Small Cash Loan Not Unenforceable Solely Due To Lack Of Agreement, ITR Disclosure: Calcutta High Court

The Calcutta High Court has recently held that the absence of a written loan agreement or disclosure of a modest cash loan in Income Tax Returns (ITRs) does not automatically make the debt unenforceable.

Justice Uday Kumar observed that such omissions may weaken a lender's case in large, unexplained commercial transactions. However, they cannot automatically invalidate every small hand loan.

“While the lack of written loan agreements or ITR entries substantiating cash advance can severely dent a complainant's case in massive, unexplained commercial transactions, it cannot be elevated to an absolute, inflexible rule of law that invalidates every modest hand or accommodation loan (such as the Rs. 30,000/- transaction involved herein). Minor accounting omissions or tax-related irregularities by a lender does not automatically destroy the legal enforceability of a debt unless the accused discharges the primary burden of demonstrating that the complainant was utterly and financially incapable of sparing the specific modest sum,” the court observed.

The court dismissed Tuhin Gangopadhyay's challenge to his conviction under Section 138 of the Negotiable Instruments Act for cheque dishonour. It upheld the ₹35,000 compensation imposed by the Sessions Court but exempted him from serving the seven-day imprisonment term.

According to the complaint, Gangopadhyay borrowed ₹30,000 from Benukar Sikdar on August 1, 2015, for his cloth business, Madhukari Textile. He allegedly issued a cheque towards repayment, but it was dishonoured.

Sikdar sent a demand notice on December 4, 2015. After Gangopadhyay failed to pay within the statutory period, Sikdar filed a complaint in 2016.

The trial court convicted Gangopadhyay in September 2021 and sentenced him to three months' simple imprisonment. It also directed him to pay ₹30,000 as compensation.

The Sessions Court later reduced the imprisonment term to seven days and enhanced the compensation to ₹35,000.

Gangopadhyay argued that he had lost a money bag containing a blank signed cheque on November 6, 2015. He claimed to have lodged a General Diary entry at Suri Police Station and instructed his bank to stop payment.

Gangopadhyay questioned Sikdar's financial capacity to lend the money, citing the absence of a written agreement and ITR disclosures.

The court rejected his lost-cheque defence, observing that a General Diary entry alone could not rebut the legal presumption that a signed cheque was issued towards a debt. It held that the entry needed corroborating evidence to establish the alleged loss or misuse of the cheque before it was presented.

The court also rejected Gangopadhyay's argument that the complaint was defective because Madhukari Textile had not been separately arraigned as an accused. It ruled that a proprietorship concern is not a separate legal entity from its proprietor.

On revisional jurisdiction, the court observed that it could not reappraise evidence as though it were hearing a second appeal. Finding no patent illegality or perversity in the concurrent findings of the lower courts, it declined to interfere with the conviction.

While dismissing the challenge, the court exempted Gangopadhyay from serving the seven-day imprisonment term. It upheld the ₹35,000 compensation and the default sentence.

The trial court was directed to adjust any amounts already deposited and disburse the compensation to Sikdar. If the amount remained unpaid, it was directed to take coercive steps in accordance with law to recover it.

For Petitioner: Advocates Sima Ghosh, Sayantan Rakshit

For Opposite Party: Advocate Sujoy Sarkar