CHEQUE BOUNCE COMPLAINTS CAN BE FILED AGAINST CASH LOANS EVEN ABOVE ₹20,000: SUPREME COURT

In a landmark judgment, the Supreme Court has ruled that cheque bounce complaints under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) are maintainable even when the dishonoured cheque was issued for repayment of a cash loan exceeding ₹20,000.

This decision overturns the Kerala High Court’s ruling in P.C. Hari v. Shine Varghese (2025), which had earlier held that cash loans above ₹20,000 violated Section 269SS of the Income Tax Act, 1961 and therefore could not constitute a “legally enforceable debt.”

What the Supreme Court Held

The bench of Justices Manmohan and N.V. Anjaria clarified that:

• Violation of Section 269SS (which prohibits cash loans above ₹20,000) only invites penalty under Section 271D of the Income Tax Act.
• Such a violation does not render the loan itself illegal, void, or unenforceable.
• Therefore, cheques issued to repay such loans remain backed by a legally enforceable debt, making complaints under Section 138 of the NI Act maintainable.

The Court further reiterated that once the execution of a cheque is admitted, statutory presumptions under Sections 118 and 139 of the NI Act automatically operate in favour of the complainant, unless the accused rebuts them with credible evidence.

In this case, the accused’s defence—that a blank cheque was handed over merely to help the complainant secure a bank loan—was dismissed as “unbelievable and absurd.

Broader Implications

1. Credibility of Cheques Reaffirmed:The ruling strengthens the cheque as a trusted instrument for financial transactions, reinforcing its role as a substitute for cash.
2. Tax Law vs. Criminal Liability: Restrictions under the Income Tax Act cannot dilute criminal liability under the NI Act. Breach of tax provisions may attract penalties, but does not wipe out the enforceability of the underlying debt.
3. Relief for Complainants: Many borrowers had earlier tried to escape liability by invoking Section 269SS. The ruling closes this loophole.

Procedural Reforms to Address Cheque Bounce Backlog

The Court also expressed concern over the massive pendency of cheque bounce cases, noting that in some states, they account for nearly 50% of trial court backlog. To tackle this, the Supreme Court issued detailed procedural guidelines, including:

• Service of summons through email, WhatsApp, and dasti modes.
• Dedicated online payment platforms (QR codes/UPI links) for accused to settle cheque amounts early.
• Mandatory structured case synopsis in all complaints.
• Revised compounding cost guidelines to encourage early settlements.

Key Takeaway

By setting aside the Kerala High Court’s contrary view, the Supreme Court has provided much-needed clarity:

👉 Cheque bounce complaints can indeed be filed for repayment of cash loans above ₹20,000.

The decision ensures that procedural tax restrictions do not undermine the enforceability of genuine debts, while also streamlining how cheque dishonour cases are handled across the country.

📌 This judgment is a game-changer for both lenders and borrowers, reaffirming that dishonoured cheques remain actionable, irrespective of the cash loan amount.