Page 19 - Banking Finance May 2022

LEGAL UPDATE

Legal

News

Dishonor of Cheques The Supreme Court disagreed. It noted observed that the management only
that just by labelling the cheque as 'se- suspects fraud by the employees and
The reach of Section 138 of the Nego-
tiable Instruments Act, which deals curity' would not mean it was not an a complaint has been lodged with the
with dishonoring of cheques, was put instrument designed to meet a legally police. The Assessing officer disallowed
to test in a case before the Supreme enforceable debt or liability. Once the the loss. "It is not ascertained liability
electricity supply had been made, the in the assessment year under consid-
Court, Sunil Todi & others Vs State of
dues became payable. eration. Accordingly, we reject the
Gujarat.
It said that the very purpose of the NI claim of the assesse," the ITAT said.
The appellants were directors and
Managing Director in RL Steels & En- Act was to enhance the acceptability
of cheques and instill faith in negotiable Resolution plan NCLT
ergy Ltd, a company to which Gujarat
was supplying electricity. The appel- instruments. The purpose of the provi- It is an established principle of law that
lants had given a post-dated cheque sion of the said Act would become oti- once an adjudicating authority (NCLT)
for Rs. 2.68 crore with an endorse- ose if the provision of the said Act was approves a resolution plan, all other
interpreted to exclude cases where claims stand extinguished from that
ment that read "to be deposited after
debt was incurred after the drawing of moment. But apparently, the Income
confirmation only for security purpose."
the cheque but before its encashment. Tax department needed to learn this
However, the company defaulted on by losing a case.
paying its electricity bill and the state
deposited the cheque; the bank (Karur Embezzlement - not a loss Oasis Textiles went into insolvency and
Vysya Bank, Aurangabad) returned the in business was later liquidated, on June 30, 2020.
cheque saying that the drawer had The Official Liquidator informed the
A business that suffers embezzlement income tax department of the pro-
stopped payment.
of funds by its staff cannot claim the ceedings at every step, practically giv-
The state of Gujarat filed a criminal loss as a 'loss in business income' to ing a ball-by-ball commentary. How-
complaint, seeking issue of summons calculate income tax, because it is an ever, the department did nothing to
and imposing a fine of Rs. 5.35 crore. unascertained liability, the Income Tax participate in the proceedings and
The legal question before the apex Appellate Tribunal Bengaluru, has stake its claim as an owed party. But
court was whether this issue was cov- held. later, the IT department made a claim
ered by Sec 138 of the NI Act. The Avijit Dewanjee, who runs the Honda for tax dues.
appellants contended that the section dealership, Max Motors, wanted the The Income Tax Appellate Tribunal
did not cover those cheques given as Rs. 2.24 crore misappropriated by his (ITAT), Ahmedabad bench, said, 'sorry,
'security', which "should not have been staff to be treated as a loss in the you are not entitled to recover any
deposited for encashment in the first course of business. Dewanjee has com- dues'. Noting that the Official Liquida-
place." plained to the police. The auditors have tor had "intimated the IT department

BANKING FINANCE | MAY | 2022 | 19