SC holds unlicensed money lenders can file Section 138 complaints, but agreements may be unenforceable under other laws.
SC Allows Section 138 Complaints by Unlicensed Money Lenders
The Supreme Court clarified that unlicensed money lenders can initiate prosecution under Section 138 of the Negotiable Instruments Act, 1881, as the provision does not disqualify complainants on grounds of licensing, though underlying loan agreements may be unenforceable under state money-lending regulations.
The bench distinguished between maintainability of a cheque bounce complaint and the legality of the underlying transaction.
"The dishonour of a cheque triggers liability under Section 138 irrespective of the lender's license status,"the Court ruled, while cautioning that civil remedies or recovery may still be barred under state Acts like the Money Lending Act.
This decision resolves a split in lower courts and confirms broad standing under Section 138. However, practitioners should advise clients that while criminal complaint is tenable, civil enforcement may fail, and public policy defences could arise in related suits.
Citations
- Negotiable Instruments Act, Section 138
- M. Ravichandran v. M.S. Steels, (2001) 1 SCC 754
