Presumption U/S 139 Of NI Act Unsustainable If Debt Transaction Not Disclosed In Income Tax Return

Name of the Case

R.Narender vs Yakamma Keloth Or Kalyan (CRIMINAL APPEAL No.2852 of 2018).

Key Takeaways

• The complainant had filed an appeal with the Telangana High Court under Section 378(4) Cr.P.C. against the acquittal of the accused by the special magistrate under section 138, NI Act case.
• The Bench noted if there is a failure to record the debt transaction in the income tax return, the presumption under Section 139 of the Negotiable Instruments Act is untenable.
• It was held that the complainant's evidence did not show the case against the accused beyond a reasonable doubt. Hence, the trial court's decision to acquit was upheld.

Background of the Case

• Under Section 138 of the NI Act, the appellant had filed a private complaint against the accused. Both parties had agreed that the accused will pay the complainant a final settlement of Rs.70 lakhs.
• The accused paid the complainant an advance of Rs.50,000 and committed to producing the balance. Accordingly, the accused issued two cheques for the complainant's legal liability. When the complainant delivered the cheques to his banker, they were returned.
• The complainant, aggrieved by the accused's failure to pay or react to the notice, approached the Special Magistrate. The Trial Court acquitted the accused as it found that the accused had only produced the cheques as security for a debt.
• The complainant filed a criminal appeal with the Telangana High Court under Section 378(4) Cr.P.C. Justice G Sri Devi heard the appeal following the acquittal.

Contentions by the Appellant

• The appellant argued that since the accused signed and issued the cheques to the complainant, the trial court should have presumed that the cheques were issued to discharge the legally enforceable obligation.
• It was also maintained that the burden of proof was with the accused to overcome the presumption.
• The appellant also claimed that the accused had no justification for signing and giving the cheques to the complainant. On this basis, the accused was said to be charged with failing to rebut the assumption.

Contentions by the Respondent

• The respondent contended that the trial court correctly acquitted the accused because she had successfully rebutted the presumption and established her defence that the impugned cheques were issued only for security, as stated in the settlement agreement.
• It was further claimed that the accused had rebutted the presumption in her reply notice, stating that the respondent had not instructed nor assured the complainant regarding the cheques.
• It was further pointed out that no proof was presented that the appellant had spent Rs.3,00,000 locating and procuring the Petrol Pump location as specified in the settlement agreement. It was stated that the appellant, despite paying income taxes, had not filed any returns to establish that the expenses were incurred.

Observations

• The Bench stated that, as the Trial Court correctly noted, the complainant's version cannot be accepted at face value in the lack of any corroborating evidence in the Income Tax return.
• The Court further noted that the accused had filed a private complaint against the appellant's father, saying that he had intimidated her into signing an undertaking on behalf of his son and threatened her with dire consequences if she did not.
• It found that the accused had notified the complainant that they had removed all critical files related to the petrol bunk, in violation of the settlement agreement. The Court noted that the accused was forced to suspend the two blank cheques provided only for security reasons.
• The Bench observed that if there is a failure to record the debt transaction in the income tax return, the presumption under Section 139 of the Negotiable Instruments Act is untenable.
• It was held that the complainant's evidence did not show the case against the accused beyond a reasonable doubt. Hence, the trial court's decision to acquit was upheld.

Questions

• Under which section of the Negotiable Instruments Act is a cheque Bounce case filed?
• What does Section 378(4), CrPC state?