[NI Act] If Interest Is Claimed On Cheque Which Doesn't Include Interest Component, It Does Not Remain Legally Enforceable Debt: Punjab & Haryana HC

The Punjab & Haryana High Court has made it clear that if interest is claimed on a cheque which does not include an interest component either by adjustments or by filling in the amount, the said cheque does not remain a legally enforceable debt or other liability under Section 138 of Negotiable Instrument Act (NI Act).

The Court quashed the complaint lodged under Section 138 NI Act, while noting that the cheque was neither to discharge any legally enforceable debt or any other liability "for interest part" but was for "the amount due for the purchase of articles."

Hence, once the complainant had accepted the money equal to the cheque amount, the same cheque would not become an instrument to launch prosecution for claiming the interest in delayed payment, it opined.

Justice Anoop Chitkara explained, "In the absence of a specific demand of interest, by mentioning the rate of interest based on the contractual documents or under the provisions of S. 80 of NIA, the complainant cannot utilize blank or security cheques to claim interest. It is because cheques were given for the amount corresponding to the amount mentioned in the ledger or the books of accounts, referring to the bills or invoices."

The claim or imposition of interest, which is not mentioned in the cheque, is subject to proof and there would be no presumption in favour of the holder for such an interest, which does not form part of the cheque. Thus, the presumption under S. 118 does not attract to unspecified rate of interest and uncalculated interest amount on the cheque that gets dishonored, the judge added.

The Court said, "Given the statutory mandate of S. 82 of NI Act, before filing of the complaint in terms of S. 138 NIA, the moment the complainant receives the amount equal to the cheque amount, accepts it and admits receipt of the entire cheque amount, S. 82 switches on and triggers the discharge of the entire liability mentioned in such a cheque."

Perusing Section 80 of the NI Act, it added that either the initial contract or the notice and/or complaint has to specify the interest. Thus, the cheque cannot contain the interest part because it will attract only when the cheque bounces.

"However, in case of a specific agreement vide which a blank cheque was given with permission to fill the accrued interest, the cheque must not exceed the amount due after calculating the interest and specifying the principal and the interest along with the interest rate, in the complaint," said the Court.

The Court was hearing a plea filed in 2015 for quashing the complaint and proceedings under Section 138 of the NI Act under Section 482 of the Code of Criminal Procedure, 1973.

The complaint alleged the dishonour of four cheques for a sum of Rs.4,80,000. These cheques were issued by the petitioner against the purchase of plastic granules from respondent Company. The dispute between the same parties was for Rs.5,05,621. Out of this, the complainant filed two complaints- the present one for 4,80,000, and the second one for the remaining Rs.25621. Regarding the second complaint, the petitioner approached the Court and the same was quashing the said complaint.

Counsel for the petitioner further submitted, that even before the complainant had filed the complaint in September 2013, the petitioner had started discharging the liability and released the total payment of Rs.5,62,088/- to the complainant in eleven regular instalments.

The complainant admitted receipt of Rs. 5,62,088 against the five cheque amounts totalling Rs. 5,05,625 but claimed that, according to 24% interest, she is entitled to a higher amount.

After hearing the submissions and considering the material on record, the Court noted that "the respondent admits that the petitioner had deposited a sum of Rs.5,62,088 in the account of the deponent/complainant. However, complainant after receipt of amount, neither issued any notice for its return nor did she return the amount. Her grievance is that the petitioner did not pay the interest component."

Perusing the reply, the Court said, "the cheque amount in question, i.e., Rs.5,05,621/-, whereas the respondent admits that the petitioner has deposited more, i.e., Rs.5,62,088/-. Thus, the respondent had already deposited the amount, which was more than the cheque's amount, and it is prima facie established that the accused has already paid the entire cheque amount."

The judge referred to Section 82 of the NI Act and said, "If the payment is made in due course of the amount due thereon, then the liability stands discharged. The words due course when read with S. 138 would mean within the time specified in the notice. It is because of the fulfilment of the contractual obligation and meeting with the statute's primary objective of securing the negotiable instruments and cheque amount."

A reading of Section 82 of the NI Act makes it crystal clear that given the statutory mandate, the moment the holder of the cheque accepts and admits the receipt of the entire cheque amount, the Negotiable Instruments Act, 1881 stops applying because the dishonour of a cheque is punishable under S. 138 of NI Act only on the existence of a legally enforceable debt or liability, the Court said.

Sections 79 and 80 prescribe the liability on the interest payment of the negotiable instruments, including cheques. In the present complaint, the complainant's stand is that in the event of non-payment on time, the interest at 24% per annum on the unpaid amount will be applicable. The petitioner did not dispute such an averment, but the petitioner's case is that more than the amount mentioned in the cheques was paid, including the interest component, it added.

Furthermore, the Court said that, as per the provision of S. 80 of NIA, either the initial contract or the notice and/or complaint has to specify the interest. Thus, the cheque cannot contain the interesting part because it will attract only when the cheque amount is not encashed, i.e., dishonored.

Presumption Under S.118 Is For 'Legally Enforceable Debt' Or 'Any Other Liability'

The Court elucidated, that Section 118 of the NI Act raises a presumption in favour of the holder of the cheque for consideration and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration. Thus, the presumption is only for a consideration of the cheque amount, which as per S. 138 has to be either legally enforceable debt or any other liability.

The judge concluded that "a cumulative reading of Ss. 79, 80, 82, 118, 138, and 139 of NIA makes it crystal clear that given the statutory mandate of S. 82 of NIA, before filing of the complaint in terms of S. 138 NIA, the moment the complainant receives the amount equal to the cheque amount, accepts it and admits receipt of the entire cheque amount, S. 82 switches on and triggers the discharge of the entire liability mentioned in such a cheque."

In the case at hand, the Court noted that the complainant admitted the receipt of money against the liability, and the receipt was more than the cheque amount. However, neither the complainant withdrew the complaint nor did the parties go for compounding under section 147 of NI Act. Rather the accused came up before the court by filing the present petition under section 482 CrPC seeking the quashing of the summoning order and subsequent proceedings.

Consequently, the Court held that the cheque was not to discharge any legally enforceable debt or any other liability for interest part but was for the amount due for the purchase of articles.

In light of the above, the Court quashed the complaint and all consequential proceedings arising from it.

Title: Anju v. Rama Gupta

Mr. Sameer Sachdeva, Advocate For the petitioner.

Ms. Lishika Mehta, legal aid counsel for the respondent.

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