Cash Loan above ₹20,000 Not Legally Enforceable: Kerala High Court Acquits Accused in Cheque Bounce Case [Read Order]
Cash Loan Amount above Rs. 20000 not legally Enforceable as Debt: Kerala HC
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The Kerala High Court has held that any loan amount advanced in cash exceeding ₹20,000 is not a “legally enforceable debt” under the Negotiable Instruments Act, 1881, if it violates Section 269SS of the Income Tax Act, 1961. The judgment authored by Justice P.V. Kunhikrishnan, resulted in the acquittal of the accused in a cheque bounce case involving ₹9...
The Kerala High Court has held that any loan amount advanced in cash exceeding ₹20,000 is not a “legally enforceable debt” under the Negotiable Instruments Act, 1881, if it violates Section 269SS of the Income Tax Act, 1961. The judgment authored by Justice P.V. Kunhikrishnan, resulted in the acquittal of the accused in a cheque bounce case involving ₹9 lakh.
The case concerned a complaint filed under Section 138 of the NI Act by one Shine Varghese, who alleged that the accused, P.C. Hari, had issued a cheque to discharge a cash loan of ₹9,00,000. The cheque was dishonoured due to insufficient funds, and lower courts convicted and sentenced the accused. On revision, however, the High Court overturned the verdict, ruling that such a cash loan—if in violation of the Income Tax Act—cannot be enforced through criminal proceedings.
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Justice Kunhikrishnan observed that when the Income Tax Act expressly prohibits cash loans exceeding ₹20,000 and provides penalties for violation under Section 271D of the Income Tax Act, courts cannot overlook the illegality of the transaction. The ruling stressed that enforcing such debt under Section 138 of the NI Act would amount to judicial validation of a transaction prohibited by law.
Referring to the complainant’s own admission that no income tax was paid on the amount and that the transaction was entirely in cash, the court held that the presumption under Section 139 of the NI Act had been successfully rebutted by the accused. The judgment stated that, in the absence of a valid explanation under Section 273B of the Income Tax Act, such a debt cannot be treated as “legally enforceable.”
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The court rejected arguments based on precedents allowing such enforcement and disagreed with a Division Bench ruling of the Bombay High Court, clarifying that judicial enforcement of cash transactions contrary to the Act would undermine the objective of "Digital India" and encourage unaccounted money.
Justice Kunhikrishnan observed that this ruling will apply prospectively and only where the defence specifically raises the issue of violation of Section 269SS and the complainant fails to provide a lawful explanation.
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