The latest Supreme Court pronouncements on Section 138 NI Act in 2025 reaffirm statutory presumptions in favour of the payee, clarify procedural streamlining for faster trials, and address key substantive issues like cash loans above ₹20,000, partnership liability, territorial jurisdiction, and the effect of settlements on convictions.
Core holdings (2025)
- Statutory presumptions under Sections 118 and 139 apply once execution of cheque is admitted; the accused must rebut with cogent evidence, and friendly cash loans do not become unenforceable merely due to Section 269SS of the Income-tax Act; breach invites penalty under Section 271D but does not void the debt for Section 138 NI Act purposes.
- Procedural streamlining: Magistrates can proceed without pre-cognizance summons and move directly to plea stage on materials filed, with directions aimed at speedy trials and reducing backlog in cheque-bounce cases.
- Maintainability against partners without arraigning the partnership firm: complaints under Section 138 read with Section 141 were held maintainable against partners even if the firm is not made an accused, in Dhanasingh Prabhu v. Chandrasekar (14-07-2025), departing from earlier understandings on mandatory arraignment of the firm.
Key case highlights
- Sanjabij Tari v. Kishore S. Borcar (25-09-2025):
- Presumptions under Sections 118/139 arise on admission of execution; the burden shifts to the accused to rebut by credible evidence, not mere ipse dixit or conjecture.
- Loans advanced in cash exceeding ₹20,000 do not become legally unenforceable solely because of Section 269SS; violation leads to tax penalty, not nullity of debt for Section 138.
- Court emphasized avoiding dilution of statutory presumptions and suggested process improvements to prevent treating Section 138 prosecutions like civil recovery suits.
- Dhanasingh Prabhu v. Chandrasekar (14-07-2025):
- A complaint is maintainable even if only the partners are arraigned without making the partnership firm an accused, clarifying prosecution under Section 141 in partner–firm contexts.
- Directions for efficiency and backlog reduction:
- Expanded service modes for summons, no insistence on pre-cognizance processes, and guidelines encouraging speedy trials and pragmatic handling of Section 138 dockets in district courts were reiterated in 2025 commentary and summaries of the Court’s directions.
Notice and cause of action clarity
- The Court reiterated that cause of action under the proviso to Section 138(c) arises upon service of the statutory demand notice and failure to pay within 15 days, a point applied in matters intersecting with IBC moratorium timelines, reinforcing that the timing of notice and moratorium is critical for maintainability and continuation of proceedings.
Territorial jurisdiction and filing
- The Court’s discussions reiterate Section 142(2) as amended: complaints must be filed where the payee maintains the bank account into which the cheque is presented for collection, not merely where deposited otherwise; the statute channels jurisdiction to the payee’s drawee bank branch location.
Settlement and compounding
- Where parties lawfully settle and the complainant receives the agreed amount, continuing a conviction under Section 138 is impermissible; settlements should ordinarily lead to quashing or compounding to align with restorative justice in cheque dishonour matters.
Additional 2025 clarifications
- The Supreme Court reiterated that the statutory demand notice is a core ingredient; failure of proper notice vitiates prosecution under Section 138, underscoring strict compliance with proviso requirements.
- The Court continued to handle questions on interplay with IBC moratorium, emphasizing that moratorium protection is assessed with reference to when cause of action under Section 138 actually arises following service of notice and the statutory waiting period.
- Early 2025 orders emphasized procedural aspects under Sections 138, 142, 145 NI Act and Section 200 CrPC/BNSS equivalents, encouraging reliance on affidavit evidence and efficient cognizance to reduce pendency.
What this means in practice
- Cheques issued for cash loans above ₹20,000 remain actionable; accused cannot defeat Section 138 solely by citing Section 269SS IT Act, though tax penalties may apply separately.
- Partners can face Section 138 prosecution even if the firm is not arraigned, depending on the factual matrix and the latest ruling in Dhanasingh Prabhu.
- File complaints at the court where the payee’s bank (where the cheque was presented) is located as per Section 142(2), ensuring jurisdiction is correctly invoked.
- Ensure impeccable compliance with notice timelines and service to perfect cause of action; defects in notice or service can be fatal.
- Expect faster summons and trial flow with minimized pre-cognizance steps and broader service modes as per recent directions and practices endorsed in 2025.
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