Cheque‑Bounce Case Under Section 138 NI Act Maintainable Even for Cash Loans Above ₹20,000: SC

On September 25, 2025 (Yesterday), the Supreme Court (SC) of India ruled that under Section 138 of the NI Act, a cheque bounce case is maintainable even if the debt arose from a cash transaction of Rs. 20,000 or more. The two-judge bench of Justice Manmohan and Justice NV Anjaria stated that the Kerala High Court (HC) Judgement of P.C. Hari vs. Shine Varghese & Anr was wrong. It held that the violation of Section 269SS of the Income Tax Act only imposes a penalty under Section 271D, and it does not make the debt unenforceable or void. The court remarked that the breach of Section 269SS only attracts a penalty  under S271D; it does not render the debt void or unenforceable.

The judgment reads, “Recently, the Kerala High Court in P.C. Hari vs. Shine Varghese & Anr., 2025 SCC OnLine Ker 5535 has taken the view that a debt created by a cash transaction above Rs. 20,000/- (Rupees Twenty Thousand) in violation of the provisions of Section 269SS of the Income Tax Act, 1961 (for short 'IT Act, 1961') is not a 'legally enforceable debt' unless there is a valid explanation for the same, meaning thereby that the presumption under Section 139 of the Act will not be attracted in cash transactions above Rs. 20,000/- (Rupees Twenty Thousand). However, this Court is of the view that any breach of Section 269SS of the IT Act, 1961 is subject to a penalty only under Section 271D of the IT Act, 1961. Further neither Section 269SS nor 271D of the IT Act, 1961 state that any transaction in breach thereof will be illegal, invalid or statutorily void. Therefore, any violation of Section 269SS would not render the transaction unenforceable under Section 138 of the NI Act or rebut the presumptions under Sections 118 and 139 of the NI Act because such a person, assuming him/her to be the payee/holder in due course, is liable to be visited by a penalty only as prescribed. Consequently, the view that any transaction above Rs.20,000/- (Rupees Twenty Thousand) is illegal and void and therefore does not fall within the definition of 'legally enforceable debt' cannot be countenanced. Accordingly, the conclusion of law in P.C. Hari is set aside.”