No Offence Under Section 138 NI Act If Cheque Is Presented For Full Amount Without Endorsing Part Payment Made By Borrower : Supreme Court

In a significant judgment, the Supreme Court on Tuesday held that no offence for dishonour of cheque under Section 138 of the Negotiable Instruments Act is made out if the cheque is presented for the full amount without endorsing the part-payment made by the borrower after the issuance of the cheque.

The Court held that the sum reflected on the cheque will not be the "legally enforceable debt" as per Section 138 NI Act, when it has been presented for encashment without endorsing the part-payment. Part-payments must be endorsed on the cheque as per Section 56 of the NI Act. If such endorsement is made, the cheque can be presented for the balance amount, and the offence under Section 138 NI Act will be attracted if such a cheque with endorsement of the part-payment gets dishonoured, explained the Court.

In this case, the cheque was issued for an amount of Rs 20 lakhs. After the cheque was issued, the borrower made a part payment of Rs. 4,09,315/- to the drawee of the cheque. However, the cheque was presented for Rs 20 lakhs, without endorsing the part-payment.

The Supreme Court noted that in this factual scenario, the complaint under Section 138 NI Act is not sustainable when the cheque got dishonoured after being presented for the full amount.

Affirming the judgment of the Gujarat High Court, which approved the acquittal of the accused in the case, a bench comprising Justices DY Chandrachud and Hima Kohli summarized the findings as follows :

1. 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;

2. 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;

3. 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;

Regarding the present case, the Court noted that the accused had made part payments after the debt was incurred and before the cheque was presented for encashment. The sum of Rupees 20 lakhs represented on the cheque was not the legally enforceable debt on the date of maturity. Hence, the accused cannot be deemed to have committed offence under Section 138 NI Act.

In this case, the Court further noted that the notice of demand was also issued for Rupees 20 lakhs.  Taking note of these factors, the Supreme Court dismissed the appeal filed against the judgment of the Gujarat High Court.

Case Title : Dashratbhai Trikambhai Patel versus Hitesh Mahendrabhai Patel and others | Crl.A. No. 1497/2022

Citation : 2022 LiveLaw (SC) 830

Headnotes

Negotiable Instruments Act, 1881 ; Section 138, 56 - 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)

Negotiable Instruments Act, 1881 ; Section 138 - 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 - 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 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. (Para 30))

Negotiable Instruments Act, 1881 ; Section 138 - 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)

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