HYDERABAD: A moneylender will be at risk if he carries on his business without holding any licence and if he lends an amount to a borrower which is ‘unaccounted for’ money (not disclosed in his income tax returns). The debt due, if any, by the borrower to the moneylender is not legally recoverable if the latter (complainant) does not possess any licence for doing moneylending business and if he fails to fulfil the required ingredients to constitute the offence punishable under Section 138 of the Negotiable Instruments Act, 1881. Once an Act declares that a particular transaction is illegal, it cannot be made legal for the purpose of any other Act.
As per Section 138 of the Act, dishonour of cheque for insufficient funds in the account or for other reasons, such a person shall be deemed to have committed an offence and shall be punished with imprisonment which may extend to two years or with fine which may extend to twice the amount of the cheque, or with both.
In a case before the High Court, it was held that the amount lent by the complainant (moneylender) to the accused (borrower) is ‘unaccounted for’ money and, therefore, such debt is not recoverable.
As for the case details, the complainant filed an appeal challenging the acquittal of the accused by the lower court finding the latter not guilty of the above offence. The complainant lent an amount of Rs 1 lakh for the personal necessities and the accused promised to repay the same with interest at 24 per cent per annum. Following a request for advance of some more amount, the complainant paid another Rs 1 lakh.
Thus, he lent a total amount of Rs 2 lakh on the promise of being repaid the same at the earliest. Despite several reminders, the accused did not discharge the debt but issued two cheques, each for Rs 1 lakh. But the two cheques were dishonoured due to insufficient funds.
Thereafter, the complainant served a legal notice to the accused demanding that he pay the amount covered by cheques. When the accused neither discharged the debt nor gave any reply to the notice, he filed complaint under Section 200 of CrPC for the offence punishable under Section 138 of the Act.The trial court dismissed the complaint on the ground that complainant failed to establish the issue of two cheques by accused towards discharge of legally enforceable debt or liability, and also failed to prove compliance of clause (b) of proviso to Section 138 of the Act.
Aggrieved by acquittal of the accused, the complainant moved an appeal before the High Court. The counsel for the complainant contended that when the accused admitted issue of cheque, the court is bound to draw a presumption that the cheque was issued towards discharge of legally enforceable debt. On the other hand, the counsel for accused contended that those cheques were not issued towards discharge of legally enforceable debt.
Justice M Satyanarayana Murthy pointed out that the complainant/appellant did not possess any licence to do moneylending business. Besides, the complainant himself admitted to lending amount orally, without obtaining any document, on payment of interest. When the complainant lent or advanced amount for payment of interest along with principal amount by the borrower, without possessing any licence to carry on such business is totally in contravention of Section 2(7) of the Act, the judge observed.
Relying on an earlier judgment of the High Court in Krishnam Raju Finances vs Abida Sultana case, justice Murthy held that the debt due, if any, by the accused to the complainant is not legally recoverable in view of clear admission that the complainant did not possess any licence for doing moneylending business, and therefore, the complaint was liable to be dismissed. If the amount lent by the complainant, who did not possess licence under the Act, it can safely be held that the cheques were not issued towards discharge of legally enforceable debt, he noted.
The judge further said that on an overall consideration of the material available on record, it was clear that when the accused could rebut the presumption under Section 138 of the Act the burden will shift on to the complainant and he has to prove that the cheques were issued towards discharge of the legally enforceable debt or liability. “In present case, complainant failed to establish that cheques were issued towards discharge of legally enforceable debt. The amount lent by complainant to the accused is unaccounted money.