Supreme Court: No Offence Under Section 138 NI Act If Cheque Is Presented For Full Amount Without Endorsing Part Payment Made By Borrower

The Supreme Court in the case Dashratbhai Trikambhai Patel versus Hitesh Mahendrabhai Patel and others observed and has stated that no offence for dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881 is made out if the cheque is presented for the full amount without endorsing the part-payment made by the borrower after the issuance of the cheque.

It was held by the court that that the sum reflected on the cheque will not be the “legally enforceable debt” as per Section 138 NI Act, when the cheque is presented for encashment without endorsing the part-payment. As per Section 56 of the NI Act, past-payments must be endorsed on the cheque and is such cheque endorsement is made, the cheque can be presented for the balance amount. Thus, the Court explained that the offence under Section 138 NI Act will be attracted if such a cheque with endorsement of the part-payment gets dishonoured.

In the present case, the cheque was issued for an amount of Rs 20 lakhs. A part of payment was made by the borrower of Rs. 4,09,315/- to the drawee of the cheque, after the cheque was issued. Therefore, the cheque was presented for Rs 20 lakhs, without endorsing the part-payment.

In this factual scenario, the Supreme Court noted that the complaint under Section 138 NI Act is not sustainable when the cheque got dishonoured after being presented for the full amount.

While affirming the judgment of the Gujarat High Court, wherein the acquittal of the accused was approved in the case.

The bench comprising of Justice DY Chandrachud and Justice Hima Kohli observed and has summarised the findings as follows :

1.The cheque that is dishonoured must represent a legally enforceable debt on the date of maturity or presentation, for the commission of an offence under Section 138 of the NI Act.

2.If the drawer of the cheque pays a whole or part of the sum between the period when the cheque is drawn and when it is encashed upon maturity, then on the cheque, the legally enforceable debt on the date of maturity would not be the sum represented.

3.When a whole or a part 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. Thus, the cheque endorsed with the payment made may be used to negotiate the balance, if any and if the cheque that is endorsed is dishonoured when it is sought to be encashed upon maturity, then the offence under Section 138 of the NI Act will stand attracted.

It was noted by the court that the accused had made part payments after the debt was incurred and before the cheque was presented for encashment. Further, the sum of Rupees 20 lakhs represented on the cheque was not the legally enforceable debt on the date of maturity. Subsequently, the accused cannot be deemed to have committed offence under Section 138 NI Act.

Further, it was noted by the court that the notice of demand was also issued for Rupees 20 lakhs.  

Accordingly, the Supreme Court dismissed the appeal filed against the judgment of the Gujarat High Court.