Un accounted money in sec 138 n i act

C E O

I learn of late some important suprfeme and high court judgements have given judgements confirming that SEc 138 N I Act does not cover the recovery of un coounted money i.e., the amount neither shown in the books of account ot in the Income tax returns of the complainant. some one please clarify; case titles or date of judgemnent of SCI or HC P & H, chandigarh

regards

 
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Advocate

Sir,

 

Depending upon the financial status you can prove that the same was kept with you since long or borrowed from someone who could afford to account the money on your behalf. 

 

Warm Regards

Kapil Chandna Adv 

9899011450

 
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Scientist/Engineer

Unaccounted money would not come into cheque transactions. The complainant has only to show that the amount was payable by the accused in discharge of  a liability. The liability could be anything. The question of unaccounted money would come at all  only if the cheque was issued for a thing like discharge of a loan. If the loan was given in cash from unaccounted money, the creditor will demand return of the amount also in cash only. It would be the complainant who may have to explain the source of income. If there is a risk he may avoid going to court. Even if he goes to court and he is asked about the source of income, he or his lawyer can say that the question was not relevant to the case. Whether the money was accounted or not the accused cannot take advantage of that not to discharge his liability. The accused or anyone else can inform the Income Tax Department separately if they think that they should.

 
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C E O

would like to enlighten my frfiend about the judgement, can someone please tell me if there is any appeal or rebuttal of tne below said judgement by SCI:

Bombay High Court

Sanjay Mishra vs Ms.Kanishka Kapoor @ Nikki on 24 February, 2009

Bench: A.S. Oka, Justice

  1. 9. Before dealing with the aspect of rebuttal of presumption, it will be necessary to refer to the (7)
    ingredients of section 138 of the said Act. It will be necessary to refer to a recent decision of the Apex Court in the case of Krishna Janardhan Bhat Vs. Dattatraya G. Hegde [(2008) 4 Supreme Court Cases 54]. The case before the Apex Court arose out of a complaint under section 138 of the said Act. The applicant before the Apex Court was accused of an offence under section 138 of the Act. The submission before the Apex Court was that the essential requirement of section 138 was that there has to be a legally enforceable debt. The Apex Court referred to the provisions of section 271D of the Income Tax Act, 1961 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."
    (8)
    In paragraph 29 of the decision, the Apex Court referred to the ingredients of the offence under section 138. Paragraph 29 reads thus:
    "29. Section 138 of the Act has three ingredients viz.:
    (i) that there is a legally enforceable debt;
    (ii) that the cheque was drawn from the account of bank for discharge in whole or in part of any debt or other liability which presupposes a legally enforceable debt; and (iii) that the cheque so issued had been returned due to insufficiency of funds."
    In paragraphs 30 and 31 the Apex Court dealt with the presumption under section 139 of the said Act. Paragraphs 30 and 31 read thus:
    "30. The proviso appended to the said section (9)
    provides for compliance with legal requirements before a complaint petition can be acted upon by
    a court of law. Section 139 of the Act merely raises a presumption in regard to the second aspect of the matter. Existence of legally recoverable debt is not a matter of presumption under section 139 of the Act. It merely raises a presumption in favour of a holder of the cheque that the same has been issued for discharge of any debt or other liability.
    liability

    31. The courts below, as noticed hereinbefore, proceeded on the basis that section 139 raises a presumption in regard to existence of a debt also. The courts below, in our opinion, committed a serious error in proceeding on the basis that for proving the defence the accused is required to step into the
    witness box and unless he does so he would not be discharging his burden. Such an approach on the part of the courts, we feel, is not correct." (Emphasis added)

    10. Thus, what has been held by the Apex Court is (10)
    that section 139 of the said Act merely raises a presumption in regard to the second aspect of the matter, namely, that the cheque was drawn in discharge of debt or other liability. The Apex Court specifically held that the existence of legally recoverable debt is not a matter of presumption under section 139 of the said Act. The Apex Court specifically held that section 139 merely raises a presumption in favour of holder of cheque that the same has been issued for discharge of any debt or liability. Thus, even if presumption is not rebutted, in order to attract section 138 of the said Act, the debt has to be a "legally enforceable debt" as is clear from the explanation to section 138 which provides that for the purposes of the said section the debt or other liability means a legally enforceable debt or other liability.

    11. The Apex Court also reiterated well established legal position that for rebutting the presumption under section 139 of the said Act, it is not necessary in every case for the accused to step into the witness box. The Apex Court held that the standard of proof on the part of the accused and that of prosecution in a criminal case is different. The prosecution has to prove the guilt of an accused beyond reasonable doubt, (11)
    but the standard of proof so as to prove a defence is "preponderance of probability". Inference of preponderance of probabilities can be drawn even by reference to circumstances. In paragraph 44 the Apex Court observed thus:
    ". The presumption of innocence is a human right (See Narendra Singh v. State of M.P., Ranjitsing Brahmajeetsing Sharma v. State of Maharashtra and Rajesh Ranjan Yadav v. CBI.) Article 6(2) of the European Convention on Human
    Rights provides: "Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law." Although India is not bound by the aforementioned Convention and as such it may not be necessary like the countries forming European countries to
    bring common law into land with the Convention, a balancing of the accused's rights and the interest of the society is required to be taken into consideration. In India, however, subject to the statutory interdicts, the said principle forms the basis of criminal jurisprudence. For the aforementioned purpose the nature of the offence, seriousness as also gravity thereof may
    (12)
    be taken into consideration. The courts must be on guard to see that merely on the application of presumption as contemplated under section 139
    of the Negotiable Instruments Act, the same may not lead to injustice or mistaken conviction. ..." (Emphasis added)
    In paragraph 45 the Apex Court held thus:
    "45. We are not oblivious of the fact that the said provision has been inserted to regulate
    the growing business, trade, commerce and industrial activities of the country and the strict liability to promote greater vigilance in
    financial matters and to safeguard the faith of the creditor in the drawer of the cheque which is essential to the economic life of a developing country like India. This, however, shall not mean that the courts shall put a blind
    eye to the ground realities. Statute mandates raising of presumption but it stops at that. It does not say how presumption drawn should be held to have rebutted. Other important (13)
    principles of legal jurisprudence, namely, presumption of innocence as human rights and the
    doctrine of reverse burden introduced by section
    139 should be delicately balanced. Such balancing acts, indisputably would largely depend upon the factual matrix of each case, the
    materials brought on record and having regard to
    legal principles governing the same." (Emphasis same
    added)
    The Apex Court held that presumption of innocence forms part of human rights and therefore the doctrine of reverse burden introduced by section 139 has to be delicately balanced.

    12. Now turning back to the facts of the present case, assuming that the presumption under section 139 of the said Act regarding existence of debt or liability is not rebutted, in order to attract section 138, the debt or liability has to be a "legally recoverable" debt or liability. As held by the Apex Court in the case of Krishna Bhat (supra) there is no presumption under section 139 of the said Act that the debt is a legally recoverable debt. In the case of Goa Plast (P) Ltd. (14)
    Vs. Chico Ursula D'Souza [(2004) 2 Supreme Court Cases 235] the Apex Court reiterated that a debt or liability subject matter of section 138 means a legally enforceable debt or liability.

    13. In the present case, there is a categorical admission that the amount allegedly advanced by the applicant was entirely a cash amount and that the amount was "unaccounted". He admitted not only that the same was not disclosed in the Income Tax Return at the relevant time but till recording of evidence in the year 2006 it was not disclosed in the Income Tax Return. By no stretch of imagination it can be stated that liability to repay unaccounted cash amount is a legally enforceable liability within the meaning of explanation to section 138 of the said Act. The alleged debt cannot be said to be a legally recoverable debt.

    14. In the case of Dalmia Cement (Bharat) Ltd Vs. Galaxy Traders & Agencies Ltd & Ors. [(2001) 6 Supreme Court Cases 463], the Apex court has referred to the object of section 138. Paragraph 3 of the said decision reads thus:
    (15)
    "3. The Act was enacted and section 138 thereof incorporated with a specified object of making a special provision by incorporating a strict liability so far as the cheque, a negotiable instrument, is concerned. The law relating to negotiable instruments is the law of
    commercial world legislated to facilitate the activities in trade and commerce making provision of giving sanctity to the instruments of credit which could be deemed to be convertible into money and easily passable from one person to another. In the absence of such instruments, including a cheque, the trade and commerce activities, in the present day world, are likely to be adversely affected as it is impracticable for the trading community to carry
    on with it the bulk of the currency in force. The negotiable instruments are in fact the instruments of credit being convertible on account of legality of being negotiated and are easily passable from one hand to another. To achieve the objectives of the Act, the legislature has, in its wisdom, thought it proper to make such provisions in the Act for conferring such privileges to the mercantile (16)
    instruments contemplated under it and provide special penalties and procedure in case the obligations under the instruments are not discharged. The laws relating to the Act are, therefore, required to be interpreted in the light of the objects intended to be achieved by it despite there being deviations from the general law and the procedure provided for the redressal of the grievances to the litigants. Efforts to defeat the objectives of law by resorting to innovative measures and methods are to be discouraged, lest it may affect the commercial and mercantile activities in a smooth and healthy manner, ultimately affecting the economy of the country." (Emphasis added)
    country

    15. The Apex Court has held that the laws relating to the said Act are required to be interpreted in the light of the object intended to be achieved by it despite there being deviation from general law. The 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 (17)
    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.

    16. Considering the aforesaid admission of the applicant, the conclusion recorded by the learned trial Judge that the applicant has failed to establish that the cheque was issued towards discharge of a legally recoverable debt is correct.
    (18)

    17. No case is made out for grant of leave. Application is rejected.


(A.S. Oka, J) –

 

 

 

 



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    Scientist/Engineer

    You look at the same law from different angles. You will come to different conclusions. Section 139 is no exception. No wonder that in this country the Supreme Court taken over the task of law makers. 

     
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    Director

     AS Sir Dr. MPS RAMANI Ph.D.[Tech] observed:“The accused or anyone else can inform the Income Tax Department separately if they think that they should.” These observations was also given in some cases. And As you seen in Sanjay Mishra case “By no stretch of imagination it can be stated that liability to repay unaccounted cash amount is a legally enforceable liability within the meaning of explanation to section 138 of the said Act. The alleged debt cannot be said to be a legally recoverable debt.”

    So main thing is in explanation u/s 138 N I Act, Explanation.-For  the  purposes of this section, “debt  or  other  liability” means a legally enforceable debt or other liability.

     

    To report to Income Tax Department is another issue, the person having illegal money may/may not suffer in Department.  So whenever this point is pressed, that illegal money can not be recovered through Legal means, so the person having illegal money has to suffer. Because in law, the complainant/every litigant should reach court with clean hands. If any transaction is prime facie is against the law,  i.e. illegal, how can it be got enforced through court.

    In similar activities, some persons give loan to many persons without having money lending license or permission through Reserve Bank of India even though that money is shown in creditor’s books i.e. in income tax return etc, yet if proved that money lending license/ permission from RBI  is required, and not obtained, by the creditor/lender, he has to suffer due to explanation u/s 138 N I Act, and it is decided by the court that it is not debt that is legal enforceable debt. In a case Anil S/o Baburao Kataria vs Purshottam S/o Prabhakar Kawane Decided On: 21.11.2009  IN THE HIGH COURT OF BOMBAY (AURANGABAD BENCH).

    If I am wrong, may be corrected by other learned members of the forum.

     
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    Scientist/Engineer

    I am a member of the Forum, but not a learned member.  When a civil or criminal case is proceeded with in a court of law and if during the process it comes to light  that any of the litigants has committed a punishable offence under the same Act or another Act, the court will order the police or other agency to proceed against the person? Did the Supreme Court order the Income Tax department to proceed against the Complainant?  One of the main points of the case was that the accused had accepted a loan in cash in lakhs of rupees, to return which he had issued the cheque, which bounced. The accused violated Section 271D of the Income Tax Act, which says that  a person cannot accept more than Rs.20000/- in cash. The punishment is  penalty of an amount equal to the amount received in cash. If the Supreme Court ordered the Income Tax department to take action against the accused he would have had to pay an amount equal to amount of the bounced cheque,  which he was not requred to pay any more to the Complainant, as penalty to the Income Tax department. If any of the learned members can throw light on this I would be happy.

    There are many High Court decisions contrary to the Supreme Court decision. Probably they did not go to the Supreme Court. Or did they go to another bench. If so what was the Supreme Court decision.

    For the purpose of compliance, a Supreme Court decision is gospel. But can  honest opinions be expressed on it?

     
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