Negotiable Instruments Act, 1881 – s.138 and s.56 r/w s.15 – Legally enforceable debt on the date of maturity – Whether offence u/s.138 would deem to be committed if the cheque that is dishonoured does not represent the enforceable debt at the time of encashment – Whether s.138 would still be attracted when the drawer of the cheque makes a part payment towards the debt or liability after the cheque is drawn but before the cheque is encashed, for the dishonour of the cheque which represents the full sum – Held: For commission of an offence u/s.138, the cheque that is dishonoured must represent a legally enforceable debt on the date of maturity or presentation – If the drawer of the cheque pays a part or whole of the sum between the period when the cheque is drawn and when it is encashed upon maturity, then the legally enforceable debt on the date of maturity would not be the sum represented on the cheque – When a part or whole of the sum represented on the cheque is paid by the drawer of the cheque, it must be endorsed on the cheque as prescribed in s.56 – The cheque endorsed with the payment made may be used to negotiate the balance, if any – If the cheque that is endorsed is dishonoured when it is sought to be encashed upon maturity, then the offence u/s.138 will stand attracted – On facts, the first respondent made part-payments after the debt was incurred and before the cheque was encashed upon maturity – The sum of rupees twenty lakhs represented on the cheque was not the ‘legally enforceable debt’ on the date of maturity – Thus, the first respondent cannot be deemed to have committed an offence u/s.138 when the cheque was dishonoured for insufficient funds. Negotiable Instruments Act, 1881 – s.138 and s.56 r/w s.15 – Prosecution u/s.138 – Endorsement of part-payment on the cheque – Effect of – Held: When such an endorsement is made, the instrument could still be used to negotiate the balance amount. Negotiable Instruments Act, 1881 – s.138 – Term ‘debt or other liability’ used in s.138 – Meaning of – Discussed
Dismissing the appeal, the Court
HELD: 1. Based on analysis of case precedents, the following principles emerge:
(i) Where the borrower agrees to repay the loan within a specified timeline and issues a cheque for security but defaults in repaying the loan within the timeline, the cheque matures for presentation. When the cheque is sought to be encashed by the debtor and is dishonoured, Section 138 of the Act will be attracted;
(ii) However, the cardinal rule when a cheque is issued for security is that between the date on which the cheque is drawn to the date on which the cheque matures, the loan could be repaid through any other mode. It is only where the loan is not repaid through any other mode within the due date that the cheque would mature for presentation; and (iii) If the loan has been discharged before the due date or if there is an ‘altered situation’, then the cheque shall not be presented for encashment. [Para 12][533-F-H; 534A-B]
1.2. An offence under Section 138 of the Negotiable Instruments Act, 1881 arises if the cheque represents a legally enforceable debt on the date of maturity. The offence under Section
138 is tipped by the dishonour of the cheque when it is sought to be encashed. Though a post- dated cheque might be drawn to represent a legally enforceable debt at the time of its drawing, for the offence to be attracted, the cheque must represent a legally enforceable debt at the time of encashment. If there has been a material change in the circumstance such that the sum in the cheque does not represent a legally enforceable debt at the time of maturity or encashment, then the offence under Section 138 is not made out. [Para 16][536-A-C]
2. Under Section 56 read with Section 15 of the Act, an endorsement may be made by recording the part-payment of the debt in the cheque or in a note appended to the cheque. When such an endorsement is made, the instrument could still be used to negotiate the balance amount. If the endorsed cheque when presented for encashment of the balance amount is dishonoured, then the drawee can take recourse to the provisions of Section
138. Thus, when a part- payment of the debt is made after the cheque was drawn but before the cheque is encashed, such payment must be endorsed on the cheque under Section 56 of the Act. The cheque cannot be presented for encashment without recording the part payment. If the unendorsed cheque is dishonoured on presentation, the offence under Section 138 would not be attracted since the cheque does not represent a legally enforceable debt at the time of encashment. [Para 29][541-D-F]
3. Conclusion:
i) For the commission of an offence under Section 138, the cheque that is dishonoured must represent a legally enforceable debt on the date of maturity or presentation;
(ii) If the drawer of the cheque pays a part or whole of the sum between the period when the cheque is drawn and when it is encashed upon maturity, then the legally enforceable debt on the date of maturity would not be the sum represented on the cheque;
(iii) When a part or whole of the sum represented on the cheque is paid by the drawer of the cheque, it must be endorsed on the cheque as prescribed in Section 56 of the Act. The cheque endorsed with the payment made may be used to negotiate the balance, if any. If the cheque that is endorsed is dishonoured when it is sought to be encashed upon maturity, then the offence under Section 138 will stand attracted;
(iv) The first respondent has made part-payments after the debt was incurred and before the cheque was encashed upon maturity. The sum of rupees twenty lakhs represented on the cheque was not the ‘legally enforceable debt’ on the date of maturity. Thus, the first respondent cannot be deemed to have committed an offence under Section 138 of the Act when the cheque was dishonoured for insufficient funds; and
(v) The notice demanding the payment of the ‘said amount of money’ has been interpreted by judgments of this Court to mean the cheque amount. The conditions stipulated in the provisos to Section 138 need to be fulfilled in addition to the ingredients in the substantive part of Section 138. Since in this case, the first respondent has not committed an offence under Section 138, the validity of the form of the notice need not be decided. [Para 30][541-G; 542-A-F]
Indus Airways Private Limited v. Magnum Aviation Private Limited (2014) 12 SCC 539 : [2014] 5 SCR 56; Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited (2016) 10 SCC
45 : [2016] 6 SCR 531; Sripati Singh v. State of Jharkand 2021 SCC OnLine SC 1002; Sunil Todi v. State of Gujarat [Supreme Court decision in Criminal Appeal No. 1446 of 2021]; NEPC Micon Ltd. v. Magna Leasing Ltd. AIR 1995 SC 1952 : [1999] 2 SCR 932; Rahul Builders v. Arihant Fertilizers & Chemicals (2008) 2 SCC 321 : [2007] 11 SCR 951; Suman Sethi v. Ajay K Churiwal (2000) 2 SCC 38 and KR Indira v. G. Adinarayana (2003) 8 SCC 300 : [2003] 4 Suppl. SCR 535 – referred to.
Joseph Sartho v. Gopinathan (2008) 3 KLJ 784; Alliance Infrastructure Project Ltd. v. Vinay Mittal ILR (2010) III Delhi 459 and Shree Corporation v. Anilbhai Puranbhai Bansal [2018] 2 GLH 105 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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