Supreme Court rules that Section 138 of Negotiable Instruments Act applies even if drawer is an unlicensed money lender; transaction validity is separate issue.
SC Clarifies Section 138 Ni Act Applies to Unlicensed Money Lenders
The Supreme Court has clarified that the mere fact that a complainant is an unlicensed money lender does not bar proceedings under Section 138 of the Negotiable Instruments Act, 1881.
The Court ruled that the provision protects the sanctity of cheques, regardless of the complainant's business legality. The defence of illegal lending goes to the merits of the underlying debt, not to the maintainability of a cheque bounce case. The Court distinguished between criminal liability for dishonour and civil validity of the loan contract, referencing State of Punjab v. Surinder Kaur.
This decision reinforces that technical defences based on licensing status will not automatically quash NI Act proceedings. Practitioners must now focus on proving or disproving the existence of a legally enforceable debt, rather than challenging the complainant’s status per se.
Citations
- State of Punjab v. Surinder Kaur (2000) 5 SCC 729
- Negotiable Instruments Act, 1881, Section 138
