HC: Income Tax Returns Not Automatically Relevant in NI Act Proceedings; Direction to Produce Set Aside

The petitioner had advanced a loan of Rs. 250,000/- to the respondent (accused) under a loan agreement for business purposes. Upon default in repayment, a cheque issued by the accused towards the outstanding amount was dishonoured due to insufficient funds, leading to the filing of a complaint under Section 138 of the Negotiable Instruments Act.

During the trial, the accused filed an application seeking the production of various documents, including the income tax returns of the complainant. The Trial Court partly allowed the application and directed the complainant to produce income tax returns for certain years. A review application against the said order was also rejected. Aggrieved, the complainant filed the present petition seeking the quashing of such directions.

Issue Before HC: Whether the Trial Court was justified in directing the production of income tax returns in a cheque dishonour case without establishing their relevance to the dispute.

HC’s Order: The High Court held that the direction issued by the Trial Court to produce income tax returns was without any proper reasoning and failed to establish how such documents were relevant to the adjudication of the dispute under Section 138 of the Negotiable Instruments Act. It was observed that income tax returns neither establish the complainant’s right to charge interest nor determine the outstanding liability of the accused. The Trial Court had merely stated that production of such documents would give opportunity to parties without demonstrating their necessity or relevance.

The Court held that the absence of income tax returns cannot be a ground to doubt the existence of a legally enforceable debt when other documentary evidence is available. Thus, the impugned orders were quashed to the extent they directed production of income tax returns, while other directions were left undisturbed.

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