Mansi Finance (Chennai) Ltd. Vs M. Lalitha & Ors. (Supreme Court)
Unlicensed Promissory-Note Loans in Maharashtra Not Enforceable Under Section 138: Supreme Court
The Supreme Court has observed that an interest-bearing advance against a promissory note by an unlicensed money lender in Maharashtra is governed by the Maharashtra Money-Lending (Regulation) Act, 2014 and is not legally enforceable for the purposes of Section 138 of the Negotiable Instruments Act, 1881.
The Court emphasised that the applicable State money-lending law must be examined when determining whether a cheque represents a legally enforceable debt. Its earlier judgment concerning liability under Sections 138 and 141 had not decided the applicability of either the Maharashtra or Tamil Nadu money-lending legislation.
The judgment in M/s Mansi Finance (Chennai) Ltd. v. M. Lalitha & Ors., 2026 INSC 1174, was delivered on 29 October 2026 by Justice Prashant Kumar Mishra and Justice N.V. Anjaria, in Miscellaneous Application No. 3002 of 2026.
Background of the clarification application
The application was filed by Vyomesh Mahipatray Shah, seeking clarification of the Supreme Court’s judgment dated 26 May 2026 in Criminal Appeal No. 2849 of 2026.
In that earlier case, the complainant had advanced loans against promissory notes. Cheques issued towards repayment were dishonoured, resulting in proceedings under Sections 138 and 141 of the NI Act.
Certain accused sought quashing on grounds including that they were neither cheque signatories nor responsible for the society’s day-to-day affairs. They also alleged absence of the foundational averments necessary for vicarious liability under Section 141.
The High Court quashed the proceedings. The Supreme Court partly allowed the complainant’s appeal and restored proceedings against three of the four accused who had approached the High Court.
Applicant relied on differences between State laws
The applicant contended that the earlier judgment could be mistakenly applied across India without considering differences between State money-lending laws.
According to him, the Tamil Nadu Money-lenders Act, 1957 excludes the relevant advance made on the basis of a negotiable instrument, including a promissory note.
However, Section 2(13)(j) of the Maharashtra Act treats promissory notes differently. Its exclusion for advances on negotiable instruments expressly refers to instruments “other than a promissory note”.
The applicant therefore argued that an interest-bearing advance against a promissory note remained a regulated loan in Maharashtra, even where repayment was additionally secured by a cheque.
Intervenor opposed clarification
The intervenor, Ashok Commercial Enterprises, argued that the miscellaneous application was not maintainable.
Its submission was that no clarification of the earlier judgment was necessary. The court hearing each individual dispute should identify the judgment’s ratio and apply it to the relevant facts and statutory framework.
The Supreme Court ultimately agreed that formal clarification was unnecessary, while expressly discussing the Maharashtra statutory position.
Promissory-note advances remain regulated loans
The Court noted that, unlike the Tamil Nadu legislation discussed before it, the Maharashtra Act does not exclude an advance at interest against a promissory note from the definition of loan.
Such a transaction therefore remains subject to the Maharashtra money-lending framework.
The Court observed that Section 4 prohibits such money lending without a licence, while Section 13 renders the relevant loan unenforceable.
Consequently, the debt does not qualify as a legally enforceable debt under the Explanation to Section 138 merely because a cheque was issued towards repayment.
The existence of a cheque or another security does not, by itself, remove the underlying statutory restriction.
Licence must be established at the threshold
The Supreme Court stated that a money lender in Maharashtra initiating cheque-dishonour or recovery proceedings must produce the money-lending licence at the threshold to satisfy the court.
It also referred to its order dated 6 April 2026 in MA No. 1176/2026 in SLP (Criminal) No. 5485/2024.
That order required courts to examine proceedings instituted by private money lenders at the outset, unless the lender produced a licence or demonstrated that the money had not been advanced at interest.
The earlier order additionally referred to the statutory restriction associated with Dam Dupat, concerning interest exceeding the principal actually disbursed.
Earlier judgment did not decide State-law enforceability
The Court clarified the limits of its May 2026 decision. That judgment addressed the contentions concerning the accused persons’ liability in the cheque-dishonour prosecution.
There had been no occasion to decide the applicability of the Tamil Nadu Money-lenders Act or the Maharashtra Money-Lending Act.
Accordingly, the earlier restoration of proceedings could not resolve a distinct statutory objection that had never been adjudicated.
Decision and significance
The Court disposed of the clarification application, leaving parties free to raise the enforceability objection before the trial court or competent superior court.
Any plea concerning the bar under Section 13 must be examined on its own merits. The decision reinforces that Section 138 proceedings require scrutiny of the underlying debt’s enforceability under the applicable State legislation, rather than reliance on the dishonoured cheque alone.
Cases Discussed
1. M/s Mansi Finance (Chennai) Ltd. v. M. Lalitha & Ors. (Supreme Court); Criminal Appeal No. 2849 of 2026; 26/05/2026. The judgment for which clarification was sought. It concerned the liability of accused persons under Sections 138 and 141 of the Negotiable Instruments Act and did not adjudicate the applicability of the Maharashtra or Tamil Nadu money-lending legislation.
2. Order in MA No. 1176 of 2026 in SLP (Criminal) No. 5485 of 2024 (Supreme Court); 06/04/2026. Referred to for the statutory restrictions on unlicensed money lending, threshold production of a money-lending licence and the principle of Dam Dupat.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. By way of present Miscellaneous Application, the applicant – Vyomesh Mahipatray Shah seeks clarification of the judgment dated 26.05.2026 rendered by this Court in Criminal Appeal No.2849 of 2026 (M/s. Mansi Finance (Chennai) Ltd. vs. M. Lalitha & Others). It is pleaded that the said judgment does not apply in case of proceedings under Section 138 of the Negotiable Instruments Act, 18811 initiated by unlicensed money lenders in the State of Maharashtra advancing money at interest against promissory note, whether or not accompanied by cheque or any other security, in view of the threshold bar on enforceability of a loan, inter alia, against promissory note which is not excluded from the definition of ‘loan’ in Section 2(13)(j) of the Maharashtra Money-Lending (Regulation) Act, 20142, and shall continue to be governed by the order dated 06.04.2026 passed by this Court in MA No. 1176/2026 in SLP (Crl.) No.5485/2024.
2. Heard the learned senior counsels appearing for the parties and perused the papers.
3. The judgment dated 26.05.2026 in Criminal Appeal No.2849 of 2026 has dealt with the proceedings under Sections 138 and 141 of the NI Act. The appellant/complainant therein extended loans to the accused persons for which promissory notes were executed by the accused persons in favour of the appellant/complainant therein. For repayment of said loan, cheques were issued by the accused persons which came to be dishonoured giving rise to the subject proceedings. The accused persons approached the High Court seeking quashment of the complaint on the ground inter alia that they were neither signatories to the cheque nor in-charge of the day-to-day affairs of the Society and that the complaint lacked the necessary foundational averments to attract vicarious liability under Section 141 of the NI Act. The High Court allowed the plea and quashed the proceedings. However, this Court partly allowed Criminal Appeal No.2849 of 2026 and restored the proceedings against three out of four accused persons who had approached the High Court.
4. The present applicant – Vyomesh Mahipatray Shah seeks clarification of our judgment dated 26.05.2026 in Criminal Appeal No.2849 of 2026 on the plea that the loans advanced through a promissory note in the State of Tamil Nadu is dealt under the Tamil Nadu Money-lenders Act, 19573 which excludes the advance made on the basis of a negotiable instrument. Thus, a debt secured by a negotiable instrument, including against a promissory note, remains a legally enforceable debt under the Tamil Nadu Act. However, the applicant’s case pending in the State of Maharashtra is governed by the Maharashtra Act which does not exclude an advance at interest made against a promissory note. Therefore, in Maharashtra, advance at interest against a promissory note, even when accompanied by cheques, being a loan, is hit by the prohibition on unlicensed money lending under Section 4 of the Maharashtra Act. Since the judgment dated 26.05.2026 being premised on advance of loan on promissory notes, the same may be treated as having pan- India application. Therefore, clarification of the judgment dated 26.05.2026 is necessary.
5. Objecting to the prayer made by the applicant – Vyomesh Mahipatray Shah in this Miscellaneous Application, it is argued on behalf of Ashok Commercial Enterprises, intervenor, that the Miscellaneous Application is not maintainable inasmuch as the judgment dated 26.05.2026 of this Court is not required to be clarified and it is for the concerned Court anywhere in the country to examine the ratio and apply the same to the facts and circumstances of the individual matters.
6. It is to be noted that Section 2(13)(j) of the Maharashtra Act clearly shows that unlike the Tamil Nadu Act, it excludes an advance on a negotiable instrument “other than a promissory note”. Consequently, unlike the Tamil Nadu Act, in the Maharashtra Act, an advance at interest against a promissory note is not excluded and would indeed be a loan governed under the Maharashtra Act. Such money lending against a promissory note without a licence is prohibited under Section 4 of the Maharashtra Act and such loan is not enforceable under Section 13 of the Maharashtra Act. Consequently, 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.
7. This Court in MA No. 1176/2026 in SLP (Crl.) No.5485/2024, vide order dated 06.04.2026 (Annexure A-8), has held thus in paragraphs 4 and 5:
“4. It is pertinent to note that for unlicensed money lending against the promissory notes, whether accompanying with any other security such as cheque, title deeds or not, there already exists a Statutory Bar in State Money Lending Law. There is also a bar of “Dam Dupat” even under a money-lending licence i.e. against charging interest more than the principal amount actually disbursed. There is a further statutory disability against enforceability of such loan amount by unlicensed money lender. Moreover, such money lending is a punishable offence under the State Money-Lending Law.
5. Therefore, 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.”
8. It is to be noticed that this Court has already observed in paragraph 11 of the judgment dated 26.05.2026 the principal contention of the parties seeking quashment of the proceedings before the High Court and in this Court, and there was no occasion for this Court to examine and render a finding on the applicability of the Tamil Nadu Act or the Maharashtra Act, as the case may be. 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. Since the judgment dated 26.05.2026 has not dealt with the provisions of the Tamil Nadu Money-lenders Act, 1957 or the Maharashtra Money-Lending (Regulation) Act, 2014, the clarification, as sought for, is not required and the parties would be at liberty to raise the issue before the concerned Trial Court or the superior Courts.
9. With the above observations, IA No.183707 of 2026 seeking clarification is disposed of.
10. The Miscellaneous Application stands disposed of accordingly.
Notes:
11 For short, ‘the NI Act
2 For short, ‘the Maharashtra Act’
3 For short, ‘the Tamil Nadu Act’
