DASHRATHBHAI TRIKAMBHAI PATEL versus HITESH MAHENDRABHAI PATEL & ANR
[2022] 16 S.C.R. 522, Supreme Court of India, 2022
Outcome: Dismissed (Dismissed)
Segment: Ratio
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DASHRATHBHAI TRIKAMBHAI PATEL
v.
HITESH MAHENDRABHAI PATEL & ANR.
(Criminal Appeal No. 1497 of 2022)
OCTOBER 11, 2022
 [DR DHANANJAYA Y CHANDRACHUD AND
HIMA KOHLI, JJ.]
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.
[2022] 16 S.C.R. 522
522
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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; 534-
A-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,
DASHRATHBHAI TRIKAMBHAI PATEL v. HITESH MAHENDRABHAI
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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
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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.
Case Law Reference
[2014] 5 SCR 56
referred to
Para 12
[2016] 6 SCR 531
referred to
Para 12
[1999] 2 SCR 932
referred to
Para 15
[2007] 11 SCR 951
referred to
Para 21
(2000) 2 SCC 38
referred to
Para 23
[2003] 4 Suppl. SCR 535
referred to
Para 24
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
1497 of 2022.
From the Judgment and Order dated 12.01.2022 of the High Court
of Gujarat at Ahmedabad in Criminal Appeal No.1488 of 2016.
Mehmood Umar Faruqui, Kausar Raza F., Anik Timbalia, Advs.
for the Appellant.
DASHRATHBHAI TRIKAMBHAI PATEL v. HITESH MAHENDRABHAI
PATEL & ANR.
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Nakul Dewan, Sr. Adv., Purvish Jitendra Malkan, Ms. Dharita P.
Malkan, Alok Kumar, Ms. Deepa Gorasia, Ms. Khushboo Malkan, Ms.
Bhavna Sarkar, Narayan Laxman Rao, Neil Chatterjee, Ms. Tansi
Fotedar, Ms. Deepanwita Priyanka, Advs. for the Respondents.
The Judgment of the Court was delivered by
DR DHANANJAYA Y CHANDRACHUD, J.
1. This appeal arises from a judgment dated 12 January 2022 of
the High Court of Gujarat. The High Court dismissed an appeal against
the judgment of the Additional Chief Judicial Magistrate dated 30 August
2016 by which the first respondent was acquitted of the offence under
Section 138 of the Negotiable Instruments Act 18811. At the core, the
issue is whether the offence under Section 138 of the Act would deem
to be committed if the cheque that is dishonoured does not represent the
enforceable debt at the time of encashment.
The Facts
2.  On 10 April 2014, the appellant issued a statutory notice under
Section 138 of the Act to the first respondent-accused. It was alleged
that the first respondent borrowed a sum of rupees twenty lakhs from
the appellant on 16 January 2012 and to discharge the liability, issued a
cheque dated 17 March 2014 bearing cheque No. 877828 for the said
sum. It was further alleged that the cheque when presented on 2 April
2014 was dishonoured due to insufficient funds. The appellant issued
the notice calling the first respondent to pay the legally enforceable debt
of Rs.
20,00,000:
“Therefore, my client hereby calls upon you to make payment of
Rs. 20,00,000/- towards the legally enforceable debt due and
payable by you within a period of 15 days from the date of receipt
of this particular notice, […]”
3. On 25 April 2014, the first respondent addressed a response to
the statutory notice where he alleged the following:
(i)
The first respondent and the appellant are related to each
other. The appellant’s son married the first respondent’s
sister;
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(ii)
The appellant lent the first respondent a loan of rupees forty
lakhs. There was an oral agreement between the parties
that the first respondent would pay rupees one lakh every
three months by cheque and rupees eighty thousand in cash
to the appellant. Two cheques were given to the appellant
for security. It was agreed that the appellant would return
both the cheques when the sum lent was paid in full;
(iii)
The appellant’s son-initiated divorce proceedings against
the respondent’s sister. However, the dowry that was given
at the time of marriage is still in the possession of the
appellant; and
(iv)
The cheques that were issued for security have been
misused by the appellant.
4. On 12 May 2014, the appellant filed a criminal complaint against
the first respondent for the offence under Section 138 of the Act. On 19
May 2014, the first respondent issued another reply to the legal notice.
By the said reply, the earlier reply to the legal notice was sought to be
amended by replacing the acknowledgment of having received a loan of
rupees forty lakhs to rupees twenty lakhs.
5. By a judgment dated 30 August 2016, the Trial Court acquitted
the first respondent of the offence under Section 138 on the ground that
the first respondent paid the appellant a sum of rupees 4,09,315 between
8 April 2012 and 30 December 2013 partly discharging his liability in
respect of the debt of rupees twenty lakhs. The split up of the payments
is set out below:
DASHRATHBHAI
TRIKAMBHAI PATEL v. HITESH MAHENDRABHAI
PATEL & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]
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 The Trial Court observed that the appellant has failed to prove
that he was owed a legally enforceable debt of rupees twenty lakhs:
“Therefore, the plaintiff’s complaint proved that the accused has
paid Rs, 4,09,315 out of the amount due as per fact. So that on the
day the plaintiff deposited in the bank to recover a legal amount
of Rs, 20,00,000/- The court believes that the prosecution has
failed to prove that fact.”
6. The appellant filed an appeal against the judgment of the Trial
Court before the High Court of Gujarat. On 10 October 2019, the first
respondent moved an application before the High Court of Gujarat seeking
to place on record the amended reply dated 19 May 2014. By an order
dated 11 October 2018, the High Court allowed the application for placing
the additional evidence on record. The High Court by its judgment dated
12 January 2022 dismissed the appeal, thereby upholding the judgment
of the Trial Court acquitting the first respondent. The High Court affirmed
the finding of fact by the Trial Court that a part of the debt owed by the
first respondent to the appellant was discharged and thus the notice of
demand issued under Section 138 of the Act is not valid. In the course of
the analysis, the following findings were entered:
(i)
The appellant has in the course of his cross-examination
accepted that the first respondent had deposited rupees
4,09,315 in his account;
(ii)
There is a statutory
presumption that the sum drawn in the
cheque is a debt or liability that is owed by the drawer of
the cheque to the drawee. The part -payment made by the
first respondent ought to have been reflected in the statutory
notice issued by the appellant. The sum in the cheque is
higher than the amount that was due to the appellant. Thus,
the statutory notice issued under Section 138 is not valid. It
is an omnibus notice since it did not recognise the part-
payment that was made; and
(iii)
 The cheque was a security for the money lent by the
appellant. The undated cheque was presented to the bank
without recognising the part- payment that was already
made.
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The Submissions
7. Mr Mehmood Umar Faruqui, counsel appearing on behalf of
the appellant submitted that:
(i)
There is nothing on record to show that the payment of
rupees 4,09,315 was made towards the discharge of the
debt of rupees twenty lakhs;
(ii)
The payment of rupees 4,09,315 was before the issuance
of the cheque; and
(iii)
The first respondent did not make any payment of the sum
that was due since the statutory notice that was served
upon him on 15 April 2014.
8.
Mr Nakul Dewan, senior counsel appearing on behalf of
the first respondent submitted that:
(i)
The term ‘debt or other liability’ used in Section 138 of the
Act has been defined in the Explanation clause to mean a
‘legally enforceable debt or other liability’. Thus, the demand
made in the statutory notice must be for a sum that is legally
enforceable;
(ii)
If the debtor has paid a part of the debt, a statutory notice
seeking the payment of the entire sum in the cheque without
any endorsement under Section 56 of the part-payment
made would not be legally sustainable; and
(iii)
Since the first respondent has paid off a part of the debt,
the appellant cannot initiate action if the cheque which
represented the principal amount without deducting or
endorsing a part payment has been dishonoured.
The Analysis
9. The rival submissions fall for our consideration. Section 138 of
the Act reads as follows:
“138. Dishonour of cheque for insufficiency, etc., of funds
in the account.—Where any cheque
drawn by a person on an
account maintained by him with a banker for payment of any
amount of money to another person from out of that account for
the discharge, in whole or in part, of any debt or other liability,
DASHRATHBHAI TRIKAMBHAI PATEL v. HITESH MAHENDRABHAI
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is returned by the bank unpaid, either because of the amount of
money standing to the credit of that account is insufficient to honour
the cheque or that it exceeds the amount arranged to be paid
from that account by an agreement made with that bank, such
person shall be deemed to have committed an offence and shall,
without prejudice to any other provision of this Act, be punished
with imprisonment for 8 [a term which may be extended to two
years’], or with fine which may extend to twice the amount of the
cheque, or with both:
Provided that nothing contained in this section shall apply unless—
(a) the cheque has been presented to the bank within a period of
six months from the date on which it is drawn or within the period
of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the
case may be, makes a demand for the payment of the said amount
of money by giving a notice; in writing, to the drawer of the
cheque, [within thirty days] of the receipt of information by him
from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the
said amount of money to the payee or, as the case may be, to the
holder in due course of the cheque, within fifteen days of the
receipt of the said notice.
Explanation.—For the purposes of this section, “debt of other
liability” means a legally enforceable debt or other liability.
(emphasis supplied)
10. Section 138 of the Act provides that a drawer of a cheque is
deemed to have committed the offence if the following ingredients are
fulfilled:
(i)
A cheque drawn for the payment of any amount of money
to another person;
(ii)
The cheque is drawn for the discharge of the ‘whole or
part’ of any debt or other liability. ‘Debt or other liability’
means legally enforceable debt or other liability; and
(iii)
The cheque is returned by the bank unpaid because of
insufficient funds.
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However, unless the stipulations in the proviso are fulfilled the
offence is not deemed to be committed. The conditions in the proviso
are as follows:
(i)
The cheque must be presented in the bank within six months
from the date on which it was drawn or within the period of
its validity;
(ii)
The holder of the cheque must make a demand for the
payment of the ‘said amount of money’ by giving a notice
in writing to the drawer of the cheque within thirty days
from the receipt of the notice from the bank that the cheque
was returned dishonoured; and
(iii)
The holder of the cheque fails to make the payment of the
‘said amount of money’ within fifteen days from the receipt
of the notice.
11. The primary contention of the first respondent is that the offence
under Section 138 was not committed since the amount that was payable
to the appellant, as on the date the cheque was presented for encashment,
was less than the amount that was represented in the cheque. The question
before this Court is whether Section 138 of the Act 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.
12. It must be noted that when a part-payment is made after the
issuance of a post-dated cheque, the legally enforceable debt at the time
of encashment is less than the sum represented in the cheque. A part-
payment or
a full payment may have been made between the date when
the debt has accrued to the date when the cheque is sought to be
encashed. Thus, it is crucial that we refer to the law laid down by this
Court on the issuance of post-dated cheques and cheques issued for the
purpose of security. In Indus Airways Private Limited v. Magnum
Aviation Private Limited2, the issue before a two-Judge Bench of
this Court was whether dishonour of post-dated cheques which were
issued by the purchasers towards ‘advance payment’ would be covered
by Section 138 of the Act if the purchase order was cancelled
subsequently. It was held that Section 138 would only be applicable where
2 (2014) 12 SCC 539
DASHRATHBHAI TRIKAMBHAI PATEL v. HITESH MAHENDRABHAI
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there is a legally enforceable debt subsisting on the date when the cheque
is drawn. In Sampelly Satyanarayana Rao v. Indian Renewable
Energy Development Agency Limited3, the respondent advanced a
loan for setting up a power project and post-dated cheques were given
for security. The cheques were dishonoured and a complaint was instituted
under Section 138. Distinguishing Indus Airways (supra), it was held
that the test for the application of Section 138 is whether there was a
legally enforceable debt on the date mentioned in the cheque. It was
held that if the answer is in the affirmative, then the provisions of Section
138 would be attracted. In Sripati Singh v. State of Jharkand4, this
Court observed that if a cheque is issued as security and if the debt is
not repaid in any other form before the due date or if there is no
understanding or agreement between the parties to defer the repayment,
the cheque would mature for presentation:
“17. A cheque issued as security pursuant to a financial transaction
cannot be considered as a worthless piece of paper under every
circumstance. ‘Security’ in its true sense is the state of being safe
and the security given for a loan is something given as a pledge of
payment. It is given, deposited or pledged to make certain the
fulfilment of an obligation to which the parties to the transaction
are bound. If in a transaction, a loan is advanced and the
borrower agrees to repay the
amount in a specified
timeframe and issues a cheque as security to secure such
repayment; if the loan amount is not repaid in any other
form before the due date or if there is no other
understanding or agreement between the parties to defer
the payment of amount, the cheque which is issued as
security would mature for presentation and the drawee of
the cheque would be entitled to present the same. On such
presentation, if the same is dishonoured, the consequences
contemplated under Section 138 and the other provisions of N.I.
Act would flow.
18. When a cheque is issued and is treated as ‘security’ towards
repayment of an amount with a time period being stipulated for
repayment, all that it ensures is that such cheque which is
issued as ‘security’ cannot be presented prior to the loan
3 (2016) 10 SCC 458
4 2021 SCC OnLine SC 1002
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or the instalment maturing for repayment towards which
such cheque is issued as security. Further, the borrower
would have the option of repaying the loan amount or such
financial liability in any other form and in that manner if the
amount of loan due and payable has been discharged within
the agreed period, the cheque issued as security cannot
thereafter be presented. Therefore, the prior discharge of
the loan or there being an altered situation due to which
there would be understanding between the parties is a sine
qua non to not present the cheque which was issued as
security. These are only the defences that would be available to
the drawer of the cheque in a proceedings initiated under Section
138 of the N.I. Act. Therefore, there cannot be a hard and fast
rule that a cheque which is issued as security can never be
presented by the drawee of the cheque. If such is the understanding
a cheque would also be reduced to an ‘on demand promissory
note’ and in all circumstances, it would only be a civil litigation to
recover the amount, which is not the intention of the statute. When
a cheque is issued even though as ‘security’ the consequence
flowing therefrom is also known to the drawer of the cheque and
in the circumstance stated above if the cheque is presented and
dishonoured, the holder of the cheque/drawee would have the
option of initiating the civil proceedings for recovery or the criminal
proceedings for punishment in the fact situation, but in
any event,
it is not for the drawer of the cheque to dictate terms with regard
to the nature of litigation.”
(emphasis supplied)
Based on the above analysis of precedent, 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
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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.
13. In Sunil Todi v. State of Gujarat5, a two judge Bench of this
Court expounded the meaning of the phrase ‘debt or other liability’. It
was observed that the phrase takes within its meaning a ‘sum of money
promised to be paid on a future day by reason of a present obligation’.
The court observed that a post-dated cheque issued after the debt was
incurred would be covered within the meaning of ‘debt’. The court held
that Section 138 would also include cases where the debt is incurred
after the cheque is drawn but before it is presented for encashment. In
this context, it was observed:
“26. The object of the NI Act is to enhance the acceptability of
cheques and inculcate faith in the efficiency of negotiable
instruments for transaction of business. The purpose of the
provision would become otiose if the provision is interpreted to
exclude cases where debt is incurred after the drawing of the
cheque but before its encashment. In Indus Airways, advance
payments were made but since the purchase agreement was
cancelled, there was no occasion of incurring any debt. The true
purpose of Section 138 would
not be fulfilled, if ‘debt or other
liability’ is interpreted to include only a debt that exists as on the
date of drawing of the cheque. Moreover, Parliament has used
the expression ‘debt or other liability’. The expression “or other
liability’ must have a meaning of its own, the legislature having
used two distinct phrases. The expression ‘or other liability’ has a
content which is broader than ‘a debt’ and cannot be equated
with the latter. In the present case, the cheque was issued in
close proximity with the commencement of power supply. The
issuance of the cheque in the context of a commercial transaction
must be understood in the context of the business dealings. The
issuance of the cheque was followed close on its heels by the
supply of power. To hold that the cheque was not issued in the
5 Criminal Appeal No. 1446 of 2021
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context of a liability which was being assumed by the company to
pay for the dues towards power supplied would be to produce an
outcome at odds with the business dealings. If the company were
to fail to provide a satisfactory LC and yet consume power, the
cheques were capable of being presented for the purpose of
meeting the outstanding dues.”
14. The judgments from Indus Airways (supra) to Sunil Todi
(supra) indicate that much of the analysis on whether post-dated cheques
issued as security would fall within the purview of Section 138 of the
Act hinges on the relevance of time. In Indus Airways (supra), this
Court held that for the commission of the offence under Section 138,
there must have been a debt on the date of issuance of the cheque.
However, later judgments adopt a more nuanced position while discussing
the validity of proceedings under Section 138 on the dishonour of post-
dated cheques. This Court since Sampelly Satyanarayana Rao (supra)
has consistently held that there must be a legally enforceable debt on the
date mentioned in the cheque, which is the date of maturity.
15. This Court in NEPC Micon Ltd. v. Magna Leasing Ltd.6
held that the Courts must interpret Section 138 with reference to the
legislative intent to supress the mischief and advance the remedy. The
objective of the Act in general and Section 138 specifically is to enhance
the acceptability of cheques and to inculcate faith in the efficacy of
negotiable instruments for the
transaction of business.7 Section 138
criminalises the dishonour of cheques. This is in addition to the civil
remedy that is available. Through the criminalisation of the dishonour of
cheques, the legislature intended to prevent dishonesty on the part of the
drawer of a negotiable instrument.8 The interpretation of Section 138
must not permit dishonesty of the drawee of the cheque as well. A cheque
is issued as security to provide the drawee of the cheque with a leverage
of using the cheque in case the drawer fails to pay the debt in the future.
Therefore, cheques are issued and received as security with the
contemplation that a part or the full sum that is addressed in the cheque
may be paid before the cheque is encashed.
6 AIR 1995 SC 1952
7 Sunil Sodhi v. State of Gujarat, Criminal Appeal No. 1446 of 2021
8 M/s Electronics Trade and Technology Development Corporation Ltd., 1996(3) Crimes
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16. The judgments of this Court on post-dated cheques when read
with the purpose of Section 138 indicate that an offence under the
provision 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.
17. The appellant contended that the cheque was issued by the
first respondent on 17 March 2014. However, the payment of rupees
4,09,315 received from the first respondent was between 8 April 2012
and 30 December 2013. It was contended that since the payments were
made before the issuance of cheque, it cannot be considered as part-
payment for the discharge of liability.
18. The appellant in his cross- examination conducted on 17 March
2016 has categorically mentioned that he did not take any receipt on
lending rupees twenty lakhs to the first respondent. The appellant stated
that a ‘cheque against the cheque’ was given. The relevant portion of
the
cross-examination is extracted below:
“[…] I have paid the Income Tax Return for the accounting year
2012-13. It is true that I have shown the transaction of Rupees
Twenty Lakhs in the said return. I am ready to present the Income
Tax Return for the Accounting Year of Rupees Twenty Lakhs to
the Accused; I have not acknowledged the receipt. It is true
that I have given the cheque against the said cheque and
not taken the receipt.”
(emphasis supplied)
19. In the testimony recorded under Section 145 of the Act, the
appellant stated that he lent the first respondent a sum of rupees twenty
lakhs on 16 January 2012 and that the respondent gave a cheque of
rupees twenty lakhs stating that it may be deposited on the date specified
in it:
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“The plaintiff and the Defendant of this case being a Vevai and
has a house- like relationship, he has given the amount to the
plaintiff as per his requirement on dtd. 16/01/2012 and for the
payment of the amount paid by the Plaintiff to the in this case, his
bank State Bank of India, AUDa Garden, Prahladnagar Branch,
Ahmedabad Cheque Number: 8877828 of Rs. 20,00,000/- (Rupees
Twenty Lakhs Only) and stated that the above cheque was
deposited by the plaintiff on the date specified in it giving
the plaintiff the firm confidence and assurance that the
plaintiff would definitely get the amount due from us.”
(emphasis supplied)
Further, in the cross-examination, the appellant stated that the
amount that was paid by the first respondent was not paid as a reward
or gift:
“I cannot say whether the accused has also paid me this amount
in the count of Rupees Twenty Lakhs. The accused did not even
give me that amount as a reward/gift.”
20. It was the contention of the first respondent that the cheque
was not dated. On the other hand, it was the contention of the appellant
that the cheque was dated 17 March 2014. The Courts below did not
record a finding on whether the cheque was un-dated or was dated 17
March 2014. However, it was conclusively held that the cheque was
issued by the first respondent for security on the date when the loan was
borrowed. It was also categorically recorded by the Courts below that a
sum of rupees 4,09,315 that was paid by the first
respondent was paid to
partly fulfil the debt of rupees twenty lakhs. The appellant in his cross-
examination has stated that a ‘cheque against a cheque’ was given when
he loaned the sum of rupees twenty lakhs. Thus, it can be concluded
that the cheque was given as a security to discharge the loan, either
undated or dated as 17 March 2014. Merely because the sum of rupees
4,09,315 was paid between 8 April 2012 and 30 December 2013, which
was after 17 March 2014, it cannot be concluded that the sum was not
paid in discharge of the loan of rupees twenty lakh. The sum of rupees
4,09,315 was paid after the loan was lent to the first respondent. The
appellant in his cross- examination has not denied the receipt of the
payments. He has also stated it was not received as a ‘gift or reward’.
In view of the above discussion, at the time of the encashment of the
DASHRATHBHAI TRIKAMBHAI PATEL v. HITESH MAHENDRABHAI
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cheque, the first respondent did not owe a sum of rupees twenty lakhs
as represented in the cheque at the time of encashment of the cheque
that was issued for security.
21. The High Court while dismissing the appeal against acquittal
held that the notice issued by the appellant is an omnibus notice since it
does not represent a legally enforceable debt. Relying on the judgment
of this Court in Rahul Builders v. Arihant Fertilizers & Chemicals9,
it was held that the legal notice was not issued in accordance with proviso
(b) to Section 138 since it did not represent the ‘correct amount’. The
appellant has contended that the requirement under Section 138 is to
send a notice demanding the ‘cheque amount’. It was contended that
the offence under Section 138 was made out since the appellant in the
statutory notice demanded the payment of rupees twenty lakhs which
was the ‘cheque amount’.
22. Section 138 of the Act stipulates that if the cheque is returned
unpaid by the bank for the lack of funds, then the drawee shall be deemed
to have committed an offence under Section 138 of the Act. However,
the offence under Section 138 of the Act is attracted only when the
conditions in the provisos have been fulfilled. Proviso (b) to Section 138
states that a notice demanding the payment of the ‘said amount of money’
shall be made by the drawee of the cheque.
23. This Court has interpreted the phrase ‘the said amount of
money’ as it
finds place in proviso (b) to Section 138. In Suman Sethi v.
Ajay K Churiwal10, the appellant issued a cheque for rupees twenty
lakhs in favour of the first respondent. The cheque was dishonoured. A
demand notice for an amount higher than the cheque amount was issued.
A two-Judge Bench of this Court held that the demand has to be made
for the ‘said amount’, which is the cheque amount. It was also observed
that the question of whether the notice demanding an amount higher
than the cheque amount is valid would depend on the language of the
notice:
“8. It is a well-settled principle of law that the notice has to be
read as a whole. In the notice, demand has to be made for the
“said amount” i.e. the cheque amount. If no such demand is made
the notice no doubt would fall short of its legal requirement. Where
9 (2008) 2 SCC 321
10 (2000) 2 SCC 38
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in addition to the “said amount” there is also a claim by way of
interest, cost etc. whether the notice is bad would depend on the
language of the notice. If in a notice while giving the break-up of
the claim the cheque amount, interest, damages etc. are separately
specified, other such claims for interest, cost etc. would be
superfluous and these additional claims would be severable and
will not invalidate the notice. If, however, in the notice an omnibus
demand is made without specifying what was due under the
dishonoured cheque, the notice might well fail to meet the legal
requirement and may be regarded as bad.”
24. In KR Indira v. G. Adinarayana11, it was held that the notice
did not demand the payment of the cheque amount but the loan amount.
It was observed that for the purposes of proviso (b), the amount covered
in the dishonoured cheque must be demanded. In Rahul Builders (supra),
the drawee demanded the payment of rupees 8,72,409 which was higher
than the sum of rupees 1,00,000 represented in the cheque. It was
reiterated that the phrase ‘payment of the said amount’ in proviso (b)
would mean the cheque amount. Since the demand in the notice was not
severable as the cheque amount could not be severed from the demand
for the additional amount, it was held that it was an omnibus notice.
Justice SB Sinha writing for a two-Judge Bench of this Court observed:
“10. […] One of the conditions was service of a notice making
demand of the payment of the
amount of cheque as is evident
from the use of the phraseology “payment of the said amount of
money”. […] It is one thing to say that the demand may not only
represent the unpaid amount under cheque but also other incidental
expenses like costs and interests, but the same would not mean
that the notice would be vague and capable of two interpretations.
An omnibus notice without specifying as to what was the amount
due under the dishonoured cheque would not subserve the
requirement of law. Respondent 1 was not called upon to pay the
amount which was payable under the cheque issued by it. The
amount which it was called upon to pay was the outstanding
amounts of bills i.e. Rs 8,72,409. The noticee was to respond to
the said demand. Pursuant thereto, it was to offer the entire sum
of Rs 8,72,409. No demand was made upon it to pay the said sum
of Rs 1,00,000 which was tendered to the complainant by cheque
11 (2003) 8 SCC 300
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dated 30-4-2000. What was, therefore, demanded was the entire
sum and not a part of it.”
25. Section 138 creates a deeming offence. The provisos prescribe
stipulations to safeguard the drawer of the cheque by providing them the
opportunity of responding to the notice and an opportunity to repay the
cheque amount. The conditions stipulated in the provisos need to be
fulfilled in addition to the ingredients in the main provision of Section
138. It has already been concluded above that the offence under Section
138 arises only when a cheque that represents a part or whole of the
legally enforceable debt at the time of encashment is returned by the
bank unpaid. Since the cheque did not represent the legally enforceable
debt at the time of encashment, the offence under Section 138 is not
made out.
26. The appellant contends that the purpose of Section 138 of the
Act would be defeated if the dishonour of the cheque issued for security
is not included within the purview of Section 138 where the payment of
a part of the cheque amount is made. It was contended that it would
lead to a possibility where the drawer of the cheque could evade
prosecution under Section 138 by paying a small amount of the debt
while defaulting on the remaining payment. Section 56 stipulates that if
there is an endorsement on a negotiable instrument that a part of the
sum mentioned in the cheque has been paid, then the instrument may be
negotiated
for the balance. Section 56 reads as follows:
“56. Indorsement for part of sum due.- No writing on a
negotiable instrument is valid for the purpose of negotiation if such
writing purports to transfer only a part of the amount appearing to
be due on the instrument; but where such amount has been partly
paid a note to that effect may be indorsed on the instrument, which
may then be negotiated for the balance.”
27. Section 15 defines the phrase ‘indorsement’ as follows:
“15. Indorsement.- When a maker or holder of a negotiable
instrument signs the same, otherwise than as such maker, for the
purpose of negotiation, on the back or face thereof or on a slip of
paper annexed thereto, or so signs for the same purpose a stamped
paper intended to be completed as a negotiable instrument, he is
said to indorse the same, and is called the “indorse”.”
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28. A Division Bench of the Kerala High Court has held in Joseph
Sartho v. Gopinathan12 that since the representation in the cheque was
for a sum higher than the amount that was due on the date that it was
presented for encashment, the drawer of the cheque cannot be convicted
for the offence under Section 138 of the Act. The High Court of Delhi
addressed the same issue in Alliance Infrastructure Project Ltd. v.
Vinay Mittal13. The High Court observed that when part payment is
made after the cheque is drawn, the payee has the option of either
taking a new cheque for the reduced amount or by making an endorsement
on the cheque acknowledging that a part payment was made according
to the provisions of Section 56 of the Act. It was also held that the notice
of demand which requires the drawer of the cheque to make payment
of the whole amount represented in the cheque despite receiving part
repayment against the sum, before the issue of notice, cannot be valid
under Section 138(b) of the Act. A similar view was taken by the High
Court of Gujarat in Shree Corporation v. Anilbhai Puranbhai
Bansal14.
29. 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.
30. In view of the discussion above, we summarise our findings
below:
(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;
12 (2008) 3 KLJ 784
13 ILR (2010) III Delhi 459
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(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.
31. For the reasons indicated above, the appeal against the
judgment of the High Court of Gujarat dated 12 January 2022 is dismissed.
32. Pending application(s), if any, stand disposed of.
Bibhuti Bhushan Bose
Appeal dismissed.