Facts
The current appeal was initiated at the instance of Sanjabij Tari against the ex-parte judgement and order dated 16th April, 2009 of the High Court of Bombay at Goa. The High Court acquitted Respondent No.1 (Kishore S. Borcar) under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), while setting aside the concurrent findings of the Trial Court and the Sessions Court, both of which had convicted the accused for the dishonour of cheque given in discharge of legally enforceable debt.
The appellant contended that he advanced a friendly loan of Rs. 6,00,000/- to the accused, by arranging the funds from his father and a financial institution. The cheque was dishonoured, and despite the statutory notice, the payment has not been made.
The accused, during trial, admitted his signature on the cheque but disputed the existence of a legally enforceable debt, raising doubts about the appellant’s financial capacity to advance such a loan.
Issues
- Whether the High Court, in exercise of revisional jurisdiction, was justified in upsetting the concurrent factual findings of the lower courts regarding the existence of a legally enforceable debt.
- Whether the presumption under Sections 118 and 139 of the NI Act arises in cases involving cash loans above Rs.20,000/- in light of Section 269SS of the Income Tax Act, 1961.
- Whether the defendant successfully rebutted this presumption of a legally enforceable debt by challenging complainants’ financial capacity.
Legal Provisions Involved
- Section 138, Negotiable Instruments Act, 1881: This section states that if a cheque dishonours because of insufficient balance, it is a punishable offence.
- Section 118, NI Act: This gives recognition to the presumption of consideration.
- Section 139, NI Act: This section creates the presumption in favour of the holder of the cheque.
- Section 269SS, Income Tax Act, 1961: It restricts cash transactions above Rs.20,000.
- Section 271D, Income Tax Act, 1961: A penalty for a violation of Section 269SS.
- Section 482, CrPC: High Court’s inherent powers.
Arguments
Appellant’s Arguments:
- The High Court committed an error in quashing the conviction, in disregard of the unequivocal findings of fact of the lower courts.
- There was no evidence to substantiate the appellant’s lack of financial capacity – he had obtained funds from his father and a finance company.
- The defendant previously solicited leniency and demonstrated a willingness to pay the cheque amount.
- The High Court did not rightly dismiss an application for recall of its ex-parte order, even though there was credible reason for absence of counsel.
Respondent’s Arguments:
- The monthly salary of the appellant is just Rs.2,300/-, which could not raise a loan of Rs.6,00,000/-.
- The appellant is heavily indebted and has no independent means.
- The accused raised a probable defence based on the complainant’s own evidence citing the law laid down by the Supreme Court (Rangappa v. Sri Mohan, APS Forex Services v. Shakti International Fashion Linkers).
- The defence that a blank cheque was given for the purpose of obtaining a bank loan is more than a probable defence.
Analysis
While analysing this case, the Supreme Court considered two central issues: (a) the force of statutory presumptions laid out in the Negotiable Instruments Act, 1881 (NI Act) and (b) the impact of a cash loan above ₹20,000 in terms of enforceability under Section 269SS of the Income Tax Act, 1961.
Enhancing Statutory Presumptions: The Court also held that if the execution of cheque is accepted, presumption under section 118 and 139 of the Act would apply unless it was established that cheque was not issued for any consideration what so ever and it did not repay a legally enforceable liability. Relying on cases such as Rangappa v. Sri Mohan (2010) 11 SCC 441 and APS Forex Services Pvt. Ltd. v. Shakti International Fashion Linkers (2020) 12 SCC 724, the Court noted that the onus then shifts to accused to rebut it the presumption already present in favour of the complainant by means of a probable defence and not merely by the denying any liability to pay or challenging the financial capacity of complainant. The Court expressed disapproval of the lower courts which had treated cases under the NI Act as ordinary civil suits – stating that this diminishes the function of the statute, which is to maintain the integrity of the cheque as a credible payment method.
Enforceability of Cash Loans and Section 269SS: The question was whether a cash loan exceeding ₹20,000, contrary to Section 269SS of the Income Tax Act, was a debt enforceable by law in relevance to Section 138 of the NI Act. The Supreme Court overturned the contrary recent Kerala High Court view in P.C. Hari v. Shine Varghese & Anr. 2025 SCC OnLine Ker 5535, pointing out that breach only draws a penalty under Section 271D of the Income Tax Act and that such a breach does not make the transaction void or unenforceable under the NI Act. Accordingly, breach of Section 269SS does not, without more, negate the avoidability under Section 139 or thwart prosecution under Section 138.
Systemic Reforms and Reference to Damodar S. Prabhu: Lastly, after taking on notice and modifying the directives for compounding offences under the NI Act, issued in Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663, the Supreme Court ordered for expanded early settlement, availability of digital payment and more streamlined procedures for tackling the backlog of cheque bounce cases. Judgement
Judgment
The Supreme Court allowed the appeal, set aside the High Court’s order and restored the judgments of the Trial Court and Sessions Court. The Respondant was directed to repay Rs.7,50,000/- in 15 equated monthly instalments of Rs.50,000/- each.
The Court issued guidelines to address to some extent the enormous backlog of cases for cheque bouncing, namely service of summons, online payment facilities, and summary trial procedures, all of which serve to facilitate early settlements and efficient disposal of cases under Section 138 NI Act.
Conclusion
In conclusion, the court’s judgment reaffirms the legal presumptions found within the NI Act and states that bald allegations of financial incapacity will not serve to rebut the presumption of a legally enforceable debt. The Supreme Court’s directions are aimed at streamlining process and reducing pendency of cheque dishonour matters and further reinforces the quasi-criminal nature of anything done under Section 138, otherwise it serves to undermine the reliability of cheques in commercial transactions.
“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal falls into the category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”
WRITTEN BY Stuti Vineet
For reading more: Sanjabij Tari v. Kishore S. Borcar & Anr.
