The Supreme Court of India, in Shine Varghese Koipurathu v. State of Kerala & Anr. (Criminal Appeal arising out of SLP (Crl.) No. 14187/2025), delivered an important judgment on 8 December 2025, clarifying a significant question in cheque dishonour cases:
Does a cash transaction above ₹20,000—made in violation of Section 269SS of the Income Tax Act—render the debt unenforceable for the purpose of Section 138 of the Negotiable Instruments Act (NI Act)?
The Court’s ruling settles the controversy created by a recent Kerala High Court decision and reaffirms the enforceability of such debts under the NI Act.
Background of the Case
The appellant challenged a Kerala High Court judgment in Criminal Revision Petition No. 408/2024, where the High Court acquitted the accused in a cheque dishonour case under Section 138 of the NI Act.
The High Court based its decision on a crucial ground:
Since the complainant had allegedly advanced ₹9,00,000 in cash, the transaction violated Section 269SS of the Income Tax Act. Therefore, the debt was not “legally enforceable,” and the foundational requirement of Section 138 was not met.
Before this, both the Trial Court and the Sessions Court had convicted the accused and directed payment of compensation.
Supreme Court’s Observations
The Supreme Court declined to re-examine all factual details, focusing instead on the legal basis of the High Court’s decision.
The High Court had followed its earlier ruling in P.C. Hari v. Shine Varghese & Anr., 2025 SCC OnLine Ker 5535, which held:
- Cash loans above ₹20,000, being in violation of Section 269SS,
- cannot be treated as legally enforceable debts,
- unless justified with a valid explanation.
This meant that the statutory presumption under Section 139 NI Act would not apply.
Supreme Court’s Clarification: Cash Loan Violation Does NOT Make Debt Unenforceable
The Supreme Court referred to its very recent judgment in Sanjabij Tari v. Kishore S. Borcar (Criminal Appeal No. 1755 of 2010), where the exact issue had been examined.
Key principles reaffirmed
a) Violation of Section 269SS attracts only penalty under Section 271D of Income Tax Act.
b) The statute does NOT declare such transactions illegal, void, or unenforceable.
c) Therefore, debts created through cash transactions—even above ₹20,000—are still enforceable for the purpose of Section 138 NI Act.
d) Presumptions under Sections 118 and 139 NI Act remain intact.
In clear terms, the Court held:
Violation of Section 269SS does not nullify the debt nor prevent prosecution under Section 138 NI Act.
The earlier Kerala High Court view to the contrary “cannot be countenanced.”
Because the Supreme Court has now set aside that legal proposition, the basis of the High Court’s acquittal in this case “does not survive.”
Outcome of the Appeal
The Supreme Court:
- Set aside the Kerala High Court’s judgment.
- Remitted the matter back to the High Court for fresh consideration on merits.
- Directed both parties to appear before the High Court on 17 February 2026.
The appeal was disposed of accordingly.
Significance of the Judgment
This ruling provides much-needed clarity for cheque dishonour cases involving cash loans. Key implications:
✔ Cash loans above ₹20,000 remain legally enforceable in Section 138 cases.
✔ Income Tax Act violations do not invalidate the debt.
✔ Presumptions under the NI Act continue to protect the complainant.
✔ Lower courts cannot acquit solely on the basis of Section 269SS violation.
This judgment will have a wide impact on private lending disputes, business transactions, and NI Act prosecutions across the country.