Dashrathbhai Trikambhai Patel Vs. Hitesh Mahendrabhai Patel & Anr.

Dashrathbhai Trikambhai Patel Vs. Hitesh Mahendrabhai Patel & Anr. 

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

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Reportable

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

Criminal Appeal No. 1497 of 2022

Dashrathbhai Trikambhai Patel …Appellant

Vs.

Hitesh Mahendrabhai Patel & Anr. …Respondents

J U D G M E N T

Dr Dhananjaya Y Chandrachud, J

1. This appeal arises from a judgment dated 12 January 2022 of the High Court

of Gujarat. The High Court dismissed an appeal against the judgment of the

Additional Chief Judicial Magistrate dated 30 August 2016 by which the first

respondent was acquitted of the offence under Section 138 of the Negotiable

Instruments Act 18811

. At the core, the issue is whether the offence under Section

138 of the Act would deem to be committed if the cheque that is dishonoured does

not represent the enforceable debt at the time of encashment.

1 The Act

2

The Facts

2. 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 on 16 January 2012 and

to discharge the liability, issued a cheque dated 17 March 2014 bearing cheque

No. 877828 for the said 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 of Rs.

20,00,000:

“Therefore, my client hereby calls upon you to make

payment of Rs. 20,00,000/- towards the legally

enforceable debt due and payable by you within a period

of 15 days from the date of receipt of this particular notice,

[…]”

3. On 25 April 2014, the first respondent addressed a response to the statutory

notice where he alleged the following:

(i) The first respondent and the appellant are related to each other. The

appellant’s son married the first respondent’s sister;

(ii) The appellant lent the first respondent a loan of rupees forty lakhs. There

was an oral agreement between the parties that the first respondent

would pay rupees one lakh every three months by cheque and rupees

eighty thousand in cash to the appellant. Two cheques were given to the

appellant for security. It was agreed that the appellant would return both

the cheques when the sum lent was paid in full;

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(iii) The appellant’s son-initiated divorce proceedings against the

respondent’s sister. However, the dowry that was given at the time of

marriage is still in the possession of the appellant; and

(iv) The cheques that were issued for security have been misused by the

appellant.

4. On 12 May 2014, the appellant filed a criminal complaint against the first

respondent for the offence under Section 138 of the Act. On 19 May 2014, the first

respondent issued another reply to the legal notice. By the said reply, the earlier

reply to the legal notice was sought to be amended by replacing the

acknowledgment of having received a loan of rupees forty lakhs to rupees twenty

lakhs.

5. By a judgment dated 30 August 2016, the Trial Court acquitted the first

respondent of the offence under Section 138 on the ground that the first respondent

paid the appellant a sum of rupees 4,09,3015 between 8 April 2012 and 30

December 2013 partly discharging his liability in respect of the debt of rupees

twenty lakhs. The split up of the payments is set out below:

Date Amount

18.04.2012 Rs. 49,315/-

05.10.2012 Rs. 1,20,000/-

15.01.2013 Rs. 60,000/-

10.07.2013 Rs. 1,20,000/-

30.12.2013 Rs. 60,000/-

Total Rs. 4,09,315/-

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The Trial Court observed that the appellant has failed to prove that he was owed a

legally enforceable debt of rupees twenty lakhs:

“Therefore, the plaintiff’s complaint proved that the

accused has paid Rs, 4,09,315 out of the amount due as

per fact. So that on the day the plaintiff deposited in the

bank to recover a legal amount of Rs, 20,00,000/- The

court believes that the prosecution has failed to prove that

fact.”

6. The appellant filed an appeal against the judgment of the Trial Court before

the High Court of Gujarat. On 10 October 2019, the first respondent moved an

application before the High Court of Gujarat seeking to place on record the

amended reply dated 19 May 2014. By an order dated 11 October 2018, the High

Court allowed the application for placing the additional evidence on record. The

High Court by its judgment dated 12 January 2022 dismissed the appeal, thereby

upholding the judgment of the Trial Court acquitting the first respondent. The High

Court affirmed the finding of fact by the Trial Court that a part of the debt owed by

the first respondent to the appellant was discharged and thus the notice of demand

issued under Section 138 of the Act is not valid. In the course of the analysis, the

following findings were entered:

(i) The appellant has in the course of his cross-examination accepted that the

first respondent had deposited rupees 4,09,315 in his account;

(ii) There is a statutory presumption that the sum drawn in the cheque is a debt

or liability that is owed by the drawer of the cheque to the drawee. The part

-payment made by the first respondent ought to have been reflected in the

statutory notice issued by the appellant. The sum in the cheque is higher

than the amount that was due to the appellant. Thus, the statutory notice

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issued under Section 138 is not valid. It is an omnibus notice since it did

not recognise the part-payment that was made; and

(iii) The cheque was a security for the money lent by the appellant. The

undated cheque was presented to the bank without recognising the partpayment that was already made.

The Submissions

7. Mr Mehmood Umar Faruqui, counsel appearing on behalf of the appellant

submitted that:

(i) 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;

(ii) The payment of rupees 4,09,315 was before the issuance of the

cheque; and

(iii) The first respondent did not make any payment of the sum that was

due since the statutory notice that was served upon him on 15 April

2014.

8. Mr Nakul Dewan, senior counsel appearing on behalf of the first respondent

submitted that:

(i) 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;

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(ii) If the debtor has paid a part of the debt, a statutory notice seeking the

payment of the entire sum in the cheque without any endorsement under

Section 56 of the part-payment made would not be legally sustainable; and

(iii) Since the first respondent has paid off a part of the debt, the appellant cannot

initiate action if the cheque which represented the principal amount without

deducting or endorsing a part payment has been dishonoured.

The Analysis

9. The rival submissions fall for our consideration. Section 138 of the Act reads

as follows:

“138. Dishonour of cheque for insufficiency, etc., of

funds in the account.—Where any cheque drawn by a

person on an account maintained by him with a banker for

payment of any amount of money to another person from

out of that account for the discharge, in whole or in part,

of any debt or other liability, is returned by the bank

unpaid, either because of the amount of money standing

to the credit of that account is insufficient to honour the

cheque or that it exceeds the amount arranged to be paid

from that account by an agreement made with that bank,

such person shall be deemed to have committed an

offence and shall, without prejudice to any other provision

of this Act, be punished with imprisonment for 8 [a term

which may be extended to two years’], or with fine which

may extend to twice the amount of the cheque, or with

both:

Provided that nothing contained in this section shall apply

unless—

(a) the cheque has been presented to the bank within a

period of six months from the date on which it is drawn or

within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as

the case may be, makes a demand for the payment of the

said amount of money by giving a notice; in writing, to

the drawer of the cheque, [within thirty days] of the receipt

of information by him from the bank regarding the return of

the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment

of the said amount of money to the payee or, as the case

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may be, to the holder in due course of the cheque, within

fifteen days of the receipt of the said notice.

Explanation.—For the purposes of this section, “debt of

other liability” means a legally enforceable debt or

other liability.

 (emphasis supplied)

10. Section 138 of the Act provides that a drawer of a cheque is deemed to have

committed the offence if the following ingredients are fulfilled:

(i) A cheque drawn for the payment of any amount of money to another

person;

(ii) The cheque is drawn for the discharge of the ‘whole or part’ of any

debt or other liability. ‘Debt or other liability’ means legally enforceable

debt or other liability; and

(iii) The cheque is returned by the bank unpaid because of insufficient

funds.

However, unless the stipulations in the proviso are fulfilled the offence is not

deemed to be committed. The conditions in the proviso are as follows:

(i) The cheque must be presented in the bank within six months from the

date on which it was drawn or within the period of its validity;

(ii) The holder of the cheque must make a demand for the payment of

the ‘said amount of money’ by giving a notice in writing to the drawer

of the cheque within thirty days from the receipt of the notice from the

bank that the cheque was returned dishonoured; and

(iii) The holder of the cheque fails to make the payment of the ‘said

amount of money’ within fifteen days from the receipt of the notice.

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11. The primary contention of the first 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 question before this Court is

whether Section 138 of the Act would still be attracted when the drawer of the

cheque makes a part payment towards the debt or liability after the cheque is drawn

but before the cheque is encashed, for the dishonour of the cheque which

represents the full sum.

12. It must be 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. Thus, it is crucial that we refer to the law laid

down by this Court on the issuance of post-dated cheques and cheques issued for

the purpose of security. In Indus Airways Private Limited v. Magnum Aviation

Private Limited2

, the issue before a two-Judge Bench of this Court was whether

dishonour of post-dated cheques which were issued by the purchasers towards

‘advance payment’ would be covered by Section 138 of the Act if the purchase

order was cancelled subsequently. It was held that Section 138 would only be

applicable where there is a legally enforceable debt subsisting on the date when

the cheque is drawn. In Sampelly Satyanarayana Rao v. Indian Renewable

Energy Development Agency Limited3

, the respondent advanced a loan for

setting up a power project and post-dated cheques were given for security. The

2 (2014) 12 SCC 539

3 (2016) 10 SCC 458

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cheques were dishonoured and a complaint was instituted under Section 138.

Distinguishing Indus Airways (supra), it was held that the test for the application

of Section 138 is whether there was a legally enforceable debt on the date

mentioned in the cheque. It was held that if the answer is in the affirmative, then

the provisions of Section 138 would be attracted. In Sripati Singh v. State of

Jharkand4

, this Court observed that if a cheque is issued as security and if the

debt is not repaid in any other form before the due date or if there is no

understanding or agreement between the parties to defer the repayment, the

cheque would mature for presentation:

“17. A cheque issued as security pursuant to a financial

transaction cannot be considered as a worthless piece of

paper under every circumstance. ‘Security’ in its true

sense is the state of being safe and the security given for

a loan is something given as a pledge of payment. It is

given, deposited or pledged to make certain the fulfilment

of an obligation to which the parties to the transaction are

bound. If in a transaction, a loan is advanced and the

borrower agrees to repay the amount in a specified

timeframe and issues a cheque as security to secure

such repayment; if the loan amount is not repaid in

any other form before the due date or if there is no

other understanding or agreement between the parties

to defer the payment of amount, the cheque which is

issued as security would mature for presentation and

the drawee of the cheque would be entitled to present

the same. On such presentation, if the same is

dishonoured, the consequences contemplated under

Section 138 and the other provisions of N.I. Act would flow.

18. When a cheque is issued and is treated as ‘security’

towards repayment of an amount with a time period being

stipulated for repayment, all that it ensures is that such

cheque which is issued as ‘security’ cannot be

presented prior to the loan or the instalment maturing

for repayment towards which such cheque is issued

as security. Further, the borrower would have the

option of repaying the loan amount or such financial

liability in any other form and in that manner if the

amount of loan due and payable has been discharged

4 2021 SCC OnLine SC 1002

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within the agreed period, the cheque issued as

security cannot thereafter be presented. Therefore,

the prior discharge of the loan or there being an

altered situation due to which there would be

understanding between the parties is a sine qua non

to not present the cheque which was issued as

security. These are only the defences that would be

available to the drawer of the cheque in a proceedings

initiated under Section 138 of the N.I. Act. Therefore, there

cannot be a hard and fast rule that a cheque which is

issued as security can never be presented by the drawee

of the cheque. If such is the understanding a cheque would

also be reduced to an ‘on demand promissory note’ and in

all circumstances, it would only be a civil litigation to

recover the amount, which is not the intention of the

statute. When a cheque is issued even though as ‘security’

the consequence flowing therefrom is also known to the

drawer of the cheque and in the circumstance stated

above if the cheque is presented and dishonoured, the

holder of the cheque/drawee would have the option of

initiating the civil proceedings for recovery or the criminal

proceedings for punishment in the fact situation, but in any

event, it is not for the drawer of the cheque to dictate terms

with regard to the nature of litigation.”

 (emphasis supplied)

Based on the above analysis of precedent, the following principles emerge:

(i) 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;

(ii) 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; and

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(iii) 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.

13. In Sunil Todi v. State of Gujarat5

, a two judge Bench of this Court

expounded the meaning of the phrase ‘debt or other liability’. It was observed that

the phrase takes within its meaning a ‘sum of money promised to be paid on a

future day by reason of a present obligation’. The court observed that a post-dated

cheque issued after the debt was incurred would be covered within the meaning of

‘debt’. The court held that Section 138 would also include cases where the debt is

incurred after the cheque is drawn but before it is presented for encashment. In

this context, it was observed:

“26. The object of the NI Act is to enhance the acceptability

of cheques and inculcate faith in the efficiency of

negotiable instruments for transaction of business. The

purpose of the provision would become otiose if the

provision is interpreted to exclude cases where debt is

incurred after the drawing of the cheque but before its

encashment. In Indus Airways, advance payments were

made but since the purchase agreement was cancelled,

there was no occasion of incurring any debt. The true

purpose of Section 138 would not be fulfilled, if ‘debt or

other liability’ is interpreted to include only a debt that

exists as on the date of drawing of the cheque. Moreover,

Parliament has used the expression ‘debt or other liability’.

The expression “or other liability’ must have a meaning of

its own, the legislature having used two distinct phrases.

The expression ‘or other liability’ has a content which is

broader than ‘a debt’ and cannot be equated with the latter.

In the present case, the cheque was issued in close

proximity with the commencement of power supply. The

issuance of the cheque in the context of a commercial

transaction must be understood in the context of the

business dealings. The issuance of the cheque was

followed close on its heels by the supply of power. To hold

that the cheque was not issued in the context of a liability

which was being assumed by the company to pay for the

5 Criminal Appeal No. 1446 of 2021

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dues towards power supplied would be to produce an

outcome at odds with the business dealings. If the

company were to fail to provide a satisfactory LC and yet

consume power, the cheques were capable of being

presented for the purpose of meeting the outstanding

dues.”

14. The judgments from Indus Airways (supra) to Sunil Todi (supra) indicate

that much of the analysis on whether post-dated cheques issued as security would

fall within the purview of Section 138 of the Act hinges on the relevance of time. In

Indus Airways (supra), this Court held that for the commission of the offence

under Section 138, there must have been a debt on the date of issuance of the

cheque. However, later judgments adopt a more nuanced position while discussing

the validity of proceedings under Section 138 on the dishonour of post-dated

cheques. This Court since Sampelly Satyanarayana Rao (supra) has consistently

held that there must be a legally enforceable debt on the date mentioned in the

cheque, which is the date of maturity.

15. This Court in NEPC Micon Ltd. v. Magna Leasing Ltd.6 held that the Courts

must interpret Section 138 with reference to the legislative intent to supress the

mischief and advance the remedy. The objective of the Act in general and Section

138 specifically is to enhance the acceptability of cheques and to inculcate faith in

the efficacy of negotiable instruments for the transaction of business.7 Section 138

criminalises the dishonour of cheques. This is in addition to the civil remedy that is

available. Through the criminalisation of the dishonour of cheques, the legislature

intended to prevent dishonesty on the part of the drawer of a negotiable

instrument.8 The interpretation of Section 138 must not permit dishonesty of the

6 AIR 1995 SC 1952

7 Sunil Sodhi v. State of Gujarat, Criminal Appeal No. 1446 of 2021

8 M/s Electronics Trade and Technology Development Corporation Ltd., 1996(3) Crimes 82 (SC)

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drawee of the cheque as well. A cheque is issued as security to provide the drawee

of the cheque with a leverage of using the cheque in case the drawer fails to pay

the debt in the future. Therefore, cheques are issued and received as security with

the contemplation that a part or the full sum that is addressed in the cheque may

be paid before the cheque is encashed.

16. The judgments of this 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. 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.

17. The appellant contended that the cheque was issued by the first respondent

on 17 March 2014. However, the payment of rupees 4,09,3015 received from the

first respondent was between 8 April 2012 and 30 December 2013. It was

contended that since the payments were made before the issuance of cheque, it

cannot be considered as part-payment for the discharge of liability.

18. The appellant in his cross- examination conducted on 17 March 2016 has

categorically mentioned that he did not take any receipt on lending rupees twenty

lakhs to the first respondent. The appellant stated that a ‘cheque against the

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cheque’ was given. The relevant portion of the cross-examination is extracted

below:

“[…] I have paid the Income Tax Return for the accounting

year 2012-13. It is true that I have shown the transaction

of Rupees Twenty Lakhs in the said return. I am ready to

present the Income Tax Return for the Accounting Year of

Rupees Twenty Lakhs to the Accused; I have not

acknowledged the receipt. It is true that I have given

the cheque against the said cheque and not taken the

receipt.”

(emphasis supplied)

19. In the testimony recorded under Section 145 of the Act, the appellant stated

that he lent the first respondent a sum of rupees twenty lakhs on 16 January 2012

and that the respondent gave a cheque of rupees twenty lakhs stating that it may

be deposited on the date specified in it:

“The plaintiff and the Defendant of this case being a Vevai

and has a house- like relationship, he has given the

amount to the plaintiff as per his requirement on dtd.

16/01/2012 and for the payment of the amount paid by the

Plaintiff to the in this case, his bank State Bank of India,

AUDa Garden, Prahladnagar Branch, Ahmedabad

Cheque Number: 8877828 of Rs. 20,00,000/- (Rupees

Twenty Lakhs Only) and stated that the above cheque

was deposited by the plaintiff on the date specified in

it giving the plaintiff the firm confidence and

assurance that the plaintiff would definitely get the

amount due from us.”

(emphasis supplied)

Further, in the cross-examination, the appellant stated that the amount that was

paid by the first respondent was not paid as a reward or gift:

“I cannot say whether the accused has also paid me this

amount in the count of Rupees Twenty Lakhs. The

accused did not even give me that amount as a

reward/gift.”

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20. It was the contention of the first respondent that the cheque was not dated.

On the other hand, it was the contention of the appellant that the cheque was dated

17 March 2014. The Courts below did not record a finding on whether the cheque

was un-dated or was dated 17 March 2014. However, it was conclusively held that

the cheque was issued by the first respondent for security on the date when the

loan was borrowed. It was also categorically recorded by the Courts below that a

sum of rupees 4,09,315 that was paid by the first respondent was paid to partly

fulfil the debt of rupees twenty lakhs. The appellant in his cross-examination has

stated that a ‘cheque against a cheque’ was given when he loaned the sum of

rupees twenty lakhs. Thus, it can be concluded that the cheque was given as a

security to discharge the loan, either undated or dated as 17 March 2014. Merely

because the sum of rupees 4,09,315 was paid between 8 April 2012 and 30

December 2013, which was after 17 March 2014, it cannot be concluded that the

sum was not paid in discharge of the loan of rupees twenty lakh. The sum of rupees

4,09,315 was paid after the loan was lent to the first respondent. The appellant in

his cross- examination has not denied the receipt of the payments. He has also

stated it was not received as a ‘gift or reward’. In view of the above discussion, at

the time of the encashment of the cheque, the first respondent did not owe a sum

of rupees twenty lakhs as represented in the cheque at the time of encashment of

the cheque that was issued for security.

21. The High Court while dismissing the appeal against acquittal held that the

notice issued by the appellant is an omnibus notice since it does not represent a

legally enforceable debt. Relying on the judgment of this Court in Rahul Builders

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v. Arihant Fertilizers & Chemicals9

, it was held that the legal notice was not

issued in accordance with proviso (b) to Section 138 since it did not represent the

‘correct amount’. The appellant has contended that the requirement under Section

138 is to send a notice demanding the ‘cheque amount’. It was contended that the

offence under Section 138 was made out since the appellant in the statutory notice

demanded the payment of rupees twenty lakhs which was the ‘cheque amount’.

22. 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.

23. This Court has interpreted the phrase ‘the said amount of money’ as it finds

place in proviso (b) to Section 138. In Suman Sethi v. Ajay K Churiwal10, the

appellant issued a cheque for rupees twenty lakhs in favour of the first respondent.

The cheque was dishonoured. A demand notice for an amount higher than the

cheque amount was issued. A two-Judge Bench of this Court held that the demand

has to be made for the ‘said amount’, which is the cheque amount. It was also

observed that the question of whether the notice demanding an amount higher than

the cheque amount is valid would depend on the language of the notice:

“8. It is a well-settled principle of law that the notice has to

be read as a whole. In the notice, demand has to be made

for the “said amount” i.e. the cheque amount. If no such

demand is made the notice no doubt would fall short of its

legal requirement. Where in addition to the “said amount”

there is also a claim by way of interest, cost etc. whether

9 (2008) 2 SCC 321

10 (2000) 2 SCC 38

17

the notice is bad would depend on the language of the

notice. If in a notice while giving the break-up of the claim

the cheque amount, interest, damages etc. are separately

specified, other such claims for interest, cost etc. would be

superfluous and these additional claims would be

severable and will not invalidate the notice. If, however, in

the notice an omnibus demand is made without specifying

what was due under the dishonoured cheque, the notice

might well fail to meet the legal requirement and may be

regarded as bad.”

24. In KR Indira v. G. Adinarayana11, it was held that the notice did not demand

the payment of the cheque amount but the loan amount. It was observed that for

the purposes of proviso (b), the amount covered in the dishonoured cheque must

be demanded. In Rahul Builders (supra), the drawee demanded the payment of

rupees 8,72,409 which was higher than the sum of rupees 1,00,000 represented

in the cheque. It was reiterated that the phrase ‘payment of the said amount’ in

proviso (b) would mean the cheque amount. Since the demand in the notice was

not severable as the cheque amount could not be severed from the demand for

the additional amount, it was held that it was an omnibus notice. Justice SB Sinha

writing for a two-Judge Bench of this Court observed:

“10. […] One of the conditions was service of a notice

making demand of the payment of the amount of cheque

as is evident from the use of the phraseology “payment of

the said amount of money”. […] It is one thing to say that

the demand may not only represent the unpaid amount

under cheque but also other incidental expenses like costs

and interests, but the same would not mean that the notice

would be vague and capable of two interpretations. An

omnibus notice without specifying as to what was the

amount due under the dishonoured cheque would not

subserve the requirement of law. Respondent 1 was not

called upon to pay the amount which was payable under

the cheque issued by it. The amount which it was called

upon to pay was the outstanding amounts of bills i.e. Rs

8,72,409. The noticee was to respond to the said demand.

Pursuant thereto, it was to offer the entire sum of Rs

11 (2003) 8 SCC 300

18

8,72,409. No demand was made upon it to pay the said

sum of Rs 1,00,000 which was tendered to the

complainant by cheque dated 30-4-2000. What was,

therefore, demanded was the entire sum and not a part of

it.”

25. Section 138 creates a deeming offence. The provisos prescribe stipulations

to safeguard the drawer of the cheque by providing them the opportunity of

responding to the notice and an opportunity to repay the cheque amount. The

conditions stipulated in the provisos need to be fulfilled in addition to the ingredients

in the main provision of Section 138. It has already been concluded above that the

offence under Section 138 arises only when a cheque that represents a part or

whole of the legally enforceable debt at the time of encashment is returned by the

bank unpaid. Since the cheque did not represent the legally enforceable debt at

the time of encashment, the offence under Section 138 is not made out.

26. The appellant contends that the purpose of Section 138 of the Act would be

defeated if the dishonour of the cheque issued for security is not included within

the purview of Section 138 where the payment of a part of the cheque amount is

made. It was contended that it would lead to a possibility where the drawer of the

cheque could evade prosecution under Section 138 by paying a small amount of

the debt while defaulting on the remaining payment. Section 56 stipulates that if

there is an endorsement on a negotiable instrument that a part of the sum

mentioned in the cheque has been paid, then the instrument may be negotiated for

the balance. Section 56 reads as follows:

“56. Indorsement for part of sum due.- No writing on a

negotiable instrument is valid for the purpose of

negotiation if such writing purports to transfer only a part

of the amount appearing to be due on the instrument; but

where such amount has been partly paid a note to that

effect may be indorsed on the instrument, which may then

be negotiated for the balance.”

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27. Section 15 defines the phrase ‘indorsement’ as follows:

“15. Indorsement.- When a maker or holder of a

negotiable instrument signs the same, otherwise than as

such maker, for the purpose of negotiation, on the back or

face thereof or on a slip of paper annexed thereto, or so

signs for the same purpose a stamped paper intended to

be completed as a negotiable instrument, he is said to

indorse the same, and is called the “indorse”.”

28. A Division Bench of the Kerala High Court has held in Joseph Sartho v.

Gopinathan12 that since the representation in the cheque was for a sum higher

than the amount that was due on the date that it was presented for encashment,

the drawer of the cheque cannot be convicted for the offence under Section 138 of

the Act. The High Court of Delhi addressed the same issue in Alliance

Infrastructure Project Ltd. v. Vinay Mittal13. The High Court observed that when

part payment is made after the cheque is drawn, the payee has the option of either

taking a new cheque for the reduced amount or by making an endorsement on the

cheque acknowledging that a part payment was made according to the provisions

of Section 56 of the Act. It was also held that the notice of demand which requires

the drawer of the cheque to make payment of the whole amount represented in the

cheque despite receiving part repayment against the sum, before the issue of

notice, cannot be valid under Section 138(b) of the Act. A similar view was taken

by the High Court of Gujarat in Shree Corporation v. Anilbhai Puranbhai

Bansal14.

29. Under Section 56 read with Section 15 of the Act, an endorsement may be

made by recording the part-payment of the debt in the cheque or in a note

12 (2008) 3 KLJ 784 13 ILR (2010) III Delhi 459 14 [2018 (2) GLH 105]

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appended to the cheque. When such an endorsement is made, the instrument

could still be used to negotiate the balance amount. If the endorsed cheque when

presented for encashment of the balance amount is dishonoured, then the drawee

can take recourse to the provisions of Section 138. Thus, 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.

30. In view of the discussion above, we summarise our findings below:

(i) 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;

(ii) 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;

(iii) 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;

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(iv) The first respondent has made part-payments after the debt was incurred

and before the cheque was encashed upon maturity. The sum of rupees

twenty lakhs represented on the cheque was not the ‘legally enforceable

debt’ on the date of maturity. Thus, the first respondent cannot be

deemed to have committed an offence under Section 138 of the Act when

the cheque was dishonoured for insufficient funds; and

(v) The notice demanding the payment of the ‘said amount of money’ has

been interpreted by judgments of this 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.

31. For the reasons indicated above, the appeal against the judgment of the

High Court of Gujarat dated 12 January 2022 is dismissed.

32. Pending application(s), if any, stand disposed of.

…..…....…........……………….…........J.

 [Dr Dhananjaya Y Chandrachud]

…..…....…........……………….…........J.

 [Hima Kohli]

New Delhi;

October 11, 2022