In P.C. Hari v. Shine Varghese [2025: KER:54510], the Kerala High Court has ruled that a cheque issued to repay a cash loan exceeding ₹20,000 does not carry the presumption of a legally enforceable debt under Section 139 of the Negotiable Instruments Act, 1881.
The Court’s Rationale
The Court reasoned that since a cash loan transaction above ₹20,000 is barred under Section 269SS of the Income Tax Act, 1961, it cannot be considered a “legally enforceable debt.”
Consequently, a cheque issued for its repayment is not protected by the statutory presumption in a dishonour case. This shifts the burden of proof entirely onto the complainant to establish the debt’s enforceability.
Conversely, if the cash loan is below the ₹20,000 threshold, it remains a legally enforceable debt, and the presumption under Section 139 of the N.I. Act will apply as usual.
Prospective Application of the Ruling
The High Court clarified that this ruling would only apply prospectively. Concluded trials where this issue was not raised will not be reopened on the basis of this decision.
The Court’s Policy Perspective
The judgment emphasized the judiciary’s role in discouraging illegal transactions. The Court observed that if it were to enforce such claims, it would effectively be helping to convert “black money into white money” through its proceedings.
It underscores the principle that a court cannot be privy to or an instrument in effectuating an illegal act.
