Dear Mr Babu,
In my opinion, DO NOT reply to the notice. Wai untill the action is initiated. Sometimes people use these tactics only to scare and extort money. So, be clam and do not give anything in writng. Rather, think and collect evidence of you having paid him cash such as
1. Your bank entry of withdrawing money or the mode in which you arranged rs 1 lakh. Nobody keeps Rs 1 lakh readily in their pockets.
2. Try to find out where he might have used the money. No one asks for Rs 1 lakh for nothing. he might have used it somewhere. This could a link to prove payment.
3. Further, try to remember where you made him the payment. Was there anyone else with you people ? Did he come to your place or you guys met at other place ? All these facts can be used in cross, in case it comes to it.
4. Further, remember the one who files a civil case has to prove the facts.
Since you have not posted enough facts I am afraid I can help you only this much.
Shubham Bhardwaj (Advocate)
District & Session Court, Chandigarh
Punjab & Haryana High Court, at Chandigarh
Disclaimer:- Opinion is only for guidance.