Section 139 NI Act Presumption Applies Even If NBFC Charged Excess Interest: Kerala High Court

A Bench of Justice M.B. Snehalatha emphasized that the Supreme Court has already clarified that NBFCs, being financial institutions governed by the Reserve Bank of India (RBI), fall outside the regulatory purview of the Kerala Money-Lenders Act. The Court added, “The Hon'ble Apex Court held that the entire life of a NBFC from the womb to the tomb is regulated and monitored by the Reserve Bank of India. The non banking financial companies regulated by the Reserve Bank of India in terms of the provisions of Chapter IIIB of the RBI Act, 1934 cannot be regulated by the Kerala Money-Lenders Act, 1958. Therefore, the argument advanced by the learned counsel for the accused that the interest claimed by the complainant was excessive and in violation of Kerala Money-Lenders Act 1958 and therefore it was an illegal transaction and for that reason, Ext.P4 cheque cannot be treated as a cheque issued in discharge of a legally enforceable debt etc. are untenable. The presumption under Section 139 N.I Act entails an obligation on the court to presume that the cheque in question was issued by the drawer or accused in discharge of a debt or liability...”

On this basis, the High Court rejected the argument made by the petitioner (accused) that the interest charged by the complainant NBFC was excessive and thus illegal under the Kerala Money-Lenders Act.

Advocate P.Samsudin appeared for the petitioner, and Advocate B.S.Suresh Kumar appeared for the respondents.

It was contended that because the interest rates were allegedly unlawful, the underlying transaction was void, and the cheque issued (marked as Ext.P4) could not be considered as one issued towards a legally enforceable debt.

However, the Court held such arguments to be legally untenable. The Court stated that the presumption under Section 139 of the NI Act imposes a legal duty on the court to presume that the cheque was issued for the discharge of a debt or other legal liability. This presumption stands unless the accused successfully rebuts it with cogent evidence.

In this particular case, the petitioner had availed a vehicle loan through a hire-purchase agreement from the first respondent NBFC. Upon defaulting on the loan repayments, the NBFC repossessed the vehicle. Subsequently, a cheque was issued by the petitioner to settle the remaining balance. However, when presented for payment, the cheque was dishonoured.

Both the trial court and the appellate court had previously found the petitioner guilty under Section 138 of the NI Act, which criminalizes the act of issuing a cheque that is dishonoured due to insufficient funds or similar reasons. Challenging these findings, the petitioner approached the High Court, asserting that the transaction was illegal due to the allegedly usurious interest rates, and hence the cheque could not be considered as issued for a valid liability.

In rejecting this claim, the High Court relied on the Supreme Court’s precedent in Nedumpilli Finance Company Limited v. State of Kerala and Others (2017), which had held that NBFCs are not governed by the Kerala Money-Lenders Act due to their regulation under the RBI framework.

Finding that the petitioner failed to rebut the legal presumption under Section 139 and that the complainant NBFC had successfully demonstrated that the cheque was issued in discharge of a legally enforceable debt, the High Court upheld the conviction. Consequently, the petitioner’s revision petition challenging the findings of the lower courts was dismissed.

Cause Title: Abdulla v. Manappuram General Finance And Leasing Ltd & Anr., [2025:KER:60802]

Appearance:

Petitioner: Advocates P.Samsudin, K.C.Antony Mathew, Jithin Lukose

Respondents: Advocates B.S.Suresh Kumar, K M Faisal

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