Cheque Issued As Security Will Mature For Presentation On Default When Payment Becomes Due: Kerala High Court

The Kerala High Court recently held that a cheque issued as security would mature for presentation on default when payment is due. In the event of non-payment of the amount, the recipient of the cheque would be compelled to present the cheque for payment, the Court observed.

A single bench of Justice Sathish Ninan observed

“The very fact that the cheque was issued as security by itself imply that, in the event of non-payment, the security is liable to be enforced. A cheque issued as security would mature for presentation on default when payment is due.”

The Court also observed when a cheque is dishonoured for insufficiency of funds, the drawer is not entitled to a notice of dishonour. In light of Section 98 (c) of the Negotiable Instruments Act, notice of dishonour is not necessary when the party charged does not suffer damage for want of notice, the Court noted.

The Court was considering the appeal of a plaintiff who had filed a suit for money in the court below for a dishonoured cheque. The suit was dismissed by the court below.

The Defendant had borrowed an amount of Rs. 5,50,000/- from the plaintiff and agreed to repay the same in 3 months’ time. The Defendant also issued a post-dated cheque for Rs. 5,50,000/- as security. The cheque was to be returned to the Defendant when the amount was paid by him. However, the Defendant failed to pay the amount and the cheque when presented by the Plaintiff was dishonoured.

The trial court dismissed the suit holding that it lacked the territorial jurisdiction to entertain the suit as the original borrow was at Saudi Arabia.

The Defendant contended that, as no notice was issued for dishonour of the cheque, the suit was not maintainable. It was also contended by the Defendant that what was given to the Plaintiff was a blank cheque only as security. The Plaintiff without authorisation filled in the amount and hence the cheque was not an enforceable instrument.

The Court did not agree with the trial court’s view that it lacked territorial jurisdiction to entertain the suit:

“The suit is on a dishonoured cheque. It is a statutory liability. The cheque was presented and dishonoured within the jurisdiction of the trial court. Therefore, the trial court had the territorial jurisdiction to entertain the suit. I do not agree with the finding of the trial court that since the original borrowal was at Saudi Arabia the court did not have territorial jurisdiction to entertain the suit.”

The Court also if the trial court did not have jurisdiction to entertain the suit, it should have ordered the return of the plaint under Order VII Rule 10 of the Code of Civil Procedure, 1908:

“So also, the defendant had not raised a specific contention regarding lack of territorial jurisdiction. In terms of Section 21(1) of the Code of Civil Procedure, objections with regard to territorial jurisdiction is to be raised at the earliest possible opportunity, and in all cases where issues are settled, at or before such settlement. That apart, the trial court had not even raised an issue with regard to the territorial jurisdiction. The only issue that was raised for trial was, “What is the correct amount due to the plaintiff?”. Further, even if the court found that it did not have jurisdiction to entertain the suit, the plaint should have been returned in terms of Order VII Rule 10 of the Code of Civil Procedure. Anyhow, as held earlier, the court was not right in having held that it lacks territorial jurisdiction to entertain the suit.”

The Court set aside the decree and judgment of the trial court and granted the plaintiff a decree for realisation of an amount of Rs. 5,50,000/- with interest at the rate of 6% per annum from the date of appeal till date of decree.

Counsel for Appellant: Advs.P Parameswaran Nair, Sreelatha Parameswaran Nair, T S Sarath, Uma

Counsel for Respondents: Sr. Adv. O V Radhakrishnan, Advs K Radhamani Amma, Antony Mukkath

Case Title: Ashok Kumar V. Sankarankutty Pillai

Citation: 2023 LiveLaw (Ker) 264

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