Violation of tax rules does not, by itself, render a cheque-backed debt unenforceable under Section 138.

The complainant alleged that the accused borrowed ₹8,50,000 in cash for business on 24 November 2001 and issued a cheque for that amount, which was dishonoured with the endorsement “refer to drawer.”

The accused admitted his signature on the cheque but denied the loan, asserting that the cheque had been lost or stolen and misused.

The Magistrate convicted him under Section 138 of the Negotiable Instruments Act, 1881, and sentenced him to 18 months’ simple imprisonment and payment of ₹10,00,000 as compensation; the Sessions Court dismissed his appeal.

He challenged both decisions in revision, principally disputing the complainant’s capacity, the presentation and dishonour of the cheque, and the existence of a legally enforceable debt.

The complainant had deposited ₹7.5 lakh and furnished a bank guarantee of ₹2.5 lakh during the revision proceedings.

1. Whether the concurrent conviction under Section 138 disclosed a legal or factual error warranting interference in revision

2. Whether the accused rebutted the presumptions under Sections 118 and 139 of the NI Act by raising a probable defence concerning the loan, the cheque’s presentation and dishonour, or the complainant’s financial capacity

3. Whether the alleged cash nature of the loan or non-compliance with income-tax provisions rendered the debt unenforceable under Section 138

Sections 118 and 139 of the NI Act require a presumption, once execution of the cheque is admitted, that it was issued for discharge of a debt or liability; the accused may rebut that presumption on a preponderance of probabilities by raising a probable defence (*Basalingappa v. Mudibasappa*)

In revision under Sections 397 and 401 of the Code of Criminal Procedure, the High Court ordinarily does not reappreciate evidence to replace concurrent factual findings absent a basis for interference (*State v. Manimaran*)

The court also applied the rule that an income-tax-law violation, including a cash transaction contrary to Section 269SS, does not by itself make the transaction unenforceable in a Section 138 proceeding (*Prakash Madhukarrao Desai v. Dattatraya Sheshrao Desai*)

“Refer to drawer” is a reason for dishonour within the scope of Section 138, as explained in *Laxmi Dyechem v. State of Gujarat*

The accused’s admitted signature attracted the statutory presumptions, and the High Court found that his shifting accounts—that the cheque was lost or, alternatively, stolen—did not establish a probable defence.

The bank witness confirmed that the cheque was credited to the complainant’s account and that it was dishonoured; the court therefore rejected the contention that the payee, presenter, and dishonour record broke the statutory chain.

The complainant’s evidence about the sources of the loan amount was considered by the courts below, while the alleged prior Section 138 proceeding against him did not establish an inability to advance the loan.

The court also rejected the challenges based on the bank endorsement, the loan’s purpose, and the delay in depositing the cheque, and held that the cash transaction did not become unenforceable merely because of an alleged income-tax violation.

Finding no perversity in the concurrent findings, the court declined to interfere in revision.

It permitted the complainant, after that period, to realise the bank guarantee and withdraw the deposited amounts, with accrued interest, if any; the pending interim application was disposed of accordingly.