Dashrathbhai Trikambhai Patel Vs Hitesh Mahendrabhai Patel & Anr. (Supreme Court of India)
Conclusion: In present facts of the case, the Hon’ble Supreme Court while dismissing the appeals held that the offence under Section 138 of the Negotiable Instruments Act 1881 would not be committed 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; and 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. 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;
Facts: In present case, the appeal arises from a Judgment dated 12 January 2022 of the High Court of Gujarat, wherein the High Court dismissed an appeal against the judgment of the Additional Chief Judicial Magistrate by which the first respondent was acquitted of the offence under Section 138 of the Negotiable Instruments Act 1881. The main issue to be considered was whether the offence under Section 138 of the NI Act would deem to be committed if the cheque that is dishonoured does not represent the enforceable debt at the time of encashment.
In present facts of the case, 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 Rs. 20,00,000/- from the appellant on 16 January 2012 and to discharge the liability, issued a cheque dated 17 March 2014. 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.
The Trial Court acquitted the first respondent on the ground that the first respondent paid the appellant a sum of Rs. 4,09,3015/- between 08.04.2012 and 30.12.2013 partly discharging his liability in respect of the debt of Rs. 20,00,000/-. And it was observed that the appellant has failed to prove that he was owed a legally enforceable debt of rupees twenty lakhs.
The appellant then approached the Hon’ble High Court and 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.
The Hon’ble Supreme Court after taking submissions of both sides, Section 138 of the NI Act and some Judgment so of the Apex Court into consideration observed 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.
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. 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. Since the cheque did not represent the legally enforceable debt at the time of encashment, the offence under Section 138 is not made out. Further, it was observed that 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.
The first respondent has made part-payments after the debt was incurred and before the cheque was encashed upon maturity. The sum of Rs. 20,00,000/- 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.
Accordingly, the appeals were dismissed.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
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.
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;
(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:
