Cash Loan Over Rs 20,000 Not Legally Enforceable Under NI Act: HC quashes Cheque Bounce Conviction
Cash Loan Over Rs 20,000 Not Legally Enforceable Under NI Act: HC quashes Cheque Bounce Conviction
The Kerala High Court has recently ruled that a debt from a cash loan exceeding Rs 20,000 is not a “legally enforceable debt” under Section 138 of the Negotiable Instruments (NI) Act.
What Happened in this Case?
The complainant, Shine Varghese, accused the petitioner, P.C. Hari, of dishonouring a cheque under Section 138 of the NI Act. As per the complainant, the accused owed him Rs 900,000 and had issued a cheque to repay this debt. However, the cheque was bounced because there were not enough funds in the accused’s account.
The accused denied the liability when he was served with statutory notice. The Magistrate Court found the accused guilty and sentenced him to one year in prison, and he was ordered to pay Rs 900,000 as compensation to the complainant. The District and Sessions Court also decided the same. The accused, after being dissatisfied with these decisions, appealed to the Kerala High Court.
Petitioner’s (Accused) Argument
The counsel appearing for the petitioner submitted that Rs 9,00,000 was paid in cash, which violates Section 269SS of the Income-Tax Act. This section prohibits cash transactions over Rs 20,000. He contended that a debt arising from such an illegal transaction cannot be treated as “legally enforceable.” He also mentioned that the complainant accepted not paying income tax on the amount, and the accused had also contested the complainant’s financial capacity to pay such a huge amount.
Respondent’s (complainant) Argument
The counsel appearing for the respondent disagreed and stated that even if the cash transaction violated the Income-Tax Act, it does not mean the debt is not enforceable. But the person who accepts the cash faces a penalty. The complainant relied on the ruling of the Bombay High Court in the case of Krishna P. Morajkar v. Joe Ferrao. He submitted that the presumption in favour of a legally enforceable debt under Section 139 of the NI Act had not been denied by the accused.
High Court’s Decision
The court observed the question of whether a debt from a cash transaction over Rs 20,000 could be considered “legally enforceable.” The court stated that “when the government of India aims a goal of complete digital transactions by every citizen of this country instead of cash transactions, a court of law cannot turn its face and legalise cash transactions.”
The court noticed that the complainant had accepted that he did not pay tax on the Rs 900,000 transaction and could not explain the reason for the cash payment. The accused had questioned the complainant’s capacity to give such a large amount on loan, and the complainant failed to provide a reasonable explanation. Therefore, the court concluded that the accused had denied the presumption under Section 139.
The court also observed that “If the criminal court legalises such violations relying on Section 139 NI Act presumptions, stating that the revenue will get the penalty amount, revenue will get the penalty amount, revenue will be treated like a ‘shylock’ who is a Shakespeare’s character“. The court added that legalising such transactions will not promote the aim of curbing the parallel economy and could result in black money being converted into white money through the criminal courts.
Therefore, after these observations, the High Court of Kerala allowed the appeal and set aside the lower court’s judgement. Additionally, the court also acquitted the petitioner of the charges under Section 138 of the NI Act. It was directed by the court that any money that the accused had paid during the proceedings would be refunded to him.