Kerala High Court
P.C. Hari vs Shine Varghese on 25 July, 2025
Author: P.V.Kunhikrishnan
Bench: P.V.Kunhikrishnan
Crl.Rev.Pet. No.408 of 2024
1
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CR
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE P.V.KUNHIKRISHNAN
FRIDAY, THE 25TH DAY OF JULY 2025 / 3RD SRAVANA, 1947
CRL.REV.PET NO. 408 OF 2024
AGAINST THE ORDER/JUDGMENT DATED 30.11.2023 IN Crl.A
NO.59 OF 2019 OF ADDITIONAL DISTRICT COURT & SESSIONS COURT -
III, PATHANAMTHITTA ARISING OUT OF THE ORDER/JUDGMENT DATED
21.06.2019 IN ST NO.387 OF 2013 OF JUDICIAL MAGISTRATE OF
FIRST CLASS - II, PATHANAMTHITTA
REVISION PETITIONER/APPELLANT/ACCUSED:
P.C. HARI
AGED 55 YEARS
S/O. LATE CHAKARAPANI, PALAMOOTTIL HOUSE, PRAKKANAM
P.O., PATHANAMTHITTA, PIN - 689643
BY ADVS.
SRI.D.KISHORE
SMT.MEERA GOPINATH
SRI.R.MURALEEKRISHNAN (MALAKKARA)
RESPONDENT(S)/COMPLAINANT & STATE:
1 SHINE VARGHESE
KOIPURATHU VEEDU (PULINIKKUNNATHIL), AZHOOR MURI,
Crl.Rev.Pet. No.408 of 2024
2
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PATHANAMTHITTA, PIN - 689645
2 STATE OF KERALA
REPRESENTED BY PUBLIC PROSECUTOR,HIGH COURT OF
KERALA, PIN - 682031
BY ADVS.
SRI.MANU RAMACHANDRAN
SRI.M.KIRANLAL
SRI.T.S.SARATH
SRI.R.RAJESH (VARKALA)
SHRI.SAMEER M NAIR
SMT.SAILAKSHMI MENON
SMT.JOTHISHA K.A.
SMT.SHIFANA M.
THIS CRIMINAL REVISION PETITION HAVING COME UP FOR
ADMISSION ON 07.07.2025, THE COURT ON 25.07.2025 DELIVERED THE
FOLLOWING:
Crl.Rev.Pet. No.408 of 2024
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CR
P.V.KUNHIKRISHNAN, J
--------------------------------
Crl.Rev.Pet. No.408 of 2024
-------------------------------
Dated this the 25th day of July, 2025
ORDER
When the Income-Tax Act, 1961 (for short "Act
1961") prohibit a person from taking or accepting from
another person any loan or deposit or any specified sum above
an amount of Rs. 20,000/-, otherwise than by an account
payee cheque or account, or accepting payee bank draft or use
of electronic clearing system through a bank account or such
other electronic mode as may be prescribed; can a criminal
court justify cash transaction above an amount of Rs.20,000/-
treating it as a "legally enforceable debt" is the important
question to be decided in this case. The Union Government is
aiming for "Digital India", and 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
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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
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amount of Rs.9,00,000/- (Rupees Nine lakhs only) to the
complainant and for discharge of the said legally enforceable
debt, the accused issued a cheque for Rs. 9,00,000/- drawn on
his account maintained at the South Indian Bank Limited,
Pathanamthitta Branch to the complainant. The accused made
the complainant believe that he would keep sufficient funds in
his account to honour the said cheque. The complainant
presented the cheque for encashment through his account
maintained at the Federal Bank, Pathanamthitta branch. The
said cheque was dishonoured for the reason "funds
insufficient". The said cheque was returned to the complainant
on 04.01.2013. The complainant issued a lawyer notice on
09.01.2013, intimating the fact of dishonour of cheque and
demanding Rs. 9,00,000/-, which is the amount covered under
the cheque. The accused received the notice on 11.01.2013.
It is the case of the complainant that the accused sent a reply
notice to the complainant by setting up some false
contentions. According to the complainant, the accused
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refused to pay the amount even after getting the statutory
notice. Hence, it is alleged that the accused committed the
offences.
4. Before the trial court, the complainant himself was
examined as PW1. PW2 was also examined on the side of the
complainant. Exts.P1 to P8 were the exhibits marked on the
side of the complainant. DW1 to DW3 were examined on the
side of the defence. Exts.D1 and D2 were the defence exhibits.
Exts.X1 to X15 were marked as court exhibits. After going
through the evidence and the documents, the trial court found
that the accused committed the offence under Section 138 of
the NI Act and he was sentenced to undergo simple
imprisonment for one year and to pay a compensation of
Rs.9,00,000/- to the complainant under Section 357(3) of the
Code Of Criminal Procedure, 1973 (for short 'Cr.P.C.'). In
default of payment of compensation, the accused was directed
to undergo simple imprisonment for a further period of one
year.
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5. Aggrieved by the conviction and sentence, the
accused filed an appeal before the Sessions Court,
Pathanamthitta. The appeal was heard by the IIIrd Additional
District and Sessions Judge, Pathanamthitta. The appellate
court, after going through the evidence and documents,
confirmed the conviction and sentence, and accordingly
dismissed the appeal. Aggrieved by the same, this Criminal
Revision Petition is filed.
6. Heard 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.
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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 submitted that the
complainant deposed before the court that he had not paid any
income tax for the amount. In such circumstances, the
alleged transaction itself is illegal and therefore, a debt created
by an illegal transaction cannot be treated as a legally
enforceable debt. Adv. D. Kishore also relied on an article
published in Kerala High Court cases by late Sri. Alex M.
Scaria, along with his wife, Smt. Saritha Thomas.
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8. Adv. Manu Ramachandran, who appeared for the
complainant, opposed the contentions raised by Adv. D.
Kishore. Adv. Manu Ramachandran submitted that, even if the
case of the accused is accepted, only a penalty is possible
under Section 271D of Act 1961. The counsel submitted that
such a transaction in violation of Section 269SS of Act 1961 at
the behest of the drawer of a cheque cannot be treated as null
and void. The counsel also submitted that, even if the
contentions of the accused are accepted, the penalty is to be
paid by the accused who received the amount in cash. The
counsel relied on the judgment of this Court in Sugunan v.
Thulaseedharan and Another [2014 (4) KHC 848]. Adv.
Manu Ramachandran also relied on the decision of the Bombay
High Court in Krishna P. Morajkar v. Joe Ferrao and
Another [Cr. Appeal No.6/2012] in which it is stated that
infraction of provisions of the Income-Tax Act would be a
matter between the revenue and defaulter, and advantage
thereof cannot be taken by the borrower. It is also submitted
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that there is a presumption in favour of the "legally
enforceable debt". The accused has not rebutted the same is
the contention.
9. This Court considered the contentions of the counsel
for the accused and the complainant. The following important
points arise for consideration in this case.
1. Whether the presumption under Section 139 of the NI
Act cover the "legally enforceable debt"?
2. How can a presumption under Section 139 of the NI
Act be rebutted by an accused?
3. 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"?
4. 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"?
10. Point No.1
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For a proper consideration of the above point, the
relevant section of the 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 course of the
cheque, as the case may be, makes a demand for the
payment of the said amount of money by giving a notice;
in writing, to the drawer of the cheque, within thirty days
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of the receipt of information by him from the bank
regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the
payment of the said amount of money to the payee or, as
the case may be, to the holder in due course of the
cheque, within fifteen days of the receipt of the said notice.
Explanation.--For the purposes of this section, "debt
of other liability" means a legally enforceable debt or other
liability. "
11. Explanation to Section 138 of the NI Act clearly
states that for the purpose of that section, "debt of other
liability" means a legally enforceable debt or other liability.
Section 139 of the NI Act reads like this :
"139. Presumption in favour of holder.--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. "
12. 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
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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.
13. It is true that in Krishna Janardhan Bhat v.
Dattatraya G. Hegde [2008 (4) SCC 54], the Apex Court
observed that there is no presumption as far as legally
enforceable debt under Section 139 of the NI Act is concerned.
The said principle is laid down by the Apex Court in Krishna
Janardhan Bhat's case (supra) in paragraph Nos. 20, 21 and
22. But the said principle is overruled by a three judge bench
decision of the Apex Court in Rangappa v. Sri Mohan [2010
KHC 4325].
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14. In the light 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
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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
Bhat (supra) may not be correct. However, this does not in
any way cast doubt on the correctness of the decision in
that case since it was based on the specific facts and
circumstances therein. As noted in the citations, this is of
course in the nature of a rebuttable presumption and it is
open to the accused to raise a defence wherein the
existence of a legally enforceable debt or liability can be
contested. However, there can be no doubt that there is an
initial presumption which favours the complainant. S.139 of
the Act is an example of a reverse onus clause that has
been included in furtherance of the legislative objective of
improving the credibility of negotiable instruments. While
S.138 of the Act specifies a strong criminal remedy in
relation to the dishonour of cheques, the rebuttable
presumption under S.139 is a device to prevent undue
delay in the course of litigation. However, it must be
remembered that the offence made punishable by S.138
can be better described as a regulatory offence since the
bouncing of a cheque is largely in the nature of a civil
wrong whose impact is usually confined to the private
parties involved in commercial transactions. In such a
scenario, the test of proportionality should guide the
construction and interpretation of reverse onus clauses and
the accused / defendant cannot be expected to discharge
an unduly high standard or proof. In the absence of
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compelling justifications, reverse onus clauses usually
impose an evidentiary burden and not a persuasive burden.
Keeping this in view, it is a settled position that when an
accused has to rebut the presumption under S.139, the
standard of proof for doing so is that of 'preponderance of
probabilities'. Therefore, if the accused is able to raise a
probable defence which creates doubts about the existence
of a legally enforceable debt or liability, the prosecution can
fail. As clarified in the citations, the accused can rely on the
materials submitted by the complainant in order to raise
such a defence and it is conceivable that in some cases the
accused may not need to adduce evidence of his / her
own." (underline supplied)
16. 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. The 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
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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 aggregate
amount referred to in clause (b),
is twenty thousand rupees or more:
Provided that the provisions of this section shall not
apply to any loan or deposit or specified sum taken or
accepted from, or any loan or deposit or specified sum
taken or accepted by,--
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(a) the Government;
(b) any banking company, post office savings bank or
co-operative bank;
(c) any corporation established by a Central, State or
Provincial Act;
(d) any Government company as defined in clause
(45) of section 2 of the Companies Act, 2013 (18 of 2013);
(e) such other institution, association or body or class
of institutions, associations or bodies which the Central
Government may, for reasons to be recorded in writing,
notify in this behalf in the Official Gazette:
Provided further that the provisions of this section
shall not apply to any loan or deposit or specified sum,
where the person from whom the loan or deposit or
specified sum is taken or accepted and the person by whom
the loan or deposit or specified sum is taken or accepted,
are both having agricultural income and neither of them
has any income chargeable to tax under this Act.
Explanation.--For the purposes of this section,--
(i) "banking company" means a company to which the
provisions of the Banking Regulation Act, 1949 (10 of 1949)
applies and includes any bank or banking institution
referred to in section 51 of that Act;
(ii) "co-operative bank" shall have the same meaning
as assigned to it in Part V of the Banking Regulation Act,
1949 (10 of 1949);
(iii) "loan or deposit" means loan or deposit of money;
(iv) "specified sum" means any sum of money
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receivable, whether as advance or otherwise, in relation to
transfer of an immovable property, whether or not the
transfer takes place."
18. From the above, 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
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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 sub-section (2) of section 272A, sub-section
(1) of section 272AA or section 272B or sub-section (1) or
sub-section (1A) of section 272BB or sub-section (1) of
section 272BBB or clause (b) of sub-section (1) or clause
(b) or clause (c) of sub-section (2) of section 273, no
penalty shall be imposable on the person or the assessee,
as the case may be, for any failure referred to in the said
provisions if he proves that there was reasonable cause for
the said failure."
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19. As per Section 273B, if the person proves that there
was a reasonable cause for the failure of the mandate in
Section 269SS, no penalty can be imposed under Section 271B
of the Act 1961.
20. Admittedly, the Apex Court in Krishna Janardhan
Bhat's case (supra) was considering a case in which the
accused was convicted and sentenced by the trial court. While
discussing the facts, the apex court also considered the impact
of Section 269SS. Paragraph 19 of the above judgment is
extracted hereunder:
"19. The Courts below failed to notice that ordinarily in
terms of S.269SS of the Income Tax Act, any advance
taken by way of any loan of more than Rs.20,000/- was to
be made by way of an account payee cheque only. S.271D
of the Income Tax Act reads as under:
"271D. Penalty for failure to comply with the
provisions of S.269SS.-- (1) If a person takes or accepts
any loan or deposit in contravention of the provisions of
S.269SS, he shall be liable to pay, by way of penalty, a sum
equal to the amount of the loan or deposit so taken or
accepted.
(2) Any penalty imposable under sub-section (1) shall
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be imposed by the Joint Commissioner."
21. The three-member bench decision in Rangappa's
case (supra) overruled only the declaration regarding the non-
availability of presumption under Section 139 of the NI Act for
legally enforceable debt in Krishna Janardhan Bhat's case,
and all other points in it were confirmed. This is clear from
paragraph 15 of Rangappa's decision, which is extracted in
paragraph 15 of this judgment, while considering point number
two. Therefore, the judgment of the Krishna Janardhan
Bhat's case (supra) is in effect confirmed in Rangappa's case
(supra), except regarding the declaration regarding non
availability of the presumption under Section 139 of the NI
Act.
22. The Bombay High Court in Sanjay Mishra v.
Kanishka Kapoor @ Nikki and Another [2009 (2) KLD 825]
considered the impact of Section 269SS of the Act 1961. It
will be better to extract the relevant portion of the above
judgment:
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"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 liability to repay unaccounted cash amount is a
legally enforceable debt within the meaning of the explanation
to Section 139 of the said Act. I am in perfect agreement with
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the above dictum laid down by the Bombay High Court. It is
true that the above judgment was referred by another learned
Single Judge of the Bombay High Court and the matter
reached before the Division Bench of the Bombay High Court
Nagpore Bench. The Division Bench of the Bombay High Court
in Prakash Madhukarrao Desai v. Dattatraya Sheshrao
Desai [2023 SCC OnLine Bom 1708] observed like this :
"17. It can thus be said that the validity of section
269SS of the Act of 1961 having been upheld in Assistant
Director of Inspection (Investigation) v. Kum. A. B. Shanthi
(supra), breach thereof being subjected to penalty under
section 271D with a further provision for waiving the
penalty under section 273B of the Act of 1961, it will have
to be held that such transaction in violation of section
269SS of the Act of 1961 at the behest of the drawer of a
cheque cannot be treated as null and void. Similar is the
case when there is an omission of any entry relevant for
computation of total income of such person to evade tax
liability under section 271AAD of the Act of 1961. Such
person, assuming him to be the payee/holder in due
course, is liable to be visited by penalty as prescribed. Such
act is not treated to be statutorily void. We may in this
context refer to paragraph 4 of the decision in Gujarat
Travancore Agency, Cochin (supra) wherein reference has
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been made to the following statement in Corpus Juris
Secundum, Volume 85 page 580, paragraph 1023: "A
penalty imposed for a tax delinquency is a civil obligation,
remedial and coercive in its nature, and is far different
from the penalty for a crime or a fine or forfeiture provided
as punishment for the violation of criminal penal laws."
Further, in Atul Mohan Bindal (supra), the penalty referred
to in section 271(1)(c) of the Act of 1961 has been referred
to as a civil liability and not one which is criminal or quasi-
criminal in nature. Thus, in the light of statutory
presumption under sections 118 and 139 of the Act of
1881, it would be for the accused to rebut such
presumption in the light of what has been held in Rangappa
(supra).
18. In view of the aforesaid discussion, it is held that a
transaction not reflected in the books of account 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
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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 in view of the
presumption under Section 139 of the NI Act that such cheque
was issued by the drawer for the discharge of any debt or
other liability, execution of the cheque being admitted. It is
also observed by the Division Bench of the Bombay High Court
that, violation of Section 269SS would not render the
transaction unenforceable under Section 138 of the NI Act
because such a person, assuming him to be the payee/holder
in due course, is liable to be visited by penalty as prescribed.
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Such an act is not treated to be statutorily void is the findings .
The Bombay High Court also relied, Corpus Juris Secundum,
Volume 85 page 580, paragraph 1023: wherein it is stated
that, "A penalty imposed for a tax delinquency is a civil
obligation, remedial and coercive in its nature, and is far
different from the penalty for a crime or a fine or forfeiture
provided as punishment for the violation of criminal penal
laws." With great respect, I cannot agree with the above
finding of the Division Bench of the Bombay High Court. A
penalty is imposed for discouraging individuals from violating
laws or regulations. It is not to enrich the revenue. If the
criminal court legalises such violations relying on Section 139
NI Act presumptions, stating that the revenue will get the
penalty amount, revenue will be treated like a "shylock" who is
a Shakespeare's character. Penalty is imposed on a citizen for
the violation of a provision and to prevent him from repeating
the same in future, and it is not a mechanism to get money to
the revenue. In other words, if the criminal court indirectly
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legalises such illegal transactions in violation of Act 1961, the
same will be against the aim of our country to discourage cash
transactions above twenty thousand rupees, which is also a
part of the "digital India" dream of our country, which is
propounded by our Prime Minister to save our economy and to
curb a parallel economy in our country. The matter reached
the Division Bench of the Bombay High Court based on a
reference by another learned Single Judge of the Bombay High
Court in Prakash Madhukarrao Desai v Dattatraya
Sheshrao Desai (2023 KHC Online 3165). It will be beneficial
to extract the relevant portion of the above reference order:
"8. The provisions of S.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 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
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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 prohibits the acceptance or taking of loans /
deposits exceeding an amount of Rs.20,000/- by cash. The
provisions of S.271 D of the IT Act makes an action in
contravention to the provisions of S.269 SS liable for
penalty equivalent to the amount of loan or deposit taken
or accepted by cash. Though the provisions of S.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 S.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 S.271 D of the IT Act and
therefore would be an act, which is not permissible in law.
Though S.269 SS of the IT Act imposes a prohibition upon
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the recipient, the prohibition in fact touches the transaction
itself. In Assistant Director of Inspection Investigation v.
A.B. Shanthi (2002) 6 SCC 259 : (AIR 2002 SC 2188), the
Hon'ble Apex Court while considering the legality of S.269
SS of the IT Act has held that the object of introducing
S.269 SS was to ensure that the taxpayer should not be
allowed to give false explanation for his unaccounted
money or if he 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 S.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 S.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 S.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, 2015 (3) ABR (Cri) 463 (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. "
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25. I agree with the 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
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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. Therefore, I am not impressed by the
argument of the complainant that only the receiver of the cash
above Rs.20,000/- is liable to pay penalty, and therefore, if the
complainant pays the amount as cash which is even above
Rs.20,000/- it will come within the purview of a legally
enforceable debt. In Dalmia Cement (Bharat) Limited v.
Galaxy Traders & Agencies Limited and Others [2001 (6)
SCC 463], the Apex Court referred to the object of Section 138
of the NI Act. Paragraph No.3 of the above judgment is
extracted hereunder:
"3. The Act was enacted and S.138 thereof
incorporated with a specified object of making a special
provision by incorporating a strict liability so far as the
cheque, a negotiable instrument, is concerned. The law
relating to negotiable instrument is the law of commercial
world legislated to facilitate the activities in trade and
commerce making provision of giving sanctity to the
instrument of credit which could be deemed to be
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convertible into money and easily passable from one
person to another. In the absence of such instruments,
including a cheque, the trade and commerce activities, in
the present day world, are likely to be adversely affected
as it is impracticable for the trading community to carry on
with it the bulk of the currency in force. The negotiable
instruments are in fact the instruments of credit being
convertible on account of legality of being negotiated and
are easily passable from one hand to another. To achieve
the objectives of the Act, the legislature has, in its wisdom,
thought it proper to make such provisions in the Act for
conferring such privileges to the mercantile instruments
contemplated under it and provide special penalties and
procedure in case the obligations under the instruments are
not discharged. The laws relating to the Act are, therefore,
required to be interpreted in the light of the objects
intended to be achieved by it despite there being deviations
from the general law and the procedure provided for the
redressal of the grievances to the litigants. Efforts to defeat
the objectives of law by resorting to innovative measures
and methods are to be discovered, lest it may affect the
commercial and mercantile activities in a smooth and
healthy manner, ultimately affecting the economy of the
country."
27. The Apex Court held that the laws relating to the
said Act are required to be interpreted in the light of the object
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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 explanation to the complainant under
Section 273B of the Act 1961. Hereafter, if anybody
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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.
28. Point No.4
Coming back to the facts of this case, the question to be
decided is whether the accused rebutted the presumption.
Admittedly, an amount of Rs.9,00,000/-was paid in cash. PW1
who is the complainant gave evidence before the trial court
regarding the income-tax payment. It will be better to extract
the same:
"ഞഞാൻ ഇൻകകം ടഞാകക്സ് അടചച്ചിടച്ചില്ല . ഇൻകകം ടഞാകക്സ് സസ്റ്റേറക്സ്മമെൻറക്സ് നൽകച്ചിയച്ചിടച്ചില്ല.
ഇൻകകം ടഞാകക്സ് അയക്കണമമെനകം Return നൽകണമമെനകം ഉള്ള വച്ചിവരകം
എനച്ചിക്കക്സ് അറച്ചിയച്ചില്ല. ഞഞാൻ പതഞാകം കഞാസക്സ് വമര പഠച്ചിചച്ചിട്ടുണക്സ് . പതഞാകംകഞാസച്ചിൽ
ജയച്ചിചച്ചിടച്ചില്ല ."
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29. From the above, it is clear 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
(supra), the accused rebutted the presumption. The debt
alleged to be due to the complainant cannot be treated as a
legally enforceable debt.
30. It is true that, this Court in Sugunan's case (supra)
considered this point. The relevant portion of the above
judgment is extracted hereunder:
"11. It is true that in the decision reported in 2009 (2)
KLT 897, 2009 (2) KHC 1021 : 2009 (2) KLD 9 : 2009 (2)
KLJ 473 : ILR 2009 (3) Ker. 371 : 2009 (3) KLT 580 : AIR
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2010 NOC Ker. 877 Bhaskaran Nair v. Mohanan, a reference
has been made regarding the provisions of the Income Tax
Act and it is observed that, a loan transaction beyond a sum
of Rs.20,000/- otherwise than by cheque or draft, it has to
be noted, is interdicted under S.269(SS) of Income Tax Act,
which came into force from 01/04/1984 and any infraction
there of liable to be punished under S.217(d) of the above
Act. It cannot be treated as a proposition, that any
transaction in violation of that provision, will 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
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liability cannot be treated as a cheque issued in discharge
of a legally enforcible debt, so as to maintain an action
under S.138 of the Act. Further any violation of a particular
Act, which may lead to a penal offence in that Act, will not
affect the transaction as such illegal, though it may give a
cause of action for that department, to initiate action,
against the person, who violated the provisions of that Act.
12. Further in the decision reported in 1999 (2) KLT 634,
1999 KHC 394 Abdul Gafoor v. Abdurahiman, it has been
held that, merely because the complainant / partnership is
not registered one, that will not prevent the complainant
firm by filing a complaint under S.138 of the Negotiable
Instruments Act, in respect of a cheque given by the
accused, in discharge of a liability for the amount due to the
complainant firm, as it will not affect the criminality of the
transaction, that has been committed by the accused and
the effect of non - registration of the partnership of a firm
under S.69 of the Partnership Act has no application to
criminal cases. Further in the decision reported in 1999 (2)
KLT 512, 1999 KHC 366 : 1999 (1) KLJ 660 : ILR 1999 (2)
Ker. 607 : 1999 CriLJ 2472 Nadarajan v. Nadarajan, this
Court has held that merely because the chitty was
conducted in violation of S.3(1) of the Chitties Act, 1975, it
will not make the transaction void and it only peanalise the
foreman for violation and it does not declare the transaction
as illegal or unlawful and the cheque issued in discharge of
such liability will fall under the category issued in discharge
of legally enforcible debt as contemplated under S.138 of
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the Act. These two dictums were not considered by the
learned Single Judge while deciding the case in Bhaskaran
Nairs case (supra). So merely because the amount was
given in cash though it was more than Rs.20,000/-, which
was expected to be given by cheque or demand draft by the
provisions of the Income Tax Act by itself will not make the
transaction an illegal one, though it may give a cause of
action for the Income Tax Authorities to prosecute the
person, who violated that provision. Further it will be seen
from the evidence as well as the submission made by the
counsel for the revision petitioner that, both the revision
petitioner and the complainant were coming from village
area, not conversant with these aspects fully as well. So
under the circumstances, the dictum laid down in the
decision in Bhaskaran Nairs case (supra) is not as such
applicable to the facts of this case, to dis - believe 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.
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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 consideration under Section
118(a) or Section 139, when the disputed transaction is not
in line with Section 269SS of the Income Tax Act, 1961.
ii. Any evidence to such a consideration, even in the form
of such a presumption, is hit by Section 91 of the Indian
Evidence Act, 1872."
33. I agree with the conclusion of the above article that
the debt arising through an illegal transaction cannot be
treated as a legally enforceable debt. But I am not in a
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position to accept the above conclusion in the article of our
friend lawyer, Alex, about the non-applicability of presumption
under Section 139 of the NI Act for legally enforceable debt
because of the dictum laid down by the Apex Court in
Rangappa's case (supra).
34. Before concluding, I also clarify that the dictum laid
down in this judgment is applicable only in cases in which this
question is specifically raised and there is no explanation to the
complainant in tune with Section 273B of Act 1961. In other
words, in cases in which the trial is already concluded and the
matter is pending before the appellate court, unless the above
point is specifically raised, the appellate court need not consider
this and need not remand the case for giving any opportunity to
adduce further evidence. In other words, I make it clear that the
dictum is applicable only prospectively, and in a concluded trial in
which no such point is raised need not be reopened based on the
decision in this case.
35. As a last submission, the counsel for the
complainant also submitted that the case may be remanded to
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the trial court for giving an explanation for the payment of
cash. As I observed earlier, the explanation can be given for
the payment of cash amount above Rs.20,000/- by the person
who received the amount in the light of Section 271D of Act
1961. Here is a case where the complainant admits that he is
not a tax payee. He paid Rs.9,00,000/- by cash to the
accused. The accused has a case that the complainant has no
source to pay an amount Rs.9,00,000/-. The accused has got
such a case from the stage of the reply notice itself. In Ext.P7
reply notice, the accused clearly stated that the complainant
has no source to raise an amount of Rs.9,00,000/-. Even
though some evidence is adduced by the complainant to show
that he withdrew some amount from some other account,
since the complainant admits that he is not a taxpayer, it
cannot be said that the amount is a legally enforceable debt.
Therefore, I am of the considered opinion that this is a case in
which the complainant fails to prove that there is legally
enforceable debt. The accused rebutted the presumption
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under Section 139 of NI Act. Consequently, the conviction and
sentence imposed on the accused are to be set aside.
Therefore, this Criminal Revision Petition is allowed. The
conviction and sentence imposed on the revision
petitioner/accused as per the judgment dated 21.06.2019 in
S.T. No.387/2013 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. The bail bond,
if any, executed by him is cancelled. If any amount is paid by
the accused as per the orders of the appellate court or this
Court, the same should be disbursed to the revision
petitioner/accused forthwith.
Sd/-
P.V.KUNHIKRISHNAN, JUDGE
DM
