Dishonour of Cheque Must Represent Enforceable Debt at Time of Encashment
Dashrathbhai Trikambhai Patel v. Hitesh Mahenrabhai Patel (Crl. A. No. 1479 of 2022)
The Supreme Court has held that for the offence under Section 138 of the Negotiable Instruments Act, 1881, the cheque which is dishonoured must represent a legally enforceable debt on the date of its presentation for encashment. The Court clarified that where part-payment of the debt is made after issuance of the cheque but before its encashment, such payment must be duly endorsed on the cheque in terms of Section 56 of the Act.
The ruling came in Dashrathbhai Trikambhai Patel v. Hitesh Mahenrabhai Patel, where the Court dismissed the appeal and upheld the acquittal of the accused in a cheque dishonour case.
Background of the Case
The Appellant alleged that the Respondent had borrowed a sum of ₹20 lakh on 16 January 2012, and in discharge of the liability, issued a cheque dated 17 March 2014. Upon presentation on 2 April 2014, the cheque was dishonoured due to insufficient funds.
A statutory notice under Section 138 of the NI Act was issued on 10 April 2014, calling upon the Respondent to pay the cheque amount. In response, the Respondent disputed the claim, contending that substantial payments had already been made and that the cheque was issued only as a security instrument.
Proceedings Before the Courts Below
Trial Court
By judgment dated 30 August 2016, the Trial Court acquitted the Respondent, holding that:
- The Respondent had paid ₹4,09,315 to the Appellant prior to the encashment of the cheque;
- The Appellant failed to establish that a legally enforceable debt of ₹20 lakh subsisted on the date of presentation; and
- The cheque amount exceeded the legally due sum at the relevant time.
High Court of Gujarat
The Gujarat High Court, by judgment dated January 2022, dismissed the Appellant’s appeal and affirmed the acquittal. The High Court noted that:
- The Appellant admitted receipt of part-payment during cross-examination;
- The statutory notice failed to acknowledge the part-payment made by the Respondent;
- The cheque was presented without endorsement of the payment as required under Section 56 of the NI Act; and
- A demand notice claiming an amount higher than what was legally due was invalid.
Aggrieved, the Appellant approached the Supreme Court.
Supreme Court’s Analysis
The Supreme Court examined the scope of Sections 138 and 56 of the NI Act, and reiterated that the expression “debt or other liability” under Section 138 refers to a legally enforceable obligation subsisting on the date of presentation of the cheque.
Relying on its earlier decision in Sunil Todi v. State of Gujarat, the Court observed that a post-dated cheque may fall within the ambit of Section 138, provided that the debt exists at the relevant time. The determination of liability, the Court noted, is closely linked to the timing of the debt and its enforceability.
The Court further held that where part-payment is made after the cheque is drawn but before it is presented for encashment, Section 56 mandates endorsement of such payment on the cheque. In the absence of such endorsement, the cheque cannot be said to represent a legally enforceable debt for the full amount mentioned therein.
The Bench also referred to the Kerala High Court’s decision in Joseph Sartho v. Gopinathan, which held that where the cheque amount is higher than the amount legally due on the date of presentation, the offence under Section 138 is not attracted.
Ruling
The Supreme Court upheld the judgments of the Trial Court and the High Court, holding that:
- The cheque for ₹20 lakh did not represent a legally enforceable debt on the date of its presentation;
- Failure to endorse part-payment rendered the statutory notice invalid; and
- Dishonour of such a cheque would not constitute an offence under Section 138 of the NI Act.
Accordingly, the appeal was dismissed.
Significance of the Judgment
The decision reinforces the principle that Section 138 proceedings cannot be used as a tool for recovery of amounts not legally due at the time of encashment. It underscores the mandatory nature of Section 56 endorsements in cases involving part-payments and brings clarity to the legal treatment of security cheques under the NI Act.
Case Title:
Dashrathbhai Trikambhai Patel v. Hitesh Mahenrabhai Patel
Citation:
Criminal Appeal No. 1479 of 2022, AIR 2022 SC 4961
