The Supreme Court allowed the criminal appeal, setting aside the High Court’s conviction under Section 138 of the Negotiable Instruments Act, 1881, and acquitted the accused. The Court held that the Goa Money-Lenders Act, 2001 provided a valid defense, as the complainant engaged in unlicensed money-lending. Exercising powers under Article 142 of the Constitution, the Court compounded the offence, noting full repayment of the cheque amount and compensation. The judgment underscores that statutory violations by complainants can vitiate prosecutions under the NI Act.
Facts Of The Case:
The case arose from a cheque dishonour complaint filed by respondent Govind Prabhugaonkar against appellant Rajendra Varik under Section 138 of the Negotiable Instruments Act, 1881. The trial court convicted Varik in 2016, sentencing him to pay ₹2 lakhs as compensation and ₹30,000 in costs, with a default imprisonment clause. Varik appealed to the Sessions Court (South Goa), which acquitted him in 2017, ruling that Prabhugaonkar violated the Goa Money-Lenders Act, 2001 by operating as an unlicensed moneylender, thus barring his complaint. The Bombay High Court (Goa Bench) overturned this acquittal in 2023, reinstating the trial court’s conviction.
Varik approached the Supreme Court, arguing he had already repaid the cheque amount with interest and highlighting the complainant’s breach of the Goa Act. The Supreme Court noted the High Court’s failure to consider the statutory defense under the Goa Act and the appellant’s full repayment. Invoking Article 142, it compounded the offence, acquitted Varik, and directed the deposited ₹2.3 lakhs (if unpaid) to be released to the complainant. The judgment turned on the illegality of unlicensed money-lending as a valid defense in NI Act cases and the Court’s discretionary power to ensure complete justice.
Procedural History:
The procedural history of the case traces a judicial pendulum swing across four tiers of courts. Initiated as Criminal Case No. 29/NI/2014 before the Judicial Magistrate First Class, Canacona, the trial court convicted the appellant on 5th August 2016 under Section 138 of the Negotiable Instruments Act, imposing compensation and costs. The appellant appealed to the Sessions Court, South Goa (First Appellate Court), which in its 2017 judgment overturned the conviction, recognizing the complainant’s violation of the Goa Money-Lenders Act, 2001 as a statutory defense. The respondent then approached the Bombay High Court (Goa Bench), which in its 2023 judgment reversed the acquittal, reinstating the trial court’s conviction while ignoring the Goa Act’s applicability. The appellant’s Special Leave Petition (SLP) No. 4728 of 2023 before the Supreme Court culminated in the 2025 judgment, which critiqued the High Court’s oversight of the statutory defense, compounded the offence under Article 142, and acquitted the appellant upon confirming repayment. The Supreme Court’s intervention underscored the hierarchical scrutiny of statutory defenses and the apex court’s authority to balance technical compliance with substantive justice.
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Court Observation:
The Supreme Court made critical observations while allowing the appeal. It emphasized that the High Court erred by overlooking the statutory defense under Section 10 of the Goa Money-Lenders Act, 2001, which prohibits unlicensed money-lending activities and bars such complainants from initiating proceedings under Section 138 of the NI Act. The Court noted that the First Appellate Court correctly applied this legal shield to acquit the appellant, as the complainant’s unlicensed lending vitiated the prosecution’s legitimacy.
The bench highlighted that the appellant had already repaid the cheque amount (₹2 lakhs) and compensation (₹30,000), fulfilling the substantive obligation. Invoking Article 142 of the Constitution, the Court compounded the offence to secure “complete justice,” balancing technical compliance with equitable resolution. It underscored that judicial discretion under Article 142 could override procedural rigidities to prevent undue hardship, especially when the appellant demonstrated bona fide repayment.
Additionally, the Court observed that the High Court’s reversal of acquittal was mechanically done without examining the Goa Act’s implications, violating the principle that appellate courts must justify overturning factual findings. The judgment reaffirmed that statutory violations by complainants can invalidate NI Act prosecutions, promoting fairness in commercial disputes. The ruling also implicitly cautioned courts to scrutinize money-lending licenses in cheque bounce cases to prevent abuse of the legal process.
Ultimately, the Court prioritized substantive justice over procedural formality, setting a precedent for cases where technical defaults are mitigated by subsequent restitution. The observations reinforced the judiciary’s role in harmonizing statutory mandates with equitable outcomes.
Final Decision & Judgement:
The Supreme Court delivered a decisive judgment, allowing the appeal and acquitting the appellant of charges under Section 138 of the Negotiable Instruments Act. The Court emphasized that the complainant’s failure to comply with the Goa Money-Lenders Act, 2001 – by operating without a valid license – constituted a complete defense against the prosecution. This statutory violation fundamentally undermined the legal basis of the complaint. Recognizing that the appellant had already repaid the entire cheque amount of ₹2 lakhs plus ₹30,000 in compensation, the Court exercised its extraordinary powers under Article 142 of the Constitution to compound the offence, achieving a just resolution.
The judgment reinforced critical legal principles: first, that statutory protections like the Goa Money-Lenders Act serve as absolute bars to prosecution when violated; second, that appellate courts must carefully consider such substantive defenses before reversing acquittals; and third, that the Supreme Court’s authority under Article 142 allows for equitable solutions where technical violations are mitigated by subsequent restitution. The Court directed the release of the deposited funds to the complainant, bringing finality to the dispute while establishing important safeguards against abuse of the cheque dishonour provisions. This ruling balances strict statutory compliance with principles of fairness, ensuring that legal technicalities do not override substantive justice.
Case Details:
Case Title: Rajendra Anant Varik vs. Govind B. Prabhugaonkar Citation:2025 INSC 633 Criminal Appeal No.: (Arising out of SLP (Cri.) No(s). 4728 of 2023) Date of Judgment: 6th May 2025 Judges/Justice Name: Hon'ble Mr. Justice Vikram Nath & Hon'ble Mr. Justice Sandeep Mehta
Download The Judgement Here