Non-Disclosure Of Cash Loan In Income Tax Returns Not A Valid Defence Under Section 138 NI Act: Delhi High Court

"Though such omission [to disclose a loan in ITR] may entail consequences under the Income Tax laws, however, the same falls outside the purview of the proceedings under Section 138 of the NI Act," Delhi High Court, in a significant ruling, held that the failure of a complainant to disclose a cash loan in their Income Tax Returns (ITR) does not constitute a valid defence for the accused in a cheque dishonour case.

A single-judge bench of Justice Saurabh Banerjee observed that while such an omission might attract penalties under tax statutes, it has no bearing on the enforceability of a debt under the Negotiable Instruments Act, 1881 (NI Act), provided the complainant otherwise proves their financial capacity.

BACKGROUND OF THE CASE

The dispute arose when the petitioner, Rajinder Singh Tokas, allegedly borrowed Rs. 15 lakhs from the respondent, Akshay Kumar Rathi, in February 2020. To discharge this liability, the petitioner issued a cheque which was subsequently dishonoured due to "insufficient funds," leading to his conviction by the Trial Court and the dismissal of his appeal by the Sessions Court. The petitioner approached the High Court in revision, claiming the cheque was actually a security for a "chit fund" transaction and that the complainant lacked the financial capacity to lend such a large sum.

The primary question before the court was whether the petitioner had successfully rebutted the statutory presumption under Section 139 of the NI Act by challenging the complainant's financial capacity. The court was also called upon to determine if the non-disclosure of the loan amount in the complainant’s ITR would render the debt legally unenforceable under Section 138 of the NI Act.

Limited Scope Of Revisional Jurisdiction

The court began by clarifying the boundaries of its revisional powers under Sections 397 and 401 of the CrPC. It noted that the court is called to interfere only if there is a glaring illegality, incorrectness, or impropriety in the concurrent findings of the lower courts.

The bench emphasized that it ought not to substitute its own view for that of the trial or appellate courts merely because another view is possible. Revisional jurisdiction cannot be exercised to reappreciate evidence unless the findings are shown to be "wholly unreasonable, perverse or untenable in law," as established in Malkeet Singh Gill v. State of Chhattisgarh.

Statutory Presumptions And Burden Of Proof

Justice Banerjee highlighted that once the issuance of the cheque and the signatures are admitted, the mandatory presumptions under Sections 118(a) and 139 of the NI Act are triggered. This shifts the "evidential burden" onto the accused to prove a probable defence.

Citing the Supreme Court in Rajesh Jain v. Ajay Singh (2023), the court noted that the entire focus must shift to whether the accused has rebutted the presumption. If the accused fails to lead cogent evidence or point out serious contradictions, the court can "straightaway proceed to convict him," provided other statutory ingredients are met.

“Once the presumption under Section 139 was given effect to, the courts ought to have proceeded on the premise that the cheque was, indeed, issued in discharge of a debt/liability.”

Complainant Sufficiently Proved Financial Capacity

The court rejected the petitioner’s contention that the complainant, being a student at the time, lacked the capacity to lend Rs. 15 lakhs. The complainant had explained that he arranged the funds from his cousin, Ritik Dabas, and produced a bank passbook reflecting specific withdrawals of Rs. 5 lakhs and Rs. 10 lakhs in February 2020.

The bench observed that the petitioner failed to challenge these bank entries during cross-examination or question the authenticity of the passbook. The court further noted that a relative's exact address not being remembered by the complainant does not diminish the credibility of the transaction.

ITR Omissions Fall Outside NI Act Purview

Addressing the petitioner’s primary legal argument, the court held that the non-mentioning of the loan in ITR filings is a matter between the individual and the tax authorities. It does not automatically invalidate a claim of debt in a criminal proceeding for cheque dishonour.

The bench clarified that while such an omission might trigger proceedings under the Income Tax Act, it remains "entirely outside the purview" of Section 138 of the NI Act. This aligns with the principle that the NI Act focuses on the integrity of negotiable instruments and the discharge of liabilities.

“Such omission may entail consequences under the Income Tax laws, however, the same falls outside the purview of the proceedings under Section 138 of the NI Act.”

Failure To Prove 'Chit Fund' Defence

The court found the petitioner’s defence—that the cheque was given as security for a chit fund transaction—to be entirely unsubstantiated. The petitioner admitted he had no proof of the cash payments he claimed to have made to return the alleged security amount.

Crucially, the court noted that the petitioner had neither issued "stop payment" instructions to his bank nor filed any police complaint regarding the cheque, despite claiming it was "misplaced" by the complainant’s father. Such conduct was found to be inconsistent with that of a prudent person whose cheque had been allegedly misused.

The High Court concluded that the petitioner failed to raise a probable defence or rebut the statutory presumptions. Finding no illegality in the concurrent findings of the lower courts, the bench dismissed the revision petition and upheld the conviction. The petitioner remains liable to pay the fine of Rs. 15 lakhs with interest as originally ordered.

Date of Decision: 24 April 2026