2022 (10) TMI 424 - SC - Indian Laws

Section 138 presumption rebutted when post-dated cheque's face value exceeds enforceable debt after partial payment before presentation

Dashrathbhai Trikambhai Patel Versus Hitesh Mahendrabhai Patel & Anr.

SC held that where a post-dated cheque is issued but the drawer makes part-payment after the cheque is drawn and before presentation, the legally ... Dishonor of Cheque - enforceable debt at the time of encashment - acquittal of the accused - Rebuttal of statutory presumption - 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? - date on which the cheque is drawn to the date on which the cheque matures - Section 138 of NI Act - HELD THAT:- 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 - In Sripati Singh v. State of Jharkand [2021 (11) TMI 66 - SUPREME COURT], 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. In Sunil Todi v. State of Gujarat [2021 (12) TMI 175 - SUPREME COURT], 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. 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 - 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 Churiwal [2000 (2) TMI 822 - SUPREME COURT] 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. 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 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. Appeal dismissed. Issues Involved:1. Legally enforceable debt under Section 138 of the Negotiable Instruments Act, 1881.2. Validity of statutory notice under Section 138.3. Part-payment of debt and its effect on the enforceability of the cheque.4. Interpretation of 'debt or other liability' and its timing.5. Endorsement of part-payment on the cheque under Section 56 of the Act.Detailed Analysis:1. Legally Enforceable Debt under Section 138 of the Negotiable Instruments Act, 1881:The core issue was whether the offence under Section 138 of the Act would be deemed committed if the dishonoured cheque did not represent an enforceable debt at the time of encashment. The appellant alleged that the first respondent borrowed Rs. 20,00,000 and issued a cheque dated 17 March 2014, which was dishonoured due to insufficient funds. However, the Trial Court found that part of the debt had been paid, and thus, the cheque did not represent the legally enforceable debt at the time of encashment.2. Validity of Statutory Notice under Section 138:The High Court upheld the Trial Court's finding that the statutory notice issued under Section 138 was invalid because it did not account for the part-payment made by the first respondent. The notice demanded the full cheque amount without acknowledging the part-payment, making it an omnibus notice, which is not legally sustainable.3. Part-payment of Debt and Its Effect on the Enforceability of the Cheque:The appellant contended that the payment of Rs. 4,09,315 was made before the issuance of the cheque and thus should not affect the enforceability of the cheque for Rs. 20,00,000. However, the Court observed that the part-payment made after the issuance of the cheque but before its encashment must be reflected in the statutory notice. Since the cheque amount was higher than the legally enforceable debt at the time of encashment, Section 138 was not attracted.4. Interpretation of 'Debt or Other Liability' and Its Timing:The Court referred to several precedents, including Indus Airways Private Limited v. Magnum Aviation Private Limited and Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited, to conclude that Section 138 applies only if there is a legally enforceable debt at the time of the cheque's maturity. The Court emphasized that a post-dated cheque must represent a legally enforceable debt on the date of encashment, not just at the time of issuance.5. Endorsement of Part-payment on the Cheque under Section 56 of the Act:The Court highlighted that under Section 56, if part-payment is made, it must be endorsed on the cheque. Without such endorsement, presenting the cheque for the full amount when part-payment has been made does not attract the offence under Section 138. This is because the cheque no longer represents a legally enforceable debt for the full amount.Conclusion:The Supreme Court dismissed the appeal, holding that the cheque did not represent a legally enforceable debt of Rs. 20,00,000 at the time of encashment due to part-payments made by the first respondent. Consequently, the statutory notice demanding the full cheque amount was invalid, and the offence under Section 138 was not made out. The Court also clarified that part-payments must be endorsed on the cheque as per Section 56 to negotiate the balance amount legally.