The Delhi High Court has ruled that a loan advanced in cash, even if it exceeds the permissible limit under Section 269SS of the Income Tax Act, 1961, remains a legally enforceable debt for the purpose of proceedings under Section 138 of the Negotiable Instruments Act, 1881 (NI Act).
Justice Swarana Kanta Sharma dismissed the criminal revision petition filed by the petitioner, Satish Kumar, and upheld his conviction for the dishonour of cheques amounting to ₹24,00,000. The Court clarified that while a breach of Section 269SS may attract a penalty under the Income Tax Act, it does not render the underlying transaction void or unenforceable in a cheque bounce case.
The petitioner, Satish Kumar, challenged the judgment of the Appellate Court which had upheld his conviction by the Metropolitan Magistrate. The core legal issue revolved around whether a large cash loan, allegedly given in violation of income tax laws, could be considered a “legally enforceable debt.” The High Court held that the violation of Section 269SS does not rebut the statutory presumption under Section 139 of the NI Act, and affirmed the sentence of one year of simple imprisonment and compensation of ₹28,33,000.
Background
The complaint was filed by respondent Bindu Mahajan, who alleged that in March 2015, Satish Kumar approached her for financial assistance. She advanced a friendly loan of ₹4,00,000 via bank transfer and subsequently ₹20,00,000 in cash. Kumar purportedly executed two promissory notes and issued three cheques to discharge this liability.
When the cheques were presented for encashment in 2019, they were returned unpaid with remarks “Funds Insufficient” and “Non-CTS Instrument.” Following the issuance of a legal notice and Kumar’s failure to pay, a complaint under Section 138 of the NI Act was instituted. The Trial Court convicted Kumar in April 2022, a decision later upheld by the Sessions Court in July 2024.
Arguments of the Parties
The counsel for the petitioner argued that the cheques were not issued for any legally enforceable debt but were “signed blank cheques” given as security for a property transaction that never materialized. A key limb of the defense was the challenge to the complainant’s financial capacity and the validity of the cash transaction. It was argued that the complainant admitted to a monthly income of ₹30,000 and that the loan was not reflected in Income Tax Returns.
The counsel for the respondent contended that the petitioner had admitted his signatures on the cheques, thereby attracting the presumption of liability. It was submitted that the petitioner failed to provide any details regarding the alleged property transaction—such as the address, seller’s name, or value—rendering his defense implausible.
Court’s Analysis: Enforceability of Cash Loans
The High Court extensively analyzed the legal position regarding cash loans in light of Section 269SS of the Income Tax Act. Relying on the Supreme Court’s recent decision in Sanjabij Tari v. Kishore S. Borcar (2025 INSC 1158), Justice Sharma observed that the income tax provision restricts accepting deposits or loans in cash exceeding ₹20,000. However, the consequence of violating this is a penalty under Section 271D of the same Act.
The Court quoted the legal position settled by the Supreme Court:
“Any violation of Section 269SS would not render the transaction unenforceable under Section 138 of the NI Act or rebut the presumptions under Sections 118 and 139 of the NI Act because such a person, assuming him/her to be the payee/holder in due course, is liable to be visited by a penalty only as prescribed.”
The Court held that a breach of Section 269SS “does not make the underlying transaction void, illegal, or non-existent.” Consequently, the argument that the debt was unenforceable due to the cash nature of the loan was rejected.
Assessment of Evidence
The Court further noted significant inconsistencies in the petitioner’s defense:
- Contradictory Statements: The petitioner initially denied receiving any money but later admitted to receiving ₹4,00,000 via bank transfer when confronted with bank records.
- Lack of Proof for ‘Security’ Defense: The petitioner failed to provide any specific details about the property for which the cheques were allegedly given as security.
- Fabricated Notice: A legal notice purportedly sent by the petitioner in 2016 demanding the return of cheques was found to be fabricated, as it was addressed to a location where the complainant resided only after 2018.
Decision
Finding that the petitioner failed to rebut the statutory presumption of debt under Sections 118 and 139 of the NI Act, the High Court dismissed the revision petition.
“In the present case, the petitioner has neither examined any independent witness nor produced any document to substantiate the alleged financial incapacity of the complainant,” the Court observed.
The conviction and sentence were upheld, and the petitioner was directed to surrender within three weeks.
Case Details:
- Title: Satish Kumar vs. State (Govt. NCT Delhi) & Anr.
- Case No.: CRL.REV.P. 864/2024
- Bench: Justice Swarana Kanta Sharma
- Citation: 2025:DHC:10084
