The Supreme Court has agreed to consider whether a complaint under Section 138 of the Negotiable Instruments Act, 1881, can be sustained when the dishonoured cheque represents repayment of a cash loan exceeding ₹20,000.
A Bench of Justice Prashant Kumar Mishra and Justice Vipul M. Pancholi issued notice on a Special Leave Petition challenging a Kerala High Court ruling. The High Court had previously held that any liability arising from a cash transaction above ₹20,000, made in violation of Section 269SS of the Income Tax Act, 1961, would not qualify as a “legally enforceable debt” for the purposes of Section 138 unless supported by a valid explanation.
The High Court had reasoned that since Section 269SS mandates transactions above ₹20,000 to be conducted through banking channels, cheques issued towards repayment of such cash debts would not be enforceable unless the creditor could justify the transaction in accordance with Section 273B of the Income Tax Act. On this basis, the High Court had set aside the conviction of an accused whose cheque was dishonoured.
Challenging this view, the petitioner argued that Section 269SS imposes restrictions only on the person accepting cash and not on a creditor advancing money. It was contended that the provision merely prescribes the mode of transaction and does not nullify the underlying obligation. Any breach of Section 269SS is already visited with penalties under the Income Tax Act, but such a violation cannot automatically extinguish the debtor’s liability.
The petitioner further submitted that equating violation of Section 269SS with the extinguishment of liability would amount to judicially enlarging the scope of statutory consequences, leading to double jeopardy and disrupting the harmonious interpretation of the two enactments.
Emphasizing that divergent High Court rulings have created uncertainty, the petitioner urged the Top Court to settle the legal position authoritatively.
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