THE COMMISIONER OF INCOME-TAX vs. M/S.CLEAR WATER TECHNOLOGIES

The appellant was the complainant and the respondent was the accused in C.C.No.20323/2010 on the file of XVI Additional Chief Metropolitan Magistrate, Bengaluru. For the purpose of convenience, the parties will be referred to henceforth with their ranks before the trial Court.

The complainant filed the complaint before the trial Court seeking prosecution of the accused for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881 (‘the Act’ for short). The complainant claimed that the accused borrowed Rs.3,00,000/- for the purpose of purchasing the property. He further claimed that towards discharge of the liability,

The complainant presented the said cheques on 02.02.2010 through his account in Indian Overseas Bank, Anna Salai Branch, Chennai. The said cheques were returned on 03.02.2010 with endorsement “insufficient funds”. Exs.P3 to P6 are the returned memos.

On 05.02.2010 the complainant got issued statutory notice as per Ex.P7 informing the accused about dishonour of cheques and calling upon him to pay the cheque amount. The respondent replied to the said notice as per Ex.P8 dated 19.02.2010 denying the liability and issuance of Exs.P1 and P2 to discharge the liability.

Ultimately, the complainant filed the complaint in P.C.R.No.8751/2010 as per Ex.P10 seeking prosecution of the accused for the offence punishable under Section 138 of the Act. The trial Court on taking

Since the accused disputed substance of accusation and claimed trial, the trial was conducted. The complainant got himself examined as PW.1 and got marked Exs.P1 to P15. On his examination under Section 313 of Cr.P.C., the accused led defence evidence. He was examined as DW.1 and on his behalf Exs.D1 to D3 were marked.

On such trial and hearing the parties, the trial Court by the judgment and order dated 27.07.2013 convicted the accused for the offence punishable under Section 138 of the Act and sentenced him to fine of Rs.2,78,000/-. Out of fine amount, compensation of Rs.2,75,000/- was ordered to be paid to the complainant.

The trial Court held that since the accused admitted his signatures on the cheques and that they were drawn on his account, presumptions under Sections 118 and 139 of the Act arise. The trial Court further held

The accused challenged the said order of conviction and sentence before V Additional City Civil & Sessions Judge, Bengaluru in Crl.A.No.418/2013. The First Appellate Court by the impugned judgment and order reversed the order of the trial Court and acquitted the accused on the following grounds: (i) There are material alterations in the cheques. The complainant did not seek reference of the cheques for expert’s opinion to prove signature and handwriting on the cheques. (ii) The evidence of PW.1 regarding date of lending is not creditworthy. (iii) The lending capacity of the complainant was not proved. (iv) Section 261 of the Income Tax Act, 1961 bars payment of cash exceeding Rs.20,000/-. Therefore the complainant’s contention that he lent Rs.3,00,000/- in cash is unacceptable.

Aggrieved by the said order, the complainant has preferred the above appeal. Submissions of Sri C.Vijaya Kumar, learned Counsel for the complainant/appellant:

When the signatures on the cheques and that the cheques were drawn on the account of the accused were admitted, the complainant is entitled to the benefit of presumption under Sections 118 and 139 of the Act. The accused failed to rebut the said presumption by acceptable or probable evidence. The trial Court considering all the aspects rightly convicted the accused. The First Appellate Court was not justified in reversing such judgment.

In support of his contentions, he relies upon the following judgments: 1. APS Forex Services Pvt. Ltd. Vs. Shakti International Fashion Linkers1

Bhupesh Rathod v. Dayashankar Prasad Chaurasia2

K.S.Ranganatha Vs. Vittal Shetty3

Sripati Singh v. The State Of Jharkhand4

Sumeti Vij Vs. M/s Paramount Tech Fab Industries5

Triyambak S Hegde Vs. Sripad6

SBI Global Factors Ltd. Vs. State of Maharashtra and Ors.7

In Re: Expeditions Trial of Cases under Section 138 of N.I. Act, 1881.8

M/s. Meters and Instruments Pvt. Ltd. And Anr. Vs. Kanchan Mehta9

Mainuddin Shaikh Vs. Vijay Salvi10

K.G.Vinod Kumar Vs. Radhakrishnan Nair11

Kumar Exports Vs. Sharma Carpets12

Makwana Tukidas Vs. State of Gujarat13

Bir Singh Vs. Mukesh Kumar14

Rohitbhai Patel v. State of Gujarat15

Surinder Deswal v. Virender Gandhi16 17. M/s.Kalamani Tex & Anr. Vs. P.Balasubramanian17

H.Pukhraj v. D Parasmal18

T.Vasanthakumar v. Vijayakumari19

R.Vijayan v. Baby20

No doubt there was presumption under Sections 118 and 139 of the Act and the accused admitted his signature on the cheque. However, the said presumption stands rebutted, if the accused disputes the lending capacity of the complainant and probabilize such defence. The complainant’s Advocate received blank cheques towards stamps and registration charges in a property purchase transactions and passed them to the complainant. In the same property transactions towards payment of advance sale consideration, the accused had issued two cheques to Puttaswamy and Nagaraj. Those persons instead of selling the properties, misused the cheques and implicated the accused in C.C.No.23907/2010 and C.C.No.36476/2010 for the offence punishable under Section 138 of the Act. The presumption stood rebutted by the complainant's own admission in his cross-examination and he failed to show

Having regard to the rival contentions and the material on record, the question that arises for consideration is: “Whether the First Appellate Court was justified in reversing the order of conviction passed by the trial Court and acquitting the accused?”

Before considering the contentious questions of fact, it is necessary to examine the legal principles on the proof of the offence under Section 138 of the Act. Though the appellant relied on host of judgments in that regard, the ratio of the judgments is as follows: (i) Once the accused admits his signature on the cheque and that the cheque pertains to his account, as per Sections 118 and 139 of the Act initially the Court shall presume that the complainant has received the cheque for consideration and for discharge of any debt or other liability.

In the light of the aforesaid legal propositions, it has to be examined whether the accused rebutted the presumption and the complainant discharged the reverse onus.

As already pointed out, the accused did not dispute his signatures on cheques Exs.P1 and P2 and that they relate to his account. He did not even dispute the presentation of the said cheques or dishonour of the same for want of sufficient funds. Therefore the trial Court was justified in holding that the initial presumption under Section 118 of the Act arises and under Exs.P1 and P2 consideration was passed and the cheques were issued towards discharge of legal liability.

The First Appellate Court disbelieved the issuance of cheques on the ground that in Ex.P2 there was material alteration. However, the trial Court failed to

Then the question is whether the accused rebutted the presumptions under Sections 118 and 139 of the Act. The trial Court holds that the accused has failed to rebut the presumption. The First Appellate Court holds that the accused rebutted the presumption and on such rebuttal, the complainant has failed to establish that the cheques were issued towards discharge of legal liability and he had lent Rs.3,00,000/-.

The Hon’ble Supreme Court in the judgment in APS Forex Services Private Limited’s case referred to supra has held that when the alleged lending of the loan is cash transaction and if lending capacity of the complainant is disputed and if that defence is probabalised, the complainant has to prove lending of the loan.

As per the complainant, the loan was lent in cash. During evidence the accused seriously disputed the lending capacity of the complainant. In the light of the aforesaid judgments, the question is whether the accused probabilized his defence.

In the present case, the complainant himself in his notice Ex.P7 states that he arranged for funds of Rs.3,00,000/- with great difficulty to be paid to the accused. That itself shows that he did not possess Rs.3,00,000/- on hand. By such admission in the notice of the complainant himself, the defence of the accused regarding lending capacity is probabilized. Under such circumstances, the complainant had to show that he possessed Rs.3,00,000/- and lent that.

PW.1 states that he paid Rs.3,00,000/- in October 2009. He claims that such sum was paid in the presence of one Keshavamurthy. Said Keshavamurthy was not examined. At one breath, he says that cash was in his house. Next he says that in 2009 his father had sold site situated in Rajarajeshwarinagar and out of sale

PW.1 in his further cross-examination says that his father sold the properties in the year 2004 for Rs.20,00,000/- and paid Rs.4,00,000/- as his share. Absolutely, no documents were produced to show that he and his father sold the properties in 2004 or in 2009.

PW.1 in his further examination deposed that he had deposited Rs.4,00,000/- in Indian Overseas Bank, Malleshwaram. He further says that he paid the loan amount to the accused in cash by borrowing from his friends. Such amount is not found in any of his bank records produced by him.

After realizing the repercussion of his admission in the cross-examination, the complainant comes up with another theory that he had invested in some chit funds, he received a sum of Rs.85,000/- in the said chit subscription under Ex.P13. The accused disputed

To prove the theory of possessing funds in 2009 in his bank account, the complainant produced Ex.P15 passbook of his Savings Bank Account in Indian Overseas bank, Anna salai, Chennai. The said document shows that account was closed on 25.04.2007 itself, whereas the alleged lending of the loan was in October 2009.

Apart from the aforesaid inconsistencies, the credibility of the complainant’s evidence was further brittled by his own admission in the notice that he arranged funds with difficulty. Considering such aspects, the First Appellate Court held that the defence of the accused about lending capacity of the complainant was probabilized.

Under the aforesaid circumstances, the burden reversed to the complainant to prove his lending

In the light of the aforesaid facts and circumstances, the trial Court was not right in holding that the accused failed to rebut the presumption. Whereas the First Appellate Court was justified in holding that the presumption was rebutted and the complainant failed to discharge his reverse burden of proof. Consequently, the impugned order of acquittal passed by the First Appellate Court sustains. Therefore the appeal is dismissed.