Raj Kumar Santoshi Vs Prashant Malik (Supreme Court of India)
Summary: The Supreme Court of India and the Delhi High Court, in the connected proceedings of Raj Kumar Santoshi Vs Prashant Malik, examined important questions concerning unlicensed money lending, dishonour of security cheques, enforceability of loan transactions, statutory restrictions on excessive interest and the availability of criminal and civil remedies. The litigation originated from a complaint involving dishonoured cheques under Section 138 of the Negotiable Instruments Act, 1881. While the Delhi High Court initially declined to quash the criminal proceedings on the ground that the cheques were allegedly issued as security, the Supreme Court subsequently considered the wider problem of unauthorised money lending. Although the parties eventually settled their individual dispute, the Supreme Court’s proceedings resulted in significant observations concerning the continuing application of existing State money-lending laws and the need to prevent their circumvention through promissory notes, cheques or other securities.
The dispute before the Delhi High Court arose when Raj Kumar Santoshi challenged the summoning order dated 24 August 2021 and subsequent proceedings in Complaint Case No. 19199 of 2019, titled Prashant Malik Vs Raj Kumar Santoshi, pending before the Metropolitan Magistrate, North-West Delhi, Rohini. The petition was filed under Section 482 of the Code of Criminal Procedure, 1973. The petitioner argued that the cheques issued by him were merely security cheques and that the criminal complaint should not continue. He also challenged repeated costs imposed by the trial court, explaining that he had undergone surgery and was unable to attend the proceedings. His medical condition had also been considered by the High Court while granting him exemption from personal appearance.
By its order dated 14 March 2024, the Delhi High Court rejected the contention that the description of a cheque as a security cheque, by itself, justified quashing the complaint. Relying upon the Supreme Court’s decision in Sunil Todi v. State of Gujarat & Anr., 2021 SCC OnLine SC 1174, the Court observed that the defence of a security cheque must be established through evidence during trial. Since the complaint had already reached the stage of final arguments, the Court found no ground to interfere with the criminal proceedings. However, it granted limited relief by setting aside the costs of Rs.25,000 imposed by the trial court, taking into account the petitioner’s inability to appear due to his medical condition. Thus, the petition was dismissed insofar as the challenge to the criminal proceedings was concerned, while relief was granted against the costs.
The petitioner subsequently approached the Supreme Court in SLP (Criminal) No. 5485 of 2024. According to the Supreme Court’s order dated 16 February 2026, the respondent had agreed to advance certain money to the petitioner, out of which Rs.35,00,000 was actually paid. The petitioner appeared to have acknowledged receipt of that amount, and a cheque issued towards repayment of part of the money was dishonoured. During the pendency of the proceedings, the parties entered into a settlement dated 4 November 2025, which was brought on record through I.A. No. 281483 of 2025. Under the settlement, the petitioner agreed to pay Rs.45,00,000 in nine equal instalments of Rs.5,00,000 each. In view of the settlement, the Supreme Court closed the matter and the criminal complaints pending before the trial court. The Court also held that the petitioner was not required to deposit Rs.35,00,000 as earlier directed by its order dated 6 October 2025.
However, the Supreme Court had separately taken suo motu cognisance of the wider problem of unlawful money lending through its order dated 23 July 2024. The Court expressed serious concern about private money lenders advancing money at exorbitant rates of interest, often against securities such as cheques or title deeds. It described the exploitative conduct of such lenders as a Shylockian attitude that could not be permitted to continue unabated. The Union of India and the National Capital Territory of Delhi were impleaded in the proceedings. The Court also referred to the traditional principle of Dam Dupat, under which interest cannot exceed the principal amount actually disbursed. The Union of India informed the Court that the Government was inclined to introduce legislation to control unauthorised money lending and that a draft Bill had been prepared and circulated to the States and Union Territories for consideration.
On 16 February 2026, the Supreme Court observed that the proposed legislation or guidelines had not yet been placed on record and that the necessary legislative measures would have to be undertaken by the respective States or Union Territories. In view of the stand taken by the Union of India, the Court closed its suo motu proceedings while expressing the expectation that the States and Union Territories would enact fair and effective legislation to strictly regulate unauthorised money lending. This direction was subsequently interpreted in some quarters as suggesting that no effective law against unauthorised money lending existed and that proceedings involving such activities would have to await new legislation. An applicant or intervenor therefore sought clarification of the order dated 16 February 2026 through Miscellaneous Application No. 1176 of 2026.
In its clarification order dated 6 April 2026, the Supreme Court categorically explained that the expectation of future legislation did not mean that existing statutory restrictions had ceased to operate. The Court observed that State money-lending laws already contained statutory prohibitions against unlicensed money lending undertaken against promissory notes, whether or not accompanied by cheques, title deeds or other securities. The Court further noted that even licensed money lenders were subject to the principle of Dam Dupat, which restricts the charging of interest beyond the principal amount actually disbursed. Existing State laws also impose statutory disabilities concerning the enforceability of loans advanced by unlicensed money lenders and prescribe punishment for unlawful money-lending activities.
The Supreme Court consequently observed that courts should ensure that civil or criminal proceedings instituted by private money lenders are stopped at the threshold unless the lender produces a money-lending licence or demonstrates that the money was not advanced at interest. The clarification was directed towards ensuring that existing statutory restrictions are effectively enforced and are not rendered ineffective merely because additional legislation is under consideration. The observations must be applied with reference to the particular State money-lending law governing the transaction, including its definitions, prohibitions, exclusions and consequences for enforceability.
The Court further clarified that any person aggrieved by the failure to apply these statutory protections could pursue the correctional or appellate remedies available under law. Such proceedings must be decided on their own merits and cannot be deferred on the ground that further legislation is awaited. Likewise, investigation of offences punishable under the applicable State money-lending law or under the Indian Penal Code, 1860 or Bharatiya Nyaya Sanhita, 2023 need not await fresh legislation. The Supreme Court accordingly disposed of the miscellaneous application, making clear that its earlier order dated 16 February 2026 did not suspend or postpone the operation of existing legal remedies.
The combined legal significance of the proceedings lies in the distinction between the evidentiary defence of a security cheque and the statutory enforceability of the underlying lending transaction. The Delhi High Court held that the mere assertion that a cheque was issued as security must be tested through trial evidence and does not automatically justify quashing a prosecution under Section 138. The Supreme Court’s subsequent clarification separately emphasised that courts must examine existing statutory prohibitions against unlicensed money lending and should not permit proceedings contrary to the applicable money-lending laws to continue merely because cheques, promissory notes or other securities have been obtained. The decisions therefore address different but connected aspects of cheque dishonour litigation: the evidentiary character of the cheque, the existence of a legally enforceable liability and the effect of statutory restrictions on unauthorised money lending. The Supreme Court’s clarification preserves existing civil, criminal, investigative and appellate remedies while leaving their application to the merits of individual cases.
Related Delhi High Court Proceedings: In Raj Kumar Santoshi Vs Prashant Malik, the Delhi High Court held that a security cheque defence must be examined during trial and declined to quash the cheque dishonour proceedings merely on that ground.
Cases Discussed
1. Sunil Todi & Ors. Vs State of Gujarat & Anr. (Supreme Court of India); Criminal Appeal Nos. 1446-1447 of 2021; 2021 SCC OnLine SC 1174; Decision Date 03.12.2021. The Delhi High Court expressly relied on this decision for the principle that the defence concerning a security cheque must be established on the basis of evidence. The precedent addresses the circumstances in which a cheque originally issued as security may attract liability under Section 138 of the Negotiable Instruments Act, depending upon the existence of a legally enforceable debt or liability when the cheque is presented.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER DATED 06.04.2026
1. Heard learned counsel for the parties.
2. The applicant or intervenor seeks clarification of the order dated 16.02.2026 passed in the Suo Moto action in the instant Special Leave Petition in context with the IA No. 275244 of 2024 and IA No. 37566 of 2026. The said order reads as under:
“In view of the stand taken by the Union of India before us, we direct for the closure of the suo moto action taken by this Court and expect for a fair and proper legislation by all States/Union Territories to strictly check the unauthorised business of money lending.”
3. The aforesaid order is being construed as if no law exists with regard to money lending and therefore, all actions have to await for the new enactment.
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.
6. If the intervenor apprehends that such course is not followed in his case, all correctional or appellate remedies in law are always open for him which would be decided on their own merits, notwithstanding the awaited legislation by the respective States/Union Territories referred in Order dated 16.02.2026 passed by the Court in SLP (Crl.) 5485/2024.
7. Similarly, commencement of investigation of any offence punishable under State Money-lending law by any unlicensed money lender and under Indian Penal Code, 1860/Bharatiya Nyaya Sanhita, 2023 shall also not await the legislation by the respective States/Union Territories referred in the Order dated 16.02.2026 passed by the Court in SLP (Crl.) 5485/2024.
8. The Miscellaneous Application is disposed of, in the above terms.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER DATED 16.02.2026
1. Heard learned counsel for the parties.
2. This is a petition arising from a complaint initiated under Section 138 of the Negotiable Instruments Act, 1881.
3. It appears that the respondent agreed to advance certain amount to the petitioner out of which only Rs.35,00,000/- were paid. The petitioner appears to have acknowledged having received it. A cheque issued by the petitioner to return part of the aforesaid amount, appears to have been dishonored.
4. During the pendency of this matter, the parties have entered into a settlement which has been brought on record by means of an application, i.e. I.A. No.281483 of 2025. The Settlement is dated 04.11.2025. Under the said settlement, an amount of Rs.45,00,000/- is agreed to be paid by the petitioner in nine equal instalment of Rs.5,00,000/- each.
5. In view of the above settlement, nothing survives for adjudication in this matter. The matter stands closed in terms of the Settlement. Accordingly, the criminal complaint(s) pending before the Trial Court are also closed.
6. The petitioner need not deposit a sum of Rs.35,00,000/- as ordered vide order dated 06.10.2025.
7. The order sheet reveals that this Court on 29.11.2024 had observed that nothing survives in the Special Leave Petition and the said Special Leave Petition1 stands dismissed as infructuous.
8. Besides above, it appears that the Court took suo moto action vide order dated 23.07.2024 so as to check the menace of the unlawful money lenders operating in the Society.
9. The Court observed that Shylockian attitude of such money lenders cannot be permitted to continue unabated. Accordingly, Union of India and NCT of Delhi were impleaded as party respondents.
10. On the last occasion, learned counsel appearing for the Union of India informed the Court that Government is inclined to bring about a legislation to control the meance of unlicensed money lending, that too at an exorbitant rate of interest which is completely unethetical to our ancient principle of ‘Damdupat’.
11. However, till date, no such legislation or any guidelines in this regard have been placed on record.
12. It has been informed that a draft bill in this regard has been prepared and is in circulation with the respective States/Union Territories as the necessary legislation has to be brought about by the States/Union Territories.
13. In view of the stand taken by the Union of India before us, we direct for the closure of the suo moto action taken by this Court and expect for a fair and proper legislation by all States/Union Territories to strictly check the unauthorised business of money lending.
14. Pending application(s), if any, shall stand disposed of.
The matter stands closed/disposed of in terms of the Settlement, in terms of the signed order. Pending application(s), if any, shall stand disposed of.
1 SLP (Civil) No.22548 of 2024. ↩
