Presumption U/S 139 of NI Act Unsustainable If Debt Transaction Not Disclosed In Income Tax Return: Telangana High Court

The Telangana High Court recently observed that presumption under Section 139 of the Negotiable Instruments Act is unsustainable if there is a failure to show the debt transaction in income tax return. Justice G Sri Devi remarked that the evidence placed on record by the complainant was not sufficient to prove the case against the accused beyond a reasonable doubt, thereby upholding the trial court's decision to acquit the accused.Facts:The appellant had filed a private complaint against the accused under Section 138 of the NI Act.The complainant and the accused thereby entered into a settlement agreement, wherein the accused agreed to pay Rs.70 lakhs to the complainant towards full and final settlement. Out of this, she paid Rs.50,000/- to the complainant towards advance and agreed to pay the remaining amount on or before 1st November 2016.The accused accordingly issued two cheques as promised drawn on the State Bank of Hyderabad for discharge of her legal liability to the complainant. However, when the said cheques were presented by the complainant in his banker, the same were dishonoured with the cheque return memo citing "Payment stopped by the drawer".Consequently, a notice dated 15th November 2016 was issued to the accused. The complainant being aggrieved by the inaction of the accused to pay the due amount or even respond to the notice moved the Special Magistrate.Nevertheless, the trial court acquitted the accused finding that the accused had merely produced the said cheques as a form of security rather than as part of a legally enforceable debt. Pursuant to such acquittal, the complainant preferred a criminal appeal under Section 378 (4) Cr.P.C. questioning the judgment of the Special Magistrate.Contentions Raised:The appellant contended that since it was proved that the cheques have been signed and issued by the accused to the complainant, the trial court should have raised a presumption to the effect that the said cheques were issued towards discharge of legally enforceable debt.It was further argued that it was for the accused to rebut the said presumption and it was to be seen whether the accused could be successful in discharging the said burden. The Counsel for the appellant submitted that there was no plausible explanation from the accused for why she signed cheques and gave them to the complainant. On this ground, it was asserted that the accused failed to rebut the presumption without any iota of evidence.Reliance was also placed on the decision of Rangappa v. Sri Mohan where the Apex Court held that presumption under Section 139 Act extends towards the existence of a legally enforceable debt, which means the cheques were issued towards the discharge of debts owed by the accused to the complainant and that the said debt was also a legally enforceable one. Objecting to these contentions, the respondent argued that the trial court had rightly acquitted the accused on the ground that she had creditably rebutted the presumption and established her defense that the impugned cheques were issued solely for the purpose of security, which can be evident from the terms and conditions stipulated in the settlement agreement.The respondent also contended that the accused had aptly rebutted the presumption through her reply notice dated 1st December 2016, wherein it was clearly substantiated factum that she had neither instructed nor assured the complainant to present the said cheques.Additionally, it was pointed out that no document was filed to show that the appellant had incurred an expenditure of Rs.3,00,00,000/- towards identifying and procuring the site for the Petrol Pump as agreed to in the settlement agreement. Similarly, it was submitted that despite being an income tax payee, the appellant had failed to file any income tax returns to show that he had actually incurred the said expenditure.Key Findings of the CourtThe primary question before the Court was whether non-showing of the amount in his income tax return is sufficient to rebut a presumption that the cheque was not issued in discharge of a debt or liability.As pointed out by the trial court, it creates doubt regarding the financial position of the appellant and if he really spent that much amount, there must be a record for him for withdrawal of amount from his bank account and spending the same. Upon perusing the material on record and the arguments advanced by the parties, the Court referred to the case of Sanjay Mishra Vs. Ms. Kanishka Kappor and Anr [CR. APP. NO.4694 OF 2008] wherein it was held as such:"If in a given case the amount advanced by the complainant to the accused is a large amount and is not repayable within few months, the failure to disclose the account in Income Tax return of the complainant may be sufficient to rebut the presumption under Section 139 of the Act."Considering the aforesaid ruling, the Bench remarked that in the absence of any corroborative evidence regarding the debt transaction in the Income Tax...

Presumption U/S 139 of NI Act Unsustainable If Debt Transaction Not Disclosed In Income Tax Return: Telangana High Court

Hannah M Varghese

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