Filling up of a blank Cheque, not always amounts to Material Alteration: Gujarat HC [Read Judgment]

Gujarat High Court has recently held that the contention that when a signed blank cheque leaf  is handed over, it can never be filled up and that if it is filled up it would  amount to a material alteration within the meaning of using Section 87 of the   N.I.  Act, does not stand to rhyme or reason. The Court said that it would depend upon the facts of each case.

Justice J.B.Pardiwala has allowed a batch of Petitions seeking quashment of Criminal Proceedings under Section 138 of NI Act. He has framed the following questions relating to blank cheques

(i) Whether Section 20 of the Negotiable Instruments Act applies to a cheque as well?

(ii) Whether filling up of a signed blank cheque leaf would amount to a material alteration within the meaning of Section 87 of the N.I. Act?

(iii) Is there an implied authority to a person who receives a signed blank cheque leaf to fill up the same showing any amount  as he likes?

Answering the questions, the Court held as follows;

“It can be argued that when a person takes a bill in an incomplete  form, he cannot be a bonafide holder for value since it can only be said  that he has taken a piece of blank paper and not a bill and that he can  take it as a bill only under the authority given to his transferor. Section  20   of   the   Act   would   make   it   clear   that   there   can   be   no   material  alteration of a cheque leaf only for the reasons that it was subsequently  filled up. But at the same time it cannot be said that whenever a signed  blank cheque leaf is given, it gives authority to the holder to fill up the  same according to his whims and fancies. Filling up of a signed blank  cheque leaf may not attract section 87 of the N.I. Act, for, there was no  insertion,   interlineation,   erasure,  alteration   etc,  because   there   was   no  completed   negotiable  instrument  within  the   meaning   of   sections  5,   6  and   13   of   the   N.I.   Act.   Therefore,   neither   section   20   nor   section   87 applies to a blank signed cheque leaf. If so, the question must turn round to the actual execution of the instrument. With regard to the instruments other than a cheque, an implied authority is given to the holder at the time of entrusting it to fill up the same. There may be instances where an implied authority is given to the person, at the time of entrusting a signed blank cheque containing the  signature of the drawer of the cheque, to fill the columns therein.

If   a   principal   or   employer   deputes   his   agent   or   employee   to  purchase an article and if the dealer fills up that signed blank cheque  leaf showing the exact amount covered by the bill showing the price of  the article sold then it cannot be said that what was handed over by the  drawer of the cheque is only a signed blank cheque leaf. In such cases an  implied authority to the trader/seller of the article to fill up the cheque  leaf can certainly be inferred. Similarly, there may also be cases where at  the time of settlement of the accounts, a particular amount was found  payable by the drawer of the cheque to the other party and if a signed  blank cheque entrusted to be filled up later is filled up in tune with the  accounts,   showing   the   actual   amount   payable   by   the   drawer   of   the  cheque to the other party, then also it can be said that there was the  implied authority to fill up the signed blank cheque leaf. There may be  such   instances   where   the   sum   is   ascertainable   and   the   signed   blank  cheque leaf is given to fill up the same after ascertaining the same. In  such   cases   there   would   be   no   difficulty   to   infer   an   implied   authority  given   by   the   drawer.   Simply   because   the   cheque   is   seen   filled   up   or  written   in   the   hand   writing   of   another   person   it   cannot   lead   to   a  conclusion that only a signed blank cheque leaf was given. The person  signing the cheque may have difficulty due to many reasons to write the  cheque and it might have been filled up by the payee or by another. In  such   cases   it   cannot   be   said   that   what   was   handed   over   was   only   a  signed blank cheque leaf. In all such cases the ultimate conclusion may  depend   upon   the   proof   of   the   transaction   and   execution   of   the  instrument. It must also be held that when it is a case that only a signed  blank   leaf   was   handed   over   by   the   accused,   then   he   must   offer  satisfactory explanation as to the circumstances under which the signed  blank cheque happened to be handed over. Considering the totality of  the evidence and circumstances, it is for the court to draw the inference  as to whether it was given with an implied authority to fill up the same  showing the amount ascertained or ascertainable to discharge the debt  or liability. Therefore, there may be such cases where implied authority can be inferred. But the contention that when a signed blank cheque leaf  is handed over, it can never be filled up and that if it is filled up it would  amount to a material alteration within the meaning of using Section 87  of   the   N.I.   Act,   does   not   stand   to   rhyme   or   reason.   Similarly,   the  contention that  Section 20 of the N.I. Act is applicable to an unfilled or  blank cheque leaf also cannot be accepted. It would depend upon the  facts of each case. Therefore, it is neither a case which attracts Section  87 of the N.I. Act nor is it a case where the complainant can rely upon  Section 20 of the N.I. Act and contend that as a signed blank cheque leaf  is given it gives an authority to fill up the same according to the whim  and fancy of the payee.

In view of the aforesaid discussion, I am of the view that Section  20 of the N.I. Act would not save the situation as such for the accused  applicants. The collective reading of the various provisions of the N.I. Act  shows that even under the scheme of the N.I. Act, it is possible for the  drawer of a cheque to give a blank cheque signed by him to the payee  and consent either impliedly or expressly to the said cheque being filled  up at a subsequent point in time and present the same for payment by  the drawee”.

Finally the Court held that whenever a blank cheque  or postdated cheque is issued, a trust is reposed that the cheque will be filled in or used according to the understanding or agreement between  the parties. If there is a prima facie reason to believe that the said trust is  not honoured, then the continuation of prosecution under Section 138 of  the N.I. Act would be the abuse of the process of law. It is in the interest  of justice that the parties in such cases are left to the civil remedy.

Read the Judgment here.