Cash Transactions Above ₹20,000 Violating Income Tax Act Do Not Invalidate Debt Under NI Act: HP HC Upholds Conviction for Cheque Dishonour [Read Order]

The HimachalPradesh High Court has dismissed a criminal revision petition, firmly reiterating that cash transactions above ₹20,000 violating Section 269SS of the Income Tax Act do not invalidate the underlying debt or render it unenforceable under the Negotiable Instruments Act (NI Act).

The Single Judge Bench of Justice Rakesh Kainthla upheld the concurrent findings of the Trial Court and the Appellate Court, which had convicted the petitioner, Bodh Raj, under Section 138 of the NI Act. The case stemmed from a complaint filed by Veer Sen regarding a cheque for ₹2,26,000 issued by the accused, which was dishonoured by the bank with the endorsement "payment stopped by the drawer." Despite the statutory notice being served, the accused failed to make the payment, leading to his conviction and sentence of three months' rigorous imprisonment along with a fine equivalent to the cheque amount.

The petitioner challenged the validity of the debt, arguing that the transaction involved a cash payment exceeding ₹20,000, which allegedly violated Section 269SS of the Income Tax Act, 1961. Counsel for the petitioner contended that such a violation rendered the transaction illegal and the debt legally unenforceable, thereby rebutting the statutory presumptions under Sections 118(a) and 139 of the NI Act. The defense further argued that the complainant had failed to produce evidence proving the source of the funds or the financial capacity to lend the amount.

Rejecting these submissions, the Court relied on the recent judgment of the Supreme Court in Sanjay Sanjabij Tari v. Kishore S. Borcar (2025). The Bench observed that while a breach of Section 269SS attracts a penalty under Section 271D of the Income Tax Act, it does not declare the transaction to be illegal, invalid, or statutorily void. Consequently, such a violation does not render the debt unenforceable under Section 138 of the NI Act or rebut the presumptions of consideration.

The Court further noted that the accused had failed to lead cogent evidence to rebut the presumption that the cheque was issued for a legally enforceable liability. The defense version regarding the forcible obtainment of the cheque was found to be contradictory and discrepant when compared to the statements of defense witnesses.

The Court held that once the presumption under Section 139 is attracted, the onus shifts to the accused to prove the non-existence of debt by a preponderance of probabilities; the complainant is not required to prove the antecedent debt as in a civil suit. Observing that the sentence imposed by the Trial Court was neither excessive nor illegal, the High Court found no merit in the revision and dismissed the petition accordingly.

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