Section 188 — Mode of repayment of certain loans or deposits or specified advances. Successor to s.269T of the 1961 Act.
Section 188 is in Chapter XII — Mode of Payment in Certain Cases etc., which runs from section 185 to section 189.
Sub-section (1) bars a branch of a banking company or co-operative bank, any other company or co-operative society, and any firm or other person from repaying a loan or deposit made with it, or a specified advance received by it, otherwise than by account payee cheque, account payee bank draft in the name of the person who made the loan or deposit or paid the advance, electronic clearing system through a bank account, or another prescribed electronic mode — the bar biting where the amount being repaid, or the aggregate of loans and deposits held by that person on the date of repayment, or the aggregate of specified advances received from him, together with any interest payable, is Rs. 20,000 or more. Sub-section (2) additionally permits a bank or co-operative bank branch to repay by crediting the loan or deposit to the payee's savings or current account with that branch. Sub-section (3) exempts repayments of amounts taken from Government, banking companies, post office savings banks, co-operative banks, statutory corporations, Government companies and notified institutions. Sub-section (4) raises the Rs. 20,000 figure to Rs. 2,00,000 for a deposit repaid to a member by, or a loan repaid by a member to, a primary agricultural credit society or a primary co-operative agricultural and rural development bank, and sub-section (5) defines "loan or deposit".
It closes the cash route on the repayment side, so that money returned on loans, deposits and advances leaves a banking trail and cannot be used to unwind undocumented cash transactions. The exemptions and the higher rural threshold keep the rule off Government and institutional dealings and off small co-operative credit society repayments.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Threshold at which the prescribed modes become compulsory | Rs. 20,000 | Tested on the amount repaid, or the aggregate loans and deposits held by that person (individually or jointly) on the date of repayment, or the aggregate specified advances received from him, in each case together with interest payable | 188(1)(A) to (C) |
| Substituted threshold for co-operative credit society dealings | Rs. 2,00,000 | Where the deposit is repaid to a member by, or the loan is repaid by a member to, a primary agricultural credit society or a primary co-operative agricultural and rural development bank | 188(4) |
Before repaying, add up the position rather than looking at the single payment: the Rs. 20,000 test is met if the aggregate of that person's loans and deposits with you on the date of repayment, plus interest, reaches the figure, even where you are paying back much less. A bank draft must be account payee and drawn in the name of the person who made the loan or deposit or paid the advance, so a draft in a third party's name breaches the section however genuine the arrangement. Banks and co-operative banks have the extra route of crediting the depositor's own savings or current account at the branch. If either side of the repayment is a primary agricultural credit society or a primary co-operative agricultural and rural development bank dealing with its member, the threshold is Rs. 2,00,000.
A firm holds two deposits from the same person, Rs. 15,000 and Rs. 9,000, with Rs. 1,200 of interest payable, and repays Rs. 15,000 in cash. The single payment looks to be under the line, but clause (B) tests the aggregate of the loans and deposits held by that person on the date of repayment together with interest — Rs. 25,200 — so the Rs. 20,000 threshold is crossed and the cash repayment breaches the section; it had to go by account payee cheque, account payee bank draft in the name of the person who made the deposit, electronic clearing system through a bank account, or another prescribed electronic mode. A draft for the same sum drawn in the name of that person's son would fail as well, however genuine the arrangement. Had the payer been a primary agricultural credit society repaying a deposit to its member, sub-section (4) would have read Rs. 2,00,000 for Rs. 20,000 and the cash repayment would have been unobjectionable.
You meet it at the moment of repayment, in the instrument the payer is forced to choose, and afterwards in penalty proceedings and the assessment where a cash repayment is put to the payer. The section names no form; it names the classes of payer — a branch of a banking company or co-operative bank, any other company or co-operative society, a firm or other person — and the exempt counterparties in sub-section (3), including Government, post office savings banks, statutory corporations, Government companies and notified institutions.
No branch of a banking company or co-operative bank and no other company or co-operative society and no firm or other person shall repay— (a) any loan or deposit made with it; or (b) any specified advance received by it, except through— (i) an account payee cheque
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
See the circulars index.
