Negotiable Instruments Act , 1881, Cheque Dishonour and Meaning of Legally Enforceable Debt

Negotiable Instruments Act , 1881, Cheque Dishonour and Meaning of "Legally Enforceable Debt"

Section 138 - "Legally enforceable Debt" - Meaning of the phrase - Role of Income tax Returns or Books of Accounts in case of cheque dishonour -  The question in this case was whether in case the transaction, is not reflected in the Books of account and/or the Income Tax Returns of the holder of the cheque in due course and thus is in violation to the provisions of Section 269-SS of the Income Tax Act, 1961 whether such a transaction, can be held to be “a legally enforceable debt” and can be permitted to be enforced, by institution of proceedings under Section 138 of the Negotiable Instruments Act. It was answered that "a transaction not reflected in the books of accounts and/or Income Tax returns of the holder of the cheque in due course can be permitted to be enforced by instituting proceedings under Section 138 of the N.I. Act, 1881 in view of the presumption under Section 139 of the N.I. Act, 1881 that such cheque was issued by the drawer for the discharge of any debt or other liability, execution of the cheque being admitted. Violation of Sections 269-SS and/or Section 271-AAD of the Income-tax Act, 1961 would not render the transaction unenforceable under Section 138 of the N.I. Act, 1881." - Prakash Madhukarrao Desai v. Dattatraya Sheshrao Desai [2023] GCtR 2510 (Nagpur, Bombay)

Section 138 - Role of Amount in the Complaint - "The complaint which is otherwise maintainable under Section 138 of the Act of 1881 is not liable to be dismissed at the threshold only on the ground that the complainant had failed to disclose the amount mentioned in the cheque in his Income Tax returns. The presumption under Section 139 of the N.I. Act, 1881 being in the nature of an initial statutory presumption in favour of the complainant, it will have to be rebutted by the accused as any other legal presumption. It hardly needs any reiteration that the standard of proof for rebutting such presumption is on the basis of preponderance of probabilities." -Prakash Madhukarrao Desai v. Dattatraya Sheshrao Desai [2023] GCtR 2510 (Nagpur, Bombay)

Section 139 - Presumption - Burden to rebut such presumption - "In the light of statutory presumption under Sections 118 and 139 of the N.I. Act, 1881, it would be for the accused to rebut such presumption. In every case where the factual basis for raising of the presumption is established, it is obligatory for the Court to raise this presumption." - Prakash Madhukarrao Desai v. Dattatraya Sheshrao Desai [2023] GCtR 2510 (Nagpur, Bombay) 

Section 139 - Presumption - Materials for raising a probable defence in a case of dishonour of cheque - "The said presumption is a rebuttable presumption and the onus is on the accused to raise a probable defence. It is open for the accused to rely upon the evidence led by him or he can also rely on the material submitted by the complainant for raising a probable defence. - Prakash Madhukarrao Desai v. Dattatraya Sheshrao Desai [2023] GCtR 2510 (Nagpur, Bombay)

Section 139 - Presumption - Nature of the Presumption - Operation of this provision - What are included in the presumption- "Presumption mandated by Section 139 of the N.I. Act, 1881 includes the existence of a legally enforceable debt or liability." It is in the nature of a reverse onus clause. - Prakash Madhukarrao Desai v. Dattatraya Sheshrao Desai [2023] GCtR 2510 (Nagpur, Bombay)