Even cash loans above Rs. 20,000/- can be legally enforceable debts under Section 138 N. I. Act

Sanjabij Tari v. Kishore S. Borcar & Anr.
Criminal Appeal No. 1755 of 2010
Citation: 2025 INSC 1158

Sanjabij Tari (complainant) and Kishore S. Borcar (accused) were friends.
When Kishore faced financial difficulty, Sanjabij helped him by giving a friendly loan of ₹6,00,000.
To secure repayment, Kishore issued a cheque.

Cheque Bounce

When Sanjabij deposited the cheque, it was dishonoured due to insufficient funds in Kishore’s bank account.
This led Sanjabij to file a case under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), which deals with cheque bounce offences.

       Court Journey

1. Trial Court (2007)
   • Examined the evidence and held that the cheque was issued towards a legally enforceable debt.
   • Convicted Kishore under Section 138 NI Act.
2. Sessions Court (2008)
   • Kishore appealed.
   • Sessions Court confirmed the conviction.
3. High Court of Bombay at Goa (2009)
   • In revision, the High Court acquitted Kishore.
   • Reason: Sanjabij’s monthly salary was only ₹2,300, so he did not have financial capacity to lend ₹6 lakhs.

Supreme Court’s View

• Presumption of Valid Debt
  • Once cheque signature is admitted → Sections 118 & 139 NI Act presume that the cheque was issued for a valid debt.
  • Burden shifts to the accused to rebut this presumption with credible evidence.
• Failure to Prove Defence
  • Kishore did not produce any documents/witnesses to prove Sanjabij lacked money.
  • He did not reply to the statutory notice, which weakened his defence.
• Unbelievable Story
  • Kishore’s claim that it was a blank cheque given for a bank loan was termed absurd and unbelievable.
• Kerala HC Judgment Overruled
  • Supreme Court specifically overruled P.C. Hari v. Shine Varghese (Kerala HC, 2025), which had said:“Cash loans above ₹20,000 (in violation of Sec. 269SS IT Act) are not legally enforceable debts.”
  • SC held:
    • Breach of Sec. 269SS IT Act attracts only penalty under Sec. 271D IT Act, it does not make the transaction illegal or void.
    • Therefore, even cash loans above ₹20,000 can be legally enforceable debts under Section 138 NI Act.
• High Court’s Error
  • High Court should not have disturbed concurrent factual findings of two lower courts without clear perversity.

   Final Decision by Supreme Court

• Acquittal by High Court set aside.
• Conviction of Trial Court & Sessions Court restored.
• Kishore directed to pay ₹7,50,000 in 15 equal instalments of ₹50,000 each.

Important Guidelines

To tackle massive backlog of cheque bounce cases, Supreme Court issued fresh directions:

1. Service of Summons
   • Can be served via WhatsApp, email, and electronic means in addition to post.
   • Complainant must provide accused’s contact details with affidavit.
2. Online Payment Facility
   • Courts to set up secure QR/UPI payment links so accused can pay cheque amount early.
3. Complaint Synopsis
   • Every complaint must include a short summary with cheque details, notice date, cause of action etc.
4. Encouraging Early Settlement
   • Courts should promote compromise/compounding at initial stages.
   • If accused pays early, case can be closed without penalty.
5. Monitoring System
   • Delhi, Mumbai, Kolkata District Courts to maintain dashboards on pending cases, disposal rates, and progress.
   • High Courts to monitor monthly.
6. Compounding Cost Tweaks
   • 0% extra cost if amount paid before defence evidence.
   • 5% cost if paid after evidence but before judgment.
   • 7.5% cost at appeal/revision stage, 10% at SC stage.