Is S.138 NI Act Complaint Maintainable If Cheque Was Issued For Cash Debt Above Rs 20,000? Supreme Court To Decide

The Supreme Court is set to examine the question whether a complaint for cheque dishonour is maintainable if the cheque was presented to recover a debt above Rs 20,000 which was paid completely in cash.

A bench comprising Justice Prashant Kumar Mishra and Justice Vipul M Pancholi issued notice on a Special Leave Petition filed against a judgment of the Kerala High Court which held that a debt created by a cash transaction above Rupees Twenty Thousand in violation of the Income Tax (IT) Act, 1961 cannot be considered as a "legally enforceable debt" under Section 138 of the Negotiable Instruments Act unless there is a valid explanation for the same.

Noting that as per Section 269SS of the IT Act, any transaction above Rs. 20,000/- can only be made through an account transaction or by issuance of a cheque or a draft, the High Court held : "Hereafter, if anybody pays an amount in excess of 20,000/ to another person by cash in violation of Act 1961, and thereafter receives a cheque for that debt, he should take responsibility to get back the amount, unless there is a valid explanation for such cash transactions. If there is no valid explanation in tune with Section 273B of the Act 1961, the doors of the criminal court will be closed for such illegal transactions."

On this ground, the High Court set aside the conviction of the accused, who issued the cheque which got dishonoured.

The petitioner, who challenges the High Court's judgment, contended that the prohibition under Section 269SS is on the person accepting accepting the money, and not on a creditor who is lending the amount. It was contended that the said provision is only prescribing the mode of transaction above a monetary threshold and does not nullify the substantive transaction itself. If there is a violation, a penalty is provided under the Income Tax Act itself. The violation of this provision does not extinguish the liability of the debtor.

"What is already visited with a statutory penalty under the Income Tax Act cannot, by judicial extension, be converted into a substantive extinguishment of rights under the general law of obligations and penal law under Section 138 of the N1 Act. Such a construction would not only trench upon the constitutional guarantee against double jeopardy but would also distort the harmonious interpretation of two special statutes," the petitioner contended.

The petitioner also pointed out that different High Courts have given conflicting judgments on this issue and hence, an authoritative pronouncement by the Supreme Court was necessary.

The petition was filed through Zulfiker Ali PS AoR.