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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether a cheque presented after part-payment of the underlying liability, without endorsement of such part-payment on the cheque, could sustain proceedings under Section 138 of the Negotiable Instruments Act, 1881, and justify quashing under Section 482 of the Code of Criminal Procedure, 1973.
Analysis: Section 56 of the Negotiable Instruments Act, 1881 permits endorsement of part-payment on the instrument, and the balance alone may thereafter be negotiated. Applying the principle stated in Dashrathbhai and the reasoning in the Gujarat High Court decision relied upon, the legal liability represented by the cheque stands reduced when part-payment is made after the cheque is drawn but before presentation. In such a situation, endorsement of the part-payment is necessary before presentation for encashment of the balance. On the admitted facts, part-payment had been made before presentation, but the cheque was still presented for the full amount without any endorsement of the reduced liability. The cheque therefore did not represent a legally enforceable debt at the time of presentation.
Conclusion: The proceedings under Section 138 of the Negotiable Instruments Act, 1881 could not be sustained, and quashing was warranted; the petitioner succeeded.
Ratio Decidendi: Where part-payment of the cheque amount is made after issuance but before presentation, the payee must record that payment on the cheque under Section 56 of the Negotiable Instruments Act, 1881 before presenting it, failing which dishonour of the unendorsed cheque does not attract Section 138.
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