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



1
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/-
4
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
9
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
10
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
12
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)
13
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
14
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.”
15
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
16
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.”
19
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]
20
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;
21
(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

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