A) ABSTRACT / HEADNOTE

The present analysis examines Rajendra Anant Varik v. Govind B. Prabhugaonkar (Criminal Appeal No. 2476 of 2025), decided by the Supreme Court of India on 06 May 2025, where the central dispute concerned conviction under Section 138 of the Negotiable Instruments Act, 1881 and whether the complainant’s unlicensed money-lending activity under the Goa Money-Lenders Act, 2001 operated as a bar to prosecution.

The trial Court convicted the accused for bouncing a cheque and awarded compensation and costs. The First Appellate Court reversed that conviction on the ground that the complainant was engaged in money-lending without statutory licence, thereby disentitling him from prosecuting under the NI Act. The High Court, however, set aside the acquittal and restored the conviction and sentence. Before the Supreme Court the accused-appellant challenged the High Court order.

The Supreme Court found that the High Court failed to address the applicability of the Goa Act, which could constitute a valid defence for the accused; it further noted that the accused had paid the cheque amount and the court-imposed costs. Exercising powers under Article 142 of the Constitution, the Court compounded the offence and acquitted the accused subject to payment of the amounts already deposited.

This judgment highlights procedural and substantive interplay between regulatory statutes governing money-lending and the penal provisions of the NI Act, underscores the remedial flexibility of Article 142 to achieve justice where monetary restitution has been made, and demonstrates judicial care in assessing whether a charging party’s statutory non-compliance can vitiate a prosecution under a distinct penal code.

Keywords: Negotiable Instruments Act, 1881; Goa Money-Lenders Act, 2001; Section 138; Article 142; compounding of offence; acquittal; restitution; appellate interference.

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The dispute arises from a cheque dishonour matter prosecuted under Section 138 of the Negotiable Instruments Act, 1881, a statutory provision designed to ensure credibility of commercial payments by penalising dishonour of cheques issued for discharging debt or liability. The complainant alleged presentation and dishonour of a cheque for Rs. 2,00,000/-.

At trial the Judicial Magistrate convicted the accused and directed payment of the cheque amount and additional costs; on appeal the Sessions Court (First Appellate Court) allowed the accused’s appeal and acquitted him, reasoning that the complainant was conducting money-lending activity in contravention of the Goa Money-Lenders Act, 2001 and therefore could not maintain a prosecution under the NI Act.

The High Court reversed that acquittal and restored the trial conviction and orders for compensation and costs. The accused obtained special leave to appeal to the Supreme Court. The Supreme Court’s engagement required attention to two intertwined legal strands: first, whether the statutory licensing requirement and related bar under the Goa statute render the complainant incompetent to prosecute or otherwise disentitle him under Section 138; second, whether equitable considerations restitution of the cheque amount plus costs already paid by the accused permit compounding of the offence under Article 142 as a remedial device to do complete justice.

The case therefore sits at the intersection of statutory interpretation, the public-private dimension of regulatory non-compliance by a complainant, and the remedial jurisdiction of the apex Court to mould relief where pecuniary reparation has been effected. The Supreme Court emphasised that the High Court’s order did not adequately consider the First Appellate Court’s reasoning about the Goa Act applicability and that given the factual matrix of restitution, compounding under Art.142 was appropriate.

The factual backdrop—timelines of loan advances (January 2012 to July 2013), payment history, and deposit of sums by the accused—was central to the Court’s exercise of discretion.

D) FACTS OF THE CASE

The factual narration, as available on record, indicates that between January 2012 and July 2013 the accused had taken loans from the complainant and issued a cheque for Rs. 2,00,000/- which was subsequently dishonoured. The complainant initiated prosecution under Section 138, NI Act, and the trial Court found the ingredients of the offence satisfied issuance of cheque, presentation within statutory period, dishonour on presentation, demand and refusal culminating in conviction, compensation and costs.

On appeal the accused pleaded that the complainant had been conducting money-lending operations without acquiring the requisite licence under the Goa Money-Lenders Act, 2001, and that this illegality disentitled the complainant from prosecuting under Section 138. The First Appellate Court accepted those contentions and acquitted the accused, reasoning that a person acting in breach of the regulatory scheme could not derive advantage from the same to sustain criminal proceedings under the NI Act.

The High Court, on review, set aside that acquittal and restored the trial conviction. During the Supreme Court proceedings the accused’s counsel produced material and submissions showing that the accused had repaid the cheque amount with interest and had also paid the trial Court’s directed fine of Rs. 30,000/-. The complainant did not appear before the Supreme Court despite service of notice.

The chronology therefore is: issuance and dishonour of cheque; trial conviction; appellate acquittal on statutory-licence ground; High Court reversal; Supreme Court scrutiny; and ultimate resolution by compounding on account of restitution. The record also reflects the First Appellate Court’s emphasis on statutory licensing as a complete defence in the specific facts, a fact the High Court did not sufficiently engage with.

The payment of Rs. 2,30,000/- by the accused is a critical factual development that the Supreme Court treated as determinative for invoking Article 142 remedial powers.

E) LEGAL ISSUES RAISED

i. Whether the complainant’s unlicensed money-lending activity under the Goa Money-Lenders Act, 2001 disentitles him from prosecuting an accused under Section 138 of the Negotiable Instruments Act, 1881?
ii. Whether the High Court was justified in reversing the First Appellate Court’s acquittal without adequately addressing the applicability of the Goa Money-Lenders Act as a defence?
iii. Whether restitution of the cheque amount and payment of court-imposed costs by the accused justifies compounding the offence and acquitting the accused under the remedial powers of Article 142 of the Constitution?
iv. What standard should appellate courts apply when a complainant’s regulatory non-compliance intersects with criminal prosecution under the NI Act?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for Petitioner/Appellant submitted that the accused had returned the entire loan amount advanced by the complainant between January 2012 and July 2013, together with interest, and had also deposited the fine and compensation amount imposed by the trial Court.

They urged that where restitution has been made in full, the criminal element underlying Section 138 has been effectively neutralised and the Court should accept compounding or acquittal in light of complete reparation. The appellant further argued that the First Appellate Court was correct in holding that the complainant had been engaged in money-lending without the statutory licence mandated by the Goa Money-Lenders Act, 2001, and that such regulatory breach provided a valid legal defense which the High Court failed to consider.

Counsel stressed that such statutory non-compliance by a complainant weakens his entitlement to prosecute and that the High Court’s order reversing the acquittal was made without adjudicating that defence.

Lastly, appellant’s counsel urged that given the absence of any appearance by the complainant before the Supreme Court and the payment already made, the interest of justice and judicial economy favoured compounding under Article 142 and final closure of the dispute.

G) RESPONDENT’S ARGUMENTS

The counsels for Respondent submitted that the complainant had the right to prosecute for dishonour of cheque under Section 138 NI Act and that regulatory non-compliance, if any, under the Goa Money-Lenders Act did not automatically extinguish the criminal cause of action. It was argued that the High Court was justified in reversing the appellate acquittal because the First Appellate Court’s reasoning unduly conflated civil regulatory non-compliance with criminal prosecutorial competence under the NI Act.

The respondent’s counsel would have maintained that public policy considerations, deterrence and statutory purpose of Section 138 require courts to hold persons accountable even where parallel regulatory lapses exist. However, no one appeared on behalf of the respondent before the Supreme Court, and thus the Court considered respondent arguments only as reflected in earlier orders.

The absence of respondent appearance effectively limited contest on the factual claim of restitution and the legal contention regarding the effect of the Goa Act.

H) JUDGEMENT

The Supreme Court examined the procedural history and substantive contentions, and found that the High Court’s reversal of the First Appellate Court’s acquittal did not adequately grapple with the critical issue of applicability of the Goa Money-Lenders Act, 2001, which the First Appellate Court had relied upon as a valid defence.

The bench noted that the First Appellate Court had grounded its acquittal on the complainant’s engagement in unlicensed money-lending and that such illegal conduct could, in the facts of the case, preclude him from deriving advantage by prosecuting under Section 138.

The Supreme Court held that the High Court had overlooked this determinative legal facet. Importantly, the Court recorded that the accused had already paid the cheque amount and the fine/costs imposed by the trial Court totaling Rs. 2,30,000/- and that the complainant had failed to appear and contest before the Supreme Court.

Given these interlocking elements the First Appellate Court’s statutory-licence based acquittal, the High Court’s omission to address that defence, the restitution by the accused, and the respondent’s non-appearance the Supreme Court exercised its constitutional power under Article 142 to compound the offence.

The remedy fashioned required that the deposited amount be paid to the complainant (if not already paid) and resulted in acquittal of the accused under Section 138 NI Act on the stated condition. The Court thereby allowed the appeal. The judgment underscores judicial responsibility to examine relevant statutory bars and to consider restitution as a material circumstance in assessing appropriate relief; it also demonstrates the apex Court’s willingness to employ Article 142 to effectuate complete justice where monetary restitution has been made and where appellate inconsistency arises from material oversight.

a. RATIO DECIDENDI

The operative ratio of the Supreme Court rests on two propositions.

First, when a complainant is engaged in regulated activity that requires a licence and prosecutes in breach of that statutory scheme, a court must examine whether that breach operates as a legal bar or defence against prosecution under other statutes, particularly where the regulatory breach is material to the right to sue or to claim relief.

Second, where the accused has made full restitution of the pecuniary liability (cheque amount plus court-imposed costs), and where the respondent has not actively pursued the matter on appeal, the apex Court may, in exercise of its plenary remedial power under Article 142, compound the offence and acquit the accused upon appropriate conditions to achieve complete justice.

The Court thereby binds lower courts to interrogate the interplay between regulatory statutes like the Goa Money-Lenders Act and penal statutes like the NI Act, and confirms that restitution materially affects the criminal remedy under Section 138, enabling compounding under constitutional powers when justice so demands. The ratio combines statutory interpretation of competing regimes with equitable application of constitutional remedial authority.

b. OBITER DICTA

In obiter observations the Supreme Court emphasized the need for courts at all levels to examine whether complainants who approach criminal courts have themselves complied with statutory mandates governing their commercial activities.

The Court noted that regulatory non-compliance by a complainant may not automatically nullify criminal proceedings in every circumstance but is a matter that warrants careful judicial scrutiny because public policy and statutory purposes may cut both ways. The bench also observed that Article 142 is a potent tool to compel finality where pecuniary restitution has been effected and where further punishment would serve little ameliorative purpose.

The Court implied that exercise of Art.142 should be sparing, fact-sensitive and conditioned on demonstrable restitution, and that appellate courts should avoid reversals that ignore material defences rooted in statutory schemes. These obiter comments guide judicial temperament: a balance between deterrence under Section 138 and equitable resolution where the victim has been made whole and the complainant’s own statutory breach complicates entitlement to prosecute.

c. GUIDELINES 

1. Trial and appellate courts must examine any claim that a complainant has engaged in regulated activity without statutory licence; such regulatory non-compliance should be assessed to determine if it constitutes a defence or disentitlement to prosecute under related penal provisions.

2. When the accused makes full restitution of the cheque amount and court-ordered costs, courts should treat restitution as a material circumstance in deciding whether to impose punishment or to entertain compounding or acquittal.

3. Appellate reversal of acquittal must transparently address all material defences relied upon by lower courts, failing which the appellate order may be vulnerable to interference.

4. Article 142 may be invoked by the Supreme Court to compound offences where monetary reparation has been made and the ends of justice are satisfied, but such exercise must be conditioned (for example by directing payment to the complainant and recording the factual basis for compounding).

5. Courts should guard against mechanical application of deterrence principles under Section 138 when restitution and statutory irregularities by complainants remove the raison d’être for punitive sanction.

6. The non-appearance of the complainant before appellate forums is relevant to the exercise of equitable relief and may inform the decision to compound.

---

I) CONCLUSION & COMMENTS

This case reinforces the judiciary’s dual duty: to uphold statutory penal norms that preserve commercial trust and to ensure that regulatory breaches by complainants do not permit exploitation of criminal processes. The Supreme Court’s decision to compound the offence under Article 142 is rooted in the twin factual pillars of restitution and the First Appellate Court’s valid statutory-licence based defence, which the High Court failed adequately to address. Practically, the judgment signals to lower courts that technical reversal of acquittal without engaging all material defences is vulnerable to correction. It also signals to parties that restitution can have decisive legal consequences in cheque dishonour matters, potentially neutralising penal consequences where the victim has been made whole. Nonetheless, caution is warranted: compounding should not become a backdoor to subverting Section 138’s deterrent purpose where restitution is partial or contested, or where complainant wrongdoing is immaterial to prosecutorial entitlement. Future litigants and courts in states with licence regimes for money-lenders should closely examine the statutory architecture to determine whether and when a complainant’s regulatory breach precludes criminal prosecution. Finally, the judgment illustrates the measured, fact-sensitive deployment of Article 142 as an instrument of finality and justice in commercial criminal disputes.

J) REFERENCES

a. Important Case Referred
Rajendra Anant Varik v. Govind B. Prabhugaonkar, Criminal Appeal No. 2476 of 2025, [2025] 6 S.C.R. 303 (Supreme Court of India, May 6, 2025).

b. Important Statutes Referred
Negotiable Instruments Act, 1881; Goa Money-Lenders Act, 2001; Code of Criminal Procedure, 1973; Constitution of India, Article 142.