-laws was of the opinion that in absence thereof the

Court would be entitled to draw an adverse inference by presuming

to the effect that if the same was produced it might have gone CRIMINAL APPEAL 795 of 2018.odt

unfavourable to the plaintiff which presumption itself was held to be

sufficient to rebut the presumption under Section 118 of the NI Act.

7.3. The issue was considered by the Hon'ble Apex Court in

Krishna Janardhan Bhat Vs. Dattatraya G. Hegde, (2008) 4 SCC 54, in

which the provisions of Section 271 D of the Income Tax Act were

noted (para 19). It was held in light of the provisions of Sections 138

and 139 of the NI Act that the existence of a legally recoverable debt

is not a matter of presumption under Section 139 of the NI Act

(para 21).

7.4. In Sanjay Mishra Vs. Kanishka Kapoor @ Nikki and

another 2009 (4) Mh.L.J. 155, the learned Single Judge of this Court

(Shri A.S. Oka, J., as he then was), while considering the fact

situation, that the transaction in question in respect of which the

cheque was issued, was not disclosed in the Income Tax Returns and

therefore was an unaccounted amount, after considering the

provisions of the Income Tax Act and relying upon Krishna

Janardhan Bhat (supra), had held that when the amount was not

disclosed in the Income Tax Returns, by no stretch of imagination it

could be stated that the liability to repay unaccounted cash amount CRIMINAL APPEAL 795 of 2018.odt

is a legally enforceable liability within the meaning of explanation to

Section 138 of the NI Act and if it is held to be so, it will render the

explanation to Section 138 of the NI Act nugatory and will defeat the

very object of Section 138 of the NI Act of ensuring that the

commercial and mercantile activity was conducted in healthy

manner and therefore, the provisions of Section 138 of the NI Act

cannot be resorted to for recovery of an unaccounted amount.

7.5. In Rangappa Vs. Sri Mohan (2010) 11 SCC 441 after

considering the earlier judgment in Krishna Janardhan Bhat (supra) a

larger Bench of the Hon'ble Apex Court comprising of three Judges

disagreed regarding the non-availability of presumption under

Section 139 of the NI Act as expressed therein, by holding that the

presumption under Section 139 of the NI Act does indeed include the

existence of a legally enforceable debt or liability and held that the

observations in Krishna Janardhan Bhat (supra) to that extent may

not be correct. It however, hastened to add that this would not in any

way cast doubt on the correctness of the decision in Krishna

Janardhan Bhat (supra) since it was based on the specific facts and

circumstances therein and also further held that the initial CRIMINAL APPEAL 795 of 2018.odt

presumption which favours the complainant is always rebuttable by

the accused.

7.6. In Krishna P. Morajkar Vs. Joe Ferrao and another, 2013

Cri. L.J. (NOC) 572 (BOM.) (GOA BENCH) a learned Single Judge of

this Court (Shri R.C. Chavan, J.) after considering Rangappa and

Sanjay Mishra (supra) disagreed with the view taken in Sanjay

Mishra (supra) and while disagreeing to refer the matter to a learned

Division Bench on the ground that an earlier view by a learned

Single Judge in Shri Deelip Apte Vs. Nilesh P. Salgaonkar and others

2006 (2) Goa L.R. 229 and the absence of express provision which

would make such loans unrecoverable, held that even if the amount

is not shown in the Income Tax Returns that would be of no

consequence vis-a-vis proceedings under Section 138 of the NI Act.

7.7. This view has been followed in Bipin Mathurdas

Thakkar Vs. Samir and another 2015 SCC OnLine Bombay 305 (para

20) and Pushpa Sanchalal Kothari Vs. Aarti Uttam Chavan 2021 (5)

Mh.L.J. 121 (para 17).

CRIMINAL APPEAL 795 of 2018.odt

8. The provisions of Section 139 of the IT Act enjoins upon

every person to furnish a return of his income during the previous

year before the due date, failure to do so entails the imposition of

penalty and also imprisonment as provided in Section 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 Section 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 Section 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.

CRIMINAL APPEAL 795 of 2018.odt

8.1. Then the provision of Sections 269 SS of the Income Tax

Act prohibits the acceptance or taking of loans/deposits exceeding an

amount of Rs.20,000/- by cash. The provisions of Section 271 D of

the IT Act makes an action in contravention to the provisions of

Section 269 SS liable for penalty equivalent to the amount of loan or

deposit taken or accepted by cash. Though the provisions of Section

273 B of the IT Act mandates, that in case the assessee or the

recipient proves that there was a reasonable cause for acceptance of

the amount in cash in excess of the sum prohibited by Section 269

SS of the IT Act the penalty may not be imposed, the fact remains

that the acceptance of an amount in cash in excess of Rs.20,000/-

would carry penalty as contemplated by Section 271 D of the IT Act

and therefore would be an act, which is not permissible in law.

Though Section 269 SS of the IT Act imposes a prohibition upon the

recipient, the prohibition in fact touches the transaction itself. In

Assistant Director of Inspection Investigation Vs. A.B. Shanthi (2002)

6 SCC 259, the Hon'ble Apex Court while considering the legality of

Section 269 SS of the IT Act has held that the object of introducing

Section 269 SS was to ensure that the taxpayer should not be

allowed to give false explanation for his unaccounted money or if he CRIMINAL APPEAL 795 of 2018.odt

has given some false entries in his accounts, he should not escape by

giving false explanation for the same and the main object of the

provision was to curb this menace. The constitutional validity of the

said provision was thus upheld. Thus, the very purpose, of

introducing Section 269 SS of the IT Act was to curb the parallel

economy which was rampant on account of cash transactions which

were unaccounted for. Thus, what has been prohibited by

Section 269 SS of the IT Act and violation of the same and has been

made liable for a penalty, could it be said that an action done

contrary thereto, would be legal, within the expression "legally

enforceable debt or other liability", as occurring in the explanation to

Section 138 of the NI Act. Holding that infraction of provisions of the

Income Tax Act would be a matter between revenue and the

defaulter and the advantage cannot be taken by the borrower [as

held in Bipin Madhurdas Thakkar and Krishna Morajkar (supra)], in

my considered opinion, would tend to defeat the very purpose of the

Income Tax Act and would bolster the parallel economy of

transactions in cash.

CRIMINAL APPEAL 795 of 2018.odt

8.2. The expression "legally enforceable" as occurring in the

explanation to Section 138 of the NI Act, necessarily has to be given

a narrow meaning for the reason that legality, has to traverse across

everything and it cannot be said that if one action is illegal under a

particular statute, the same ought to be discarded, for the purpose of

considering the applicability of another statute.

8.3. Though in Rangappa (supra) it has been held that the

presumption mandated by Section 139 of the NI Act indeed includes

the existence of a legally enforceable debt or liability, the question

whether transaction, which is prohibited by a statute, would attract

such presumption, did not fall for consideration as is apparent from

the defence raised as noted in para 8 therein.

8.4. I am therefore with due regard and respect unable to

agree, with what has been held in Bipin Madhurdas Thakkar, Krishna

Morajkar and Pushpa (supra) and I am in agreement with what has

been held in Sanjay Mishra (supra).

9. The issue whether the benefit of law by invoking

Sections 138 to 147 of the NI Act should be permitted, for recovery CRIMINAL APPEAL 795 of 2018.odt

of unaccounted cash, which transaction is prohibited by

Section 269 SS of the IT Act, is of seminal importance and has wide

ramifications, considering which, I deem it appropriate to frame the

following question:-

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 enforced, by institution of proceedings under Section 138 of the Negotiable Instruments Act ?

10. I, therefore, deem it appropriate to direct the Registry to

place the matter before the Hon'ble the Chief Justice, if deemed

appropriate to constitute an appropriate Bench for answering the

above question.

11. The Registry is directed to do the needful.

Digitally signed bySHAILENDRA (AVINASH G. GHAROTE, J.) SUKHADEORAO WADKAR Signing Date:25.01.2023 16:33

Wadkar