Section 138 NI Act: Supreme Court Says 2026 Judgment Does Not Override State-Specific Money-Lending Laws

The Supreme Court has clarified that its judgment in M/s Mansi Finance (Chennai) Ltd v. M Lalitha & Ors. (2026), dealing with cheque dishonour proceedings under Section 138 of the Negotiable Instruments Act, 1881, does not automatically override state-specific money-lending laws that may render certain loans legally unenforceable.

A Bench of Justices Prashant Kumar Mishra and N V Anjaria said that whether a loan advanced by an unlicensed money lender is barred from enforcement under a particular State's money-lending legislation must be examined by the concerned courts on its own merits.

Court clarified that parties are at liberty to raise the issue of statutory bars on enforceability before the concerned trial court or superior courts, and that the Mansi Finance judgment did not require any clarification in this regard.

Why was clarification of the Mansi Finance judgment sought?

Court was dealing with a miscellaneous application filed by Vyomesh Mahipatray Shah, seeking clarification of its May 26, 2026 judgment in M/s Mansi Finance (Chennai) Ltd v. M Lalitha & Ors.

The applicant contended that the judgment should not apply to proceedings under Section 138 of the NI Act initiated by unlicensed money lenders in Maharashtra who advance money at interest against promissory notes, whether or not accompanied by cheques or other securities.

He submitted that such transactions are governed by the Maharashtra Money-Lending (Regulation) Act, 2014, which does not exclude advances against promissory notes from the definition of a loan. Consequently, such lending without a licence is prohibited under the State legislation.

The applicant further argued that the May 26 judgment, since it dealt with loans advanced against promissory notes, could otherwise be interpreted as having pan-India application. He, therefore, sought clarification that proceedings in Maharashtra would continue to be governed by the Court's order dated April 6, 2026.

What did the May 26 judgment in Mansi Finance hold?

The Bench noted that the May 26 judgment dealt with proceedings under Sections 138 and 141 of the NI Act.

In that case, the appellant/complainant had advanced loans to the accused persons against promissory notes. The accused persons subsequently issued cheques towards repayment of the loans, which were dishonoured, leading to criminal proceedings.

The accused approached the high court seeking quashing of the complaint, arguing, among other things, that they were neither signatories to the cheques nor responsible for the day-to-day affairs of the society. They also contended that the complaint lacked the necessary foundational averments to attract vicarious liability under Section 141 of the NI Act.

The high court allowed their plea and quashed the proceedings. However, the Supreme Court partly allowed the appeal and restored the proceedings against three of the four accused persons.

The present applicant argued that the legal position in Maharashtra was different from that in Tamil Nadu, where the Tamil Nadu Money-Lenders Act, 1957 excludes advances made on the basis of a negotiable instrument from the definition of a loan.

He submitted that under the Tamil Nadu Act, a debt secured by a negotiable instrument, including a promissory note, remains legally enforceable. However, the Maharashtra Act does not provide a similar exclusion for advances against promissory notes.

What is the difference between the Tamil Nadu and Maharashtra money-lending laws?

Examining the two legislations, Court noted that Section 2(13)(j) of the Maharashtra Money-Lending (Regulation) Act, 2014 excludes advances made on the basis of a negotiable instrument "other than a promissory note" from the definition of a loan.

Consequently, unlike the Tamil Nadu Act, an advance at interest against a promissory note is not excluded from the definition of a loan under the Maharashtra legislation.

The Bench explained that such money lending without a licence is prohibited under Section 4 of the Maharashtra Act, while Section 13 renders such loans unenforceable.

"Thus, 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. 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," the Bench said.

Statutory bar must be examined by concerned courts

Court also noted that the principal contention raised by the accused persons in the Mansi Finance case before the high court and the Supreme Court did not require it to examine the applicability of either the Tamil Nadu or the Maharashtra money-lending legislation.

It, therefore, observed that there was no occasion in that judgment to render any finding on the applicability of the respective State laws.

"If there is any bar under Section 13 of the Maharashtra Act on initiation of proceedings for recovery of loan by an unlicensed money lender on the ground that the loan advanced involving a pronote in favour of an unlicensed money lender in Maharashtra, being contrary to statute, does not constitute a legally enforceable debt in terms of the Explanation to Section 138 of the NI Act, the same shall be examined by the concerned court if any plea is taken before the Court where the matter is pending or before any superior court, on its own merits," the Bench said.

Disposing of the application, Court held that since the Mansi Finance judgment had not dealt with the provisions of either the Tamil Nadu Money-Lenders Act, 1957 or the Maharashtra Money-Lending (Regulation) Act, 2014, no clarification was necessary.

It added that the parties would remain at liberty to raise the issue before the concerned trial court or superior courts.

Case Title: M/s Mansi Finance (Chennai) Ltd Vs M Lalitha & Ors

Bench: Justices Prashant Kumar Mishra and N V Anjaria

Date of Judgment: October 29, 2026