Gopalaiah Vs K. Manjunath (Supreme Court of India)
Supreme Court: Cash Loan Above ₹20,000 Does Not Become Unenforceable Under NI Act Merely Because It Violates Section 269SS of the Income-tax Act
The Supreme Court held that mere violation of Section 269SS of the Income-tax Act, 1961, which prohibits acceptance of loans above the prescribed limit in cash, does not render the underlying loan transaction illegal, void or unenforceable for the purposes of Section 138 of the Negotiable Instruments Act, 1881. The Court observed that breach of Section 269SS merely attracts the penalty under Section 271D of the Income-tax Act and does not extinguish the legally enforceable debt. Consequently, such violation cannot by itself rebut the statutory presumptions under Sections 118(a) and 139 of the NI Act. Once the execution of the cheque is admitted, the presumption that it was issued towards a legally enforceable debt arises, and a mere denial by the accused is insufficient to rebut that presumption. The accused must lead cogent evidence explaining the circumstances in which the cheque was issued and how it reached the complainant. Finding that the trial court had wrongly placed the burden on the complainant and had failed to properly appreciate the evidence regarding his financial capacity, the Supreme Court upheld the High Court’s order remanding the matter for fresh consideration by the trial court.
Cases Discussed
