The Supreme Court of India has ruled that cash transactions cannot be disregarded solely because they lack bank records. In a recent judgment, a bench of Justices Ahsanuddin Amanullah and Vipul M. Pancholi clarified that the absence of documentary proof, such as bank transfers or negotiable instruments, does not automatically discredit a cash transaction if there is a clear statement that money was indeed paid. The court emphasized that it is common for cash to be involved in financial dealings, and the law should not dismiss such payments simply because they are not reflected in official banking records.

The ruling came in response to an appeal filed by Georgekutty Chacko, who challenged a High Court decision that reduced the amount he was to recover in a suit for money recovery. Chacko had lent Rs 30,80,000 to M.N. Saji, with Rs 22,00,000 transferred through banking channels and the remaining amount paid in cash. Saji then executed a promissory note acknowledging the full amount. When Saji failed to repay, Chacko filed a suit, and the Trial Court initially decreed the suit in his favor for Rs 35,29,680. However, the High Court reduced this amount to Rs 22,00,000, leading Chacko to appeal to the Supreme Court.

The Supreme Court overturned the High Court's decision, restoring the Trial Court's original decree. The court noted that the promissory note was admitted and never disputed by the respondent, M.N. Saji, thus the entire liability recorded in the note had to be enforced. The Supreme Court observed that a person providing cash may not always possess documentary evidence, and the absence of a receipt does not negate the transaction if the "substance of the arrangement and the stand taken by the parties" supports its occurrence. The Court also added that just because one is not able to prove a transfer through official modes, it would not lead to the conclusion that such amount was not paid through cash.

The Supreme Court found the High Court's approach unsustainable, reiterating that the law recognizes cash transactions when duly acknowledged. The absence of receipts or bank entries alone cannot defeat legitimate claims. The judgment reinforces that the presumption of validity attached to negotiable instruments should not be dismissed simply because a portion of the transaction involved cash.

This ruling has significant implications for financial transactions and legal proceedings in India. It clarifies that while documented transactions are preferable, the absence of bank records does not automatically invalidate cash deals. Courts must consider the overall context, including statements from parties and supporting evidence like promissory notes, to determine the validity of cash transactions. This decision aligns with the reality that cash remains a significant part of the Indian economy, and genuine transactions should not be penalized for lacking formal documentation.

Furthermore, the Supreme Court, in a separate ruling, has directed lower courts and sub-registrars to report cash transactions of Rs 2 lakh and above to the Income Tax Department, aiming to curb black money and tax evasion. This directive ensures scrutiny of property transactions and potential violations of Section 269ST of the Income Tax Act, which prohibits large cash receipts. This measure complements the recent judgment by ensuring that while genuine cash transactions are recognized, there is also a mechanism to monitor and prevent illicit financial activities.