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3 APEAL795-18.odt

4. Shri Pushkar Deshpande, learned counsel appearing for the appellant- complainant referred to the judgments rendered by the learned Single Judges that have led to the making of the reference. Relying upon the decisions in Krishna P. Morajkar, Bipin Mathurdas Thakkar and Pushpa Sanchalal Kothari (supra), he submitted that there was no legal bar for seeking enforcement of the liability that is incurred on the dishonour of an instrument notwithstanding the fact that the amount advanced is not shown in the Income Tax returns of the person advancing such amounts. Referring to the decision of the Hon'ble Supreme Court in Rangappa Versus Sri Mohan [(2010) 11 SCC 441], it was submitted that the Hon'ble Supreme Court partly overruled its earlier decision rendered by the two learned Judges in Krishna Janardhan Bhat Versus Dattatraya G. Hegde [(2008) 4 SCC 54]. The presumption mandated by Section 139 of the Act of 1881 included the presumption of existence of a legally enforceable debt or liability and it was for the accused to raise a defence and rebut the presumption and contest the existence of a legally enforceable debt or liability. The learned Single Judge in Sanjay Mishra (supra) had relied upon the judgment of the Hon'ble Supreme Court in Krishna Janardhan Bhat (supra) to hold that the alleged liability to repay an unaccounted cash amount that was not disclosed in the Income Tax returns could not be said to be a legally recoverable liability. He therefore submitted that in view of the judgment in Rangappa (supra) there being a presumption in favour of the holder of the cheque, it was for the accused to rebut the statutory presumption to enable the Court to hold that there was no legally enforceable liability. Mere absence of the amount advanced/lent to the drawer of the cheque being shown in the Income Tax returns would not be of such importance so as to preclude the holder of the cheque from seeking to recover such liability. The learned counsel referred to the provisions of Chapter XXI and XXII of the Act of 1961. It was urged that by accepting an amount exceeding Rupees Twenty Thousand in cash, the provisions of Section 269-SS of the Act of 1961 would be violated by the drawer of the 4 APEAL795-18.odt cheque-accused and not the payee thereof-complainant. The breach of statutory provisions ought not to benefit the drawer by holding such amount to be not a legally enforceable liability. In such circumstances, it could not be said that the amount in question that had been advanced was under a void transaction. The learned counsel also placed reliance on the decisions in M/s Gujarat Travancore Agency, Cochin Versus Commissioner of Income Tax, Kerala [(1989) 3 SCC 52], Hiten P. Dalal Versus Bratindranath Banerjee [(2001) 1 SCC 16] and Commissioner of Income Tax, Delhi Versus Atul Mohan Bindal [(2009) 9 SCC 589]. It was thus submitted that the aspect whether the accused had rebutted the presumption ought to be examined and the complainant could not be non-suited on the ground that as the amount advanced was not reflected in the Income Tax returns, it was a liability that could not be legally enforced.

12 APEAL795-18.odt

12. The learned Single Judge in Sanjay Mishra (supra) referred to the decision in Krishna Janardhan Bhat (supra) and proceeded to hold that Section 139 of the Act of 1881 merely raises a presumption that the cheque was drawn in discharge of a debt or other liability. It was further observed that the existence of a legally recoverable debt was not a matter of presumption under Section 139 of the Act of 1881 as held in Krishna Janardhan Bhat (supra). On that premise it was held that to attract Section 138 of the Act of 1881 the debt had to be a legally enforceable debt as per the 'explanation' to Section 138 of the Act of 1881. Since there was no presumption under Section 139 of the Act of 1881 that the debt was a legally recoverable debt, the liability to repay unaccounted cash amount could not be said to be a legally enforceable liability within the meaning of 'explanation' to Section 138 of the Act of 1881. By holding that if such liability was held to be a legally enforceable debt the same would render the explanation to Section 138 of the Act of 1881 nugatory. On that premise, it was held that the complainant had failed to establish that the cheque was issued towards discharge of a legally recoverable debt.

13. The judgment in Krishna Janardhan Bhat (supra) was considered by the Larger Bench of three learned Judges of the Hon'ble Supreme Court in Rangappa (supra) and after referring to its earlier decision especially in M.M.T.C. Ltd. Versus Chico Ursula D'Souza [(2002) 1 SCC 234], it was observed in paragraph 26 as under : -

"26. In light of these extracts, we are in agreement with the respondent claimant that the presumption mandated by Section 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 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 13 APEAL795-18.odt 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."

14. We find that the ratio of the decision in Rangappa (supra) is clear that the presumption mandated by Section 139 of the Act of 1881 includes the presumption as regards existence of a legally enforceable debt or liability. This presumption has been held to be in the nature of a reverse onus clause that has been included in furtherance of the legislative object of improving the credibility of the negotiable instruments. At the same time, it has been clarified that the said presumption is rebuttable and it would be open for the accused to raise a defence wherein the existence of a legally enforceable debt or liability can be contested. It is thus clear that once the execution of the cheque/instrument is admitted, the initial presumption under Section 139 of the Act of 1881 favours the complainant that there exists a legally enforceable debt or liability. While rebutting such presumption it would always be open for the accused to raise all permissible defences including the defence that the complainant had failed to disclose the amount that has been stated to have been advanced/lent to the accused in his Income Tax returns.