Reinforcing Cheque Presumptions: 269SS breach no bar to Section 138 NI Act; Supreme Court mandates procedural and compounding reforms for cheque dishonour cases

Case: SANJABIJ TARI v. KISHORE S. BORCAR & Anr., 2025 INSC 1158 (Supreme Court of India, 25 September 2025)

Bench: Manmohan, J.; N.V. Anjaria, J.

Introduction

This decision addresses the heart of cheque dishonour jurisprudence under Chapter XVII of the Negotiable Instruments Act, 1881 (NI Act). The Supreme Court set aside an ex parte revisional acquittal and restored concurrent convictions under Section 138, while simultaneously issuing wide-ranging, system-facing directions to expedite the disposal of cheque cases and revisiting the framework for compounding first laid down in Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663.

Two doctrinal clarifications anchor the ruling:

Once execution of the cheque is admitted, the statutory presumptions under Sections 118 and 139 NI Act apply and must be given full effect; these are rebuttable but the initial burden to rebut lies squarely on the accused.
A transaction in breach of Section 269SS of the Income Tax Act, 1961 (acceptance of cash loans/deposits above Rs. 20,000) is not illegal or void; such breach attracts only a penalty under Section 271D and does not, by itself, negate the “legally enforceable debt” requirement for Section 138 NI Act nor defeat the Section 118/139 presumptions.

Against the backdrop of a crippling national backlog of Section 138 cases, the Court issued granular procedural guidelines on service of summons (including dasti and electronic service), mandated streamlined case synopses, endorsed online payment mechanisms at the threshold, refined pre-trial questioning under the BNSS 2023, and recalibrated the graded cost structure for compounding.

Background and Key Issues

The appellant-complainant alleged that the respondent-accused, a friend, had borrowed Rs. 6,00,000 and issued a cheque that was dishonoured. The trial court convicted the accused; the sessions court affirmed. The High Court of Bombay at Goa, in revision, acquitted ex parte, ostensibly on skepticism about the complainant’s financial capacity and on accepting a defence that a signed blank cheque was given to help obtain a bank loan.

The Supreme Court was called upon to determine:

Whether the High Court, in revision, could upset concurrent factual findings absent perversity.
Whether the complainant’s financial capacity was inadequately established and whether the accused had rebutted statutory presumptions.
Whether breach of Section 269SS IT Act renders a cash loan-based debt “not legally enforceable” for Section 138 purposes.
Systemic directions needed to address delays in Section 138 cases, including compounding norms.

Summary of the Judgment

Conviction restored: The Supreme Court set aside the High Court’s revisional acquittal and restored the concurrent findings of the trial and sessions courts. The accused is directed to pay Rs. 7,50,000 in 15 equal monthly instalments of Rs. 50,000 each.
Statutory presumptions reaffirmed: Admission of signature on the cheque triggers the presumptions under Sections 118 and 139 NI Act. The defence failed to rebut.
269SS breach not fatal: Violation of Section 269SS IT Act does not render the underlying debt illegal or unenforceable for Section 138 NI Act; penalty under Section 271D is the consequence, not civil invalidity. The Kerala High Court’s contrary view in P.C. HARI v. SHINE VARGHESE, 2025 SCC OnLine Ker 5535, was disapproved and set aside.
Revisional restraint: Absent perversity or jurisdictional error, revisional courts should not re-appreciate concurrent factual findings.
Adverse inference on non-reply: Failure to reply to the statutory notice under Section 138 supports the complainant’s version.
Defence rejected: The “signed blank cheque to facilitate a bank loan” theory was termed “unbelievable and absurd.”
Systemic reforms and timelines: Comprehensive guidelines were issued to streamline process, digitize service and payments, and recalibrate compounding costs. High courts and district courts must implement by 1 November 2025.

Analysis

Precedents Cited and Their Influence

Rangappa v. Sri Mohan, (2010) 11 SCC 441: Three-judge bench clarified that once execution/signature is admitted, Sections 118 and 139 presumptions apply, displacing contrary observations in Krishna Janardhan Bhat v. Dattatraya G. Hegde, (2008) 4 SCC 54. The present Court leans on this to treat presumption as the starting point.
BIR SINGH v. MUKESH KUMAR, (2019) 4 SCC 197: Reaffirms that the Section 139 presumption is rebuttable; initial onus to rebut lies with the accused. Also cited for revisional restraint.
APS Forex Services Pvt. Ltd. v. Shakti International Fashion Linkers, (2020) 12 SCC 724: Clarifies that when the accused challenges the complainant’s financial capacity (especially in cash loan cases), and raises a probable defence, the onus may shift back to the complainant. The Court clarifies APS Forex does not dilute the initial presumption in cash-loan cases.
Rajaram v. Maruthachalam, (2023) 16 SCC 125: Illustrates how an accused may rebut presumptions—e.g., by examining ITO or bank officials of the complainant.
Tedhi Singh v. Narayan Dass Mahant, (2022) 6 SCC 735: If financial capacity is not raised in reply to the Section 138 notice, the complainant need not initially lead evidence on capacity; accused can still attempt rebuttal during trial.
MMTC Ltd. v. Medchl Chemicals, (2002) 1 SCC 234: Non-reply to statutory notice can permit an inference that the cheque was towards discharge of liability.
Southern Sales & Services v. Sauermilch Design, (2008) 14 SCC 457: Revisional courts should not interfere absent jurisdictional error; no re-appreciation of evidence is warranted where findings are not perverse.
P. Mohanraj v. Shah Brothers Ispat, (2021) 6 SCC 258: Characterises Section 138 as a “civil sheep in a criminal wolf’s clothing”—a quasi-criminal mechanism largely protecting victim’s interest; supports a settlement-forward approach.
Indian Bank Association v. Union Of India, (2014) 5 SCC 590; Damodar S. Prabhu, (2010) 5 SCC 663; In Re: Expeditious Trial of cases under Section 138 NI Act, (2021) 16 SCC 116: Foundational authorities urging process reforms and compounding. The present judgment expands and revises these directives.
Chellammal v. State, 2025 SCC OnLine SC 870: Recognises the availability of benefit under the Probation of Offenders Act to Section 138 accused; the Court endorses this, setting aside contrary views of Kerala High Court in M.V. Nalinakshan v. M. Rameshan (2009).
Ashok v. Fayaz Aahmad, 2025 SCC OnLine Kar 490 (Karnataka HC): Endorsed by the Supreme Court for the view that for NI Act complaints, no summons need issue under Section 223 BNSS at the pre-cognizance stage—in recognition of the NI Act’s special procedure.
P.C. HARI v. SHINE VARGHESE, 2025 SCC OnLine Ker 5535 (Kerala HC): The Supreme Court expressly sets aside the view that cash transactions above Rs. 20,000 (breaching 269SS) are not “legally enforceable debts” for Section 138 purposes.

Legal Reasoning

Purpose of Chapter XVII NI Act: The Court reiterates that criminalising cheque dishonour was intended to restore credibility of cheques, promote financial discipline, and provide efficient redress. This policy lens colours the interpretive approach: statutory presumptions are to be given full effect.
Presumptions under Sections 118 and 139 NI Act:
- Admitted execution/signature triggers presumptions that the cheque was issued for consideration and in discharge of a legally enforceable debt.
- These are rebuttable; however, the initial evidentiary burden is on the accused and can be discharged on a preponderance of probabilities (through defence evidence, cross-examination of complainant, or by pointing to inconsistencies in complainant’s materials).
- The Court rejects any suggestion that cash-loan cases start without presumption; APS Forex only explains how onus can shift back once a probable defence is raised.
269SS IT Act and “legally enforceable debt”:
- Section 269SS proscribes taking or accepting certain loans/deposits of Rs. 20,000 or more in cash; Section 271D prescribes a penalty for breach.
- Neither provision renders the underlying transaction illegal, void, or unenforceable. Hence, a cheque issued towards such a debt is still referable to a “legally enforceable debt” unless otherwise rebutted.
- Accordingly, the contrary view creating a threshold bar for cash loans is rejected and set aside.
Evaluation of defence and financial capacity on facts:
- The accused produced no documentary or independent evidence on the complainant’s incapacity (no ITR, bank evidence, or independent witnesses).
- Read as a whole, the complainant’s testimony—advancing loan partly through father (a cloth merchant) and partly from an institutional loan—was plausible.
- The “blank cheque to help obtain a bank loan” defence was dismissed as “unbelievable and absurd,” particularly given admitted signature and lack of timely protest.
Revisional restraint and ex parte acquittal:
- Revisional jurisdiction is narrow; absent perversity or jurisdictional error, concurrent findings cannot be upset. The High Court impermissibly reweighed facts.
- Failure to reply to the statutory notice supports an adverse inference; coupled with readiness to pay during sentencing, the defence appears afterthought.

Systemic Directions and Reforms

Backlog Context

The Court notes massive pendency of Section 138 cases—nearly 50% of trial court dockets in some jurisdictions (e.g., 49.45% in Delhi)—and links delay to service issues and process inefficiencies. Emphasising Section 138’s quasi-criminal, settlement-friendly character, the Court issues actionable directions.

Key Directions (to be implemented by 1 November 2025)

Service of Summons:
- Not limited to ordinary modes; must also be served dasti by the complainant and, where rules permit, via electronic means (email, mobile/WhatsApp/messaging apps), consistent with BNSS frameworks and applicable High Court rules.
- Complainant must file an affidavit of service; false affidavits invite action.
Online Payment to Enable Early Settlement:
- Principal District Judges shall operationalise secure online payment facilities (QR/UPI) for cheque amounts.
- Summons must inform accused of the option to pay immediately via the link; upon confirmation of receipt, courts may compound/close under Section 147 NI Act and Section 255 CrPC / Section 278 BNSS.
Mandatory Case Synopsis: Every complaint must annex a concise, standardised synopsis (party and cheque details, dishounour, notice service, cause of action, reliefs, and parallel cases).
No Summons at Pre-Cognizance Stage: Following Karnataka HC, no requirement to issue summons under Section 223 BNSS at the pre-cognizance stage in NI Act complaints (recognising the NI Act’s special procedure).
Summary Trial Discipline:
- Courts must record cogent reasons to convert summary trials to summons trials.
- At the initial post-cognizance stage, courts may ask targeted questions under Section 251 CrPC / Section 274 BNSS (e.g., ownership/signature, delivery, liability, defence variants like security cheque/misuse/repayment, and willingness to compound) and record responses.
Interim Compensation: Courts should consider early exercise of power under Section 143A NI Act to order interim deposit.
Physical vs. Digital Listing: Post-service matters should ordinarily be placed before physical courts to encourage settlement; pre-service listing can be digital. Personal appearance exemptions are to be sparing.
Evening Courts: High Courts should set realistic pecuniary limits (the Delhi limit of Rs. 25,000 is too low) and issue practice directions to enable meaningful throughput.
Dashboards and Monitoring:
- District & Sessions Judges in Delhi, Mumbai, and Calcutta must create dashboards reflecting pendency, disposal, settlement rates, adjournments, and stage-wise backlog.
- Monthly reviews; quarterly consolidated reports to High Courts.
- Chief Justices to constitute Administrative Committees to monitor pendency, consider specialised magistrates, and promote mediation/Lok Adalats.

Revised Compounding Matrix (modifying Damodar S. Prabhu)

Recognising reduced interest rates and the need to incentivise early settlement, the Court “revisits and tweaks” the graded cost regime for compounding:

Payment before recording defence evidence: Compound without any costs.
Payment after defence evidence is recorded but before judgment: Compound on payment of an additional 5% of the cheque amount to the Legal Services Authority (or as directed).
Payment in appeal/revision before Sessions Court/High Court: Compound on 7.5% of the cheque amount as costs.
Payment before the Supreme Court: Compound on 10% of the cheque amount.

The Court also suggests that if the complainant/financial institution seeks terms beyond cheque amount (e.g., entire loan settlement), magistrates may:

Suggest a plea of guilt with swift disposal under Section 255(2)/(3) CrPC / Section 278 BNSS;
Consider granting the benefit of the Probation of Offenders Act, 1958, where appropriate.

Impact and Significance

Doctrinal clarity on cash loans and 269SS: This decisively prevents a growing drift in trial and some High Courts towards treating cash loans over Rs. 20,000 as per se unenforceable in Section 138. It restores the primacy of the statutory presumptions and preserves the NI Act’s remedial efficacy in informal lending contexts.
Trial posture and burden of proof: Accused must actively rebut the presumptions—ideally by timely raising defences in reply to the statutory notice, producing financial and banking records, or eliciting contradictions. Passive reliance on the complainant’s alleged poverty is insufficient absent probative materials.
Process overhaul: The directions on dasti/e-service, online payment links, standardised synopses, and early case triage under Section 251 CrPC / Section 274 BNSS promise meaningful reduction in adjournments and faster settlements.
Compounding recalibration: Lower costs at earlier stages should incentivise prompt payment; the new matrix is expected to reduce pendency and conserve judicial resources.
Administrative accountability: Dashboards, monthly reviews, and High Court committees institutionalise continuous monitoring, fostering data-driven management of pendency.
BNSS alignment: The judgment harmonises NI Act procedure with the BNSS 2023, eliminating pre-cognizance summons and promoting structured admissions/denials at the outset.
Sentencing philosophy reaffirmed: Section 138 remains a victim-centric, quasi-criminal remedy aimed at payment rather than retribution; expanded recourse to probation underscores this orientation.

Complex Concepts Simplified

Presumption under Sections 118 and 139 NI Act: Once you admit the cheque and signature, the law presumes it was issued for consideration and towards a legitimate debt. The accused must bring sufficient material to create a reasonable doubt (on a balance of probabilities) about this presumption.
“Legally enforceable debt” vs. 269SS IT Act: A cash loan above Rs. 20,000 may breach tax law (inviting a penalty), but it is not automatically illegal or void; it can still be “legally enforceable” for Section 138.
Probable defence: A defence that raises a credible doubt about the existence of liability—through documents, witness testimony, cross-examination, or inconsistencies in the complainant’s case.
Revisional jurisdiction: A limited corrective power; revisional courts generally do not re-assess evidence or overturn concurrent findings unless there is perversity or a jurisdictional error.
Dasti service: Service of process personally by the party (or through authorised means) in addition to usual court modes, to accelerate notice.
BNSS 2023 references: BNSS replaces the CrPC framework with updated numbering and procedures. Section 223 (pre-cognizance summons) is inapplicable to NI Act complaints as per this judgment; Section 274 parallels CrPC’s Section 251 on recording notices/pleas at the summary stage; Section 278 aligns with conviction and sentencing upon plea/guilt.
Interim compensation (Section 143A NI Act): Courts may direct the accused to deposit up to 20% of the cheque amount at an early stage to protect the complainant’s interests during pendency.
Probation of Offenders Act, 1958: Enables courts to release certain offenders on probation/after admonition, reflecting a reformative approach—found applicable to NI Act prosecutions.

Conclusion

This judgment is a watershed in contemporary cheque dishonour jurisprudence. It consolidates the centrality of Sections 118/139 presumptions, decisively severs tax-law procedural breaches (269SS) from the enforceability of debts under Section 138, reasserts revisional restraint, and dismantles facile defences that lack evidentiary backbone.

Equally significant are the systemic mandates: dasti and electronic service, online payment rails, structured pre-trial questioning, disciplined use of summary trials and interim compensation, robust dashboard-driven oversight, and a refreshed, more settlement-friendly compounding matrix. Together, these measures align the process with Section 138’s quasi-criminal, payment-oriented character and promise tangible relief to overburdened trial courts.

On the facts, the Supreme Court restored the conviction and tailored instalment-based payment, striking a balance between enforcement and practicality. For the broader legal landscape, this ruling re-centres the statutory design of the NI Act, curbs erosions by ad hoc approaches, and charts a pragmatic administrative roadmap to restore speed and credibility to cheque-based transactions.