SC: Cash Transactions Above ₹20,000 Do Not Make Debt Unenforceable Under Section 138 NI Act -

Supreme Court Sets Aside Kerala HC View Declaring Cash Loans Above ₹20,000 as “Not Legally Enforceable Debt

Shivaji Rathore,  11 Dec 2025,

The Supreme Court has recently clarified an important question in cheque dishonour jurisprudence: Does a cash loan exceeding ₹20,000 taken in violation of Section 269SS of the Income Tax Act become an “unenforceable debt” under Section 138 of the Negotiable Instruments Act? The answer, as per the Supreme Court, is a clear NO.

In a significant order, a Bench of Justices P.K. Mishra and Vipul M. Pancholi set aside the Kerala High Court’s controversial judgment in PC Hari v. Shine Varghese, which had held that any debt arising from a cash transaction above ₹20,000 is not legally enforceable unless the lender gives a “valid explanation”. The Court relied on its co-ordinate Bench ruling in Sanjabij Tari v. Kishore Borcar, which had already declared the Kerala High Court’s view to be erroneous.

The matter now stands remitted back to the High Court for fresh consideration on merits, strictly within its revisional jurisdiction. Key Holding: Violation of Section 269SS Does Not Void the Debt In Sanjabij Tari, the Supreme Court dealt with a cheque bounce case involving a cash loan of ₹6,00,000/-. The Bombay High Court had acquitted the accused on the ground that the loan was paid in cash, violating Section 269SS IT Act. Setting aside that view, the Supreme Court categorically held: Breach of Section 269SS only attracts a monetary penalty under Section 271D of the IT Act. Such transactions are not illegal, void, or unenforceable.

The presumptions under Sections 118 and 139 NI Act remain intact. Cash loans above ₹20,000 can still form the basis of a legally enforceable debt. The Court expressly rejected the Kerala High Court’s view in PC Hari, observing:

“Violation of Section 269SS would not render the transaction unenforceable under Section 138 NI Act or rebut the statutory presumptions… A transaction above ₹20,000 is not void merely because it is in cash.”

Kerala High Court’s Position in PC Hari v. Shine Varghese : In the impugned judgment, the Kerala High Court had taken the view that: Cash payments above ₹20,000 are prohibited under Section 269SS. Unless there is a “valid explanation” under Section 273B,
criminal courts cannot entertain Section 138 complaints based on such transactions.

The High Court even remarked:

“If anybody pays an amount in excess of 20,000 by cash… he must take responsibility to get it back. The doors of the criminal court will be closed for such illegal transactions.”

Using this reasoning, the High Court had set aside the conviction recorded by the Magistrate and affirmed by the Sessions Court. Supreme Court’s Correction: No Extinguishment of Civil or Criminal Liability The complainant successfully argued before the Supreme Court that:

Section 269SS restricts the mode of accepting money, not the lending of money. The provision does not nullify the underlying debt. The only consequence of violation is a penalty, not invalidation of the transaction. Interpreting it otherwise would: lead to double jeopardy, and distort the harmonious construction of the IT Act and NI Act. The Court accepted these submissions, noting that several High Courts had conflicting views, making a clear pronouncement necessary.

Background of the Case

According to the complainant: A cash amount of ₹9,00,000 was advanced to the accused. The accused issued a cheque for the same. The cheque was dishonoured due to insufficient funds. The Magistrate convicted the accused after full trial. The Sessions Court confirmed the conviction. The accused approached the Kerala High Court, which acquitted him relying entirely on the reasoning under Section 269SS IT Act. The complainant challenged this before the Supreme Court.

Supreme Court’s Final Direction

The Kerala High Court judgment in PC Hari is set aside.
The matter is remitted back for fresh disposal in accordance with law. The Court reaffirmed the legal position laid down in Sanjabij Tari that:
Cash transactions above ₹20,000 are not void,
Statutory NI Act presumptions cannot be defeated, and
Section 269SS violations do not extinguish debt liability.

Case Title

Shine Varghese Koipurathu v. State of Kerala
Crl.A. No. 5385/2025