INTRODUCTION
In a significant judgment, the Supreme Court clarified that the validity of a loan transaction cannot be negated solely on the ground that a portion of it was disbursed in cash without supporting documentation. The ruling came in response to a dispute where the lower courts had selectively acknowledged only the loan amount transferred through a banking channel, ignoring the portion advanced in cash in spite of the existence of a validly executed promissory note.
Background of the Dispute:
The matter arose when a loan worth ₹30.8 lakhs was advanced by the lender, of which ₹22 lakhs were transferred through banking channels and ₹8.8 lakhs were given in cash. While the borrower had executed a promissory note acknowledging the full amount, the High Court reduced the accepted loan liability to ₹22 lakhs, entirely disregarding the cash component on the ground that it lacked documentary proof.
The lender contended that the signed promissory note itself was sufficient evidence of the full loan advanced, including the cash amount. It was argued that the High Court’s approach of rejecting the cash portion was contrary to established principles of evidence law, particularly when the borrower had acknowledged the entire sum.
Supreme Court’s Observations
The Supreme Court set aside the High Court’s finding and restored the position that the entire loan amount of ₹30.8 lakhs stood valid in law. The Court made several key observations:
- Merely because a part of a monetary transaction is conducted in cash, it does not mean it cannot be legally recognized.
- A promissory note executed by the debtor, acknowledging the total debt, is a binding document and represents strong evidence of the transaction.
- The mere lack of supporting documents such as receipts, vouchers, or bank statements does not, in itself, negate the validity of a cash loan.
- Courts must acknowledge that in real-life scenarios, certain transactions may necessarily take place in cash, and the law cannot ignore such commercial practices.
The bench reiterated that the burden on courts is to interpret evidence pragmatically, without unjustified insistence on documentation in cases where a valid legal instrument admits the transaction.
Legal Principle Reinforced.
The decision reinforces the principle that documentary proof, while important, is not the exclusive means of establishing a financial transaction. Section 482 of the Code of Criminal Procedure, along with its corresponding provision under the Bharatiya Nagarik Suraksha Sanhita (BNSS), highlights the High Courts’ inherent supervisory authority in addressing such disputes. The Supreme Court underlined the need for cautious exercise of such powers, ensuring that technicalities do not overshadow substantive justice.
This ruling also underscores the evidentiary value of promissory notes. As long as they are validly executed and signed, they can form a strong basis for recognizing the entirety of a loan, regardless of the mode of disbursement.
Conclusion
The Supreme Court’s ruling makes it clear that loan transactions cannot be selectively recognized based only on banking records while ignoring cash components that are duly acknowledged through promissory notes. By restoring the validity of the entire loan, including the cash portion, the judgment provides much-needed clarity on the recognition of mixed-mode financial dealings. It affirms that while digital and banking transactions are preferable for transparency, the absence of such records does not erase genuine cash dealings when supported by credible evidence like promissory notes. This balanced approach safeguards the interests of lenders while upholding the integrity of commercial practices in India.
