Borrower Receiving Loan In Cash Liable For Cheque Dishonour Even If Loan Amount Was Beyond Limit For Cash Transactions Under IT Act: Bombay HC

The Bombay High Court recently held that a borrower who received loan in cash is liable for dishonour of cheques issued towards repayment even if the loan amount was beyond the permissible limit for cash transactions under the Income Tax Act.

Section 269-SS of the IT Act bars receipt of loan or deposit of more than Rs. 20,000 in cash.

Justice PK Chavan, convicted a woman in a cheque bounce case, rejecting her defence that there is a violation of Section 269-SS as the amount given in cash exceeded Rs. 20,000.

“The penalty for taking such advance or deposit in contravention of provisions of Section 269-SS was to be suffered by the taker who accepts the advance. It is thus clear that no person should 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. The provision does not say that a person cannot advance more than Rs.20,000/- in cash to another person. The learned Magistrate has wrongly invoked the aforesaid provisions while dismissing the complaint. As such, the provisions of Section 269-SS and 271D of the Income Tax Act have absolutely no bearing over the case in hand…”, the court said.

The court allowed an appeal filed by the complainant against the judgment of the Metropolitan Magistrate, Vikroli, Mumbai, dated September 1, 2008, acquitting the accused of an offence punishable under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The woman had issued the dishonoured cheques towards repayment of a Rs. 3,00,000 loan received in cash.

The appellant, Arti Karangutkar, and the respondent, Anna Fernandes, were friends and neighbours. In January 2007, Karangutkar extended a friendly loan of Rs. 3,00,000/- to Fernandes due to the latter's financial difficulties arising from her husband's blood cancer and her daughter's training as an Air Hostess. Fernandes promised to repay the loan by the end of June 2007 and issued four post-dated cheques in return. However, the cheques, totalling Rs. 3,00,000, were dishonoured due to insufficient funds.

When Fernandes neither replied to the demand notice nor repaid the amount, Karangutkar filed a complaint under Section 138 of the NI Act. The Metropolitan Magistrate acquitted Fernandes, applying Section 269-SS of the IT Act and holding that the complainant failed to prove the source of her income.

Advocate Abhijeet Desai for Karangutkar contended that the Magistrate failed to consider vital admissions made by Fernandes during cross-examination. The Magistrate wrongly applied Section 269-SS of the IT Act, he said.

During the trial, Fernandes raised these defences: first, she claimed not to have issued the cheques, and second, she alleged that the cheques were stolen.

The court highlighted Fernandes' lack of evidence to prove the alleged loss of cheques or the forgery of signatures. The court observed that Fernandes failed to substantiate her defences during cross-examination.

The court found that Karangutkar had proved the advance of Rs. 3,00,000/- to Fernandes, and the latter issued cheques in discharge of the debt. Fernandes failed to rebut statutory presumption of legally enforceable debt under Sections 118 and 139 of the NI Act, the court said. The court concluded that Fernandes' defences were unacceptable and unbelievable, as she did not file a police complaint about the alleged theft or loss of cheques.

The court further held that the trial court misapplied Section 269-SS of the IT Act, clarifying that the provision pertains to the person accepting the loan or deposit in cash, not the person making the advance. The court pointed out that the penalty prescribed under Section 271D applies to the taker of the cash advance, not the person making the advance.

Therefore, the court concluded that Section 269-SS has no bearing on the case. The court held that the trial court committed a grave error by misreading and misapplying Section 269-SS in the facts of the present case.

The court convicted Fernandes under Section 138 of the NI Act and sentenced her to simple imprisonment for one year and fine of Rs. 5,00,000.

Advocates Abhijeet A Desai, Karan Gajra, Daksha Punghera, and Vijay Singh represented the Appellant.

Advocates Dinesh Jain represented the accused

APP GP Mulekar represented the State.

Case no. – Criminal Appeal No. 764 of 2009

Case Title – Arti Rajesh Karangutkar v. Anna Rocky Fernandes and Anr.

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