CHEQUEMATE UNLEASHED

An interesting discussion developed in the office of Senior Trial Lawyer Mr. S.Raghunathan on the judgment of the Hon'ble Supreme Court of India reported in

SANJABIJ TARI VS KISHORE S.BORCAR & ANR

2025 INSC 1158

SCOLR_Judgement_Sanjabij-Tari-v-Kishore-S.-Borcar.pdf

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This article is a record of the said discussion. The discussion and conclusions of this article is written with the express concurrence of Mr.S.Raghunathan.

Apart from understanding the legal position, The question posited to us associates by the Senior Trial Lawyer was whether the Hon'ble Supreme Court can get blindsided sometimes in its legal reasoning. Our unanimous opinion was that it cannot be so because the experience of the Hon'ble Supreme Court is unparalleled not only in the scope of Indian Jurisprudence but also on a global scale. It is no mean feat for Our Hon'ble Supreme Court to attain the status of the "Most Powerful Judicial Body" in the world without exemplary legal reasoning. As the saying goes "Powerful People Come From Powerful Places and Powerful People Make Places Powerful"

The Senior Trial Lawyer proceeded to discuss the ratio of of the judgment and showed us the conclusion that the Supreme Court of India had unleashed a "Chequemate" with regard to litigations under Section 138 of the Negotiable Instruments Act, 1988.

The case involved a complaint by Sanjibji Tari against Kishore under Section 138 of the Negotiable Instruments Act, 1988. Kishore borrowed Rs. 6 Lakhs from Sanjibji and issued a cheque for repayment, which was dishonored, leading to the complaint. Sanjibji claimed it was a friendly loan. Kishore was convicted by the Judicial Magistrate Court, and his appeal in the Sessions Court failed. However, the High Court of Bombay at Goa acquitted Kishore, citing a violation of Section 269 SS of the Income Tax Act, which prohibits cash transactions over Rs. 20,000. The Supreme Court, upon appeal, reversed the High Court's decision, reinstating the conviction, stating that while the violation attracts a penalty,as per Section 271 D of IT Act, the Income Tax Act does not render the transaction void under the IT Act.

Mr. S. Raghunathan noted that the Supreme Court appeared to accept that a cheque for a void transaction cannot be enforced through prosecution. However, the Court overlooked a key legal position in reaching this conclusion.

To appreciate the legal question, it's essential to understand the basic legal principle regarding the transaction between the parties. Kishore proposes to borrow Rs.6 Lakh, promising to repay it to Sanjabij Tari, who in turn promises to lend the money. These reciprocal promises and the consideration of Rs.6 Lakh form an Agreement. If this agreement is enforceable by law, it becomes a Contract, resulting in a debt. The key question is whether this debt is legally enforceable under the Indian Contract Act 1872. An agreement is enforceable only if its consideration or object is lawful as per Section 23 of the Indian Contract Act 1872. According to Section 23, the consideration or object is not lawful if “it is of such nature that, if permitted, it would defeat the provisions of any law.” This section also states that any agreement with an unlawful object or consideration is void. The primary objective of the Income Tax Act 1961 is to curb the circulation of black money and tax evasion.

In a scenario where, A complainant lends Rs.6 lakhs to the accused, who defaults and issues a dishonoured cheque. The complainant files a case under Section 138 of the NI Act. The accused is willing to repay in cash but warns of IT Act implications. Both agree the complainant will file a compounding application or withdraw the complaint under the Bharatiya Nyaya Suraksha Sanhita. The complainant receives the money "Out of Court" in cash, unnoticed by the court. The court usually does not investigate the reasons for compounding, records it, and closes the case. Alternatively, the complainant may receive the cash without informing the court and skip hearings. The court might then dismiss the complaint for non-prosecution. According to the Hon'ble Madras High Court's principles, the case may also be quashed.

The above illustrated method undermines the Income Tax Act, affecting national revenue. If money is recovered, it undermines the Court Fees and Suit Valuation Act, another state revenue source. Thus, cash transactions creating debt should be deemed unlawful and unenforceable in court. Unfortunately, the Supreme Court was not informed of this, and Section 23 Indian Contract Act was not considered in the judgment.

There is another dimension to this discussion regarding presumption under Section 139 of the Negotiable Instruments Act.

Section 139 of NI Act reads that, It shall be presumed unless the contrary is proved, that the holder of a cheque recieved the cheque of the nature referred to in Section 138 of the NI Act for the discharge in whole or in part, of any debt or other liability. 

The Section only reads “of any debt or other liability”, It does not contain the words “legally enforceable debt or other liability”. Hence in order to attract the presumption, the holder of the cheque has to establish the basic foundation fact that the transaction, whether it ibe an agreement or not, creating a debt or liability is legal and not void. In this context, one can see Section 17 of the Workmen’s Compensation Act 1923. it says that any agreement by which the workmen agree to relinquish their rights or reduce their liability under the Act is void.

Consider the situation where a worker, agrees with his employer that in the event of any injury resulting in his disablement, he will receive only half of the compensation due for such an injury under the WC Act. However, upon suffering disablement, he is entitled to full compensation because the agreement he entered into is void under the WC Act. It is also void according to Section 23 of the ICA, as allowing it would undermine the provisions of the Workmen's Compensation Act.

This issue was not addressed in the Supreme Court's judgment under discussion. In fact, Mr.S.Raghunathan pointed out that, this position is not discussed in any Supreme Court judgments, subject to correction.

Therefore, the principles stating that the presumption applies once the execution of a cheque is admitted should be reconsidered. The presumption should only apply when the transaction clearly indicates the existence of a legally enforceable debt or liability. A mere debt or liability is insufficient.

Consider another scenario where, Under the Tamil Nadu City Police Act, betting is void per the Indian Contract Act. Betting on horses is not punishable if done within legal premises like a racecourse. However, private betting outside such premises is punishable. In a scenario where ‘A’ accepts a bet from ‘B’ outside legal premises, and the cheque for Rs.50,000/- is dishonored, ‘B’ cannot prosecute ‘A’ under Section 138 of the NI Act. Although the TN City Police Act does not explicitly void the transaction, it is unlawful and punishable. Enforcing a prosecution under Section 138 of the NI Act would contradict the provisions of the TN City Police Act. Therefore, such prosecutions should not be entertained as per Section 23 of the Indian Contract Act,1872.

The Hon'ble Supreme Court of India did not discuss the question as to whether the presumption under Section 139 of Negotiable Instruments Act, 1988 has to be invoked in every case irrespective of the enforceability of the underlying transaction. It is the opinion of the Senior Trial Lawyer during the discussion that, the complainant must be asked to establish the basis of his capability to advance the loan on facts in accordance with Section 101 (104 BSA) and Section 103 (106 BSA) of Indian Evidence Act/Bharatiya Sakshya Adhiniyam. Only if he proves them by adducing proper evidence ,the courts should draw the presumption. Otherwise wrongly applying the presumption may defeat the very purpose of the enactment and result in injustice. These aspects were not highlighted in the judgment of the Supreme Court of India.

A Debt or Liability grants a person a RIGHT and imposes a DUTY on another. In a loan transaction between A and B, A gains the right to recover the borrowed money, while B has the duty to repay the loan. A debt or liability is enforceable if it results from a lawful transaction. If the transaction is unenforceable, such as when it violates Section 23 of the Indian Contract Act 1872, it is void, and no debt or liability exists legally. It's crucial to differentiate between a debt or liability becoming unenforceable due to procedural reasons, like the Law of Limitation. In these instances, the rights and duties persist, but the debt becomes unenforceable in court. Therefore, a debt barred by limitation eliminates the remedy, not the right.

The very object of enacting Section 138 of Negotiable Instruments Act 1988 has not been achieved in practice. Litigation upto Supreme Court with several proceedings in High Courts have not only contributed to backlog of cases, pendency etc., but has resulted in the remedy itself becoming a distant dream. The plethora of case laws and varying interpretations, tempt litigants to take chances in indulging in luxurious litigation upto Supreme Court. Hence it is high time that the entire law relating to prosecutions concerning dishonour of cheques is revisited.

The Supreme Court ruling does not address the question posed in the write up. Probably in a subsequent ruling, the Court itself may reconsider the position of law.

The Discussion concluded here.

Mr.S.Raghunathan is a Senior Criminal Trial Lawyer with over 48 years of experience exclusively on the Criminal Trial Side in Chennai.

He has authored the Book "Realities 45 For a Criminal Trial Lawyer" recently. The cover of which is inlaid below.