TaxTMI 
TaxTMI 
TaxTMI 
2022 (10) TMI 424
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....014, 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 p....
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....nt 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 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 part- payment that was already made. The Submissions 7....
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.... 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 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 ....
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....58 , the respondent advanced a loan for setting up a power project and post-dated cheques were given for security. The 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 Jharkand 2021 SCC OnLine SC 1002, 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 t....
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....e 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 (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 Gujarat Criminal Appeal No. 1446 of 2021 , a two judge Bench of this Court expounded the meaning of the phrase 'debt or other liability'. It was observed that the phr....
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....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. AIR 1995 SC 1952 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. Sunil Sodhi v. State of Gujarat, Criminal Appeal No. 1446 of 2021 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....
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....ken 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 Twent....
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....8 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 Churiwal (2000) 2 SCC 38, 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, ....
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....d. Pursuant thereto, it was to offer the entire sum of Rs 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....
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.... Puranbhai Bansal [2018 (2) GLH 105]. 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 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 drawe....