Summary
The complainant lent Rs. 20 lakh to a relative and took a cheque for the full amount as security. The borrower later repaid about Rs. 4.09 lakh, which the complainant admitted receiving. The complainant nonetheless presented the cheque for the full Rs. 20 lakh, and it was dishonoured. The trial court acquitted under Section 138 of the Negotiable Instruments Act, and the High Court agreed. The Supreme Court held that a dishonoured cheque attracts Section 138 only if it represents a legally enforceable debt on the date of maturity or presentation. Where part of the sum is paid after the cheque is drawn and before it is encashed, the payment must be endorsed on the cheque under Section 56, which may then be presented for the balance. An unendorsed cheque for the full original amount does not support the offence. The acquittal was upheld.
Issues
- Whether Section 138 of the Negotiable Instruments Act is attracted when a cheque given as security is presented for its full face value although the drawer has repaid part of the debt before presentation.
- How a payee who has received part-payment should deal with a security cheque so that the balance can be enforced under Section 138.
- Whether the validity of a demand notice claiming the full cheque amount needed to be decided.
Provisions considered
- Section 138 and its Explanation, Negotiable Instruments Act, 1881Read as requiring the dishonoured cheque to represent a legally enforceable debt or liability, in whole or in part, on the date of maturity or presentation, not merely when it was drawn. If it does not, the offence is not made out. (¶¶ 9, 10, 14, 16, 25, 30)
- Sections 56 and 15, Negotiable Instruments Act, 1881Where part of the sum is paid, the payment may be endorsed on the instrument or a slip annexed to it, and the instrument may then be negotiated for the balance. Presenting the cheque without such endorsement means it no longer reflects the enforceable debt. (¶¶ 26, 27, 29, 30)
- Section 138, proviso (b), Negotiable Instruments Act, 1881'Said amount of money' means the cheque amount (Suman Sethi, Rahul Builders). Since the substantive offence was not made out, the Court did not decide whether the notice was valid. (¶¶ 22, 23, 24, 30)
Held
- A security cheque matures for presentation if the loan is not repaid by other means by the due date. The borrower may, however, repay in the meantime, and if the loan is discharged or the position changes, the cheque should not be presented (Sampelly Satyanarayana Rao, Sripati Singh, Sunil Todi). (¶¶ 12, 13, 14)
- Section 138 must not be read to permit dishonesty by the payee either. The offence arises on dishonour at encashment, so the cheque must represent a legally enforceable debt at that time. A material change, such as part-payment, means the sum on the cheque is no longer that debt. (¶¶ 15, 16)
- The courts below found that the cheque was given as security when the loan was made and that the payments of about Rs. 4.09 lakh, which the complainant admitted and did not claim were gifts, were made towards that loan. On encashment, Rs. 20 lakh was therefore not owed. (¶¶ 18, 19, 20)
- Part-payment made after the cheque is drawn and before it is encashed must be endorsed under Section 56. An endorsed cheque dishonoured for the balance attracts Section 138, but an unendorsed cheque for the full original sum does not. (¶¶ 28, 29, 30)
Result
Appeal dismissed. The first respondent's acquittal under Section 138 of the Negotiable Instruments Act was upheld.