If the Cheque that is endorsed is dishonoured then the offence under Section 138 will stand attracted: Supreme Court
The Supreme Court held that 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.
Background
On 10 April 2014, the appellant issued a statutory notice under Section 138 of the Act to the first respondent-accused. It was alleged that the first respondent borrowed a sum of rupees twenty lakhs from the appellant and to discharge the liability, issued a cheque for a sum. It was further alleged that the cheque when presented on 2 April 2014 was dishonoured due to insufficient funds. The appellant issued the notice calling the first respondent to pay the legally enforceable debt.
Arguments
Advocate Mehmood Umar Faruqui, appearing for the appellant submitted that there is nothing on record to show that the payment of rupees 4,09,315 was made towards the discharge of the debt of rupees twenty lakhs.
He contended that the payment of rupees 4,09,315 was before the issuance of the cheque and the first respondent did not make any payment of the sum that was due since the statutory notice was served upon him on 15 April 2014.
Senior Advocate Nakul Dewan, appearing for the respondent, submitted that the term ‘debt or other liability’ used in Section 138 of the Act has been defined in the Explanation clause to mean a ‘legally enforceable debt or other liability’. Thus, the demand made in the statutory notice must be for a sum that is legally enforceable.
Decision
The division bench of Justice Dhananjaya Y Chandrachud and Justice Hima Kohli noted that the primary contention of the respondent is that the offence under Section 138 was not committed since the amount that was payable to the appellant, as on the date the cheque was presented for encashment, was less than the amount that was represented in the cheque.
The bench further noted that when a part-payment is made after the issuance of a post-dated cheque, the legally enforceable debt at the time of encashment is less than the sum represented in the cheque. A part-payment or a full payment may have been made between the date when the debt has accrued to the date when the cheque is sought to be encashed.
The court observed that where the borrower agrees to repay the loan within a specified timeline and issues a cheque for security but defaults in repaying the loan within the timeline, the cheque matures for presentation. When the cheque is sought to be encashed by the debtor and is dishonoured, Section 138 of the Act will be attracted.
“However, the cardinal rule when a cheque is issued for security is that between the date on which the cheque is drawn to the date on which the cheque matures, the loan could be repaid through any other mode. It is only where the loan is not repaid through any other mode within the due date that the cheque would mature for presentation” the bench stated.
The court said that if the loan has been discharged before the due date or if there is an ‘altered situation’, then the cheque shall not be presented for encashment.
The court stated that the judgments of the Court on post-dated cheques when read with the purpose of Section 138 indicate that an offence under the provision arises if the cheque represents a legally enforceable debt on the date of maturity.
It was observed that the offence under Section 138 is tipped by the dishonour of the cheque when it is sought to be encashed. 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.
It was further observed that Section 138 of the Act stipulates that if the cheque is returned unpaid by the bank for the lack of funds, then the drawee shall be deemed to have committed an offence under Section 138 of the Act. However, the offence under Section 138 of the Act is attracted only when the conditions in the provisos have been fulfilled. Proviso (b) to Section 138 states that a notice demanding the payment of the ‘said amount of money’ shall be made by the drawee of the cheque.
The court summarized that 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” , the court added.
The bench said that 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 court held that the notice demanding the payment of the ‘said amount of money’ has been interpreted by judgments of the Court to mean the cheque amount. The conditions stipulated in the provisos to Section 138 need to be fulfilled in addition to the ingredients in the substantive part of Section 138. Since in this case, the first respondent has not committed an offence under Section 138, the validity of the form of the notice need not be decided.
Case title: Dashrathbhai Trikambhai Patel v/s Hitesh Mahendrabhai Patel & Anr.
Citation: Criminal Appeal No. 1497 of 2022
