While setting aside a Kerala High Court ruling, the Supreme Court has clarified that a debt created by a cash transaction above Rs. 20,000 falls within the definition of ‘legally enforceable debt’.

The Apex Court also held that any violation of Section 269SS of the Income Tax Act would not render the transaction unenforceable under Section 138 of the NI Act or rebut the presumptions under Sections 118 and 139 because such a person, assuming him/her to be the payee/holder in due course, is liable to be visited by a penalty only as prescribed.

The appeal before the Apex Court was filed against the ex-parte judgment and order of the Goa Bench of the Bombay High Court acquitting the Respondent Accused under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) and reversing the concurrent judgments of the Trial Court and the Sessions Court.

The Division Bench of Justice Manmohan and Justice N.V. Anjaria held, “However, this Court is of the view that any breach of Section 269SS of the IT Act, 1961 is subject to a penalty only under Section 271D of the IT Act, 1961. Further neither Section 269SS nor 271D of the IT Act, 1961 state that any transaction in breach thereof will be illegal, invalid or statutorily void. Therefore, any violation of Section 269SS would not render the transaction unenforceable under Section 138 of the NI Act or rebut the presumptions under Sections 118 and 139 of the NI Act because such a person, assuming him/her to be the payee/holder in due course, is liable to be visited by a penalty only as prescribed. Consequently, the view that any transaction above Rs.20,000/- (Rupees Twenty Thousand) is illegal and void and therefore does not fall within the definition of ‘legally enforceable debt’ cannot be countenanced. Accordingly, the conclusion of law in P.C. Hari (supra) is set aside.”

Advocate Amarjit Singh Bedi represented the Appellant while Advocate Ankit Yadav represented the Respondent.

Arguments

The appellant claimed that there was no evidence on record to establish that the Appellant-Complainant did not have the financial means to advance a friendly loan of Rs 6 lakh to the Respondent Accused. The Appellant-Complainant in his statement under oath had stated that he had arranged money from his father, who was a cloth merchant. It was the appellant’s case that though he filed an application under Section 482 of the Code of Criminal Procedure (Cr.P.C.) for recall of the impugned judgment by substantiating sufficient cause for the absence of his advocate, yet the Single Judge dismissed the said application holding that the Court had become functus officio.

On the contrary, the Respondent - Accused stated that the Appellant-Complainant was being paid a salary of only Rs.2,300 per month at the relevant point of time, which was not even adequate to take care of his family, leave alone sufficient to advance a loan of Rs 6 lakh. It was contended that the Appellant-Complainant was a highly indebted person who did not have any source of income other than his meagre salary and therefore, he did not have the wherewithal to advance such a huge loan and that too without issuance of any kind of receipt.

Reasoning

The Bench noted that the cheque in question was admittedly signed by the Respondent-Accused and held that once the execution of the cheque was admitted, the presumption under Section 118 of the NI Act that the cheque in question was drawn for consideration and the presumption under Section 139 of the NI Act that the holder of the cheque received the said cheque in discharge of a legally enforceable debt or liability arose against the accused.

The Bench referred to the judgment in P.C. Harivs. Shine Varghese & Anr. (2025) where the Kerala High Court has taken a view that a debt created by a cash transaction above Rs. 20,000 in violation of the provisions of Section 269SS of the Income Tax Act, 1961 IT Act, 1961 is not a ‘legally enforceable debt’ unless there is a valid explanation for the same, meaning thereby that the presumption under Section 139 of the Act will not be attracted in cash transactions above Rs 20,000. The Bench set aside this ruling and also held that the High Court’s view could not be countenanced.

The Bench also took judicial notice of the fact that some District Courts and some High Courts are not giving effect to the presumptions incorporated in Sections 118 and 139 of NI Act and are treating the proceedings under the NI Act as another civil recovery proceedings and are directing the complainant to prove the antecedent debt or liability. “This Court is of the view that such an approach is not only prolonging the trial but is also contrary to the mandate of Parliament, namely, that the drawer and the bank must honour the cheque, otherwise, trust in cheques would be irreparably damaged”, it stated.

Coming to the facts of the case, the Bench noted that the High Court’s finding that the Respondent-Accused ’s defence that a signed blank cheque was issued by him so as to enable his friend/AppellantComplainant to obtain a loan from a bank was sufficient to rebut the presumptions under Sections 118 and 139 of the NI Act was unbelievable and absurd. “This Court agrees with the Sessions Court’s finding in the present case that, “It is funny to say that for obtaining loan from the bank, one can show a cheque which is issued on an account in which there are not sufficient funds. The case of the accused is unbelievable”, it added.

The Bench further highlighted the staggeringly high pendency of cheque-bouncing cases under the NI Act in District Courts in major metropolitan cities of India. Keeping in view the massive backlog of cheque bouncing cases and the fact that service of summons on the accused in a complaint filed under Section 138 of the NI Act continues to be one of the main reasons for the delay in disposal of the complaints, the Bench issued a set of directions. The Bench also modified the guidelines of compounding.

The Bench was of the view that if the Accused is willing to pay in accordance with the guidelines, the Court may suggest to the parties to go for compounding. “If for any reason, the financial institutions/complainant asks for payment other than the cheque amount or settlement of entire loan or other outstanding dues, then the Magistrate may suggest to the Accused to plead guilty and exercise the power under Section 255(2) and/or 255(3) of the Cr.P.C. or 278 of the BNSS, 2023 and/or give the benefit under the Probation of Offenders Act, 1958 to the Accused”, it noted.

Thus, allowing the appeal, the Bench restored the judgment as well as the orders of the Trial Court and the Sessions Court with a direction to the Respondent Accused to pay Rs 7,50,000 in 15 equated monthly instalments of Rs 50,000 each. “The High Courts and District Courts shall implement the aforesaid guidelines not later than 01st November, 2025”, it concluded.

Cause Title: Sanjabij Tari v. Kishore S.Borcar (Neutral Citation: 2025 INSC 1158)

Appearance

Appellant: Advocates Amarjit Singh Bedi, Surekha Raman, Shreyash Kumar, Harshit Singh, Sidharth Nair, AOR M/S. K J John And Co

Respondent: Advocate Ankit Yadav, AOR T. Mahipal, Gunjan Rathore, Shivangi Gulati, Chaitanya Sonkeria, Aastha Harshwal, AOR Merusagar Samantaray

Click here to read/download Judgment



Justice ManmohanJustice NV Anjaria

Tulip Kanth

Assistant Editor

Tulip Kanth is an Assistant Editor at Verdictum having over 5 years of experience in the field of legal journalism and editing. She extensively covers judgments of the Supreme Court, High Courts as well as Tribunals. She has previously worked with a legal publishing website where she oversaw the work of other editors and has also created updates on notifications of different Government Ministries. She holds an English Honours Degree from SGTB Khalsa College, Delhi University and has completed her LLB course with specialisation in Corporate Law from Amity University.