Section 138 NI Act | Debt Unenforceable Under Maharashtra Money-Lending Act Cannot Sustain Cheque Dishonour Complaint; Trial Court Must Determine Bar: Supreme Court

"In any proceedings filed on dishonour of cheque or recovery proceedings, the money lender in the State of Maharashtra has to produce a licence to satisfy the Court at the threshold." Supreme Court on October 29, 2026, held that an advance made at interest against a promissory note by an unlicensed money lender in Maharashtra does not constitute a "legally enforceable debt" for the purposes of the Explanation to Section 138 of the Negotiable Instruments Act, 1881.

A Bench comprising Justice Prashant Kumar Mishra and Justice N. V. Anjaria ruled that trial courts must independently adjudicate threshold statutory bars under State money-lending legislation, clarifying that its earlier ruling concerning vicarious liability did not lay down a blanket precedent on the enforceability of unlicensed loans.

The applicant, Vyomesh Mahipatray Shah, moved a miscellaneous application seeking clarification of the Supreme Court's judgment dated May 26, 2026, in Criminal Appeal No. 2849 of 2026. In that decision, the apex court had restored complaints under Sections 138 and 141 of the NI Act involving loans extended against promissory notes in Tamil Nadu. The applicant apprehended that the earlier decision could be treated as having pan-India application, thereby prejudicing proceedings in Maharashtra where unlicensed moneylending against promissory notes is expressly barred.

Whether the judgment dated May 26, 2026, in Criminal Appeal No. 2849 of 2026 applies to Section 138 NI Act proceedings instituted by unlicensed money lenders in Maharashtra advancing money at interest against promissory notes?

Whether an advance made at interest against a promissory note without a valid license constitutes a "legally enforceable debt" under the Explanation to Section 138 of the Negotiable Instruments Act, 1881 in view of Sections 2(13)(j), 4, and 13 of the Maharashtra Money-Lending (Regulation) Act, 2014?

Distinction between Tamil Nadu and Maharashtra moneylending statutes

The Court underscored the critical difference in the statutory definitions of a "loan" between the two States. It observed that Section 2(13)(j) of the Maharashtra Money-Lending (Regulation) Act, 2014 excludes an advance on a negotiable instrument "other than a promissory note," whereas the Tamil Nadu Money-lenders Act, 1957 excludes advances made on the basis of negotiable instruments altogether.

Consequently, unlike the Tamil Nadu Act where a debt secured by a promissory note remains enforceable, the Maharashtra enactment specifically treats an advance at interest against a promissory note as a regulated loan. The Court noted that such transactions fall squarely within the regulatory ambit of the Maharashtra Act.

Absence of license extinguishes legally enforceable debt under Section 138 NI Act

The Bench observed that unlicensed money lending against a promissory note is strictly prohibited under Section 4 of the Maharashtra Act, and recovery of any such loan is barred under Section 13.

The Court held that such an advance does not satisfy the requirement of the Explanation to Section 138 of the NI Act, noting that "unlike Tamil Nadu, in the State of Maharashtra, such debt is not legally enforceable debt for the purpose of Explanation to Section 138 of the NI Act."

Reiterating its earlier order dated April 6, 2026, in MA No. 1176/2026, the Bench emphasized that money lenders in Maharashtra must produce a licence to satisfy the court at the inception of the litigation. The Court cited its earlier dictum observing that "the Courts should ensure that the proceedings instituted by such private money lender are nipped in bud, whether Civil or Criminal, unless the money lender at the threshold produces license for money lending or shows that money was not advanced by him at interest."

Earlier judgment was confined to Section 141 NI Act vicarious liability

Addressing the maintainability of the clarification, the Court observed that its judgment dated May 26, 2026, had only dealt with the questions of vicarious liability of directors and society members under Sections 138 and 141 of the NI Act.

The Bench clarified that it had no occasion in the original appeal to examine or render any finding on the applicability of either the Tamil Nadu Act or the Maharashtra Act. The court held that if an accused raises a plea under Section 13 of the Maharashtra Act asserting that the transaction does not constitute a legally enforceable debt, the concerned court must examine the defence independently on its own merits.

The Supreme Court disposed of the clarification application, observing that because the parent judgment never interpreted the provisions of the Maharashtra Money-Lending (Regulation) Act, 2014 or the Tamil Nadu Money-lenders Act, 1957, no formal clarification was warranted, and the parties remain fully at liberty to raise these statutory defences before the trial court or superior courts.

Date of Decision: October 29, 2026