P.C. Hari v. Shine Varghese, (2025) 7 KCD 251 : 2025 KER 54510

NEGOTIABLE INSTRUMENTS ACT, 1881 (NI Act) – Sections 138, 139 – INCOME-TAX ACT, 1961 (Act 1961) – Sections 269SS, 271D, 273B – “Legally Enforceable Debt” – Cash Transaction exceeding Rs. 20,000/- – Rebuttal of Presumption under Section 139 NI Act – Digital India Initiative.

(2025) 7 KCD 251 : 2025 KER 54510

IN THE HIGH COURT OF KERALA AT ERNAKULAM
P.V.KUNHIKRISHNAN, J
Crl.Rev.Pet. No.408 of 2024 Dated: 25th day of July, 2025

Legally Enforceable Debt & Cash Transactions: The High Court held that a debt created by a cash transaction above Rs. 20,000/-, in violation of the provisions of the Income-Tax Act, 1961 (specifically Section 269SS), is NOT a “legally enforceable debt” for the purpose of Section 138 of the Negotiable Instruments Act, 1881, unless there is a valid explanation for such cash transaction in tune with Section 273B of the Income-Tax Act, 1961. If no such challenge is raised or a valid explanation is provided, it is presumed there is a valid explanation under Section 273B of the Act 1961.

Purpose of Income-Tax Act Provisions: The Court emphasized that the prohibition on large cash transactions and the imposition of penalties under the Income-Tax Act are intended to discourage violations and curb a parallel economy, aligning with the “Digital India” vision. Regularizing such illegal transactions through criminal courts would encourage illegal activities and facilitate the conversion of black money into white.

Presumption under Section 139 NI Act: The Court reiterated that the presumption under Section 139 of the NI Act indeed covers the existence of a “legally enforceable debt”. This confirms the principle laid down by the Apex Court in Rangappa v. Sri Mohan [2010 KHC 4325], which explicitly overruled the contrary observation in Krishna Janardhan Bhat v. Dattatraya G. Hegde [2008 (4) SCC 54] on this specific point.

Rebuttal of Presumption: An accused can rebut the presumption under Section 139 NI Act by raising a “probable defence” which creates doubts about the existence of a legally enforceable debt or liability, with the standard of proof being “preponderance of probabilities”. The accused can rely on the complainant’s own materials to raise such a defence.

Disagreement with Bombay High Court: The Kerala High Court expressly disagreed with the Division Bench of the Bombay High Court’s finding in Prakash Madhukarrao Desai v. Dattatraya Sheshrao Desai [2023 SCC OnLine Bom 1708] which held that a violation of Section 269SS would not render the transaction unenforceable under Section 138 of the NI Act. The Court stated its perfect agreement with the dictum from Sanjay Mishra v. Kanishka Kapoor @ Nikki and Another [2009 (2) KLD 825] that “liability to repay unaccounted cash amount is not a legally enforceable liability”.

Prior Precedent Declared Per Incuriam: The Court found its own prior judgment in Sugunan v. Thulaseedharan and Another [2014 (4) KHC 848], which suggested that a Section 269SS violation would not make a transaction unenforceable, to be per incuriam (decided without sufficient regard to relevant legal principles/precedents, specifically Rangappa and Krishna Janardhan Bhat).

Application of Ruling: The dictum laid down in this judgment is applicable only in cases where the question of cash transaction violation is specifically raised and there is no explanation in tune with Section 273B of Act 1961. It will generally apply prospectively, meaning concluded trials where this point was not raised need not be reopened.

Case Outcome: In the instant case, where the complainant admitted paying Rs. 9,00,000/- in cash, had not paid income tax for the amount, and offered no valid explanation for the cash payment despite the accused raising this issue from the outset, the Court found that the accused had successfully rebutted the presumption under Section 139 NI Act, and the complainant failed to prove a legally enforceable debt. Consequently, the conviction and sentence were set aside, and the accused was acquitted.

Advocates

D. Kishore; Meera Gopinath; R. Muraleekrishnan (Malakkara); For Revision Petitioner

Manu Ramachandran; M. Kiranlal; T. S. Sarath; R. Rajesh (Varkala); Sameer M.Nair; Sailakshmi Menon; Jothisha K. A.; Shifana M.; For Respondent

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