Cheque Dishonour - Cash Transaction over Rs. 20,000 violates Income Tax Act, not Section 138 NI Act

Supreme Court Clarifies: Cash Transactions Over Rs. 20,000 Not Void. Kerala High Court Judgment Overturned; Case Remitted for Re-evaluation

In a landmark judgment, the Supreme Court of India has set aside the Kerala High Court's decision in the case of "Shine Varghese Koipurathu v. State of Kerala," concerning the enforceability of debts involving cash transactions above Rs. 20,000 under Section 138 of the Negotiable Instruments Act, 1881. The apex court's ruling clarifies that such transactions, even if violating Section 269SS of the Income Tax Act, 1961, do not inherently become unenforceable under the Negotiable Instruments Act.

The case arose from a criminal appeal (No. 5385 of 2025), where the appellant, Shine Varghese Koipurathu, challenged the Kerala High Court's decision which acquitted the respondent of charges under Section 138 of the NI Act. The high court had ruled that the cash transaction of Rs. 9,00,000 breached Section 269SS, thereby deeming it unenforceable as a legally enforceable debt under Section 138.

The Supreme Court, led by Justices Prashant Kumar Mishra and Vipul M. Pancholi, emphasized that while Section 269SS prohibits cash transactions above a specified limit, the breach of this provision attracts only a penalty under Section 271D of the Income Tax Act and does not invalidate the transaction itself. Thus, the presumption under Sections 118 and 139 of the NI Act regarding the enforceability of a debt is not nullified by such violations.

Referring to its earlier judgment in "Sanjabij Tari v. Kishore S. Borcar," the Supreme Court reiterated that a breach of Section 269SS does not render a transaction illegal or void under the NI Act. The ruling effectively nullifies the basis of the Kerala High Court’s judgment, leading to its overturn and the matter being sent back to the High Court for a fresh evaluation on merits under revisional jurisdiction.

The parties involved are now scheduled to appear before the Kerala High Court on February 17, 2026, for further proceedings. The Supreme Court’s decision underscores the separation of penal provisions under the Income Tax Act from the validity of transactions under the Negotiable Instruments Act, thereby providing clarity and consistency in the enforcement of financial transactions.

Bottom Line:

Violation of Section 269SS of Income Tax Act, 1961 does not render a transaction unenforceable under Section 138 of the Negotiable Instruments Act, 1881. Such breaches are subject only to penalty under Section 271D of the Income Tax Act and do not invalidate the debt or transaction.

Statutory provision(s):Negotiable Instruments Act, 1881 Section 138, Income Tax Act, 1961 Sections 269SS, 271D

Shine Varghese Koipurathu v. State of Kerala, (SC) : Law Finder Doc id # 2820945