Supreme Court Rules Cash Transactions Above ₹20,000 Can Be “Legally Enforceable Debt” Under Section 138 NI Act
In a landmark judgment delivered on 25 September 2025, the Supreme Court in Sanjabij Tari v. Kishore S. Borcar (Criminal Appeal No. 1755/2010; 2025 INSC 1158) clarified that cash transactions exceeding ₹20,000 can also constitute a “legally enforceable debt or liability” under Section 138 of the Negotiable Instruments Act, 1881 (NI Act).
This ruling overrules the Kerala High Court’s view that debts arising from cash loans beyond ₹20,000 (in violation of Section 269SS of the Income Tax Act) cannot attract the statutory presumptions under Sections 118 and 139 NI Act.
Case Background
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The appellant (complainant) advanced a friendly loan of ₹6,00,000 to the accused.
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The cheque issued in repayment was dishonoured for insufficiency of funds.
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While the Trial Court and Sessions Court convicted the accused, the Bombay High Court at Goa acquitted him, holding that the complainant had failed to prove a legally enforceable debt.
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On appeal, the Supreme Court restored the conviction, setting aside the High Court’s view.
What the Supreme Court Held
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Presumptions under NI Act remain intact
Once the cheque is admitted to be signed, statutory presumptions under Sections 118 and 139 NI Act arise — that the cheque was issued for consideration and in discharge of a legally enforceable debt. The burden lies on the accused to rebut these presumptions with credible evidence. -
Section 269SS of Income Tax Act does not invalidate debt
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Section 269SS prohibits accepting loans or deposits in cash above ₹20,000.
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Breach of this section only attracts a penalty under Section 271D of the IT Act.
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It does not render the transaction void or unenforceable.
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Therefore, a debt arising out of such a cash transaction can still be the basis of a cheque under Section 138 NI Act.
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Kerala High Court’s contrary ruling overruled
The Court expressly overruled the Kerala High Court’s judgment in P.C. Hari v. Shine Varghese, which had held that cash loans beyond ₹20,000 would not qualify as “legally enforceable debt” under NI Act. -
Financial capacity issue rejected
The accused’s argument that the complainant lacked financial capacity to advance ₹6 lakh was rejected, as no rebuttal evidence was led. The Court clarified that requiring complainants to independently prove antecedent debt — without the accused discharging their rebuttal burden — is contrary to law.
Directions for Speedy Trial of Cheque Bounce Cases
Recognising the huge backlog of Section 138 cases, the Court also issued new guidelines, to be implemented by all High Courts and District Courts by 1 November 2025:
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Flexible summons service: Permitting dasti (personal service), email, WhatsApp, and other electronic means.
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Digital payment for compounding: Allowing UPI/QR code-based payment facilities for quicker settlements.
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Complaint particulars: Requiring specific details in complaints to reduce delays.
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Encouraging early settlement: Courts to proactively suggest compounding at the first instance.
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Evening courts and realistic pecuniary limits: High Courts to consider structural measures for fast-tracking NI Act cases.
Why This Matters
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For complainants: Provides stronger footing in cheque bounce prosecutions, ensuring that debts from cash transactions over ₹20,000 are not excluded from legal enforcement.
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For accused: Cannot escape liability merely by pointing to an Income Tax Act violation. Rebuttal must be based on substantive evidence.
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For courts: Offers clear guidance to reduce delay and harmonise interpretations across jurisdictions.
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For policy: Distinguishes between tax law penalties and the enforceability of commercial obligations under the NI Act.
Conclusion
This ruling is a turning point in cheque bounce litigation. By decoupling Income Tax Act penalties from enforceability under Section 138 NI Act, the Supreme Court has strengthened the rights of payees while also pushing for faster disposal of cheque dishonour cases.
Citation:
Sanjabij Tari v. Kishore S. Borcar, Criminal Appeal No. 1755/2010, Supreme Court of India, Judgment dated 25 September 2025, 2025 INSC 1158.
Full judgment available at: Supreme Court of India
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