The Supreme Court has held that an interest-bearing loan advanced against a promissory note by an unlicensed money lender in Maharashtra does not constitute a legally enforceable debt for the purpose of Section 138 of the Negotiable Instruments Act, 1881.

The Bench of Justice Prashant Kumar Mishra and Justice N.V. Anjaria observed that a money lender in Maharashtra initiating cheque dishonour or recovery proceedings must produce a money-lending licence at the threshold to satisfy the court.

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The observations came while disposing of an application seeking clarification of the Court’s May 26, 2026 judgment in M/s Mansi Finance (Chennai) Ltd. v. M. Lalitha & Others. The Court held that no clarification of that judgment was necessary because it had not examined the provisions of the relevant State money-lending laws. It left the parties free to raise the issue before the trial court or superior courts.

The original appeal arose from proceedings under Sections 138 and 141 of the Negotiable Instruments Act.

The complainant had extended loans to the accused persons, who executed promissory notes in its favour. Cheques subsequently issued towards repayment were dishonoured, leading to criminal proceedings.

Certain accused approached the High Court seeking quashing of the complaint. They contended, among other grounds, that they were neither signatories to the cheques nor responsible for the day-to-day affairs of the society concerned. They also argued that the complaint lacked the foundational averments necessary to attract vicarious liability under Section 141.

The High Court quashed the proceedings. However, the Supreme Court, through its May 26 judgment, partly allowed the complainant’s appeal and restored the proceedings against three of the four accused who had approached the High Court.

Applicant Sought Clarification On Maharashtra Money-Lending Law

The clarification application was filed by Vyomesh Mahipatray Shah, who sought to distinguish the statutory position in Maharashtra from that in Tamil Nadu.

The applicant submitted that the Tamil Nadu Money-lenders Act, 1957 excludes advances made on the basis of negotiable instruments from its scope. In contrast, the Maharashtra Money-Lending (Regulation) Act, 2014 does not exclude an interest-bearing advance against a promissory note from the definition of a loan.

According to the applicant, such lending in Maharashtra remains subject to the licensing requirement even where the promissory note is accompanied by a cheque or other security.

The applicant expressed concern that the May 26 judgment, which involved loans supported by promissory notes, could be treated as having application across India without accounting for differences between State money-lending laws.

He accordingly sought clarification that proceedings initiated by unlicensed money lenders in Maharashtra would remain governed by the applicable statutory restrictions and the Supreme Court’s earlier order dated April 6, 2026.

Intervenor Opposed Clarification Application

Ashok Commercial Enterprises, appearing as an intervenor, opposed the application.

It argued that the May 26 judgment required no clarification and that the court dealing with an individual dispute must examine the judgment’s ratio and apply it to the particular facts and circumstances.

Promissory Note Loans Remain Subject To Maharashtra Act

Examining Section 2(13)(j) of the Maharashtra Act, the Supreme Court noted that the exclusion relating to advances on negotiable instruments expressly contains the qualification “other than a promissory note”.

Consequently, an interest-bearing advance against a promissory note is not excluded from the Maharashtra Act and remains a loan governed by that legislation.

The Bench observed that lending against a promissory note without a licence is prohibited under Section 4, while Section 13 renders such a loan unenforceable.

It therefore held that, in Maharashtra, such a debt is not a legally enforceable debt for the purpose of the Explanation to Section 138 of the Negotiable Instruments Act.

The Court stated, “the money lender in the State of Maharashtra has to produce a licence to satisfy the Court at the threshold.”

This requirement, the Bench explained, applies to proceedings instituted for dishonour of a cheque as well as recovery proceedings.

The Bench also referred to its April 6, 2026 order in MA No. 1176/2026 in SLP (Crl.) No. 5485/2024. That order had recognised the statutory bar concerning unlicensed money lending against promissory notes, regardless of whether the transaction was accompanied by additional security such as cheques or title deeds.

It had further referred to the restriction described as “Dam Dupat”, concerning interest exceeding the principal amount actually disbursed, and the statutory disability affecting enforcement of loans advanced by unlicensed money lenders.

The earlier order required courts to address such civil or criminal proceedings at the outset unless the lender produced a money-lending licence or demonstrated that the money had not been advanced at interest.

The Supreme Court clarified that its May 26 judgment had addressed the grounds on which the accused sought quashing of the cheque dishonour proceedings. There had been no occasion in that appeal to examine or decide the applicability of either the Tamil Nadu Act or the Maharashtra Act.

Accordingly, the earlier judgment did not resolve the separate question of whether a loan was unenforceable under Maharashtra’s money-lending legislation.

The Bench held that where a party raises a plea that Section 13 bars recovery because an unlicensed money lender advanced a loan involving a promissory note in Maharashtra, the concerned court must examine that contention on its own merits.

This includes considering whether the underlying loan constitutes a legally enforceable debt under the Explanation to Section 138.

The Court concluded that the clarification sought was unnecessary because the May 26 judgment had not dealt with either State’s money-lending legislation.

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