When the Income-Tax Act, 1961 (for short "Act 1961") prohibit a person from taking or accepting from another person any loan or deposit or any specified sum above an amount of Rs. 20,000/-, otherwise than by an account payee cheque or account, or accepting payee bank draft or use of electronic clearing system through a bank account or such other electronic mode as may be prescribed; can a criminal court justify cash transaction above an amount of Rs.20,000/- treating it as a "legally enforceable debt" is the important question to be decided in this case. The Union Government is aiming for "Digital India", and the Hon'ble Prime Minister of India is leading the battle for complete digital transactions by every citizen of this country. Nowadays, we can see digital Crl.Rev.Pet. No.408 of 2024 4 2025:KER:54510 transactions even in small tea shops, paan shops, etc. In Kerala, even coolie workers accept their wages through digital transactions of Unified Payments Interface(UPI) like Google Pay, PhonePe, Paytm etc. I am of the considered opinion that, when the government of India aims a goal of complete digital transactions by every citizen of this country instead of cash transactions, a court of law cannot turn its face and legalise cash transactions.

2. I will first consider the facts of this case. The revision petitioner was an accused in S.T. No.387/2013 on the file of the Judicial First Class Magistrate Court, Pathanamthitta. It was a prosecution initiated by the 1st respondent against the revision petitioner alleging offences punishable under Section 138 of the Negotiable Instruments Act, 1881 (for short " NI Act "). (Hereinafter, the revision petitioner and the 1st respondent are mentioned as the accused and the complainant, respectively.)

3. According to the complainant, the accused owed an Crl.Rev.Pet. No.408 of 2024 5 2025:KER:54510 amount of Rs.9,00,000/- (Rupees Nine lakhs only) to the complainant and for discharge of the said legally enforceable debt, the accused issued a cheque for Rs. 9,00,000/- drawn on his account maintained at the South Indian Bank Limited, Pathanamthitta Branch to the complainant. The accused made the complainant believe that he would keep sufficient funds in his account to honour the said cheque. The complainant presented the cheque for encashment through his account maintained at the Federal Bank, Pathanamthitta branch. The said cheque was dishonoured for the reason "funds insufficient". The said cheque was returned to the complainant on 04.01.2013. The complainant issued a lawyer notice on 09.01.2013, intimating the fact of dishonour of cheque and demanding Rs. 9,00,000/-, which is the amount covered under the cheque. The accused received the notice on 11.01.2013. It is the case of the complainant that the accused sent a reply notice to the complainant by setting up some false contentions. According to the complainant, the accused Crl.Rev.Pet. No.408 of 2024 6 2025:KER:54510 refused to pay the amount even after getting the statutory notice. Hence, it is alleged that the accused committed the offences.

4. Before the trial court, the complainant himself was examined as PW1. PW2 was also examined on the side of the complainant. Exts.P1 to P8 were the exhibits marked on the side of the complainant. DW1 to DW3 were examined on the side of the defence. Exts.D1 and D2 were the defence exhibits. Exts.X1 to X15 were marked as court exhibits. After going through the evidence and the documents, the trial court found that the accused committed the offence under Section 138 of the NI Act and he was sentenced to undergo simple imprisonment for one year and to pay a compensation of Rs.9,00,000/- to the complainant under Section 357(3) of the Code Of Criminal Procedure, 1973 (for short ' Cr.P.C .'). In default of payment of compensation, the accused was directed to undergo simple imprisonment for a further period of one year.

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5. Aggrieved by the conviction and sentence, the accused filed an appeal before the Sessions Court, Pathanamthitta. The appeal was heard by the IIIrd Additional District and Sessions Judge, Pathanamthitta. The appellate court, after going through the evidence and documents, confirmed the conviction and sentence, and accordingly dismissed the appeal. Aggrieved by the same, this Criminal Revision Petition is filed.

6. Heard Adv. D. Kishore, the learned counsel appearing for the accused and Adv. Manu Ramachandran, the learned counsel appearing for the complainant.

7. The main contention raised by Adv. D. Kishore, who appeared for the accused, is that the admitted transaction, according to the complainant, is by cash. The counsel relied on Section 269SS of the Act 1961 and submitted that any transaction above Rs. 20,000/- can only be made through an account transaction or by issuance of a cheque or a draft. The counsel submitted that, in this case, admittedly, Rs. Crl.Rev.Pet. No.408 of 2024 8

2025:KER:54510 9,00,000/- is alleged to be paid by the complainant to the accused in cash. Therefore, the counsel submitted that the same violates Section 269SS of Act 1961, and consequently, a penalty is to be imposed as per Section 271D of Act 1961. The counsel submitted that, if this Court accept the contentions of the complainant, the accused is bound to pay a penalty under Section 271D of Act 1961. The accused completely denies the transaction. The counsel submitted that, even in the reply notice sent by the accused to the statutory notice, it is specifically stated that the accused has no source to advance an amount of Rs.9,00,000/-. The counsel submitted that the complainant deposed before the court that he had not paid any income tax for the amount. In such circumstances, the alleged transaction itself is illegal and therefore, a debt created by an illegal transaction cannot be treated as a legally enforceable debt. Adv. D. Kishore also relied on an article published in Kerala High Court cases by late Sri. Alex M. Scaria, along with his wife, Smt. Saritha Thomas. Crl.Rev.Pet. No.408 of 2024 9

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8. Adv. Manu Ramachandran, who appeared for the complainant, opposed the contentions raised by Adv. D. Kishore. Adv. Manu Ramachandran submitted that, even if the case of the accused is accepted, only a penalty is possible under Section 271D of Act 1961. The counsel submitted that such a transaction in violation of Section 269SS of Act 1961 at the behest of the drawer of a cheque cannot be treated as null and void. The counsel also submitted that, even if the contentions of the accused are accepted, the penalty is to be paid by the accused who received the amount in cash. The counsel relied on the judgment of this Court in Sugunan v. Thulaseedharan and Another [2014 (4) KHC 848]. Adv. Manu Ramachandran also relied on the decision of the Bombay High Court in Krishna P. Morajkar v. Joe Ferrao and Another [Cr. Appeal No.6/2012] in which it is stated that infraction of provisions of the Income-Tax Act would be a matter between the revenue and defaulter, and advantage thereof cannot be taken by the borrower. It is also submitted Crl.Rev.Pet. No.408 of 2024 10 2025:KER:54510 that there is a presumption in favour of the "legally enforceable debt". The accused has not rebutted the same is the contention.

9. This Court considered the contentions of the counsel for the accused and the complainant. The following important points arise for consideration in this case.

1. Whether the presumption under Section 139 of the NI Act cover the "legally enforceable debt"?

2. How can a presumption under Section 139 of the NI Act be rebutted by an accused?

3. Whether debt created by a cash transaction above Rs.

20,000/- in violation of the provisions of the Act 1961 can be treated as a "legally enforceable debt"?

4. Whether the presumption under Section 139 of the NI Act is rebutted in the facts and circumstances of the case, and whether the complainant established that there is any "legally enforceable debt"?

10. Point No.1 Crl.Rev.Pet. No.408 of 2024 11 2025:KER:54510 For a proper consideration of the above point, the relevant section of the NI Act is to be considered first. Section 138 of the NI Act reads like this:

in writing, to the drawer of the cheque, within thirty days Crl.Rev.Pet. No.408 of 2024 12 2025:KER:54510 of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation.--For the purposes of this section, "debt of other liability" means a legally enforceable debt or other liability. "

"139. Presumption in favour of holder.--It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability. "

18. From the above, it is clear that, no person shall take or accept from any other person, any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, if the amount is above Rs.20,000/-, provided that such transactions will not come within the purview of the exemptions mentioned in the section. Similarly, Section 269ST also prohibit that no person shall receive an amount of two lakh rupees or more in aggregate from a person in a day; or in respect of a single transaction; or in respect of transactions relating to one event or occasion from a person otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed. Section 271D of Act 1961 says that if a person Crl.Rev.Pet. No.408 of 2024 20 2025:KER:54510 takes or accepts any loan or deposit or specified sum in contravention of the provisions of Section-269SS, shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken or accepted. Of course, Section 273B deals with situations in which 'penalty not to be imposed in certain cases'. It will be better to extract Section 273B of Act 1961:

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19. As per Section 273B, if the person proves that there was a reasonable cause for the failure of the mandate in Section 269SS, no penalty can be imposed under Section 271B of the Act 1961.

20. Admittedly, the Apex Court in Krishna Janardhan Bhat's case (supra) was considering a case in which the accused was convicted and sentenced by the trial court. While discussing the facts, the apex court also considered the impact of Section 269SS. Paragraph 19 of the above judgment is extracted hereunder:

21. The three-member bench decision in Rangappa's case (supra) overruled only the declaration regarding the non- availability of presumption under Section 139 of the NI Act for legally enforceable debt in Krishna Janardhan Bhat's case, and all other points in it were confirmed. This is clear from paragraph 15 of Rangappa's decision, which is extracted in paragraph 15 of this judgment, while considering point number two. Therefore, the judgment of the Krishna Janardhan Bhat's case (supra) is in effect confirmed in Rangappa 's case (supra), except regarding the declaration regarding non availability of the presumption under Section 139 of the NI Act.

22. The Bombay High Court in Sanjay Mishra v. Kanishka Kapoor @ Nikki and Another [2009 (2) KLD 825] considered the impact of Section 269SS of the Act 1961. It will be better to extract the relevant portion of the above judgment:

The alleged debt cannot be said to be a legally recoverable debt. "

23. It is true that the Bombay High Court relied on the judgment of Krishna Janardhan Bhat's case (supra) to conclude that there is no presumption as far as legally enforceable debt is concerned. That is already overruled in Rangappa 's case (supra). But the dictum laid down in Sanjay Mishra 's case (supra) is relevant here also. The Bombay High Court observed that by no stretch of imagination, it can be stated that liability to repay unaccounted cash amount is a legally enforceable debt within the meaning of the explanation to Section 139 of the said Act. I am in perfect agreement with Crl.Rev.Pet. No.408 of 2024 24 2025:KER:54510 the above dictum laid down by the Bombay High Court. It is true that the above judgment was referred by another learned Single Judge of the Bombay High Court and the matter reached before the Division Bench of the Bombay High Court Nagpore Bench. The Division Bench of the Bombay High Court in Prakash Madhukarrao Desai v. Dattatraya Sheshrao Desai [2023 SCC OnLine Bom 1708] observed like this :

Further, in Atul Mohan Bindal (supra), the penalty referred to in section 271(1)(c) of the Act of 1961 has been referred to as a civil liability and not one which is criminal or quasi- criminal in nature. Thus, in the light of statutory presumption under sections 118 and 139 of the Act of 1881, it would be for the accused to rebut such presumption in the light of what has been held in Rangappa (supra).

18. In view of the aforesaid discussion, it is held that a transaction not reflected in the books of account 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 Act of 1881 in view of the presumption under section 139 of the Act of 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 section 269SS and/or section 271AAD of the Act of 1961 would not render the transaction unenforceable under section 138 of the Act of 1881. The decisions in Krishna P. Morajkar, Bipin Mathurdas Thakkar and Pushpa Sanchalal Kothari (supra) lay down the correct position and are thus affirmed. The decision in Crl.Rev.Pet. No.408 of 2024 26 2025: KER:54510 Sanjay Mishra (supra) with utmost respect stands overruled. "

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25. I agree with the observations of the learned Single Judge in the above reference order, which leads to the Division Bench judgment.

26. Another contention raised by the complainant is that, even if it is stated that there is a violation of Section 269SS of Act 1961, the penalty is only to be paid by the person who received the amount in cash. Here, the accused received the amount in cash. No penalty is to be paid by the complainant because he paid the amount in cash to the accused, and only the accused is liable to pay a penalty because he received the amount in cash. But the question to be decided in a proceedings under Section 138 of the NI Act is whether there is any legally enforceable debt. Debt is not defined in the NI Act . Therefore, the ordinary meaning of debt is to be considered. A debt is generally understood as a sum of money owed by one party to another, often arising from a contract or agreement. If the debt arises through an illegal transaction, that debt cannot be treated as a legally Crl.Rev.Pet. No.408 of 2024 32 2025:KER:54510 enforceable debt. If the court regularises such transactions, that will encourage illegal transactions by the citizens. Even black money will be converted into white money through the criminal courts. Therefore, I am not impressed by the argument of the complainant that only the receiver of the cash above Rs.20,000/- is liable to pay penalty, and therefore, if the complainant pays the amount as cash which is even above Rs.20,000/- it will come within the purview of a legally enforceable debt. In Dalmia Cement (Bharat) Limited v. Galaxy Traders & Agencies Limited and Others [2001 (6) SCC 463], the Apex Court referred to the object of Section 138 of the NI Act. Paragraph No.3 of the above judgment is extracted hereunder:

27. The Apex Court held that the laws relating to the said Act are required to be interpreted in the light of the object Crl.Rev.Pet. No.408 of 2024 34 2025:KER:54510 intended to be achieved by it, despite there being a deviation from the general rule. The Apex Court expressed that the object of Section 138 of the NI Act is to ensure that commercial and mercantile activities are conducted in smooth and healthy manner. In Sanjay Mishra 's case (supra), the Bombay High Court extracted the above judgment of the Apex Court in Dalmia Cement 's case (supra) and observed that the alleged liability to repay an unaccounted cash amount, admittedly not disclosed in the income-tax return, cannot be a legally recoverable liability. I perfectly agree with the above observation of the learned Judge of the Bombay High Court. Accordingly, it is declared that debt created by a cash transaction above Rs.20,000/- in violation of the provisions of Act 1961 is not a "legally enforceable debt" unless there is a valid explanation for the same. But the accused should challenge such transactions in evidence, and he has to rebut the presumption under section 139 of NI Act, of course, through preponderance of probability. If there is no challenge, it is presumed, in the light of Section 139 of the NI Act that, there is a valid explanation to the complainant under Section 273B of the Act 1961. Hereafter, if anybody Crl.Rev.Pet. No.408 of 2024 35 2025:KER:54510 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.

28. Point No.4 Coming back to the facts of this case, the question to be decided is whether the accused rebutted the presumption. Admittedly, an amount of Rs.9,00,000/-was paid in cash. PW1 who is the complainant gave evidence before the trial court regarding the income-tax payment. It will be better to extract the same:

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29. From the above, it is clear that the complainant has not paid any income-tax for the amount paid to the accused in cash. He has no explanation for the payment of the amount in cash to the accused. It is a settled position that the ignorance of the law is not an excuse. The accused specifically cross- examined about the same when PW1 was in the box, as far as the legally enforceable debt is concerned. He has absolutely no explanation regarding the payment of the amount above Rs.20,000/- by cash. In such circumstances, in the light of the principle laid down by the Apex Court in Rangappa 's case (supra), the accused rebutted the presumption. The debt alleged to be due to the complainant cannot be treated as a legally enforceable debt.

30. It is true that, this Court in Sugunan 's case (supra) considered this point. The relevant portion of the above judgment is extracted hereunder:

[underline supplied]

31. I am of the considered opinion that the above judgment of this Court is without adverting the decisions of the Apex Court in Rangappa 's case (supra) and Krishna Janardhan Bhat's case (supra). Therefore, the dictum laid down by this Court in the above judgment is per incuriam. Crl.Rev.Pet. No.408 of 2024 40

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32. Counsel for the petitioner relied on an article of late Adv. Sri. Alex M. Scaria. Adv. Alex M. Scaria was a lawyer with innovative thinking on all legal issues. I heard him arguing several complicated legal issues with an 'Alex touch'. The present article is also like that. We, the legal fraternity, miss such a great lawyer in his early age. Adv. Alex considered a point, "whether presumption under Section 118 or Section 139 of NI Act would be born, if the disputed transaction is not in tune with Section 269SS of the Income Tax Act, 1961?." Adv. Alex concluded the article with the following observations:

33. I agree with the conclusion of the above article that the debt arising through an illegal transaction cannot be treated as a legally enforceable debt. But I am not in a Crl.Rev.Pet. No.408 of 2024 41 2025:KER:54510 position to accept the above conclusion in the article of our friend lawyer, Alex, about the non-applicability of presumption under Section 139 of the NI Act for legally enforceable debt because of the dictum laid down by the Apex Court in Rangappa 's case (supra).

34. Before concluding, I also clarify that the dictum laid down in this judgment is applicable only in cases in which this question is specifically raised and there is no explanation to the complainant in tune with Section 273B of Act 1961. In other words, in cases in which the trial is already concluded and the matter is pending before the appellate court, unless the above point is specifically raised, the appellate court need not consider this and need not remand the case for giving any opportunity to adduce further evidence. In other words, I make it clear that the dictum is applicable only prospectively, and in a concluded trial in which no such point is raised need not be reopened based on the decision in this case.

35. As a last submission, the counsel for the complainant also submitted that the case may be remanded to Crl.Rev.Pet. No.408 of 2024 42 2025:KER:54510 the trial court for giving an explanation for the payment of cash. As I observed earlier, the explanation can be given for the payment of cash amount above Rs.20,000/- by the person who received the amount in the light of Section 271D of Act 1961. Here is a case where the complainant admits that he is not a tax payee. He paid Rs.9,00,000/- by cash to the accused. The accused has a case that the complainant has no source to pay an amount Rs.9,00,000/-. The accused has got such a case from the stage of the reply notice itself. In Ext.P7 reply notice, the accused clearly stated that the complainant has no source to raise an amount of Rs.9,00,000/-. Even though some evidence is adduced by the complainant to show that he withdrew some amount from some other account, since the complainant admits that he is not a taxpayer, it cannot be said that the amount is a legally enforceable debt. Therefore, I am of the considered opinion that this is a case in which the complainant fails to prove that there is legally enforceable debt. The accused rebutted the presumption Crl.Rev.Pet. No.408 of 2024 43 2025:KER:54510 under Section 139 of NI Act. Consequently, the conviction and sentence imposed on the accused are to be set aside.

Therefore, this Criminal Revision Petition is allowed. The conviction and sentence imposed on the revision petitioner/accused as per the judgment dated 21.06.2019 in S.T. No.387/2013 on the file of the Judicial First Class Magistrate Court-II, Pathanamthitta and the judgment dated 30.11.2023 in Crl.Appeal No.59/2019 on the file of the Additional District & Sessions Court-III, Pathanamthitta is set aside, and the revision petitioner is acquitted. The bail bond, if any, executed by him is cancelled. If any amount is paid by the accused as per the orders of the appellate court or this Court, the same should be disbursed to the revision petitioner/accused forthwith.

P.V.KUNHIKRISHNAN, JUDGE DM