Uma Lata Sharma v. State (NCT of Delhi) & Anr.

SUBMISSIONS OFAPPELLANT/ COMPLAINANT:

13. Learned counsel for the Appellant/Complainant would submit that any purported violations of the IT Act, such as Section 269SS, are irrelevant to proceedings under the NI Act, for it is a well-settled principle that the validity or enforceability of a cheque under Section 138 of the NI Act is not affected by questions regarding the source of funds or by any alleged violation of the provisions of the IT Act, as even the Hon‟ble Supreme Court has clarified in Sheela Sharma v. Mahendra Pal[9] that although such cash transactions may attract consequences under the IT Act, they are neither illegal nor unenforceable as debts, and therefore the learned Trial Court erred in

14. Learned counsel for the Appellant/Complainant would further submit that Respondent No. 2, in her plea of defence dated 20.11.2013, while framing the notice under Section 251 of the CrPC, before the learned Trial Court, admitted that the cheque in question bore her signature and was indeed handed over by her, and this admission is crucial as it establishes the foundational presumption under the NI Act that the cheque was issued towards a legally enforceable debt or liability. It is further submitted that Ms. Shamita Sharma (DW-2), who was produced as a defence witness, categorically deposed during her examination that she had no business dealings with Respondent No. 2, which directly undermines the defence version of events and lends support to the Appellant‟s case.

15. Learned counsel for the Appellant/Complainant would also submit that the relationship between the parties lends further credibility to her case, since the Complainant is the Chachi of the Respondent No.2/Accused‟s husband, indicating that they are closely related and not strangers. It is argued that in such familial relationships, extending financial help out of personal savings and cash reserves is a natural act of trust and affection, and this background reinforces the genuineness of the Appellant‟s claim regarding the loan advanced to the accused.

16. Learned counsel for the Appellant/Complainant would submit that the onus of proving that the cheque was not issued towards a legally enforceable debt lies entirely on the Respondent NO. 2/Accused, yet the learned Trial Court failed to appreciate that the Respondent No.2/Accused did not discharge this burden. It is further contended that the only witness produced by the Respondent No.2/Accused, apart from herself, was Ms. Shamita Sharma (DW-2), whose testimony completely contradicted the defence version, and as per the settled law laid down in Bir Singh v. Mukesh Kumar10, the presumption under Sections 138 and 139 of the NI Act is that a cheque is issued for discharging a debt or liability, which can be rebutted only through credible evidence, and similarly, in K.N. Beena v. Muniyappan11, the Hon‟ble Supreme Court held that a court must presume that a cheque was issued for a debt or liability unless proven otherwise.

17. The Appellant also counters the argument of the Respondent No.2 that the cheque in question was partially filled by someone else, and learned counsel for the Appellant would submit that Respondent No. 2 admitted that the cheque bears her signature, the name of her bank and her account number, even though Respondent No. 2 claimed that the date and the payee‟s name were filled in later. It is asserted by the Appellant that as per the judgment in Bir Singh v. Mukesh Kumar(supra), the Hon‟ble Supreme Court held that if a signed cheque is voluntarily handed over to the payee, it remains valid irrespective of whether the remaining details are filled in by another person, and thus this contention of the Respondent No.1/Accused cannot invalidate the cheque or rebut the statutory presumption under Sections 138 and 139 of the NI Act.

18. Learned counsel for the Appellant/Complainant would further submit that it is significant that the Respondent No.2/Accused‟s own witness, Ms. Shamita Sharma (DW-2), contradicted the defence narrative, for while the Respondent No. 2/accused alleged that the cheque was issued as security for jewellery taken from Ms. Shamita Sharma to show to a prospective buyer, Ms. Shamita Sharma (DW-2) clearly deposed that she had no such dealings with the Respondent No.2. It is contended by the Appellant that this contradiction is fatal to the defence because a party is legally bound by the testimony of its own witness, and in Ashok Kumar v. State of Haryana12, the Hon‟ble Supreme Court held that the evidence given by a witness produced by a party is binding on that party and is considered decisive.

19. Lastly, learned counsel for the Appellant/Complainant would submit that the learned Trial Court failed to apply the settled principles of law, overlooked the binding admissions of Respondent No.2/ Accused, and placed undue reliance on irrelevant factors such as the provisions of the IT Act, which have no bearing on the enforceability of a cheque under the NI Act, and therefore, in light of these submissions, the present appeal deserves to be allowed.

SUBMISSIONS OF RESPONDENT/ ACCUSED:

20. Learned counsel for Respondent No. 2/Accused would submit that, although the Appellant claims to have given a friendly cash loan of Rs. 5 lakhs to Respondent No. 2/Accused, she has not produced any supporting evidence, such as receipts, bank withdrawal records, or written or electronic communications, to prove the transaction, and she has also failed to specify the exact date of the alleged loan or discussed it with either her own family or the family of the accused. Furthermore, it is also submitted that there are inconsistencies in the timeline and the Appellant has committed forgery, as she initially mentioned a timeline for the alleged loan as October 2013 in her presummoning evidence before the learned Trial Court, however, later altered it by hand to October 2012 in the same document while filing this appeal.

21. Learned counsel for Respondent No. 2/Accused would reiterate that the cheque was not issued for any loan but was given as security to Ms. Samita Sharma, the Complainant‟s daughter-in-law, for a proposed purchase of Kundan jewellery worth Rs.[5] lakhs, and while the cheque had only the amount filled in, the payee‟s name and date were left blank; however, since the jewellery transaction did not materialize as the third-party buyer backed out, the Respondent NO. 2/Accused requested the return of the cheque but was informed that it was with the Appellant/Complainant, who refused to return it and presented in the bank for encashment.

22. Learned counsel for Respondent No. 2/Accused would submit that the cross-examination of the Appellant/Complainant (CW-1) revealed significant gaps and inconsistencies, as she admitted that the loan amount was arranged from personal savings without any bank withdrawals, no third party was present during the alleged transaction, and she was unable to confirm if the name and date on the cheque were in different ink or handwriting, while she denied the claim of Respondent No. 2/Accused that the cheque was issued as security for a jewellery deal; additionally, she admitted that she did not know whether the loan was declared in her income tax returns and had not discussed the alleged loan with her own family or with the Respondent No. 2/Accused‟s family.

23. Learned counsel for Respondent No. 2/Accused would further submit that although Sections 118(a) and 139 of the NI Act create presumptions in favour of the Appellant/Complainant, these presumptions are rebuttable, and the accused is only required to raise a probable defence rather than prove it beyond reasonable doubt; reliance is placed on M.S. Narayana Menon v. State of Kerala13, Kumar Exports v. Sharma Carpets14, and Krishna Janardhan Bhat v. Dattatraya G. Hegde15, which clarify that once the accused brings forth sufficient material to challenge the presumption, the burden shifts back to the complainant to prove her claim beyond reasonable doubt, and the accused is entitled to rely on the complainant‟s own evidence to support this defence.

24. Learned counsel for Respondent No. 2/Accused would also refer to Pine Product Industries v. R.P. Gupta & Sons16, emphasizing that where the complaint lacks clarity regarding the nature of liability or the basis for determining the amount, mere allegations are insufficient to proceed under Section 138 of the NI Act, and it reiterates the principle that criminal liability must be established beyond reasonable doubt, entitling the accused to the benefit of doubt.

25. Learned counsel for Respondent No. 2/Accused, in conclusion, would submit that Respondent No. 2/Accused has successfully rebutted the statutory presumption under the NI Act by providing a plausible explanation for the cheque‟s issuance, while the Appellant/ Complainant failed to establish the existence of any enforceable debt or liability beyond reasonable doubt, and therefore, the impugned

2006 SCC OnLine Del 1514 judgment of the learned Trial Court, which dismissed the complaint, is well-reasoned and thus the present Appeal is liable to be dismissed. ANALYSIS:

26. The Court has heard both sides at length and carefully examined the pleadings, evidence led by both parties, impugned judgment and the written submissions filed post-hearing.

27. The present Appeal turns on the finding of the learned Trial Court that the alleged cash loan of Rs. 5 lakhs, being unaccounted money and in violation of Section 269SS of the IT Act, could not constitute a „legally enforceable debt or liability‟ for the purposes of the NI Act. If this finding is correct, the Appeal fails; however, if it doesn‟t hold water, the liability of Respondent No. 2/Accused must be assessed based on the facts, evidence led by the parties before the learned Trial Court and applicable law. Thus, the matter requires determination under two issues: (a) Whether the alleged cash loan of Rs.[5] lakhs constitutes a „legally enforceable debt or liability‟ under the NI Act; (b) Whether, on merits, Respondent No. 2/Accused is liable under Section 138 of the NI Act.

28. At the outset, it is important to emphasize that this Court is fully conscious of the scope and limitations of its appellate jurisdiction under Section 378 of the CrPC. The principles governing such powers have been clearly enunciated by the Hon‟ble Supreme Court in Mohan v. State of Karnataka17, which states as follows: “Discussion

20. Section 378CrPC enables the State to prefer an appeal against an order of acquittal. Section 384CrPC speaks of the powers that can be exercised by the appellate court. When the trial court renders its decision by acquitting the accused, presumption of innocence gathers strength before the appellate court. As a consequence, the onus on the prosecution becomes more burdensome as there is a double presumption of innocence. Certainly, the court of first instance has its own advantages in delivering its verdict, which is to see the witnesses in person while they depose. The appellate court is expected to involve itself in a deeper, studied scrutiny of not only the evidence before it, but is duty-bound to satisfy itself whether the decision of the trial court is both possible and plausible view. When two views are possible, the one taken by the trial court in a case of acquittal is to be followed on the touchstone of liberty along with the advantage of having seen the witnesses. Article 21 of the Constitution of India also aids the accused after acquittal in a certain way, though not absolute. Suffice it is to state that the appellate court shall remind itself of the role required to play, while dealing with a case of an acquittal.

21. Every case has its own journey towards the truth and it is the Court's role to undertake. Truth has to be found on the basis of evidence available before it. There is no room for subjectivity nor the nature of offence affects its performance. We have a hierarchy of courts in dealing with cases. An appellate court shall not expect the trial court to act in a particular way depending upon the sensitivity of the case. Rather it should be appreciated if a trial court decides a case on its own merit despite its sensitivity.” (emphasis supplied)

29. Further clarity in respect of Section 138 of the NI Act is provided in Rohitbhai Jivanlal Patel v. State of Gujarat18, where the Hon‟ble Supreme Court elaborated on the nature and extent of scrutiny required by an appellate court when reversing an acquittal and convicting an appellant under Section 138 of the NI Act. The relevant paragraphs of the said judgment state as follows:

appeal against acquittal, this Court observed as follows: (SCC p. 221, para 36)

The principles aforesaid are not of much debate. In other words, ordinarily, the appellate court will not be upsetting the judgment of acquittal, if the view taken by the trial court is one of the possible views of matter and unless the appellate court arrives at a clear finding that the judgment of the trial court is perverse i.e. not supported by evidence on record or contrary to what is regarded as normal or reasonable; or is wholly unsustainable in law. Such general restrictions are essentially to remind the appellate court that an accused is presumed to be innocent unless proved guilty beyond reasonable doubt and a judgment of acquittal further strengthens such presumption in favour of the accused. However, such restrictions need to be visualised in the context of the particular matter before the appellate court and the nature of inquiry therein. The same rule with same rigour cannot be applied in a matter relating to the offence under Section 138 of the NI Act, particularly where a presumption is drawn that the holder has received the cheque for the discharge, wholly or in part, of any debt or liability. Of course, the accused is entitled to bring on record the relevant material to rebut such presumption and to show that preponderance of probabilities are in favour of his defence but while examining if the accused has brought about a probable defence so as to rebut the presumption, the appellate court is certainly entitled to examine the evidence on record in order to find if preponderance indeed leans in favour of the accused.

13. For determination of the point as to whether the High Court was justified in reversing the judgment and orders of the trial court and convicting the appellant for the offence under Section 138 of the NI Act, the basic questions to be addressed to are twofold: as to whether the complainant Respondent 2 had established the ingredients of Sections 118 and 139 of the NI Act, so as to justify drawing of the presumption envisaged therein; and if so, as to whether the appellant-accused had been able to displace such presumption and to establish a probable defence whereby, the onus would again shift to the complainant? *****

15. So far the question of existence of basic ingredients for drawing of presumption under Sections 118 and 139 of the NI Act is concerned, apparent it is that the appellant-accused could not deny his signatures on the cheques in question that had been drawn in favour of the complainant on a bank account maintained by the accused for a sum of Rs 3 lakhs each. The said cheques were presented to the bank concerned within the period of their validity and were returned unpaid for the reason of either the balance being insufficient or the account being closed. All the basic ingredients of Section 138 as also of Sections 118 and 139 are apparent on the face of the record. The trial court had also consciously taken note of these facts and had drawn the requisite presumption. Therefore, it is required to be presumed that the cheques in question were drawn for consideration and the holder of the cheques i.e. the complainant received the same in discharge of an existing debt. The onus, therefore, shifts on the appellant-accused to establish a probable defence so as to rebut such a presumption.” (a) Whether the alleged cash loan of Rs. 5 lakhs constitutes a ‘legally enforceable debt or liability’ under the NI Act

30. Section 269SS of the IT Act, 1961, introduced through the Finance Act of 1984, was a legislative measure to combat black money and promote financial transparency. With the rapid expansion of digital payments, the provision was further amended by the Finance Act of 2015 to include modern electronic modes like NEFT, RTGS, UPI, and IMPS as valid means of transaction. It categorically prohibits the acceptance of loans, deposits, or specified sums of Rs.20,000 or more in cash.

31. In Sheela Sharma v. Mahendra Pal (supra), a co-ordinate bench of this Court, while examining issues analogous to those in the present case, relied on the judgment of the Hon‟ble Supreme Court in Asstt. Director of Inspection Investigation v. A.B. Shanthi19, and held as follows: “24. The mere advancement of the loan in cash, may entail consequences for the party acting in breach of Section 269 SS of the Income Tax Act. That is not the concern of this Court. Whether, or not, the appellant reflected the availability of the said amount in her income-tax returns, is also not a matter of concern for this Court. That would again be an aspect to be considered by the income-tax authorities. The advancement of loan, in cash, to the tune of Rs. 10 Lakhs is not prohibited in law. The transaction of advancement of loan of Rs. 10 Lakhs, in cash, is not illegal. Such a transaction is enforceable at law.

25. Breach of Section 269 SS of the Income Tax Act provides the penalty to which the person would be subjected to under Section 271D of the Income Tax Act. Section 271D does not provide that such a transaction would be null & void. The payer of the money in cash-in violation of Section 269 SS of the Income Tax Act would, therefore, be entitled to enforce an agreement of advancement of money in cash beyond Rs. 20,000/-.

26. In this regard, I may refer to, firstly, the decision of the Bombay High Court in Jayantilal M. Jain v. J.M. Sons, 1991 SCC OnLine Bom. 112. This was a summary suit based on a bill of exchange. The defendant in his affidavit, inter alia, raised the plea that the transaction was barred under Section 269SS of the Income Tax Act, 1961. It was contended on behalf of the defendant that in view of bar under Section 269SS of the Income Tax Act, Section 23 of the Contract Act would also come in theway of the plaintiff. This plea was rejected by the court. In para 7 of the judgment, the court observed: “… … In reply to the plea of bar of section 269(SS) of the Income-Tax Act, this Court has rightly observed that the prohibition under the Act was against taking or accepting and not against giving the amount. In view of this, in my opinion, the plea of bar of section 23 of the Contract Act would not survive for my consideration.”.

27. The earlier decision referred to in the above extract was the decision of the same court in Civil Revision Application NO. 573/1990 decided by Suresh, J.

28. I may also refer to the decision of the Madras High Court in K.T.S. Sarma, Seshasayee Brothers (P) Ltd. v. Subramanian, Prop. Kumar Videos, 2001 SCC OnLine Mad. 520. This was a suit for recovery of money, which was decreed by the Trial Court. In appeal, the defendant raised the issue whether the amount advanced by the plaintiff by way of cash is legal and recoverable in view of Section 269SS of the Income Tax Act. The submission of the defendant/appellant was that the contract between the parties was unlawful and the same was also hit by Section 23 of the Contract Act. It was contended that the agreement was void and could not be enforced. While rejecting the said plea of the defendant/appellant, the Madras High Court, inter alia, observed:

29. In the present case, the object of the parties when the transaction was entered into cannot be said to be to circumvent or defeat the purpose of the Income Tax Act. The defendant would not have issued the cheque in question had the object of the loan transaction been to defeat the provisions of the Income Tax Act.

30. Lastly, I may refer to the judgment of the Karnataka High Court in Mohammed Iqbal v. Mohammed Zahoor, 2007 SCC OnLine Kar 282. The issue that arose before the court in this case was whether the provision of Section 269SS of the Income Tax Act disentitle the plaintiff from filing the recovery suit. The said issue was answered by the court by holding that breach of Section 269SS did not tantamount to the transaction being null and void and unenforceable. The relevant extract from this decision reads as follows:

upholding the constitutional validity of Sec. 269 SS observed thus: — “The object of introducing S. 269 is to ensure that a tax payer is not allowed to give false explanation for his unaccounted money, or if he has given some false entries in his accounts, he shall not escape by giving false explanation for the same. During search and seizure unaccounted money is unearthed and the tax payer would usually give the explanation that he had borrowed or received deposits from his relatives or friends sand it is easy for the so-called lender also to manipulate his records later to suit the plea of the tax-payer. The main object of S. 269-SS was to curb this menance.

7. In the light of the observations of the Apex Court, it cannot but be said that Sec. 269-SS only provided for the mode of acceptance payment or repayment in certain cases so as to counteract evasion of tax. Sec. 269-SS does not declare all transactions of loan, by cash in excess of Rs. 20,000/- as invalid, illegal or null and void, while as observed by the Apex Court, the main object of introducing the provision was to curb and unearth black money. To construe Sec. 269-SS as a competent enactment declaring as illegal and unenforceable all transactions of loan, by cash, beyond Rs. 20,000/-, in my opinion, cannot be countenanced.

8. Yet another reason for this opinion is Sec. 271-D which reads thus: — “271-D. Penalty for failure to comply with the provisions of Section 269-SS. (1) If a person takes or accepts any loan or deposit in contravention of the provisions of Section 269-SS, 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 be imposed by the Joint Commissioner.” In that if a person takes or accepts any loan or deposit in contravention of Sec. 269-SS is liable to the loan or deposit so taken or accepted, as may be imposed by the Joint Commissioner.

11. The contravention of Section 269 SS though visited with a stiff penalty on the person taking the loan or deposit, nevertheless, the rigor of Section 271D is whittled down by Section 273B, on proof of bonafides. It cannot therefore be said that the transaction of the nature brought before this court could be declared illegal, void, and unenforceable”. …..”

32. Further, another co-ordinate bench of this Court in Dilip Chawla v. Ravinder Kumar20 held as under: “22. It is not necessary that every loan transaction is required to be entered into after an agreement. True it is that if an agreement is executed for giving of loan and receipt is produced, it is a definite proof of the fact that loan has been given to an accused. Nonetheless this is not a statutory requirement.

23. The advancement of loan in cash may entail negative consequences for a party especially an Income Tax assessee as his having acted in breach of Section 269SS of Income Tax Act,

1961. Chapter XXB provides for the requirement as to the mode of acceptance, payment or repayment in certain cases to counteract evasion of tax. Section 269SS mandates that no person, after the cut off date shall take or accept from any other person any loan or deposit otherwise than by an account payee cheque or an account payee bank draft if the amount is more than Rs. 10,000/-. Breach of Section 269SS of the Income Tax Act provides penalty to which a person would be subjected to under Section 271D.

24. However, Section 271D does not provide that such transaction would be null and void. The payer of money in cash, in violation of Section 269SS of the Income Tax Act can always have the money recovered.”

33. Relying on several authoritative decisions, including Sheela Sharma v. Mahendra Pal (supra), the High Court of Karnataka in Gajanan Kallappa Kadolkar vs. Appasaheb Siddamallappa Kaveri21 emphatically held that Section 269SS of the IT Act is designed to regulate financial transactions and prevent tax evasion, but does not render cash transactions exceeding Rs.20,000 inherently illegal or unenforceable. The relevant paragraphs of the said judgement state as follows: “18. Another defence taken and vehemently argued by the learned counsel for the petitioner is that, in view of Section 2017 SCC OnLine Del 10246 Criminal Revision Petition No. 2011/2013, Judgement dated 18.11.2022 269SS of the Income Tax Act if the transaction amount is more than Rs.20,000/-, such transaction shall be made by cheque or demand draft. Since the complainant has not paid the amount through the cheque or the demand draft, the alleged transaction cannot be called as legally recoverable debt. On this ground, he has sought for acquittal of the accused. 18.[1] Section 269SS was inserted in the Income Tax Act by Finance Act 1984 with effect from 01.04.1984, but the same came into effect from 01.07.1984. The Income Tax Department, in the course of searches carried out by them from time to time, recovered large amounts of unaccounted cash from certain tax payers and often the tax payers gave explanations for their unaccounted cash to the effect that they had borrowed loans or received deposits made by other persons. Sometimes, it was noticed, that the unaccounted income was also brought into the books of accounts in the form of loans and deposits, and later they would obtain confirmatory letters from other persons in support of their explanation. The Department was not able to unearth the source of such unaccounted cash. Therefore, in order to plug the loopholes and to put an end to the practice of giving false and spurious explanations by tax payers, a new provision was inserted in the Income Tax Act debarring persons from taking or accepting from any other person any loan or deposit otherwise than by account-payee cheque or account-payee bank draft, if the amount of such loan or deposit, or the aggregate amount of such loan or deposit, is Rs.10,000/- or more. The amount of Rs.10,000/- was later revised as Rs.20,000/- with effect from 01.04.1989. *****

19. The constitutional validity of Sec. 269 SS was challenged in the case of the Asstt. Director of Inspection Investigation v. A.B. Shanthi, (2002) 6 SCC 259, the Apex Court upheld theconstitutional validity of Sec. 269 SS and observed thus: the object of introducing Section 269SS is to ensure that a tax payer is not allowed to give a false explanation for his unaccounted money, or if he has given some false entries in his accounts, he shall not escape by giving a false explanation for the same. During search and seizures, unaccounted money is unearthed, and the tax payer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records later to suit the plea of the tax-payer. The main object of Section 269SS was to curb this menace. As regards the tax legislations, it is a policy matter, and it is for the Parliament to decide in which manner the legislation should be made. Of course, it should stand the test of constitutional validity.

20. The High court of Karnataka in Mr. Mohammed Iqbal vs Mr. Mohammed Zahoor decided on 12.07.2007 and reported in ILR 2007 KAR 3614, has observed in para 11 that the contravention of Section 269SS of the Act though visited with a stiff penalty on the person taking the loan or deposit, nevertheless, the rigor of Section 271D is whittled down by Section 273B, on proof of bonafides. It cannot therefore be said that the nature of the transaction brought before this court could be declared illegal, void, and unenforceable.

21. The Madras High Court in the case of K.T.S. Sarma, Seshasayee Brothers (P) Ltd. v. Subramanian, Prop. Kumar Videos reported in 2001 SCC Online Mad. 520. This was a suit for recovery of money, which was decreed by the Trial Court. In appeal, the defendant raised the issue of whether the amount advanced by the plaintiff by way of cash is legal and recoverable in view of Section 269SS of the Income Tax Act. The submission of the defendant/appellant was that the contract between the parties was unlawful, and the same was also hit by Section 23 of the Contract Act. It was contended that the agreement was void and could not be enforced. While rejecting the said plea of the defendant/appellant, the Madras High Court, inter alia, observed: ***** 21.[1] The High Court of Delhi at New Delhi in Crl.L.P.No.559/2015 between Sheela Sharma v. Mahendra Pal, decided on 2nd August, 2016, has observed in para.28 of the judgment that, "In the present case, the object of the parties when the transaction was entered into cannot be said to be to circumvent or defeat the purpose of the Income Tax Act. The defendant would not have issued the cheque in question had the object of the loan transaction been to defeat the provisions of the Income Tax Act". 21.[2] Hence, the said contravention of Section 269SS of the Income Tax Act does not make the alleged transaction void. The concerned authorities can take necessary action against the complainant for non-compliance of Section 269 of the Income Tax Act. Only on that ground, this Court cannot interfere with the impugned judgment passed by the Courts below.”

34. Similarly, in Satyaveer Singh v. Suraj22, the High Court of Himachal Pradesh, upon extensive examination of the issue, reaffirmed that the objective of Section 269SS of the IT Act is preventive and regulatory in nature and held it does not grant borrowers any immunity from their repayment obligations. The relevant paragraphs of the said judgement state as follows:

“38. The learned Trial Court held that a loan of more than Rs. 20,000/- cannot be advanced in cash and any violation of this provision will make the transaction illegal which will not be supported by the Court. It was laid down by this Court in Surinder Singh v. State of H.P., 2018 (1) D.C.R. 45 that the contravention of Section 269 SS of the Income Tax Act will give rise to a penalty, but will not invalidate the transaction. It was observed: -

5. The relevant portion of Section 269SS of the IT Act reads thus: — “(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit‟ or (b) on the date of taking or accepting such loan or deposit, any loan or deposit 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 ……”

6. Section 271D provides for a penalty for failure to comply with the aforesaid provisions which reads thus: “271D. Penalty for failure to comply with the provisions of Section 269-SS - (1) If a person takes or accepts any loan or deposit in contravention of the provisions of Section 269- SS, 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 impossible under sub-section (1) shall be imposed by the Joint Commissioner.”

7. A collective reading of both the aforesaid Sections would go to show that even though contravention of Section 269-SS of the IT Act would be visited with a strict penalty on the person taking the loan or deposit. However, Section 271D does not in any manner suggest or even provide that such a transaction would be null and void. The payer of money in cash, in violation of Section 269 SS of the IT Act can always have the money recovered.

8. The object of introducing Section 269 of the IT Act has been succinctly set out by the Hon'ble Supreme Court in Asstt. Director of Inspection Investigation v. A.B. Shanthi, (2002) 6 SCC 259, wherein it was observed as under: - “8. The object of introducing Section 269-SS is to ensure that a taxpayer is not allowed to give a false explanation for his unaccounted money, or if he has given some false entries in his accounts, he shall not escape by giving false entries in his accounts, he shall not escape by giving a false explanation for the same. During search and seizures, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records later to suit the plea of the taxpayer. The main objection of Section 269-SS was to curb this menace.”

9. In light of the aforesaid observations it cannot but be said that Section 269-SS only provides for the mode of accepting payment or repayment in certain cases so as to counteract evasion of tax. However, Section 269-SS does not declare all transactions of loan by cash in excess of Rs. 20,000/- as invalid, illegal or null and void as the main object of introducing the provision was to curb and unearth black money.

10. It would further be noticed that the learned trial Magistrate has acquitted the accused on the ground that the loan has not been shown in the Income Tax Return furnished by the complainant and while recording such finding has placed reliance upon the judgment of the Hon'ble Delhi High Court in Vipul Kumar Gupta v. Vipin Gupta, 2012 (V) AD (CRI)

189. However, after having perused the said judgment, it would be noticed that the amount in the said case was Rs. 9 lacs and it is in that background that the Court observed as under: — “9. I find myself in agreement with the reasoning given by the learned ACMM that before a person is convicted for having committed an offence under Section 138 of the Act, it must be proved beyond a reasonable doubt that the cheque in question, which has been made as a basis for prosecuting the respondent/accused, must have been issued by him in the discharge of his liability or a legally recoverable debt. 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 Rs. 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. The appellant, neither in the complaint nor in his evidence, has mentioned the date, time or year when the loan was sought or given. The appellant has presented a cheque, which obviously is written with two different inks, as the signature is appearing in one ink, while the remaining portion, which has been filled up in the cheque, is in different ink. All these factors prove the defence of the respondent to be plausible to the effect that he had issued these cheques by way of security to the appellant for getting a loan from Prime Minister Rojgar Yojana. The respondent/accused has only to create doubt in the version of the appellant, while the appellant has to prove the guilt of the accused beyond a reasonable doubt, in which, in my opinion, he has failed miserably. There is no cogent reason which has been shown by the appellant which will persuade this Court to grant leave to appeal against the impugned order, as there is no infirmity in the impugned order.”

39. Therefore, in view of this binding precedent, the present complaint could not have been dismissed on the grounds of violation of Section 269(SS) of the Income Tax Act.”

35. It is also pertinent to highlight the judgment of the Bombay High Court in Krishna P. Morajkar v. Joe Ferrao23, wherein the Court categorically held that mere non-compliance with tax reporting obligations cannot be used by a borrower to defeat a lender‟s claim or negate the presumption of a legally enforceable debt under Section 138 of the NI Act. The relevant portion of the said judgement states as follows:

“15.The learned Additional Sessions Judge next held that the complainant did not produce his books of accounts to show that he had sum of Rs. 2,40,000/- with him which he could have advanced, since the complainant had not filed any income tax returns. The learned Judge then referred to provisions of Section 269 SS and 271 D of the Income Tax Act and the judgment of the Supreme court in Krishna Janardhan Bhat (supra). The reference to these provisions surfaced in the judgment of the Supreme Court in Krishna Janardhan Bhat (supra). In that judgment, the Supreme Court held that existence of legally enforceable debt is not a matter of presumption under Section 139 of the Negotiable Instruments Act. As far as this aspect is concerned, this judgment has been specifically overruled by a three Judges Bench of the Supreme Court in Rangappa v. Sri Mohan reported at (2010) 11 SCC 441.

16. In Krishna Janardhan Bhat (supra), the two Judges Bench of the Supreme Court was considering the case of four blank cheques having been issued by the accused. The trial Court had convicted the accused. The Sessions Court dismissed the appeal and in the High Court while conviction was maintained, sentence was reduced. The Supreme Court observed in para 26 & 27 of the judgment as under: “26. 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.

27. Section 271D of the Income Tax Act reads as under: “271D. Penalty for failure to comply with the provisions of Section 269SS - (1) If a person takes or accepts any loan or deposit in contravention of the provisions of Section 269SS, he shall be liable to the loan or deposit so taken or accepted. (2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.” (emphasis supplied). The Supreme Court then allowed appeal and set aside the conviction of the accused.

17. As already observed the judgment in Krishna Janardhan Bhat (supra), in so far as it relates to interpretation of Section 139 of the Negotiable Instrument Act, has been overruled by a three Judges Bench of the Supreme Court in Rangappa (supra). In Rangappa (supra) the Supreme Court was considering an appeal against conviction recorded by the High Court reversing an acquittal by the Court below for the offence punishable under Section 138 of the Negotiable Instrument Act. In that case, the complainant had stated that the accused requested him for a handloan of Rs. 45,000/- in order to meet construction expenses and the complainant paid Rs. 45,000/- by way of cash. The accused assured to repay the amount but failed to do so and then issued cheque for Rs. 45,000/- which was dishonoured. The accused took defence that he had lost a signed blank cheque. The Court considered the presumption under Section 118 and 139 of the Negotiable Instruments Act and also the judgment of the two Judge Bench in Krishna Janardhan Bhat (supra). After considering several judgments the Supreme Court observed in para 26 as under:

Thus, on the question of presumption about existence of legally enforceable debt or liability Krishna Janardhan Bhat (supra) stood expressly overruled.

18. The learned Counsel for the respondent submitted that the observations of the Supreme Court in para 14 of the judgment in Rangappa (supra) show that the Supreme Court had not in any way cast any doubt on the correctness of the decision in Krishna Janardhan Bhat (supra), as it was based on specific facts and circumstances therein. Therefore, he submitted that observations in Krishna Janardhan Bhat (supra) about noncompliance of provisions of Section 269SS and the implications of Section 271D of the Income Tax Act would still stand as good law. The learned Counsel for the appellant submitted that even these observations would stand impliedly overruled. He pointed out that what was held in Krishna Janardhan Bhat (supra) was that advance taken by way of loan of more than Rs. 20,000/- was only to be made by way of an account payee cheque. He submitted that in Rangappa (supra) the Supreme Court was specifically considering the case of an advance of Rs. 45,000/- made in cash and yet the Supreme Court had upheld the conviction recorded. Thus even those observations based on the provisions of Section 269SS and 271D of the Income Tax Act made in Krishna Janardhan Bhat (supra) would stand impliedly overruled. I am entirely in agreement with the learned Counsel for the appellant because the Supreme court in Rangappa (supra) had specifically noted the judgment in Krishna Janardhan Bhat (supra). The Supreme Court had obviously noted the observations in para 26 in Krishna Janardhan Bhat (supra) that advance of more than Rs. 20,000/- was to be made only by way of an account payee cheque, and yet the Supreme Court accepted case of a complainant who claimed to have made an advance of Rs. 45,000/- in cash and proceeded to uphold the conviction, even though the case rested on the fact that cash advance of a sum more than Rs. 20,000/- was made. Thus, on this aspect also Krishna Janardhan Bhat (supra) stood impliedly overruled by Rangapaa (supra), and the judgment is to be held rendered on the facts of that case, not laying down any law. Therefore, judgments which follow Krishna Janardhan Bhat (supra) can be safely ignored.

19. There is another aspect of the matter. The learned Counsel for the respondent pointed out that in Krishna Janardhan Bhat (supra) attention of the Supreme Court was possibly not drawn to the actual wording of Section 269SS of the Income Tax Act. He submitted that Section 269SS of the Income Tax Act, in fact, does not cast any burden upon a person making advance in cash to record it in his returns and does not prevent any such cash advance from being made. It may be useful to quote provisions of Section 269SS and 271D of the Income Tax Act as under: ***** A plain reading of Section 269SS shows that no person can accept any loan or deposit of a sum of Rs. 20,000/- or more otherwise than by an account payee cheque or account payee bank draft. It does not say that a person cannot advance more than Rs. 20,000/- in cash to another person. It is clear that the restriction on cash advances was in fact on the taker and not the person who makes the advance. The penalty for taking such advance or deposit in contravention of provisions of Section 269SS was to be suffered by one who takes the advance. Therefore, it was obviously impermissible to invoke these provisions for preventing a person from recovering the advance which he has made. *****

26. Incidentally in Sanjay Mishra (supra) on which the learned Counsel for the respondent relied on the question of object of Section 138 of the Negotiable Instruments Act, this Court held in para 15 as under:

Apex Court expressed that the object of section 138 of the said Act was to ensure that commercial and mercantile activities are conducted in smooth and healthy manner. The explanation to section 138 of the said Act clearly provides that a debt or other liability referred to in section means a legally enforceable debt or other liability. The alleged liability to repay an unaccounted cash amount admittedly not disclosed in the Income Tax Return cannot be a legally recoverable liability. If such liability is held to be a legally recoverable debt, it will render the explanation to section 138 of the said Act nugatory. It will defeat the very object of section 138 of the Act of ensuring that the commercial and mercantile activities are conducted in a healthy manner. The provision of section 138 cannot be resorted to for recovery of an unaccounted amount. A cheque issued in discharge of alleged liability of repaying “unaccounted” cash amount cannot be said to be a cheque issued in discharge of a legally enforceable debt or liability within the meaning of explanation of section 138 of the said Act. Such an effort to misuse the provision of section 138 of the said Act has to be discouraged.” (emphasis supplied). The underlined observations do not disclose as to where can one find a prohibition on recovering amounts not disclosed in income tax returns. 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 the Income Tax Act. Infraction of provisions of Income Tax Act would be a matter between the revenue and the defaulter and advantage thereof cannot be taken by the borrower. In my humble view, to say that an amount not disclosed in the income tax returns becomes irrecoverable would itself defeat the provisions of Section 138 of the Negotiable Instruments Act. Apart from the purpose of this Act, which has been outlined by the learned Single Judge in Shri Deelip Apte (supra) as well as in Sanjay Mishra (supra), it ought to be seen that the moment a person seeks to recover through a cheque an amount advanced in cash it gets amounted for in the system and the revenue authorities can keep a track of that and if necessary tax the person. To brand an amount which is not shown in Income Tax Act as unaccounted money would be too farfetched and, therefore, I am in respectful disagreement with the observations in Sanjay Mishra (supra), which in fact amounts to reading an additional requirement in Section 138 of the Negotiable Instruments Act, and legislating that such amounts becomes irrecoverable. At the cost of repetition, for saying that an amount not disclosed in income tax returns cannot be legally recoverable liability, some provisions of law to that effect would have to be shown. Such provision was not noticed by me and even the learned Counsel for the respondent could not show any such provision to me. For this reason, the judgment in Sayeeda Iqbal Vakil (supra) and Vassudev Ramchand Ahuja (supra) cannot be followed. Judgments in Patricio D'Souza v. Oscar D'Souza reported at 2009 (1) Bom.C.R. (Cri.) 710 and Sandeep Shirodkar v. Shankar Dhawaskar reported at 2010 (2) Bom.C.R.(Cri.) 867 are on facts unfolded in those cases. *****

31. Before I conclude, with all humility at my command, it has to be noted that even after noticing the object of enacting Section 138 of Negotiable Instruments Act, namely to enhance the acceptability of cheques, Courts have been accepting virtually any argument advanced to nullify the liability created, like ignoring or misreading presumption under Section 139 of the Act, misreading provisions of Sections 269SS and 271D of the Income Tax Act, unmindful of the consequence that unscrupulous individuals go on signing cheques irresponsibly. When a person signs a cheque and delivers it, even if it is a blank cheque or a post dated cheque, presumptions under Section 118(b) and 139 of the Negotiable Instruments Act would have to be raised and would have to be rebutted by the aced, albeit by raising a probability. Unless the Courts start discouraging flimsy defences, acceptability of cheques would not increase. The problem of unaccounted money would be reduced if transactions take place by cheques. Even a cash advance when repaid by cheque gets accounted. Making it unrecoverable, would only push the persons to extra judicial methods of recovery. The Courts would thus not only be defeating the object of the provision but also indirectly be party to increase lawlessness. This, in my humble view, cannot be allowed by Courts.

36. The combined effect of these authoritative judgments unequivocally establishes that Section 269SS of the IT Act is a regulatory provision aimed at ensuring financial accountability and curbing black money, but it does not invalidate cash transactions exceeding Rs.20,000. The statute merely prescribes that such transactions should be executed through traceable banking channels for greater transparency. Importantly, a breach of this provision may invite statutory penalties, but it does not ipso facto nullify the underlying loan or debt. Thus, so long as the legitimacy of the loan can be substantiated through credible evidence, its enforceability remains unaffected.

37. This Court also finds persuasive the reasoning of the Bombay High Court in Krishna P. Morajkar v. Joe Ferrao(supra), which rightly observed that the IT Act nowhere stipulates that amounts not disclosed in income tax returns are unrecoverable. The scheme of the IT Act is aimed at ensuring proper accounting of income; failure to disclose may attract penalties or even prosecution, but it does not entitle a borrower to evade repayment. Allowing such a defence would effectively undermine Section 138 of the NI Act and encourage dishonest debtors to evade their liability, especially in matters such as the present, wherein it is a transaction inter se family members.

38. While income tax returns may serve as a relevant indicator of a lender‟s financial capacity, they cannot be treated as the sole or decisive criterion. The law does not mandate that every financial transaction must be reflected in tax filings for it to be deemed legitimate or enforceable. If the lender‟s financial capacity and the existence of the loan are otherwise substantiated through credible and cogent evidence, such as bank records, credible testimony, or other reliable documentation, the mere omission of entries in income tax returns cannot, and should not, extinguish the statutory presumption of liability under Section 138 of the NI Act. To hold otherwise would unjustly penalize a rightful claimant and provide an undue advantage to a defaulting borrower, contrary to both the letter and spirit of the law.

39. The learned Trial Court‟s reliance on G. Pankajakshi Amma v. Mathai Mathew (supra) is fundamentally misplaced. That judgment turned on entirely different facts, particularly the respondent‟s status as a professional moneylender who was statutorily bound under Section 9 of the Kerala Moneylenders Act, 1958, to maintain records. The Hon‟ble Supreme Court, in that context, drew adverse inferences from the respondent‟s admission of unaccounted chit-fund transactions. The ratio of that decision cannot be imported to cases like the present one. In this regard, Para 9 of the said judgement clears the factual scenario, which states:

were being entered into by the parties. This rebuts the presumption that any consideration had flown under these transactions. In these circumstances it was absolutely necessary for the 1st respondent to produce his books of accounts particularly as he has admitted that he was doing moneylending business.”

40. Similarly, the selective reliance on Kulvinder Singh v. Kafeel Ahmed (supra) is equally erroneous. In that case, the complainant‟s inability to prove the source of funds for a large alleged loan, coupled with credible evidence from independent witnesses showing that the cheque was issued as a security instrument in a committee scheme, successfully rebutted the presumption under the NI Act. The complete portion of the said judgement states as follows: “7.The case of the petitioner in nutshell is that he had been approached by the respondent and he had advanced a loan of Rs. 9,30,000/- in the first instance. If such a huge amount of money is advanced as a loan to the respondent, the petitioner ought to have shown to the court concerned as to the source from where he had generated such a huge amount. In his examination/crossexamination, he states that he had sold his machinery but he failed to produce any record to that effect. 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 Rs. 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 Rs. 9,30,000/- to the respondent. Moreover, the presumption of law which is to be drawn in favour of the drawee of the cheque, namely, the petitioner, that the cheque has been issued to him for the valid discharge of his debt, gets dislodged by a plausible explanation furnished by the respondent/accused wherein he states that he was a member of a committee where he was contributing an amount and the petitioner used to take two duly signed cheques from each of the member. These facts get verified from the testimony of two other independent witnesses DW-2, Gulam Moinuddin and DW-3, Masoom. Their testimony has not been dented. So this clearly establishes that the petitioner was running some kind of committee and was taking two security blank cheques duly signed by the member. The respondent has taken the plea that he had issued two cheques in consecutive order sometime in the middle of the year 2004 when he was a subscriber to a committee. One cheque for a sum of Rs. 18,000/was encashed in the month of July, 2007. This further lends strength to the version of the respondent/accused. It is the case of the respondent that the second cheque which was bearing an earlier number 593765 and was signed by him was sought to be retrieved by him from the petitioner but the petitioner stated that the cheque has been lost while as he surreptitiously presented the cheque after filling up the amount in the cheque to the tune of Rs. 9,30,000/-. This seems to be fairly possible and creates a doubt in the case of the petitioner. The basic principle in criminal law is that the guilt of the respondent/accused must be proved beyond reasonable doubt and if there is a slightest doubt about the commission of an offence then the benefit has to accrue to him. In the instant case also this doubt has been created by the respondent by adducing evidence. I, therefore, feel that the benefit of this doubt has been rightly given by the trial court to the respondent and he has been rightly acquitted.”

41. In light of the legal position discussed above, the finding of the learned Trial Court is legally untenable and contrary to binding precedents. The learned Trial Court erred in holding that the alleged cash loan of Rs. 5 lakhs, being unaccounted and in breach of Section 269SS of the IT Act, could not constitute a “legally enforceable debt or liability” under Section 138 of the NI Act. A violation of Section 269SS may attract penalties under the IT Act, but it does not extinguish the lender‟s substantive rights or render the debt unenforceable. Therefore, the rejection of the Appellant‟s complaint on such grounds is erroneous and liable to be set aside. (b) Whether, on merits, Respondent No. 2/Accused is liable under Section 138 of the NI Act

42. Before proceeding further and evaluating the evidence led by both sides before the learned Trial Court, it is necessary to clarify the scope and operation of the statutory presumption that applies in prosecutions under Section 138 of the NI Act. The Hon‟ble Supreme Court in Rajesh Jain v. Ajay Singh24 examined this issue at length. The relevant paragraphs of the said judgement are produced below: “Burden of proof and presumptions: Conceptual underpinnings

28. There are two senses in which the phrase “burden of proof” is used in the Evidence Act, 1872 (“the Evidence Act” hereinafter). One is the burden of proof arising as a matter of pleading and the other is the one which deals with the question as to who has first to prove a particular fact. The former is called the “legal burden” and it never shifts, the latter is called the “evidential burden” and it shifts from one side to the other. [See Kundan Lal Rallaram v. Custodian (Evacuee Property),

29. The legal burden is the burden of proof which remains constant throughout a trial. It is the burden of establishing the facts and contentions which will support a party's case. If, at the conclusion of the trial a party has failed to establish these to the appropriate standards, he would lose to stand. The incidence of the burden is usually clear from the pleadings and usually, it is incumbent on the plaintiff or complainant to prove what he pleaded or contends. On the other hand, the evidential burden may shift from one party to another as the trial progresses according to the balance of evidence given at any particular stage; the burden rests upon the party who would fail if no evidence at all, or no further evidence, as the case may be is adduced by either side (see Halsbury's Laws of England, 4th Edn. para 13). While the former, the legal burden arising on the pleadings is mentioned in Section 101 of the Evidence Act, the latter, the evidential burden, is referred to in Section 102 thereof. [G. Vasu v. Syed Yaseen Sifuddin Quadri, 1986 SCC OnLine AP 147] affirmed in Bharat Barrel & Drum Mfg. Co. v. Amin Chand Payrelal [(1999) 3 SCC 35]

30. Presumption, on the other hand, literally means “taking as true without examination or proof”. In Kumar Exports v. Sharma Carpets [Kumar Exports v. Sharma Carpets, (2009) 2 SCC 513], this Court referred to presumption as “devices by use of which courts are enabled and entitled to pronounce on an issue notwithstanding that there is no evidence or insufficient evidence.”

31. Broadly speaking, presumptions are of two kinds, presumptions of fact and of law. Presumptions of fact are inferences logically drawn from one fact as to the existence of other facts. Presumptions of fact are rebuttable by evidence to the contrary. Presumptions of law may be either irrebuttable (conclusive presumptions), so that no evidence to the contrary may be given or rebuttable. A rebuttable presumption of law is a legal rule to be applied by the Court in the absence of conflicting evidence (Halsbury, 4th Edn., paras 111, 112]. Among the class of rebuttable presumptions, a further distinction can be made between discretionary presumptions (“may presume”) and compulsive or compulsory presumptions (“shall presume”). [G. Vasu v. Syed Yaseen Sifuddin Quadri,

32. The Evidence Act provides for presumptions, which fit within one of three forms: “may presume” (rebuttable presumptions of fact), “shall presume” (rebuttable presumption of law) and conclusive presumptions (irrebuttable presumption of law). The distinction between “may presume” and “shall presume” clauses is that, as regards the former, the Court has an option to raise the presumption or not, but in the latter case, the Court must necessarily raise the presumption. If in a case the Court has an option to raise the presumption and raises the presumption, the distinction between the two categories of presumptions ceases and the fact is presumed, unless and until it is disproved. [G. Vasu v. Syed Yaseen Sifuddin Quadri, 1986 SCC OnLine AP 147] Section 139, NI Act-Effect of presumption and shifting of onus of proof

33. The NI Act provides for two presumptions: Section 118 and Section 139. Section 118 of the Act inter alia directs that it shall be presumed, until the contrary is proved, that every negotiable instrument was made or drawn for consideration. Section 139 of the Act stipulates that “unless the contrary is proved, it shall be presumed, that the holder of the cheque received the cheque, for the discharge of, whole or part of any debt or liability”. It will be seen that the “presumed fact” directly relates to one of the crucial ingredients necessary to sustain a conviction under Section 138. [The rules discussed hereinbelow are common to both the presumptions under Section 139 and Section 118 and are hence, not repeated—reference to one can be taken as reference to another]

34. Section 139 of the NI Act, which takes the form of a “shall presume” clause is illustrative of a presumption of law. Because Section 139 requires that the Court “shall presume” the fact stated therein, it is obligatory on the Court to raise this presumption in every case where the factual basis for the raising of the presumption had been established. But this does not preclude the person against whom the presumption is drawn from rebutting it and proving the contrary as is clear from the use of the phrase “unless the contrary is proved”.

35. The Court will necessarily presume that the cheque had been issued towards discharge of a legally enforceable debt/liability in two circumstances. Firstly, when the drawer of the cheque admits issuance/execution of the cheque and secondly, in the event where the complainant proves that cheque was issued/executed in his favour by the drawer. The circumstances set out above form the fact(s) which bring about the activation of the presumptive clause. [Bharat Barrel & Drum Mfg. Co. v. Amin Chand Payrelal, (1999) 3 SCC 35]

36. Recently, this Court has gone to the extent of holding that presumption takes effect even in a situation where the accused contends that a blank cheque leaf was voluntarily signed and handed over by him to the complainant. [Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197]. Therefore, mere admission of the drawer's signature, without admitting the execution of the entire contents in the cheque, is now sufficient to trigger the presumption.

37. As soon as the complainant discharges the burden to prove that the instrument, say a cheque, was issued by the accused for discharge of debt, the presumptive device under Section 139 of the Act helps shifting the burden on the accused. The effect of the presumption, in that sense, is to transfer the evidential burden on the accused of proving that the cheque was not received by the Bank towards the discharge of any liability. Until this evidential burden is discharged by the accused, the presumed fact will have to be taken to be true, without expecting the complainant to do anything further.

38. John Henry Wigmore [John Henry Wigmore and the Rules of Evidence: The Hidden Origins of Modern Law] on Evidence states as follows: “The peculiar effect of the presumption of law is merely to invoke a rule of law compelling the Jury to reach the conclusion in the absence of evidence to the contrary from the opponent but if the opponent does offer evidence to the contrary (sufficient to satisfy the Judge's requirement of some evidence), the presumption „disappears as a rule of law and the case is in the Jury's hands free from any rule‟.”

39. The standard of proof to discharge this evidential burden is not as heavy as that usually seen in situations where the prosecution is required to prove the guilt of an accused. The accused is not expected to prove the non-existence of the presumed fact beyond reasonable doubt. The accused must meet the standard of “preponderance of probabilities”, similar to a defendant in a civil proceeding. [Rangappa v. Sri Mohan [Rangappa v. Sri Mohan, (2010) 11 SCC 441]

40. In order to rebut the presumption and prove to the contrary, it is open to the accused to raise a probable defence wherein the existence of a legally enforceable debt or liability can be contested. The words “until the contrary is proved” occurring in Section 139 do not mean that the accused must necessarily prove the negative that the instrument is not issued in discharge of any debt/liability but the accused has the option to ask the Court to consider the non-existence of debt/liability so probable that a prudent man ought, under the circumstances of the case, to act upon the supposition that debt/liability did not exist. [Basalingappa v. Mudibasappa, (2019) 5 SCC 418]; see also Kumar Exports v. Sharma Carpets [(2009) 2 SCC 513].

41. In other words, the accused is left with two options. The first option—of proving that the debt/liability does not exist—is to lead defence evidence and conclusively establish with certainty that the cheque was not issued in discharge of a debt/liability. The second option is to prove the non-existence of debt/liability by a preponderance of probabilities by referring to the particular circumstances of the case. The preponderance of probability in favour of the accused's case may be even fifty-one to forty-nine and arising out of the entire circumstances of the case, which includes: the complainant's version in the original complaint, the case in the legal/demand notice, complainant's case at the trial, as also the plea of the accused in the reply notice, his Section 313CrPC statement or at the trial as to the circumstances under which the promissory note/cheque was executed. All of them can raise a preponderance of probabilities justifying a finding that there was “no debt/liability”. [Kumar Exports v. Sharma Carpets, (2009) 2 SCC 513]

42. The nature of evidence required to shift the evidential burden need not necessarily be direct evidence i.e. oral or documentary evidence or admissions made by the opposite party; it may comprise circumstantial evidence or presumption of law or fact.

43. The accused may adduce direct evidence to prove that the instrument was not issued in discharge of a debt/liability and, if he adduces acceptable evidence, the burden again shifts to the complainant. At the same time, the accused may also rely upon circumstantial evidence and, if the circumstances so relied upon are compelling, the burden may likewise shift to the complainant. It is open for him to also rely upon presumptions of fact, for instance those mentioned in Section 114 and other sections of the Evidence Act. The burden of proof may shift by presumptions of law or fact. In Kundan Lal Rallaram v. Custodian (Evacuee Property), 1961 SCC OnLine SC 10, when the creditor had failed to produce his account books, this Court raised a presumption of fact under Section 114, that the evidence, if produced would have shown the nonexistence of consideration. Though, in that case, this Court was dealing with the presumptive clause in Section 118 NI Act, since the nature of the presumptive clauses in Sections 118 and 139 is the same, the analogy can be extended and applied in the context of Section 139 as well.

44. Therefore, in fine, it can be said that once the accused adduces evidence to the satisfaction of the Court that on a preponderance of probabilities there exists no debt/liability in the manner pleaded in the complaint or the demand notice or the affidavit-evidence, the burden shifts to the complainant and the presumption “disappears” and does not haunt the accused any longer. The onus having now shifted to the complainant, he will be obliged to prove the existence of a debt/liability as a matter of fact and his failure to prove would result in dismissal of his complaint case. Thereafter, the presumption under Section 139 does not again come to the complainant's rescue. Once both parties have adduced evidence, the Court has to consider the same and the burden of proof loses all its importance. Basalingappa v. Mudibasappa, (2019) 5 SCC 418; see also, Rangappa v. Sri Mohan, (2010) 11 SCC 441.”

43. Turning to the facts of the present case, in her plea of defence dated 20.11.2013, recorded at the stage of notice under Section 251 CrPC, Respondent No. 2/Accused admitted that the cheque in question bears her signature and correct bank/account particulars. She nevertheless claimed that she had handed over a signed but otherwise incomplete cheque, date and payee name left blank, in October 2012 to Ms. Shamita Sharma, daughter-in-law of the Appellant, as a security cheque for a proposed purchase of Kundan jewellery worth about Rs. 5 lakhs. The moment signature and account particulars stand admitted, the statutory presumption under Section 139 NI Act is triggered. The contention that the cheque was blank when issued does not, by itself, defeat liability.

44. The Hon‟ble Supreme Court in Bir Singh v. Mukesh Kumar (supra) has clarified that a signed blank cheque voluntarily handed over carries an implied authority to fill in the particulars; unless the Accused can show, on a balance of probabilities, that the cheque was misused or not supported by consideration, the presumption operates. Accordingly, the evidentiary burden shifts squarely to the Accused to rebut the presumption and establish that no legally enforceable liability existed.

45. Although Respondent No.2/Accused did not name Ms. Shamita Sharma in her written reply to the statutory notice issued under Section 138 NI Act, she has thereafter adhered to the same line of defence at every stage, for instance, (i) at notice framing under Section 251 CrPC; (ii) in her examination-in-chief; (iii) in cross-examination; (iv) while cross-examining the Appellant/Complainant; and (v) in submissions before this Court in appeal. Her case is that the cheque was given as security to Ms. Shamita Sharma for the proposed jewellery purchase at about Rs. 5 lakhs; the transaction fell through because the intended third-party purchaser backed out; upon asking for return of the cheque, Ms. Shamita Sharma allegedly stated it was with the Appellant; when Respondent No. 2 sought its return from the Appellant, the Appellant allegedly feigned ignorance and did not return it.

46. This defence, however, is unsupported by any documentary or reliable contemporaneous evidence. There is no written order, quotation, receipt, inventory, valuation, or booking advance relating to the supposed Kundan jewellery transaction. There is no letter, notice, SMS, email, or even a diary entry showing that Respondent No. 2 demanded return of the cheque either from Ms. Shamita Sharma or from the Appellant. Nothing suggests that any grievance was raised when the cheque was allegedly not returned. Reiteration of an uncorroborated narrative cannot, without more, discharge the Accused‟s rebuttal burden under Section 139 of the NI Act.

47. In an effort to bolster her stand, the Respondent No.2/Accused examined Ms. Shamita Sharma as Defence Witness 2 (DW-2). Because her evidence is pivotal, it is reproduced verbatim from the deposition dated 09.08.2016 before the learned Trial Court: “DW-2: Ms. Shamita Sharma w/o Sh. Sanjay Sharma r/o H. NO. 1580, Church Road, Kashmere Gate, Delhi. On SA My mother in law / complainant Mrs. Uma Lata Sharma lent some money to accused Namita Sharma. I do not know the date when the said transaction took place because it did not happen in my presence. I am doing the business of Kundan Jewellery since 2012 under the name and style of "MEHRUNISHA". My sister in law namely Jyoti does not assist me in my business. Vol. She was present in one of my exhibition. I have no dealing with the accused. It is incorrect that cheque in question was handed over to my mother in law in my presence or that the same was blank and only the amount was mentioned therein at the relevant time. Vol. I have not been staying with my mother in law since long. It is wrong to suggest that I am making incorrect statement to the effect that mother in law may or may not know about my business. At this stage, Ld. counsel for accused submits that he does not wish to examine the witness and he wants to drop the witness. At request, D.E. stands closed.”

48. Far from supporting Respondent No.2/Accused, DW-2‟s testimony affirmatively helps the Appellant/Complainant. She states that the Appellant/Complainant, her mother-in-law, lent money to Respondent No.2/Accused; she disclaims any business dealings with Respondent No.2/Accused; and she denies that the cheque was handed over to the Appellant/Complainant in her presence as a blank security instrument. After this statement was recorded, learned counsel for Respondent No.2 declined further examination or cross-examination under Section 154 of the Evidence Act, 1872; the witness was not confronted, not declared hostile, and not impeached on any material aspect. No contrary evidence was later adduced. In these circumstances, DW-2‟s testimony stands unrebutted and carries substantial probative weight, effectively dismantling the Accused‟s defence and leaving the statutory presumption under Section 139 of the NI Act intact.

49. Certain surrounding circumstances also favour the Appellant‟s/Complainant‟s version. It is admitted that the Complainant/Appellant is the chachi of the husband of Respondent No.2/Accused, a close family tie. Friendly or informal financial accommodation within extended families is a matter of common occurrence and cannot be brushed aside as inherently implausible. Further, the Appellant/Complainant‟s financial capacity is not disputed, as she enjoyed independent rental income of about Rs.1,20,000/- per month, and both her husband and son were engaged in business. Capacity to advance Rs. 5 lakhs is therefore established on the record.

50. Respondent No.2/Accused argues that the alleged advancement of Rs.[5] lakhs is doubtful because the Appellant did not disclose it to, or obtain consent from, other family members. This contention is misconceived. There is no legal requirement that a private lender must secure intra-family approval before extending a friendly loan, particularly where the lender is financially independent. Given the close relationship between the parties and the proven means of the Appellant/Complainant, non-disclosure to other family members does not dent the probability of lending. The argument is accordingly rejected.

51. It is also well established that in households, expenses are usually borne in cash and family members regularly contribute to the same in cash. It is conceivable that over a period of time, the Appellant herein had, by exercise of financial diligence, accumulated the amount of five lakhs. It is also noticed that the family of the Appellant is fairly well-to-do and able to afford a fairly comfortable life and being a joint household, permitted the various members to contribute towards the joint expenses.

52. The Respondent No. 2/Accused has also moved an application under Section 340 CrPC and also alleged during the hearing of the Appeal that the Appellant forged or interpolated the date in her presummoning evidence, changing “October 2013” to “October 2012” in the copy filed with the Appeal. On scrutiny, the variation is at best a minor clerical correction. The substantive record otherwise shows that the relevant transaction occurred in October 2012; no prejudice has been demonstrated; and the correction yields no tactical advantage to the Appellant. The imputation of forgery is therefore devoid of merit and stands rejected.

53. For all of the reasons discussed above, Respondent No. 2 has failed to rebut the statutory presumption arising under Section 139 of the NI Act. The ingredients of the offence under Section 138 of the NI Act stand satisfied, and Respondent No.2/Accused is liable to be convicted. CONCLUSION:

54. For the reasons set out above, the impugned judgment dated 30.08.2016 passed by the learned Trial Court is set aside. Respondent No. 2 is held guilty of the offence punishable under Section 138 of the NI Act.

55. List the matter for hearing on the quantum of sentence on 19.09.2025. Respondent No. 2 shall remain personally present in Court on the next date.

HARISH VAIDYANATHAN SHANKAR, J. AUGUST 05, 2025