Delhi District Court
The Hon'Ble Supreme Court In The Case Of ... vs . State Of on 22 October, 2020
IN THE COURT OF SH. ANIMESH KUMAR, M.M.05, N.I. ACT, SOUTH DISTRICT,
SAKET, NEW DELHI
C.C. No. 29151/2019
PS : Hauz Khas
Kelly Joseph
S/o Late Sh. V.S Joseph
R/o F-3/756, Gali No. 9
Bir Bazaar, Neem Chowk
New Delhi - 49.
....Complainant
Versus
Hamid Ahmed
S/o Sh. Md. Mushtafa
R/o H. No. 65, Gali No. 6
Block J-1, Sangam Vihar
New Delhi-110080
....Accused
Date of Institution : 17.09.2019
Offence complained of : 138 NI Act
Date of final arguments : 07.10.2020
Date of decision : 22.10.2020
Plea of guilt : Not guilty.
Decision : Acquitted
C.C. No. 29151/2019 Dated 22.10.2020 Pages 1
JUDGMENT:
The present complaint has been filed by the complainant against the accused under section 138 Negotiable Instruments Act, 1881 (hereinafter referred as the "Act").
Version of the complainant:
1. The complainant and the accused have family & friendly relationship for many years. The complainant had approached the accused (who is carpenter by profession) for repair of some furnitures which costed Rs. 4,500/-. It is the case of complainant that on 25.04.2019 (during the course of the said repair work), accused requested him for a loan amount of Rs. 1,00,000/- for investment in his business. Consequently, the complainant gave an amount of Rs. 1,00,000/- to the accused on 10.05.2019 in cash by arranging the same by himself and from his friends/family members. Accused assured the complainant to repay the loan amount within 2 months after deducting his charges of Rs. 4500/- for the furniture work.
2. It is the complainant's case that in discharge of his legal liability, the accused had issued two cheques to the complainant bearing no. 339657 dated 15.07.2019 amounting to Rs. 47,000/- & no. 339658 dated 25.07.2019 amounting to Rs. 48,500/- drawn on Canara Bank, Khanpur, New Delhi-
110062. Consequently, the complainant presented the impugned cheque with its Banker, UCO Bank, Shahpur Jat Branch, New Delhi which got dishonoured vide return memo dated 06.08.2019 with remarks "Funds Insufficient".
3. Thereafter, the complainant sent a legal demand notice dated 27.08.2019 on address of the accused which got delivered on 30.08.2019. Internet generated tracking report has been filed by the complainant in this regard.
4. Upon failure of the accused to make payment of the cheque in question within the stipulated time of 15 days, the complainant has filed the present complaint u/s 138 of the Act.
C.C. No. 29151/2019 Dated 22.10.2020 Pages 2
5. The complainant examined himself in pre-summoning evidence and after considering the complaint and entire documents on record, summon was issued by this Court against the accused on 09.10.2019.
Notice against the accused:
6. Following notice was framed against the accused on 21.01.2020:
"Notice is hereby given to you accused Hamid Ahmed s/o Sh. Mohd. Mustafa, R/o H. No. 65/6, J-1st, Sangam Vihar, New Delhi, you issued two cheques dated 15.07.2019 of Rs. 47,000/- bearing no. 330657 and 25.07.2019 of Rs. 48,500/- bearing no. 339658, drawn on Canara Bank, Khanpur Branch, New Delhi, in favour of the complaint which were returned unpaid due to reason "Funds Insufficient" vide memos dated 06.08.2019 and despite notice for demand dated 27.08.2019 served upon you, you failed to make the payment of the said cheque within stipulated time and thereby you have committed an offence punishable u/s 138 Negotiable Instrument Act and within my cognizance and I hereby direct you be tried by this court on the above said notice.
Plea of defence of the accused:
7. The accused had taken the following plea in his defence:
"I plead not guilty and claim trial.
I have issued four blank cheques to the complainant as the complainant had assured that he would get provide loan to me from any bank. Complainant had misused these cheques and filed the present case. I have not taken any loan from the complainant. I have no liability to pay any amount to the complainant."
8. Thereafter, an application u/s 145(2) was filed by the accused which was allowed by this Court vide order dated 27.08.2020.
Complainant's evidence:
9. The complainant examined himself as CW-1 reiterating the statements made in the complaint. He also relied upon the documents Ex. CW1/A to CW1/G. C.C. No. 29151/2019 Dated 22.10.2020 Pages 3 Original cheques in question are Ex. CW1/A & CW1/B Original return memo in question are Ex. CW1/C & CW1/D Copy of legal demand notice is Ex. CW1/E Original postal receipt is Ex. CW1/F Copy of delivery report is CW1/G
10. Thereafter, the complainant was duly cross-examined by the Ld. Counsel of the accused. No other witness was examined by complainant. CE was closed by this Court vide order dated 11.09.2020.
Statement of the accused
11. Statement of the accused was recorded under section 313 Code of Criminal Procedure (hereinafter referred as "Cr.P.C") on 23.09.2020 wherein all the incriminating evidences were put up before the accused.
12. Accused admitted the issuance of cheques by him, however, he stated that four blank cheques were issued to the complainant as security for arranging loan from the bank. The accused denied the receipt of loan from the complainant. He also denied the receipt of legal demand notice.
Defence Evidence
13. In support of his defence, accused examined a person namely Sujit Kumar, s/o Late Sh. Ram Kishan as DW-1 and he was duly cross examined by the Ld. Counsel for the complainant. DE was closed on 23.09.2020.
14. Ld. Counsel for the accused submitted that the accused is defending on the following grounds :
The accused did not receive any legal demand notice from the complainant;
The accused had not taken any loan from the complainant and no legally enforceable debt existed at the time of issuance of cheques to the complainant, and The accused had issued four blank cheques on the assurance of complainant that he would arrange loan for him from the bank.
C.C. No. 29151/2019 Dated 22.10.2020 Pages 4 Final arguments were heard on behalf of both the parties and my findings are discussed subsequently.
The Law:
15. Before proceeding to the merits of the case, it is considered important to lay down the basic provisions of law with respect to section 138 of the Act which are as follows:
16. Section 138 of Negotiable Instruments Act, 1881 makes dishonour of cheques an offence. It provides that "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 provisions 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".
17. Careful reading of section 138 of the Act reflects that there are three key ingredients which need to exist in order to constitute an offence therein . The three ingredients were highlighted by the Hon'ble Supreme Court in the case of Krishna Janardhan Bhat v. Dattatraya G. Hegde AIR 2008 SC 1325 wherein the Apex Court held that the procedural requirements of section 138 are:
There is a legally enforceable debt.
The drawer of the cheque issued the cheque to satisfy part or whole of the debt.
The cheque so issued has been returned due to insufficiency of funds.
18. It is a well settled principle of criminal jurisprudence that a criminal trial proceeds on the presumption of innocence of the accused i.e. an accused is presumed to be innocent unless proved guilty. Thus, normally the initial burden to prove the guilt of the accused lies on the C.C. No. 29151/2019 Dated 22.10.2020 Pages 5 complainant/prosecution Also, the standard of proof is beyond reasonable doubt. However, in offences under section 138 of the Act, there is a reverse onus clause contained in sections 118 and 139 of the Act.
19. Section 118(a) of the Act provides that until the contrary is proved, it shall be presumed that "that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, endorsed, negotiated or transferred, was accepted, endorsed, negotiated or transferred for consideration."
20. Further, Section 139 of the Act lays down 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."
21. On bare reading of these provisions, it becomes clear that the court shall presume the execution of a negotiable instrument for consideration unless and until the contrary is proved. Similarly, the Court shall also draw a presumption in favour of the complainant/holder of the cheque that the said cheque has been issued in discharge of legally enforceable debt or other liability.
22. There is a statutory presumption under section 139 of the act which arises in the favour of the complainant. This presumption is rebuttable and the accused is required to raise a probable defence. Burden of proof is hence upon the accused in such cases. Reliance can be placed on the decision of the Hon'ble Supreme Court in the case of M.S Narayan Menon vs. State of Kerala (2006) 6 SCC 39, wherein the Hon'ble Court has discussed in detail the scope and ambit of statutory presumption under section 118 read with section 139 of the Act. The relevant extract of the judgment is reproduced below:
"Applying the said definitions of 'proved' or 'disproved' to principle behind Section 118(a) of the Act, the Court shall presume a negotiable instrument to be for consideration unless and until after considering the matter before it, it C.C. No. 29151/2019 Dated 22.10.2020 Pages 6 either believes that the consideration does not exist or considers the non-existence of the consideration so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that the consideration does not exist. For rebutting such presumption, what is needed is to raise a probable defence. Even for the said purpose, the evidence adduced on behalf of the complainant could be relied upon"
23. Further, it is also a settled proposition of law that the standard of proof which is required from the accused to rebut the statutory presumption under section 118 read with section 139 of the Act is prepondereance of probabilities. The accused is not required to prove his case beyond reasonable doubt. This onus on the accused can be discharged from the materials available on record and from the circumstantial evidences. The Hon'ble Supreme Court in M.S Narayan Menon case (supra) has interalia held the following:
"The standard of proof evidently is preponderance of probabilities. Inference of preponderance of probabilities can be drawn not only from the materials on record but also by reference to the circumstances upon which he relies"
24. Further as discussed above, it should also be noted that the standard of proof in order to rebut the statutory presumption may be inferred from the materials on record and circumstantial evidences. It is not always mandatory for the accused to examine its own witnesses in order to rebut the said statutory presumption. At this point, reliance may be placed on the decision of the Hon'ble Supreme Court in the case of Krishna Janardhan Bhat (supra), wherein the Hon'ble Court has categorically held the following:
"32. accused for discharging the burden of proof placed upon him under a statute need not examine himself. He may discharge his burden on the basis of the materials already brought on record. As accused has a constitutional right to remain silence. Standard of proof on the part of an accused and that of the prosecution in a criminal case is different.
34. Furthermore, whereas prosecution must prove the guilt of an accused beyond all reasonable doubt, the standard of proof so C.C. No. 29151/2019 Dated 22.10.2020 Pages 7 as to prove defence on the part of an accused is "preponderance of probabilities". Inference of preponderance of probabilities can be drawn not only from the materials brought on record by the parties but also by reference to the circumstances upon which he relies."
25. This principle has been reiterated by the Hon'ble Supreme Court in Rangappa vs. Sri Mohan (2010) 11 SCC 441 wherein while discussing the scope and ambit of statutory presumption under section 139 of the Act, the Hon'ble Court has held the following:
"27. Section 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 section 138 of the Act specifies a strong criminal remedy in relation to the dishonour of cheques, the rebuttable presumption under section 139 is a device to prevent undue delay in the course of litigation. However, it must be remembered that the offence made punishable by section 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 defendant-accused cannot be expected to discharge an unduly high standard of proof.
28. In the absence of compelling justifications, reverse onus clause 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 section 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 recoverable debt or liability, the prosecution can fail. As clarified in the citations, the accused can rely on the material 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."
26. Thus, section 139 of the Act puts the burden on the accused to prove his defence. However, the accused has to prove his defence on the balance of C.C. No. 29151/2019 Dated 22.10.2020 Pages 8 probabilities and not beyond reasonable doubt. Accused can prove his defence by drawing inferences from the materials already on record (including complainant's evidences), circumstances of the case and also leading his own evidences. If the accused successfully creates doubts in the complainant's claim about the existence of legally enforceable debt then the burden of proof shifts back to the complainant who is the required to prove the guilt of the accused beyond reasonable doubt. Reference can be taken from the decision of the Hon'ble Supreme Court in the case of Bharat Barrel & Drum Manufacturing Company vs. Amin Chand Pyarelal 1999 (3) SCC 35, wherein it has held the following:
"Upon consideration of various judgments as noted hereinabove, the position of law which emerges is that once execution of the promissory note is admitted, the presumption under section 118(a) would arise that it is supported by a consideration. Such a presumption is rebuttable. The defendant can prove the non- existence of a consideration by raising a probable defence. If the defendant is proved to have discharged the initial onus of proof showing that the existence of consideration was improbable or doubtful or the same was illegal, the onus would shift to the plaintiff who will be obliged to prove it as a matter of fact and upon its failure to prove would disentitle him to the grant of relief on the basis of the negotiable instrument. The burden upon the defendant of proving the non- existence of the consideration can be either direct or by bringing on record preponderance of probabilities by reference to the circumstances upon which he relies. In such an event, the plaintiff is entitled under law to rely upon all the evidence led in the case including that of the plaintiff as well. In case, where the defendant fails to discharge the initial onus of proof by showing the non-existence of the consideration, the plaintiff would invariably be held entitled to the benefit of presumption arising under section 118(a) in his favour. The court may not insist upon the defendant to disprove the existence of consideration by leading evidence as the existence of negative evidence is neither possible not contemplated and even if led, it is to be seen with a doubt..."
Points of Determination:
C.C. No. 29151/2019 Dated 22.10.2020 Pages 9
i. Whether the accused in the present case was in receipt of legal demand
notice?
ii. Whether presumption under section 118(a) read with section 139 of the Act
can be raised in favour of complainant in the present case?
iii. Whether legally enforceable debt exists in the present case?
iv. Whether the impugned cheques were issued by the accused in discharge of a legally enforceable debt?
I shall be deciding the abovementioned points of determination separately.
(i) Whether the accused in the present case was in receipt of legal demand notice?
27. Ld. Counsel for the accused has submitted that the accused did not receive any legal demand notice issued by the complainant in the present case. In order to substantiate the submission, he has referred to the statement recorded u/s 313 Cr.PC of the accused. Accused has stated therein that he did not receive any legal demand notice which is Ex. CW1/E.
28. Before examining the issue in hand, it would be prudent to discuss the legal position on the due service of notice sent by post. Presumption regarding successful delivery of documents sent by post (whether registered or not) can be raised by the court as per provision enshrined in section 27 of General Clauses Act r/w section 114 of Indian Evidence Act, 1861 (hereinafter referred as 'Evidence Act'). In terms of Section 27 of General Clauses Act, notice must be deemed to have been served in the ordinary course subject to the fulfillment of the conditions laid down therein. Section 27 reads as under;
"Where any [Central Act] or Regulation made after the commencement of this Act authorizes or requires any document to be served by post, whether the expression "serve" or either of the expressions "give" or "send" or any other expression is used, then, unless a different intention appears, the service shall be deemed to be effected by properly addressing, pre-paying and posting by registered post, a letter containing the document, and, unless the contrary is proved, to have been effected at the C.C. No. 29151/2019 Dated 22.10.2020 Pages 10 time at which the letter would be delivered in the ordinary course of post".
29. Reference can be taken from the decision of Hon'ble Supreme Court in the case of C.C Alavi Haji vs. Palapetty Muhd. & Anr 2007 6 SCC 555 wherein the Hon'ble Court has opined that section 27 of General Clauses Act gives rise to a presumption that service of notice has been effected when it is sent to the correct address by registered post. Unless and until the contrary is proved by the addressee, service of notice is deemed to have been effected at the time at which the letter would have been delivered in the ordinary course of business.
30. The aforesaid principle has been reiterated by the Hon'ble Supreme Court in the case of in the case of Subodh S. Salaskar vs. Jay Prakash M. Shah & Anr (2008) 13 SCC 689 wherein the Hon'ble Court has categorically held that service of notice which is sought to be effected by speed post / registered post shall be deemed to have been served in the ordinary course within few days. Such presumption of delivery of notice can also be raised u/s 114 of Evidence Act.
31. A similar view was taken by the Honble Supreme Court in the case of M/s Madan & Company vs. Wazir Jaivir Chand 1989 1 SCC 264. In this case, the Hon'ble Court while dealing with the question, as to whether the duty of the landlord was complete by sending of notice with reference to the presumption u/s 27 of General Clauses Act, held that once there is a proper tender of demand notice at the correct address, then there is service of demand notice in view of the said presumption.
32. After examining the legal position with respect to the service of any notice by way of registered post, it would be prudent to examine the instant case in realm of the above discussed legal position. In the present case, perusal of the file shows that the legal demand notice was sent by the complainant on his address situated in Sangam Vihar. Internet generated tracking report clearly shows that the said notice has been delivered to the accused on 30.08.2019. It should be noted that the accused has not challenged the C.C. No. 29151/2019 Dated 22.10.2020 Pages 11 correctness of his address in the plea of defence. He has also not cross- examined the complainant on this aspect. A solitary, evasive and bald denial made in a statement u/s 313 Cr.P.C would be of no help the accused in the absence of any other corroborative evidence on record.
33. Therefore, in light of the above mentioned judgments of the Hon'ble Supreme Court, I am of the considered view that a presumption regarding delivery of service of notice can be raised if the notice is sent through post on correct address of the accused. In the instant case, legal demand notice in the present case was sent on the correct address of the accused through speed post, and, therefore, a presumption can be raised about its successful delivery.
34. The accused has failed to rebut the presumption regarding the successful delivery of legal demand notice. Therefore, in view of the above, I am of the considered view that the legal demand notice in the present case has been successfully served to the accused on his address.
(ii) Whether presumption under section 118 read with section 139 NI Act can be raised in the favour of complainant in the present case?
35. As discussed in the preceeding paragraphs, section 118 (a) read with 139 of the Act raises a presumption in favour of the complainant regarding the issuance of the cheque by the accused for consideration and in discharge of a legally enforceable debt.
36. However, it should be noted that this statutory presumption would be raised in favour of the complainant only when the accused admits its signature on the cheque or if the complainant proves the issuance of cheque by the accused. At this point, reference can be taken from the decisions of the Hon'ble Supreme Court in the case of Kumar Exports vs. Sharma Carpets (2009) 2 SCC 513, wherein while discussing the contours of section 118(a) r/w 139 of the N I Act, the Hon'ble Court has held interalia the following:
C.C. No. 29151/2019 Dated 22.10.2020 Pages 12 "14. Section 139 of the Act provides 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.
15. Applying the definition of the word "proved" in section 3 of the Evidence Act to the provisions of sections 118 and 139 of the Act, it becomes evident that in a trial under section 138 of the Act a presumption will have to be made that every negotiable intstrument was made or drawn for consideration and that it was executed for discharge of debt or liability once the execution of negotiable instrument is either proved or admitted. As soon as the complainant discharges the burden to prove that the instrument, say a note, was executed by the accused, the rules of presumptions under section 118 and 139 of the Act help him shift the burden on the accused. The presumption will live, exist and survive and shall end only when the contrary is proved by the accused, that is, the cheque was not issued for consideration and in discharge of any debt pr liability. A presumption is not in itself evidence, but only makes a prima facie case for a party for whose benefit it exists."
37. In the instant case, the accused at the time of framing of notice u/s 251 has explicitly admitted the issuance of cheques to the complainant albeit the purpose (for which the said cheques were issued) has been disputed. Similar admission has been made by the accused regarding issuance of impugned cheque in his statement recorded under section 313 Cr.P.C.
38. It is interesting to note that the accused in his plea of defence has also stated that four blank cheques (which obviously included the impugned cheques) were given by him to the complainant. Perusal of the complaint and statements made by complainant in his cross examination also suggest that the impugned cheques were post dated cheques given by the accused although the complaint has denied the fact that blank cheques were given by the accused.
39. At this stage, it would also be prudent to examine the contours of section 138 of the Act vis-a-vis blank cheques and post dated cheques. As discussed above, it should be noted that a presumption is raised in favour of the C.C. No. 29151/2019 Dated 22.10.2020 Pages 13 holder of cheque regarding the execution of cheque for consideration and in discharge of a legally enforceable debt. If the accused is issuing a cheque after signing the same to the complaint albeit blank or post dated, he is giving implied authority to the complainant to fill the blank details and/or to present the cheque on or after the date mentioned in the cheque. Therefore, aforementioned statutory presumptions can be raised in favour of the complainant even in case of blank or post dated cheques also.
40. At this stage, reference may be taken from the decision of Hon'ble Supreme Court in the case of Laxmi Dyechem vs. State of Gujarat & Ors. (2012) 13 SCC 375 wherein the Hon'ble Court while uphelding the validity of post dated cheque in a proceeding u/s 138 of the Act, has categorically held that the drawer of a post dated cheque cannot be allowed to get away with the penal provisions of section 138 of the Act by countermanding payment of the said post dated cheque. Reference can also be taken from the recent decision of the Hon'ble Supreme Court in the case of Bir Singh vs. Mukesh Kumar (2019) 4 SCC 197 wherein the Apex Court while upholding the validity of blank signed cheque and post dated cheque in a proceeding u/s 138 of the Act has interalia held the following:
"36. The proposition of law which emerges from the judgments referred to above is that the onus to rebut the presumption under Section 139 that the cheque has been issued in discharge of a debt or liability is on the accused and the fact that the cheque might be post dated does not absolve the drawer of a cheque of the penal consequences of Section 138 of the Negotiable Instruments Act.
37. A meaningful reading of the provisions of the Negotiable Instruments Act including, in particular, Sections 20, 87 and 139, makes it amply clear that a person who signs a cheque and makes it over to the payee remains liable unless he adduces evidence to rebut the presumption that the cheque had been issued for payment of a debt or in discharge of a liability. It is immaterial that the cheque may have been filled in by any person other than the drawer, if the cheque is duly signed by the C.C. No. 29151/2019 Dated 22.10.2020 Pages 14 drawer. If the cheque is otherwise valid, the penal provisions of Section 138 would be attracted.
38. If a signed blank cheque is voluntarily presented to a payee, towards some payment, the payee may fill up the amount and other particulars. This in itself would not invalidate the cheque. The onus would still be on the accused to prove that the cheque was not in discharge of a debt or liability by adducing evidence."
41. Therefore, in light of the above discussion, I am of the considered view that statutory presumptions under section 118(a) and 139 would be raised even in the case of blank and/or post dated signed cheques. Hence, in instant case, since, the accused has admitted the execution of impugned cheques, therefore, the aforementioned statutory presumptions would be raised in favour of the complainant regarding the fact the impugned cheques have been drawn for consideration and issued by the accused in discharge of legally enforceable debt.
(iii) Whether legally enforceable debt exists in favour of complainant?
42. As discussed in the preceding paragraphs, there is statutory presumption under section 118(a) and 139 of the Act in favour of complainant regarding interalia the following aspects:
That the impugned cheque was issued by the accused for consideration;
That there exists a legally enforceable debt in favour of the complainant; and That the impugned cheques have been issued in discharge of a legally enforceable debt.
43. Therefore, the burden of proof lies on the accused to prove the contrary. The standard of proof required by the accused is based on preponderance of probabilities which means that the accused is only required to create doubt in the complainant's claims and is not required to prove his own defence beyond reasonable doubt. The accused can examine his witnesses or file his own evidences for this purpose. He can even draw inferences from C.C. No. 29151/2019 Dated 22.10.2020 Pages 15 the evidences filed on record by the complainant in order to create doubts in the complainant's claims.
44. In order to create doubt in the complainant's claims regardingexistence of a legally enforceable debt, the accused has adopted primarily three-fold defences:
The alleged loan amount being unaccounted cash of the complainant cannot be recovered;
No loan was advanced by the complainant to accused; and No liability of the accused towards complainant existed on the date on which impugned cheques were issued.
I shall be dealing with these defences separately.
(a) Alleged loan amount being unaccounted cash cannot be recovered
45. Ld. Counsel for the accused submitted that the loan amount given by the complainant allegedly to the accused is his unaccounted cash, and, therefore, cannot be recovered under a complaint filed u/s 138 of the Act. He has put reliance on the decision of the Hon'ble Bombay High Court in the case of Sanjay Mishra vs. Ms. Kaanishka Kapoor and Anr. 2009 Cr.L.J 3777 and the decisions of the Hon'ble Delhi High Court in the case of Kulvinder Singh vs. Kafeel Ahmed Cr.L.P 478/2011 and Vipul Kumar Gupta vs. Vipin Gupta 2012 (v) AD (Cri) 189.
46. To buttress his proposition, Ld. Counsel for the accused further submitted that advancing a loan amount of more than Rs. 20,000/- in cash is not permissible as per the provisions enshrined in section 269SS of Income Tax Act, 1961(hereinafter referred as "ITA"). He argued that since, the instant alleged loan transaction involved a sum of Rs. 1,00,000/-, therefore, it would be considered as illegal loan which cannot be recovered in a complaint filed u/s 138 of the Act.
47. Before examining the aforesaid objections raised by the accused, it is prudent to discuss the relevant provisions and case laws on this aspect.
C.C. No. 29151/2019 Dated 22.10.2020 Pages 16 Section 269SS of the ITA prohibits any person from taking or accepting from any other person a loan, deposit or other specified sum of more than Rs. 20,000 in cash. It reads as under:
"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 [or through such other electronic mode as may be prescribed], 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"
48. The Hon'ble Supreme Court in the case of Krishna Janardan Bhat (supra) has discussed section 269SS of ITA in the realm of section 138 of the Act. Relevant extract of the judgment is reproduced below:
"19. The courts below failed to notice that ordinarily in terms of Section 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".
49. It should be noted that the Hon'ble Supreme Court in the Rangappa case (supra) has expressly overruled the Krishna Janardan Bhat case (supra) to a limited extent that presumption under section 139 of the Act would also include within its ambit the presumption regarding existence of legally enforceable debt. Although, the Apex Court did not specifically deal with the issue of advancing of loan amount of more than Rs. 20,000/- in cash, it C.C. No. 29151/2019 Dated 22.10.2020 Pages 17 nonethless upheld the conviction of accused in the case which involved loan transaction of Rs. 45,000/- in cash. At this stage, it would be prudent to refer to decision of the Hon'ble Bombay High Court in the case of Krishna P. Morajkar v. Joe Ferrato 2013 SCC online Bom 862, wherein it was held that the Hon'ble Supreme Court has impliedly overruled Krishna Janradan Bhat case (supra) on the aspect that loan of more than Rs. 20,000/- could not be advanced in cash. Observations made by the Hon'ble Supreme Court in Krishna Janardan Bhat case (supra) regarding loan transaction of more than Rs. 20,000/- in cash was made in peculiar facts and circumstances. The said observation cannot be considered as a blanket prohibition on loan transactions of more than Rs. 20,000/- in cash.
50. A bare reading of the provision enshrined in section 269SS of the ITA would suggest that there is prohibition in accepting or taking loan by a debtor for an amount of more than Rs. 20,000/- in cash. It is more of a regulatory provision in nature which regulates the mode of accepting deposits or loans. It does not per se declare all transactions in cash above the threhold of Rs. 20,000/- illegal. No similar prohibition has been made regarding advancing of such loan by the lender or creditor. If the loan of more than Rs. 20,000/- in cash has been accepted by the debtor then he cannot seek protection u/s 269SS to argue that the said loan transaction is illegal and nothing could be recovered from him. At this stage, I also find support from Rangappa case (supra) and Krishna P. Mojakar (supra) wherein transactions of more than Rs. 20,000 /- in cash loan were upheld by the Hon'ble Courts.
51. Therefore, I am of the view that there is no blanket prohibition on advancing a loan of more than Rs. 20,000/- in cash. It may be considered as illegal transaction in certain circumstances wherein source of fund is not clear, loan advanced in cash has not been disclosed in income tax return or book of accounts etc. However, loan transaction involving smaller amounts which is common in general practice could not be automatically treated as illegal. Courts cannot remain oblivious of the fact that loan transactions in cash especially between the family members and friends are very common.
C.C. No. 29151/2019 Dated 22.10.2020 Pages 18 Rendering all such transactions illegal would frustrate the very basic purpose of section 138 of the Act and could prove to be haven for unscrupulous debtors.
52. Further, coming on to the another leg of argument that a loan transaction not disclosed in income tax return of the complainant would amount to unaccounted income, and, therefore, could not be recovered u/s 138 of the Act, it is important to refer to the decision of the Hon'ble Bombay High Court in the Sanjay Mishra case (supra) wherein the Hon'ble Court has dealt with the issue of recoverability of loan involving unaccounted transaction. It was held that if amount has been given on loan then non mentioning of said amount in income tax return will adversely affect the complainant and it cannot be said that it is a legally recoverable debt. However, the Hon'ble Bombay High Court has subsequently in Krishna P. Mojakar case (supra) has held that section 138 of the Act would be attracted even if the loan transaction is given in cash and not accounted in the income tax return of complainant. Relevant extract of the judgment is reproduced below:
"With utmost humility, I have to state that I have not come across any provision of Income Tax Act, which makes an amount not shown in the income tax returns unrecoverable. The entire scheme of the Income Tax Act is for ensuring that all amounts are accounted for. If some amounts are not accounted for, the person would be visited with the penalty or at times even prosecution under the Income Tax Act, but it does not mean that the borrower can refuse to pay the amount which he has borrowed simply, because there is some infraction of the provisions of Income Tax Act. Infraction of the provisions of Income Tax Act would be a matter between the revenue and the defaulter and advantage thereof can not be taken by the borrower. In my humble view, to say that the amount not disclosed in the income tax return becomes irrecoverable would itself defeat the provisions of section 138 N I Act."
53. It is pertinent to note that the Hon'ble Supreme Court in a catena of cases has held that unaccounted transactions are illegal transactions. In the case of G. Pankajakshi Amma and Others v. Mathai Mathew (Dead) Through C.C. No. 29151/2019 Dated 22.10.2020 Pages 19 Lrs. and Another (2004) 12 SCC 83 which dealt with a suit for recovery of money, it was held that :-
"10. ...According to the 1st respondent these transactions were to be unaccounted transactions. According to the 1st respondent, all these amounts are paid in cash. If these are unaccounted transactions then they are illegal transactions. No court can come to the aid of the party in an illegal transaction. It is settled law that in such cases the loss must be allowed to lie where it falls. In this case as these are unaccounted transactions, the court could not have lent its hands and passed a decree..."
54. Further, in the case of Devender Kumar v. Khem Chand 2015 (223) DLT 419 it was held as follows:
"22. Keeping the above proposition of law in mind, on an analysis of fact, the scale of balance tilts in favour of the respondent. The respondent appears to have rebutted the presumption under section 139 of the NI Act, namely, the existence of a legally enforceable debt by establishing that no loan was advanced to him even though there was an agreement and a corresponding promissory note and an affidavit. The aforesaid loan was not shown in the ITR return of the petitioner. An adverse inference could be drawn against the petitioner on that account. The loan amount also appears to be doubtful."
55. The Hon'ble Delhi High Court had affirmed its stand on unaccounted transactions even in the case of Kulvinder Singh v. Kafeel Ahmed 2013(2) AD (Delhi) 81 where it was held as follows:
"He has not reflected the loan advanced to the respondent in his income-tax return nor is he able to tell to the court the Ward in which the income-tax return is filed. The learned Magistrate has rightly placed reliance on the provisions of Section 269 SS of the Income-Tax Act wherein it is specifically laid down that if a loan is advanced which is more than `20,000/-, it has to be by way of writing reflected in the books of account but nothing of that sort has been done in the instant case. Obviously, this clearly creates a doubt regarding the truthfulness of the stand taken by the petitioner that he had advanced a loan of `9,30,000/- to the respondent."
C.C. No. 29151/2019 Dated 22.10.2020 Pages 20
56. Similar observation was made by the Hon'ble Delhi High Court in the case of Vipul Kumar Gupta (supra) case wherein it was held that:
"In the facts and circumstances of this case, there is every reason to doubt the version given by the appellant that the cheque was issued in the discharge of a liability or a legally recoverable debt. The reasons for this are a number of factors which have been enumerated by the learned ACMM also. Some of them are that non-mentioning by the appellant in his Income Tax Return or the Books of Accounts, the factum of the loan having been given by him because by no measure, an amount of 9,00,000/- can be said to be a small amount which a person would not reflect in his Books of Accounts or the Income Tax Return, in case the same has been lent to a person"
57. Perusal of the aforementioned decisions of the Hon'ble Court(s) suggests that the Courts have generally inclined in treating a loan not disclosed in the income tax return as unaccounted money which could not be recovered u/s 138 of the Act. However, it should also be noted that the aforementioned cases involved a huge amount of money which was allegedly given as loan in cash and not disclosed by the lender in his income tax return. I am of the view that if the loan transaction involved smaller amount of money in cash and the source of the same can reasonably be proved/explained by the complainant, then, such transactions in the absence of any other reasons, ought not to be automatically considered as unaccounted money.
58. In the present case, alleged loan transaction between the complainant and accused involved an amount of Rs. 1,00,000/- in cash. Complainant is the owner of proprietary concern involved in the export of manufactured garments. In his cross-examination he has categorically stated that he is an income tax assessee and regularly files his income tax. It should be noted that arranging an amount of Rs. 1,00,000/- in order to advance loan to the accused is not a very big amount for him. Also, he has stated in his complaint and affidavit that he had arranged the said amount by himself and also from his friends and family members. He has maintained his stand in the cross- examination also. Therefore, I am of the considered opinion that source of C.C. No. 29151/2019 Dated 22.10.2020 Pages 21 fund / solvency of the complainant is sufficiently proved/explained and has not been disputed by the accused also. No suspicion could be raised against the complainant on this aspect.
59. Also, it is pertinent to note that the impugned loan transaction is alleged to have taken place on 10.05.2019 i.e. in the financial year 2019-2020. The complainant in his cross-examination has categorically stated that "I file ITR for my personal income as well as my professional income together. I have last filed my ITR for financial year 2018-2019. I have not yet filed ITR for financial year 2019-2020." A judicial notice can be taken by this Court that the due date to file income tax return for financial year 2019-2020 is 30 th November, 2020. Since, the complainant is yet to file his income tax return for the relevant financial year in which the alleged loan has been advanced and due date has not yet been expired; there is no question of non-disclosure of the same by the complainant in his income tax return.
60. Therefore, in view of the above discussion, since the source of fund/solvency of the complainant is sufficiently proved/established, question regarding non-disclosure of the same in the income tax return of complaint being premature at this stage and in the absence of any blanket prohibition for the lender to give loan of more than Rs. 20,000/- in cash, I am of the considered view that the impugned loan transaction of Rs. 1,00,000/- in cash cannot be treated as unaccounted or illegal income of the complainant which cannot be recovered u/s 138 of the Act.
(b) No loan was advanced by the complainant to accused
61. The accused has stated in his plea of defence as well as statement under Section 313 Cr.PC that he had not taken any loan from the complainant. In his defence, the accused has stated that four blank cheques along with ID proofs were given to the complainant on his assurance that he would arrange loan of Rs. 1,00,000/- from the bank.
62. To prove that he did not take any loan from the complainant, the accused examined a person namely Sujit Kumar as DW-1 who in his examination-in-
C.C. No. 29151/2019 Dated 22.10.2020 Pages 22 chief had deposed that "I say that the deponent is known to the accused being resident in the same locality. The deponent is also well known to the accused as the accused is neighbour of the deponent since long. I say that in last week of April 2019, the deponent along with the accused had gone to the house of the complainant and in his presence the accused had handed over four cheque only signed to the complainant. The accused had also given the original I.D. Proof i.e. Adhar card, election car and copy of PAN card and a signed blank paper to the complainant. The complainant assured to the accused to provide the loan from bank as soon as approval will come"
63. DW-1 was cross-examined on this aspect by the Ld. Counsel for the complainant wherein he deposed that "I am not a witness to any conversation regarding arrangement of loan between Kelly and Hamid. Hamid has given four blank signed cheques to the complainant at his house. (Vol. Cheques were given for the arrangement of loan).
64. It should be noted that DW-1 in his evidence has categorically stated that he accompanied the accused to the house of complainant in the last week of April, 2019 and the impugned cheques were given by the accused to complainant in his presence. DW-1 firmly stood behind this statement in his cross-examination also. Therefore, this aspect of evidence of DW-1 that the impugned cheques were issued by the accused to complainant is duly proved.
65. However, the purpose for which the impugned cheques were given by the accused to complainant could not be proved by DW-1. DW-1 has stated that the impugned cheques were given by the accused on the assurance of complainant that he would arrange loan from bank for the accused. However, it should be noted that perusal of the statements made by DW-1 in his examination-in-chief and cross examination suggests that DW-1 was not a part of any conversation which took place between the complainant and accused regarding arrangement of loan from the bank. He did not specify in his evidence as to how he got the information regarding the assurance made by the complainant to accused for arranging loan from C.C. No. 29151/2019 Dated 22.10.2020 Pages 23 bank. It seems that the DW-1 got this information from the accused who has not been examined by the defence in the present case. Therefore, at best, statements made by DW-1 on this aspect can be treated as hearsay evidence only.
66. Section 60 of The Indian Evidence Act requires that the oral evidence must in all cases, whatsoever, be direct. Where the testimony of the witness is entirely hearsay and on some matter hearsay of hearsay, it cannot be admitted in evidence. Where a witness gives evidence that he received information from other person and that person does not say about it, such evidence would be inadmissible being hearsay evidence. Reliance can be taken from the decision of the Hon'ble Madhya Pradesh High Court in the case of Kirtan Prasad vs State of M.P. 2005 Crl. LJ. 69 (MP).
67. In the instant case, as discussed above, in the instant case, the evidence given by DW-1 with respect to the fact that cheques in question being given for security purposes for arranging loan from the bank, cannot be admitted in evidence on account of being hearsay in nature.
68. Therefore, in view of the above, I am of the considered view that DW-1 in his evidence has failed to prove that no loan was advanced by the complainant to accused. Execution of cheques by the accused to complainant is admitted by DW-1 and only the purpose for which the cheques were issued has been disputed by him. However, his statement regarding the purpose for which the impugned cheques were issued could not be duly proved by him.
69. Further, in order to create doubt in the complainant's claim, Ld. Counsel for the accused referred to the cross-examination of the complainant wherein he deposed that "No document was executed between me and the accused regarding execution of loan, however, accused had given me cheque on the same date. I did not ask the accused to execute any promissory note in my favour. I did not take any receipt of the same from the accused. (Vol. I already got the cheque from the accused on the same date).I do not remember whether I had mentioned the fact related to receipt of cheque on the date of C.C. No. 29151/2019 Dated 22.10.2020 Pages 24 execution of loan in my complaint and affidavit" A bare reading of the statement made by the complainant in his cross examination would suggest that no documents regarding loan were executed between him and the accused. In order to counter this argument, Ld. Counsel for the complainant submitted that no document regarding the loan transaction was executed between the parties as complaint already had cheques of the accused with him on the date on which loan was given.
70. At this stage, it is pertinent to note that there was a cordial relationship between the parties. Therefore, it is not always mandatory that formal documents are executed regarding loan transaction of smaller amounts when the relation between the parties is cordial. Reference can be taken from the decision of the Hon'ble Court in the case of Harish Dubey v. Ankur Jain 2016(1) RLR 455 wherein the court held that written documents shall not be insisted upon in cases where parties have cordial relations.
71. Therefore, in view of the above discussion, I am of the considered view that the accused has failed to create doubt in the complainant's claim of advancing loan of Rs. 1,00,000/-.
(c) No liability of the accused towards complainant on the date when the cheques were given.
72. During the final arguments, Ld. Counsel for the accused submitted that accused had no liability towards the complainant on the date on which the impugned cheques were given to the complainant. In order to substantiate his contention, he referred to the statement made by DW-1 in his examination-in-chief wherein DW-1 had deposed that "I say that in last week of April 2019, the deponent along with the accused had gone to the house of the complainant and in his presence the accused had handed over four cheque only signed to the complainant".
73. Further, Ld. Counsel for the accused referred to the statements made by the complainant in his complaint and affidavit wherein the complainant had categorically stated that the loan was given to the accused on 10.05.2019.
C.C. No. 29151/2019 Dated 22.10.2020 Pages 25 Therefore, when the loan was allegedly given only on 10.05.2019, then, no legally enforceable debt would exist in favour of the complainant when the impugned cheques were given by accused to him in the last week of April, 2019.
74. In order to counter this argument, Ld. Counsel for the complainant submitted that the impugned cheques were given by the accused on the same date on which the loan was given to the accused i.e. 10.05.2019. He referred to the statement made by the complainant in his cross-examination wherein he had deposed that "I did not ask the accused to execute any promissory note in my favour. I did not take any receipt of the same from the accused. (Vol. I already got the cheque from the accused on the same date)".
75. It is interesting to note that there are conflicting evidences on record regarding the date on which the impugned cheques were issued by the accused. Complainant's evidences would suggest that the cheques were handed over to him on 10.05.2019 when the loan was advanced. However, on the other hand, perusal of the above discussed statements made by DW- 1 in his examination-in-chief creates a reasonable doubt on this claim of complainant. It should be noted that DW-1 is an eye-witness to the issuance of impugned cheques from the accused to complainant. He has firmly stood behind his statement in his cross-examination wherein he deposed that "The cheques were given by the accused to complainant in April 2019". This evidence of the DW-1 was not effectively challenged by the complainant in cross-examination. Not even a single suggestion was made to the accused during his cross-examination that the impugned cheques were handed over to the complainant only on 10.05.2019 and not in April,2019. Thus, credibility of DW-1 could not be impeached during his cross-examination by the complainant on this aspect.
76. On examining the evidences adduced by complainant as well as accused on the issue of date/time of issuance of impugned cheques by the accused to complainant, I am of the considered view that the accused has successfully created a doubt in the complainant's version. Evidence of DW-1 being C.C. No. 29151/2019 Dated 22.10.2020 Pages 26 account of an eyewitness cannot be discarded without any reasonable justification. Complainant has not examined any other person or filed any other evidence on record to prove that the cheques were indeed issued on 10.05.2019.
77. Moreover, there is also no prohibition in accepting the evidence of Defence Witness who is supporting the case of accused. Reference can be taken from the decision of the Hon'ble Kerala High Court in the case of P G Joshy vs. Jose Varghese & Anr. Crl. A. No. 1296 of 2008 wherein while discussing the testimony of a defence witness in a complaint filed under section 138 of the Act, the Hon'ble Court has interalia held the following:
"16. Merely because defence witnesses support the case of the accused, they cannot be held to be untruthful. What is to be considered is the intrinsic worth of the testimony of a witness. Defence witnesses are entitled to equal treatment with those of the prosecution. Quite often, they tell lies, but so do the prosecution witnesses (See Dudh Nath Pandey v. State of U.P. AIR 1981 SC 911). Depositions of witnesses, whether they are examined on the prosecution side or defence side or as court witnesses, constitute oral evidence in the case. The scrutiny thereof shall be without any predilection or bias. No witness is entitled to get better treatment merely because he was examined as a prosecution witness or even as a court witness. It is judicial scrutiny which is warranted in respect of the depositions of all witnesses. Different yardsticks cannot be prescribed for appreciation of the testimony of different categories of witnesses (See State of U.P v. Babu Ram: AIR 2000 SC 1735)."
78. In view of the above, discussion, I am of the considered view that even though advancement of loan of Rs. 1,00,000/- by the complainant to accused on 10.05.2019 has been proved, however, relying on the version of DW-1, I can safely say that there are sufficient materials on record to suggest that the impugned cheques were given in April 2019 i.e. before the advancing of loan in question/creation of legal liability of the accused towards the complainant. Therefore, no legal liability of the accused existed in favour of C.C. No. 29151/2019 Dated 22.10.2020 Pages 27 the complainant on the date on which the impugned cheque were issued by the accused.
(iv)Whether the impugned cheques were issued by the accused in discharge of a legally enforceable debt?
79. As discussed in the preceding part of the judgment, no legal liability of the accused existed in favour of the complainant when the loan was advanced by the complainant. It is a settled proposition of law that if no legal liability existed on the date on which cheque was issued then offence u/s 138 of the Act would not be attracted with respect to the said cheque. Reference can be taken from the decision of Hon'ble Supreme Court in the case of Indus Airways Private Limited vs. Magnum Aviation Private Limited (2014) 12 SCC 539 wherein the Apex Court has interalia held the following:
"13. The explanation appended to Section 138 explains the meaning of the expression 'debt or other liability' for the purpose of Section 138. This expression means a legally enforceable debt or other liability. Section 138 treats dishonoured cheque as an offence, if the cheque has been issued in discharge of any debt or other liability. The explanation leaves no manner of doubt that to attract an offence under Section 138, there should be legally enforceable debt or other liability subsisting on the date of drawal of the cheque. In other words, drawal of the cheque in discharge of existing or past adjudicated liability is sine qua non for bringing an offence under Section
138. If a cheque is issued as an advance payment for purchase of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or otherwise, and material or goods for which purchase order was placed is not supplied, in our considered view, the cheque cannot be held to have been drawn for an exiting debt or liability. The payment by cheque in the nature of advance payment indicates that at the time of drawal of cheque, there was no existing liability."
80. A bare reading of aforementioned decision of the Hon'ble Supreme Court clearly suggests that the material date in order to attract section 138 of the Act is the date on which the cheques are issued. If at the time of drawal/issuance of cheque by the accused, no legal liability of the accused C.C. No. 29151/2019 Dated 22.10.2020 Pages 28 exists towards the complainant then he could not be punished u/s 138 of the Act.
81. In the instant case, as discussed above, the loan was advanced to the accused only on 10.05.2019, however, the impugned cheques were issued in the last week of April, 2019. Therefore, since, there existed no legal liability of the accused towards the complainant in April 2019 when the cheques were issued, therefore, I am of the opinion that the impugned cheques were not issued by the accused in discharge of any legally enforceable debt and could at best be considered as having being issued towards an advance payment.
82. Therefore, in view of the above discussion, I am of the considered view that the accused has successfully rebutted the statutory presumptions u/s 1118(a) read with 139 of the Act existed in favour of the complainant by creating reasonable doubt in the complainant's claim. As discussed, if the presumption is rebutted then the burden of proof shifts back to the complainant to prove the guilt of accused beyond reasonable doubt. The complainant, in the present case, has neither examined any witness (other than himself) nor filed any document on record to prove the culpability of accused beyond reasonable doubt.
83. Therefore, on evaluation of the entire evidence, this court finds the version of the complainant improbable and difficult to believe. Accused has successfully created reasonable doubts on the existence of legal liability of the accused towards complainant on the date of issuance/drawal of impugned cheques. The complainant, thereafter, has not been able to establish that there was a legal debt or liability standing on the part of the accused towards the complainant on the date of issuance of cheque. Thus, the most important ingredient of section 138 of the Act has not been fulfilled.
Decision: -
C.C. No. 29151/2019 Dated 22.10.2020 Pages 29
84. In view of the above discussion, the accused is acquitted for the offence under section 138 of the Act. Digitally signed by ANIMESH ANIMESH KUMAR KUMAR Date: 2020.10.22 18:43:59 +0530 Announced in the open court (ANIMESH KUMAR) on 22.10.2020 MM-05/NI Act/South/Saket South, New Delhi It is certified that this judgment contains 30 pages and each Digitally signed by page bears my signatures. ANIMESH ANIMESH KUMAR KUMAR Date: 2020.10.22 18:44:10 +0530 (ANIMESH KUMAR) MM-05/NI Act/South/Saket/22.10.2020 C.C. No. 29151/2019 Dated 22.10.2020 Pages 30