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Query: A limited company, my client, received a cheque from a customer for goods purchased in the normal course of business. However, the cheque was returned due to insufficient funds. The limited company is my client. What is best legal remedy available to recover the amount?

Revised Query: A limited company, my client, received a cheque from a customer for goods purchased in the normal course of business. However, the cheque was returned due to insufficient funds. The limited company, which is my client, is seeking the best legal remedy available to recover the amount.

Likely Arguments

Potential Arguments by Opposing Counsel

1. Lack of Compliance with Section 138 Requirements
- Opposing counsel may argue that your client failed to comply with the procedural requirements under Section 138 of the Negotiable Instruments Act, 1881.
- They may claim that the notice of demand was not issued within the stipulated 30-day period or that the complaint was not filed within the prescribed timeline.

2. Dispute Regarding Existence of Debt
- Opposing counsel could raise a defense claiming that there was a genuine dispute regarding the debt owed by the customer to your client.
- They may argue that the goods supplied were defective or not as per the agreed terms, leading to a legitimate reason for the customer to withhold payment.

3. Lack of Jurisdiction
- Another argument could be based on the lack of jurisdiction, questioning whether the complaint was filed in the appropriate court as per the provisions of the Act.
- Opposing counsel may challenge the jurisdiction of the court where the complaint was lodged, seeking to have the case dismissed on procedural grounds.

Effective Counterarguments

1. Compliance with Section 138 Requirements
- Emphasize that your client meticulously followed the requirements laid down in Section 138, including issuing a timely notice of demand and filing the complaint within the specified period.
- Provide documentary evidence such as the notice of demand and proof of delivery to demonstrate compliance with the statutory provisions.

2. Establishing Existence of Debt
- Present evidence to establish the existence of a valid debt owed by the customer to your client for the goods supplied.
- Highlight any invoices, delivery receipts, or other documentation that substantiate the transaction and the customer's obligation to make payment.

3. Jurisdictional Compliance
- Demonstrate that the complaint was filed in the court having jurisdiction as per the provisions of the Act.
- Provide details of the bank branch where the drawer's account is located to establish the correct jurisdiction for initiating legal proceedings.

Optimal Defense Strategy

1. Focus on Procedural Compliance
- Ensure that all procedural requirements under Section 138 are meticulously followed to strengthen your client's case.
- Maintain a detailed record of all communications, notices, and filings to counter any arguments of non-compliance raised by the opposing counsel.

2. Build a Strong Evidentiary Case
- Gather and present compelling evidence to establish the debt owed by the customer to your client.
- Include relevant documents, correspondence, and transaction records to substantiate the claim and refute any disputes regarding the debt.

3. Engage Legal Experts
- Consider engaging legal experts well-versed in negotiable instruments law to provide strategic guidance and representation in court.
- Leverage their expertise to anticipate and effectively counter any arguments raised by the opposing counsel during the legal proceedings.

By adopting a proactive approach, ensuring compliance with legal requirements, and building a robust evidentiary case, you can effectively defend your client, the limited company, in seeking recovery of the cheque amount due to insufficient funds. It is essential to stay vigilant, address potential challenges raised by the opposing counsel, and pursue the optimal legal strategy to secure a favorable outcome for your client.

Relevant Supreme Court Judgments
Year From: 1950, Year To: 2024

Result 1
Supreme Court of India
Nepc Micon Limited And Others vs Magma Leasing Limited
Honourable Judges M.B.Shah
Date of Judgment: 29 Apr 1999
Segment Number (Approximate Page Number): 4

From Section 138, it is apparent that (i) cheque should be drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account; (ii) the cheque should be returned by the bank unpaid either because:- (a) the amount of money standing to the credit of that account is insufficient to honour the cheque; or (b) it exceeds the amount arranged to be paid from that account by a person with the bank. (iii) In such a situation, such person (drawer of cheque) shall be deemed to have committed an offence. Further, the offence will be complete only when the conditions in the proviso (a), (b) and (c) are complied with. Hence, the question is, in a case where cheque is returned by the bank unpaid on the ground that the account is closed, would it mean that cheque is returned as unpaid on the ground that the amount of money standing to the credit of that account is insufficient to honour the cheque. In our view, the answer would obviously be in the affirmative because cheque is dishonoured as the amount of money standing to the credit of that account was nil at the relevant time apart from it being closed. Closure of the account would be an eventuality after the entire amount in the account is withdrawn. It means that there was no amount in the credit of that account on the relevant date when the cheque was presented for honouring the same. The expression the amount of money standing to the credit of that account is insufficient to honour the cheque is a genus of which the expression that account being closed is specie. After issuing the cheque drawn on an account maintained, a person, if he closes that account apart from the fact that it may amount to another offence, it would certainly be an offence under Section 138 as there was insufficient or no fund to honour the cheque in that account; Further, cheque is to be drawn by a person for payment of any amount of money due to him on an account maintained by him with a banker and only on that account cheque should be drawn. This would be clear by reading the Section along with provisos (a), (b) & (c ). Secondly, proviso (c) gives an opportunity to the drawer of the cheque to pay the amount within 15 days of the receipt of the notice as contemplated in proviso (b).

Result 2
Supreme Court of India
P.J.Agro Tech Limited & Ors vs Water Base Limited
Honourable Judges Mukundakam Sharma, Altamas Kabir
Date of Judgment: 28 Jul 2010
Segment Number (Approximate Page Number): 3

It was urged that since the cheque had been issued by the Respondent No.11 to liquidate the dues of the Appellant Company and its Directors, the High Court had quite justifiably refused to quash the complaint filed by the Respondent No.1 Company. 7. From the submissions made on behalf of the respective parties, it is quite apparent that the short point for decision in this Appeal is whether a complaint under Section 138 of the 1881 Act would be maintainable against a person who was not the drawer of the cheque from an account maintained by him, which ultimately came to be dishonoured on presentation. 8. Since the provisions of Section 138 of the 1881 Act have fallen for consideration in this Appeal, the same are extracted hereinbelow :- "138. Dishonour of cheque for insufficiency, etc., of funds in the account - Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless- (a) the cheque has been presented to the bank within a period of six months from the date on which it is 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 or other liability" means a legally enforceable debt or other liability." From a reading of the said Section, it is very clear that in order to attract the provisions thereof a cheque which is dishonoured will have to be drawn by a person on an account maintained by him with the banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part of any debt or other liability.

Result 3
Supreme Court of India
Anil Sachar & Anr vs M/S Shree Nath Spinners P.Ltd.& Ors.Etc
Honourable Judges Anil R. Dave, Mukundakam Sharma
Date of Judgment: 19 Jul 2011
Segment Number (Approximate Page Number): 4

16. According to the provisions of the aforestated section, there is a presumption with regard to consideration when a cheque has been paid by the drawer of the cheque. In the instant case, M/s. A.T. Overseas Ltd. paid the cheque which had been duly signed by one of its Directors, namely, Munish Jain. Munish Jain is also a Director in M/s. Shree Nath Spinners Pvt. Ltd.. As stated hereinabove, both are sister concerns having common Directors. Extracts of books of accounts had been produced before the trial court so as to show that both the companies were having several transactions and the companies used to pay on behalf of each other to other parties or their creditors. The above fact strengthens the presumption to the effect that M/s. A.T. Overseas Ltd. had paid the cheques to the complainants, which had been signed by Munish Jain, in consideration of goods supplies to M/s Shree Nath Spinners Pvt. Ltd. Of course, the presumption referred to in Section 139 is rebuttable. In the instant case, no effort was made by Munish Jain or any of the Directors of M/s. A.T. Overseas Ltd. for rebuttal of the aforestated presumption and, therefore, the presumption must go in favour of the holder of the cheques. Unfortunately, the trial court did not consider the above facts and came to the conclusion that there was no consideration for the cheques which had been given by M/s. A.T. Overseas Ltd. to the complainants. 17. It is true that a limited company is a separate legal entity and its directors are different legal persons. In spite of the aforestated legal position, in view of the provisions of Section 139 of the Act and the understanding which had been arrived at among the complainants and the accused, one can safely come to a conclusion that the cheques signed by Munish Jain had been given by M/s. A.T. Overseas Ltd. to the complainants in discharge of a debt or a liability, which had been incurred by M/s Shree Nath Spinners Pvt. Ltd. 18. We may also refer to the judgment delivered by this Court in the case of ICDS Ltd. (supra). In the said judgment this Court has referred to the nature of liability which is incurred by the one who is a drawer of the cheque. If the cheque is given towards any liability or debt which might have been incurred even by someone else, the person who is a drawer of the cheque can be made liable under Section 138 of the Act. The relevant observation made in the aforestated judgment is as under: " The words "any cheque" and "other liability" occurring in Section 138 are the two key expressions which stand as clarifying the legislative intent so as to bring the factual context within the ambit of the provisions of the statute. These expressions leave no manner of doubt that for whatever reason it may be, the liability under Section 138 cannot be avoided in the event the cheque stands returned by the banker unpaid. Any contra-interpretation would defeat the intent of the legislature.

Result 4
Supreme Court of India
M/S Modi Cements Limited vs Shri Kuchil Kumar Nandi
Honourable Judges M.K. Mukherjee, S.P. Kurdukar, K.T. Thomas
Date of Judgment: 22 Mar 1998
Segment Number (Approximate Page Number): 3

Section 138 of the Act reads thus:- Dishonour of cheque for insufficiency, etc., of funds in the account-where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this Section shall apply unless:- (a) the cheque has been presented to the bank within a period of six months from the date on which it is 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 fifteen days of the receipt of the 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 purpose of this Section, "debt or other liability" means a legally enforceable debt or other liability. (8) Briefly stated the reasons given by the High Court are as under:- (i) The appellant has not pleaded in his complaint that the cheques were returned by the Bank unpaid "either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that Bank.

Result 5
Supreme Court of India
M/S. Modi Cements Ltd vs Shri Kuchil Kumar Nandi
Honourable Judges M.K. Mukherjee, S.P. Kurdukar, K.T. Thomas
Date of Judgment: 02 Mar 1998
Segment Number (Approximate Page Number): 3

Section 130 of the Act reads thus:- Dishonor of cheque for insufficiency, etc., of funds in the account:- where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both : Provided that nothing contained in this Section shall apply unless:- (a) the cheque has been presented to the bank within a period of six months from the date on which it is 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 fifteen days of the receipt of the 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 purpose of this Section, "debt or other liability" means a legally enforceable debt or other liability. (8) Briefly stated the reasons given by the High Court are as under:- (i) The appellant has not pleaded in his complaint that the cheques were returned by the Bank unpaid "either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement mad with that Bank.

Result 6
Supreme Court of India
Nepc Micon Limited And Others vs Magma Leasing Limited
Honourable Judges M.B.Shah
Date of Judgment: 29 Apr 1999
Segment Number (Approximate Page Number): 3

For deciding the contention raised by the learned counsel for the appellant, it would be necessary to refer to the relevant Sections 138 and 140 which are as under: - 138. Dishonour of cheque for insufficiency, etc., of funds in the account Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment of a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless (a) the cheque has been presented to the bank within a period of six months from the date on which it is 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 fifteen 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. 140. Defence which may not be allowed in any prosecution under Section 138 It shall not be a defence in a prosecution for an offence under section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that section.

Result 7
Supreme Court of India
Kirshna Texport & Capital Markets Ltd vs Ila A Agrawal & Ors
Honourable Judges Uday Umesh Lalit, Pinaki Chandra Ghose
Date of Judgment: 06 May 2015
Segment Number (Approximate Page Number): 4

We have perused the decision and find that no such issue had arisen for consideration in that case. We, therefore, proceed to consider the question. Before we deal with the matter, Sections 138 and 141 of the Act may be quoted:- “138. Dishonour of cheque for insufficiency, etc., of funds in the accounts Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for “a term which may extend to two year”, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless- (a) The cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. (b) The payee or the holder induce 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 cheques 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 purpose of this section, “debt or other liability” means a legally enforceable debt or other liability.

Result 8
Supreme Court of India
Nepc Micon Limited And Others vs Magma Leasing Limited
Honourable Judges M.B.Shah
Date of Judgment: 29 Apr 1999
Segment Number (Approximate Page Number): 2

He submitted that Section 138 envisages only two situations, which would fall within its purview, namely, (i) the amount of money standing to the credit of the account is insufficient to honour the cheque; or (ii) that it exceeds the amount arranged to be paid from that account by an agreement made with the bank. It is his contention that there are more than 40 kinds of eventualities where the bank may return the cheque but the legislature in its wisdom has specified only the aforesaid two situations and, therefore, return of the cheque on the ground that the account being closed would not fall within Section 138. He has fairly pointed out the conflicting views expressed by the various High Courts on the aforesaid question. He referred to the decisions in the case of G. F. Hurasikattimath vs. Sr. of Kant. 70 Company cases 278 (Karnataka), S.Prasanna vs. R. Vijayalakshmi 1192 Criminal LJ 1233 (Madras) and Om Prakash Bharadwaj Maniyar vs. Swati Girish Bhide & Ors. wherein the Courts have taken the view that Section 138 would not be attracted in a case where cheque is dishonoured on the ground of closure of account by the drawer of the cheque in the particular bank on which he has drawn the cheque as Section 138 is a penal provision and should be construed strictly. He has also pointed out the decisions in Shivendra Samsguiri vs. M/s. Adrnio & Anr. [1996 Cr. L.J. 1816 (Bengal)], Veeraraghavan Vs. Lalita Kr. [1995 Cr. L. J. 1882 (Madras)], M/s. Dada Silk Mills Vs. Indian Overseas Bank Banking Co. [1994 Cr. L J 2874 (Gujarat)], M/s. G. M. Mittal Stainless Steels Ltd. Vs. M/s. Nagarjuna Investment Trust Ltd. [1995 (4) Crimes 379 (Andhra Pradesh)], Japahari Vs. Priya [1994 (1) Crimes 3798 (Kerala)] and Rakesh Porwal vs. Varayan Joglekar [1993 Cr. L.J.688] wherein a contrary view has been taken and the Courts have held that Section 138 would be applicable in a case where cheque is dishonoured on the ground that account by the drawer is closed.

Result 9
Supreme Court of India
Dalmia Cement (Bharat) Ltd vs M/S.Galaxy Trades & Agencies Ltd. & Ors
Honourable Judges R.P.Sethi, K.T.Thomas
Date of Judgment: 19 Jan 2001
Segment Number (Approximate Page Number): 3

The laws relating to the Act are, therefore, required to be interpreted in the light of the objects intended to be achieved by it despite there being deviations from the general law and the procedure provided for the redressal of the grievances to the litigants. Efforts to defeat the objectives of law by resorting to innovative measures and methods are to be discouraged, lest it may affect the commercial and mercantile activities in a smooth and healthy manner, ultimately affecting the economy of the country. Section 138 of the Act makes a civil transaction to be an offence by fiction of law. Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person is returned by the bank unpaid either because of the amount or money standing to the credit of that person being insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account, such person, subject to the other conditions, shall be deemed to have committed an offence under the Section and be punished for a term which may extend to one year or with fine which may extend to twice the amount of cheque or with both. To make the dishonour of the cheque as an offence, the aggrieved party is required to present the cheque to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier and the payee or the holder in due course of the cheque makes a demand for payment of the cheque amount by giving a notice in writing to the drawer of the cheque within 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid and drawer of the such cheque fails to make the payment of the amount within 15 days of the receipt of the said notice. Section 139 refers to presumption that unless the contrary is proved, the holder received the cheque of the nature referred to under Section 138 for the discharge in whole or in part or of any debt or other liability. Section 140 restricts the defence in any prosecution under Section 138 of the Act and Section 141 refers to such offence committed by the companies.

Result 10
Supreme Court of India
Central Bank Of India And Anr vs Saxons Farms And Ors
Honourable Judges G.T. Nanavati, S.N. Phukan
Date of Judgment: 07 Oct 1999
Segment Number (Approximate Page Number): 2

The said act of issuance of cheques knowing fully well that the same shall not be paid statutes an offence under Section 138 of the Negotiable Instruments Act. As per the provisions of this act my client through this notice informs you that my client shall represent the two cheques again and if the same are returned unpaid, my client shall report the matter to the Police for initiating appropriate criminal action against you all. My client further reserves the right to file criminal case against all of you for the non- payment of the cheques in question and details given above. Kindly arrange to make the payment of the cheques if you intend to avoid the unpleasant action of my client." Section 138 of the Act, inter alia, provides that where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account, such person shall be deemed to have committed an offence under the above Section. According to the proviso to the said Section unless the three clauses mentioned therein are fulfilled the provisions of the Section shall not apply. In these appeals we are concerned with Clause (b) which is quoted below : "(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 fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and" Though, no form of notice is prescribed in the above Clause (b) the requirement is that notice shall be given in writing within fifteen days of receipt of information from the bank regarding return of the cheque as unpaid and in the notice a demand for payment of the amount of the cheque has to be made. The object of notice is to give a chance to the drawer of the cheque to rectify his omission and also to protect honest drawer.

Result 11
Supreme Court of India
Goaplast Pvt. Ltd vs Shri Chico Ursula D'Souza & Anr
Honourable Judges M.B. Shah, Arun Kumar
Date of Judgment: 07 Mar 2003
Segment Number (Approximate Page Number): 6

Before one closes his account in the Bank he withdraws the entire amount standing to credit in the account. Withdrawal of the entire amount would therefore mean that there were no funds in the account to honour the cheque which squarely brings the case within Section 138 of the Act. On the question of strict interpretation of penal provisions raised on behalf of the accused it was observed: "If the interpretation, which is sought for, were given, then it would only encourage, dishonest persons to issue cheques and before presentation of the cheques, close the account and thereby escape from the penal consequences of Section 138." Any interpretation which withdraws the life and blood of the provision and makes it ineffective and a dead letter, should be averted. It is the duty of the court to interpret the provision consistent with the legislative intent and purpose so as to suppress the mischief and advance the remedy. The legislative purpose is to permit the efficacy of banking and of ensuring that in commercial or contractual transactions, cheques are not dishonoured and credibility in transacting business through banks is maintained. The Court relied upon its earlier judgment in Modi Cement Ltd.(supra). We would like to quote the following observations t contained in NEPC Micon Ltd. & Ors. Vs. Magma Leasing Ltd. (supra). "15. " In view of the aforesaid discussion we are of the opinion that even though section 138 is a penal statute, it is the duty of the court to interpret it consistent with the legislative intent and purpose so as to suppress the mischief and advance the remedy. As stated above, Section 138 of the Act has created a contractual breach as an offence and the legislative purpose is to promote efficacy of banking and of ensuring that in commercial or contractual transactions cheques are not dishonoured and credibility in transacting business through cheques is maintained. The above interpretation would be in accordance with the principle of interpretation quoted above "brush away the cobweb varnish, and shew the transactions in their true light" (Wilmot, C.J.) or, (by Maxwell) "to carry out effectively the breach of the statute, it must be so construed as to defeat all attempts to do, or avoid doing, in an indirect or circuitous manner that which it has prohibited." Hence, when the cheque is returned by a bank with an endorsement "account closed", it would amount to returning the cheque unpaid because "the amount of money standing to the credit of that account is insufficient to honour the cheque" as envisaged in Section 138 of the Act." We are unable to agree with the reasoning adopted by the courts below. The impugned judgments of the High Court and the Judicial Magistrate, Ist Class, Panaji, Goa are set aside. We hold that Section 138 of the Negotiable Instruments Act will be attracted in the facts of the case. However, whether a case for punishment under that provision is made out, will depend on outcome of the trial.

Result 12
Supreme Court of India
Deddappa & Ors vs The Branch Manager, National Insurance ...
Honourable Judges S.B. Sinha, Harjit Singh Bedi
Date of Judgment: 12 Dec 2007
Segment Number (Approximate Page Number): 4

21. Almost an identical question again came up for consideration before this Court in National Insurance Co. Ltd. v. Seema Malhotra and Ors. [(2001) 3 SCC 151], a Division Bench noticed both the aforementioned decisions and analysed the same in the light of Section 64-VB of the 1938 Act. It was held : "17. In a contract of insurance when the insured gives a cheque towards payment of premium or part of the premium, such a contract consists of reciprocal promise. The drawer of the cheque promises the insurer that the cheque, on presentation, would yield the amount in cash. It cannot be forgotten that a cheque is a bill of exchange drawn on a specified banker. A bill of exchange is an instrument in writing containing an unconditional order directing a certain person to pay a certain sum of money to a certain person. It involves a promise that such money would be paid. 18. Thus, when the insured fails to pay the premium promised, or when the cheque issued by him towards the premium is returned dishonoured by the bank concerned the insurer need not perform his part of the promise. The corollary is that the insured cannot claim performance from the insurer in such a situation. 19. Under Section 25 of the Contract Act an agreement made without consideration is void. Section 65 of the Contract Act says that when a contract becomes void any person who has received any advantage under such contract is bound to restore it to the person from whom he received it. So, even if the insurer has disbursed the amount covered by the policy to the insured before the cheque was returned dishonoured, the insurer is entitled to get the money back. 20. However, if the insured makes up the premium even after the cheque was dishonoured but before the date of accident it would be a different case as payment of consideration can be treated as paid in the order in which the nature of transaction required it. As such an event did not happen in this case, the Insurance Company is legally justified in refusing to pay the amount claimed by the respondents". 22. A contract is based on reciprocal promise. Reciprocal promises by the parties are condition precedents for a valid contract. A contract furthermore must be for consideration. 23. In today's world payment made by cheque is ordinarily accepted as valid tender. Section 64VB of the 1938 Act also provides for such a scheme. 24. Payment by cheque, however, is subject to its encashment. In Damadilal & Ors. v. Parashram & Ors. [(1976) 4 SCC 855], this Court observed : "On the ground of default, it is not disputed that the defendants tendered the amount in arrears by cheque within the prescribed time. The question is whether this was a lawful tender.

Result 13
Supreme Court of India
M/S Indus Airways Pvt. Ltd And Ors vs M/S Magnum Aviation Pvt Ltd And Anr
Honourable Judges R.M. Lodha, Shiva Kirti Singh
Date of Judgment: 07 Apr 2014
Segment Number (Approximate Page Number): 4

The seller of the items would not have entered into contract unless the advance payment was made to him. A condition of advance payment is normally put by the seller for the reason that the purchaser may not later on retract and refuse to take the goods either manufactured for him or procured for him. Payment of cost of the goods in advance being one of the conditions of the contract becomes liability of the purchaser. The purchaser who had issued the cheque could have been asked to make payment either by draft or in cash. Since giving cheque is a mode of payment like any other mode of payment, it is normally accepted as a payment. The issuance of a cheque at the time of signing such contract has to be considered against a liability as the amount written in the cheque is payable by the person on the date mentioned in the cheque. Where the seller or manufacturer, on the basis of cheques issued, manufactures the goods or procures the goods from outside, and has acted upon the contract, the liability of the purchaser gets fastened, the moment the seller or manufacturer acts upon the contract and procures the goods. If for any reason, the seller fails to manufacture the goods or procure the goods it is only under those circumstances that no liability is created. However, where the goods or raw material has been procured for the purchaser by seller or goods have been manufactured by the seller, it cannot be said that the cheques were not issued against the liability. I consider that if the liability is not construed in this manner, the sole purpose of making dishonour of the cheque as an offence stands defeated. The purpose of making or enacting Section 138 of the N.I. Act was to enhance the acceptability of cheque in settlement of commercial transactions, to infuse trust into commercial transactions and to make a cheque as a reliable negotiable instrument and to see that the cheques of business transactions are not dishonoured. The purpose of Negotiable Instrument Act is to make an orderly statement of rules of law relating to negotiable instruments and to ensure that mercantile instruments should be equated with goods passing from one hand to other.

Result 14
Supreme Court of India
Sampelly Satyanarayan Rao vs Indian Renewable Energy Development ...
Honourable Judges Adarsh Kumar Goel, Dipak Misra
Date of Judgment: 19 Sep 2016
Segment Number (Approximate Page Number): 2

It will be appropriate to reproduce the statutory provision in question which is as follows : “138. Dishonour of cheque for insufficiency, etc., of funds in the account. - Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless – (a) the cheque has been presented to the bank within a period of six months from the date on which it is 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 or other liability" means a legally enforceable debt or other liability.” Clause 3.1(iii) of the agreement may also be noted :- “ 3.1 SECURITY FOR THE LOAN The loan together with the interest, interest tax, liquidated damages, commitment fee, up front fee prima on repayment or on redemption, costs, expenses and other monies shall be secured by ; xxxxx xxxxx Deposit of Post dated cheques towards repayment of installments of principal of loan amount in accordance with agreed repayment schedule and installments of interest payable thereon.” Reference may now be made to the decision of this Court in Indus Airways Private Limited versus Magnum Aviation Private Limited [1], on which strong reliance has been placed by learned counsel for the appellant. The question therein was whether post-dated cheque issued by way of advance payment for a purchase order could be considered for discharge of legally enforceable debt. The cheque was issued by way of advance payment for the purchase order but the purchase order was cancelled and payment of the cheque was stopped.

Result 15
Supreme Court of India
Goa Plast (P) Ltd vs Chico Ursula D'Souza
Honourable Judges B.P. Singh, Ar. Lakshmanan
Date of Judgment: 20 Nov 2003
Segment Number (Approximate Page Number): 10

In the instant case, the cheque issued by the respondent has been stopped for payment on his instructions and the cheque was returned to the appellant unpaid. In view of our discussion in the foregoing paragraphs and on the consideration of the facts and circumstances of the case and the law on the subject, we hold that the respondent shall be deemed to have committed an offence. When the matter was taken up for further hearing on 17.11.2003, learned counsel for the respondent submitted that this Court may consider the case of the respondent and the reason for his inability to pay the amount and may consider imposing lesser sentence by taking a lenient view. We are unable to countenance the said submission for the various reasons stated supra. We have no doubt that the respondent has committed an offence punishable under the provisions of Section 138 of the Act and is liable to be punished. The transaction in question took place between the parties in the year 1993, therefore, Section 138, as it stood at the relevant time, would be applicable to the present case. Section 138 provides imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both. Section 138 has now been amended and the penalty of imprisonment for a term which may extend to one year has been substituted to two years as provided by the Amending Act of 2002 and the fine which may extend to twice of the amount of the cheque. This has been prescribed as the punishment for the offence under Section 138 of the Act. The object and the ingredients under the provisions, in particular, Sections 138 & 139 of the Act cannot be ignored. Proper and smooth functioning of all business transactions, particularly, of cheques as instruments, primarily depends upon the integrity and honesty of the parties. In our country, in a large number of commercial transactions, it was noted that the cheques were issued even merely as a device not only to stall but even to defraud the creditors. The sanctity and credibility of issuance of cheques in commercial transactions was eroded to a large extent. Undoubtedly, dishonour of a cheque by the Bank causes incalculable loss, injury and inconvenience to the payee and the entire credibility of the business transactions within and outside the country suffers a serious set back. The Parliament, in order to restore the credibility of cheques as a trustworthy substitute for cash payment enacted the aforesaid provisions. The remedy available in a Civil Court is a long drawn matter and an unscrupulous drawer normally takes various pleas to defeat the genuine claim of the payee. We, therefore, grant one month's time from this date to the respondent herein to pay a sum of Rs.80,000/- (twice the amount of the cheque) by way of Demand Draft drawn in favour of the appellant and payable at Goa (in the address given in the paper book).

Result 16
Supreme Court of India
Bihta Co-Operative Development Cane ... vs The Bank Of Bihar & Ors
Honourable Judges G.K. Mitter, K.N. Wanchoo, J.M. Shelat
Date of Judgment: 12 Oct 1966
Segment Number (Approximate Page Number): 11

The usual practice in the office of the plaintiffs seems to have been for the clerk to present cheques for signatures to get petty cash usually for pound 3. On a certain day, the clerk made out a cheque for pound 2 and asked one of the partners to sign it which the partner did. As the clerk did not turn up the next day, the partners became suspicious and went to the bank. There they learnt that the clerk had presented a cheque for pound 120 which had been paid. The clerk was a thief and had absconded with the money. :The learned trial Judge found that at the time when the cheque was presented to the partner for signature the figure '2' was written thereon with enough space on either side for insertion of additional figures and the clerk had taken advantage thereof and altered the figure '2' to 120. The (1) [1918] A.C. 777. question was, whether the plaintiffs had been so negligent with regard to the cheque that their action against the bank should fail. The trial Judge found that the respondents were not guilty of any negligence in the mode of signing the cheque and assuming that they had been guilty of negligence, the negligence was not the proximate cause of the loss. He therefore ordered judgment to be entered for the plaintiffs. The Court of Appeal upheld this decision. This was, however, reversed in appeal to the House of Lords. Lord Finlay L. C. observed: "As the customer and the banker are under a contractual relation in this matter, it appears obvious that in drawing a cheque the customer is bound to take usual and reasonable precautions to prevent forgery. Crime, is indeed, a very serious matter, but every one knows that crime is not uncommon. If the cheque is drawn in such a way as to facilitate or almost invite an increase in the amount by forgery if the cheque should 'get into the hands of a dishonest person, forgery is not a remote but a very natural consequence of negligence of this description." The learned Lord Chancellor observed further at page 795: "Of course the negligence must be in the transaction itself, that is, in the manner in which the cheque is drawn. It would be no defence to the banker, if the forgery had been that of a clerk of a customer, that the latter had taken the clerk into his service without sufficient inquiry as to his character.

Result 17
Supreme Court of India
Dcm Financial Services Ltd vs J.N.Sareen & Anr
Honourable Judges S.B. Sinha, Mukundakam Sharma
Date of Judgment: 13 May 2008
Segment Number (Approximate Page Number): 4

This itself indicates the manner in which the complaint proceeded. Fairness on the part of the complainant is also expected in such a matter. It is now not in dispute that the 1st respondent had intimated the complainant as regards his resignation from the Company. 13. Section 138 of the Act reads as under :- "138. Dishonour of cheque for insufficiency, etc., of funds in the account.- Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may extend to two year, or with fine which may extend to twice the amount of the cheque, or with both..." 14. For constituting an offence in terms of the said provision, the following ingredients are to be satisfied:- a) A cheque must be drawn; b) It must be presented and returned unpaid inter alia with the remarks "insufficient funds"; c) A Notice for payment should be served on the accused; d) The accused has failed to make the payment of the said amount to the payee within 15 days from the date of receipt of notice. 15. First Respondent indisputably was a Director of the Company. The liability attached to him was not a personal liability. It was a constructive liability. The cheque was drawn on behalf of the Company. He might have been liable as a person incharge of the company within the meaning of Section 141 of the Act as has been held by this Court in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and another : (2005) 8 SCC 89 whereupon strong reliance has been placed by Mr. Patwalia.

Result 18
Supreme Court of India
M/S Indus Airways Pvt. Ltd And Ors vs M/S Magnum Aviation Pvt Ltd And Anr
Honourable Judges R.M. Lodha, Shiva Kirti Singh
Date of Judgment: 07 Apr 2014
Segment Number (Approximate Page Number): 3

The payment by cheque in the nature of advance payment indicates that at the time of drawal of cheque, there was no existing liability. 14. In Swastik Coaters[2] , the single Judge of the Andhra Pradesh High Court while considering the explanation to Section 138 held: “……..Explanation to Section 138 of the Negotiable Instruments Act clearly makes it clear that the cheque shall be relateable to an enforceable liability or debt and as on the date of the issuing of the cheque there was no existing liability in the sense that the title in the property had not passed on to the accused since the goods were not delivered. ……..” 15. The Gujarat High Court in Shanku Concretes[3] dealing with Section 138 of the N.I. Act held that to attract Section 138 of the N.I. Act, there must be subsisting liability or debt on the date when the cheque was delivered. The very fact that the payment was agreed to some future date and there was no debt or liability on the date of delivery of the cheques would take the case out of the purview of Section 138 of the N.I. Act. While holding so, Gujarat High Court followed a decision of the Madras High Court in Balaji Seafoods[4]. 16. In Balaji Seafoods4, the Madras High Court held: “Section 138 of the Negotiable Instruments Act makes it clear that where the cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence under Section 138 of the Act. The explanation reads that for the purposes of this section, ‘debt or other liability’ means a legally enforceable debt or liability.” 17. The Kerala High Court in Ullas[5] had an occasion to consider Section 138 of the N.I. Act. In that case, the post-dated cheque was issued by the accused along with the order for supply of goods. The supply of goods was not made by the complainant. The accused first instructed the bank to stop payment against the cheque and then requested the complainant not to present the cheque as he had not supplied the goods. The cheque was dishonoured.

Result 19
Supreme Court of India
Canara Bank vs Canara Sales Corporation & Ors
Honourable Judges V. Khalid, G.L. Oza
Date of Judgment: 22 Apr 1987
Segment Number (Approximate Page Number): 10

This shows that the statements of account. given by the Bank was accepted as such. There is a duty on the part of the Company's directors to present a correct Balance Sheet. Negligence to verify the obvious things. like examining the counterfoil of cheques amounts not only to estoppel but to adoption and ratifica- tion. for, no one can take shelter under one's own failure to examine the obvious. Further, the annual reports are to be treated as public documents and public are likely to rely upon its representation and defendant-bank is, at any rate, a member of the public. We have set out above, the contentions of the appellant, in detail, so as to bring into focus, the questions of law to be decided in the appeal. Now we propose to consider the submissions made by the appellant to test their validity qua the Banking Law, ap- plicable to India. It is true that there is no direct au- thority of this Court on this Branch of the Law. It is. therefore, necessary to briefly outline the confines of this Branch of law. The relationship between the customer of a bank and the bank is that of a creditor and debtor. When a cheque which presented for encashment contains a forged signature the bank has no authority to make payment against such a cheque. The bank would be acting against law in debiting the customer with the amounts cov- ered by such cheques. When a customer demands payment for the amount covered by such cheques. the bank would be liable to pay the amount to the customer. The bank can succeed in denying payment only when it establishes that the customer is disentitled to make a claim either on account of adop- tion. estoppel or ratification. The principle of law regard- ing this aspect is as follows: When a cheque duly signed by a customer is presented before a bank with whom he has an account there is a mandate on the bank to pay the amount covered by. the cheque. However. if the signature on the cheque is not genuine. there is no mandate on the bank to pay. The bank, when it makes payment on such a cheque, cannot resist the claim of the customer with the defence of negligence on his part such as leaving the cheque book carelessly so that third parties would easily get hold of it. This is because a document in cheque form, on which the customer's name as drawer is forged, is a mere nullity.

Result 20
Supreme Court of India
M/S Laxmi Dyechem vs State Of Gujarat & Ors
Honourable Judges T.S. Thakur, Gyan Sudha Misra
Date of Judgment: 27 Nov 2012
Segment Number (Approximate Page Number): 7

The said provisions were intended to discourage people from not honouring their commitments by way of payment through cheques. The court should lean in favour of an interpretation which serves the object of the statute. A post-dated cheque will lose its credibility and acceptability if its payment can be stopped routinely. The purpose of a post-dated cheque is to provide some accommodation to the drawer of the cheque. Therefore, it is all the more necessary that the drawer of the cheque should not be allowed to abuse the accommodation given to him by a creditor by way of acceptance of a post-dated cheque. In view of Section 139, it has to be presumed that a cheque is issued in discharge of any debt or other liability. The presumption can be rebutted by adducing evidence and the burden of proof is on the person who wants to rebut the presumption. This presumption coupled with the object of Chapter XVII of the Act leads to the conclusion that by countermanding payment of post-dated cheque, a party should not be allowed to get away from the penal provision of Section 138 of the Act. A contrary view would render Section 138 a dead letter and will provide a handle to persons trying to avoid payment under legal obligations undertaken by them through their own acts which in other words can be said to be taking advantage of one's own wrong.” (emphasis supplied) 14. A three-Judge Bench of this Court in Rangappa v. Sri Mohan (2010) 11 SCC 441 has approved the above decision and held that failure of the drawer of the cheque to put up a probable defence for rebutting the presumption that arises under Section 139 would justify conviction even when the appellant drawer may have alleged that the cheque in question had been lost and was being misused by the complainant. 15. The above line of decisions leaves no room for holding that the two contingencies envisaged under Section 138 of the Act must be interpreted strictly or literally. We find ourselves in respectful agreement with the decision in NEPC Micon Ltd. (supra) that the expression “amount of money …………. is insufficient” appearing in Section 138 of the Act is a genus and dishonour for reasons such “as account closed”, “payment stopped”, “referred to the drawer” are only species of that genus. Just as dishonour of a cheque on the ground that the account has been closed is a dishonour falling in the first contingency referred to in Section 138, so also dishonour on the ground that the “signatures do not match” or that the “image is not found”, which too implies that the specimen signatures do not match the signatures on the cheque would constitute a dishonour within the meaning of Section 138 of the Act. This Court has in the decisions referred to above taken note of situations and contingencies arising out of deliberate acts of omission or commission on the part of the drawers of the cheques which would inevitably result in the dishonour of the cheque issued by them.

Result 21
Supreme Court of India
Canara Bank vs Canara Sales Corporation & Ors
Honourable Judges V. Khalid, G.L. Oza
Date of Judgment: 22 Apr 1987
Segment Number (Approximate Page Number): 2

The appellant-bank resisted the suit on the grounds (1) that the cheques were not forged ones; (2) that even if they were forged ones. the company was not entitled to recover the amount on account of its own negligence; (3) that there was settlement of accounts be- tween the parties from time to time and as such. the company was not entitled to reopen the same and claim the sums paid under the cheques; and (4) that the suit was barred by limitation. The second defendant pleaded that the cheques were utilised for the purpose of the company. The trial Court negatived the contentions of the bank and passed a decree for the sum claimed with interest at 6%. In appeal the Division Bench confirmed the judgment of the trial court but as the case involved substantial ques- tions of law of general public importance it granted a certificate to file the appeal. In the appeal before this Court it was contended on behalf of the appellant that: (1) after reasonable opportu- nities are given to the customer to examine the bank state- ments, its debit entries should be deemed to be final and will not be open for reconstruction to the detriment of the bank; (2) a representation may be made either by statement or by conduct, and conduct included negligence, silence, acquiescence or encouragement, and if a customer of a bank, by his negligence, to give timely information of forged cheques, allows amount to be drawn on such cheques. the debit will stand for the whole amount and the consumer will be estopped from claiming the amount; and (3) in-action for a long period would amount to such negligence as would persuade a court to impute to the customer with knowledge or at any rate constructive knowledge,_to decline him relief in an action for recovery of amounts which would be to the detriment of an innocent party, namely, the bank. Dismissing the appeal. HELD: 1. When a cheque duly signed by a customer is presented before a bank with whom he has an account there is a mandate on the bank to pay the amount covered by the cheque. However. if the signature on the cheque is not genuine. there is no mandate on the bank to pay. The bank. when it makes payment on such a cheque, cannot resist the claim of the customer with the defence of negligence on his part such as leaving the cheque book carelessly so that third parties would easily get hold of it.

Result 22
Supreme Court of India
M/S Iba Health(I) P.Ltd vs M/S Info-Drive Systems Sdn.Bhd
Honourable Judges K. S. Radhakrishnan, S. H. Kapadia
Date of Judgment: 23 Sep 2010
Segment Number (Approximate Page Number): 6

Further, it is also stated that the respondent had reliably learnt that substantial payment had been received by the appellant from M/s Solutions Protocol Sdn. Bhd. and, in spite of that, the appellant company had failed to honour its commitments under the deed of settlement. Reference was also made to clause (4) of the deed of settlement. 16. Appellant company in its statement of objections stated that it had paid the amount of RM 1,069,583.89 to the respondent company in due compliance with the terms of the deed of settlement. Further it was pointed out that the appellant company had not received any amount from M/s Solutions Protocol Sdn. Bhd. since its payment in March 2006. Further, it is also pointed out that the appellant company had no subsisting commercial dealings with M/s. Solutions Protocol Sdn. Bhd. and that the respondent company should be put to strict proof with regard to the transactions completed before 31.12.2006 and also the payments effected by M/s Solutions Protocol Sdn. Bhd. to the appellant company. Further, it was pointed out that the documents Annexure J1 to J9 did not pertain to the appellant company and it had not received any payment thereunder. Further, it was pointed out that the allegations raised by the respondent company are totally frivolous which would require detailed investigation, recording of evidence and adjudication of the rights and obligations of third-party entities and would fall beyond the scope of enquiry to be conducted by the Company Court under Sections 433, 434 and 439 of the Companies Act, 1956 and if, at all, the respondent is aggrieved, the remedy open is to approach the Civil Court for adjudication of its claims. SUBSTANTIAL DISPUTE - AS TO LIABILITY 17. The question that arises for consideration is that when there is a substantial dispute as to liability, can a creditor prefer an application for winding up for discharge of that liability? In such a situation, is there not a duty on the Company Court to examine whether the company has a genuine dispute to the claimed debt? A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor's debt is bona fide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt.

Result 23
Supreme Court of India
Canara Bank vs Canara Sales Corporation & Ors
Honourable Judges V. Khalid, G.L. Oza
Date of Judgment: 22 Apr 1987
Segment Number (Approximate Page Number): 12

The partners became suspicious and went to the bank. when they discovered that the cheque for pound. 2 was distorted by using the space on either side of the figure '2' by the clerk by insertion of additional figures 1 & 0 and thus he pocketed pound. 120. The question before the House of Lords was whether the plaintiffs had been so negligent with regard to the cheque that their action against the bank should fail. The Trial Judge found that the plaintiffs were not guilty of negligence in the mode of signing the cheque and decreed the suit. The Court of Appeal upheld this decision. The House of Lords reversed the judgment. We may usefully quote the following passages from the Judgment. Lord Finlay observed: "As the customer and the banker are under a contractual relation in this matter. it ap- pears obvious that in drawing a cheque the customer is bound to take usual and reasonable precautions to prevent forgery. Crime, is indeed, a very serious matter, but every one knows that crime is not uncommon. If the cheque is drawn in such a way as to facilitate or almost invite an increase in the amount by forgery if the cheque should get into the hands of a dishonest person, forgery is not a remote but a very natural consequence of negligence of this description." The learned Lord Chancellor further observed: Of course the negligence must be in the trans- action itself, that is, in the manner in which the cheque is drawn. It would be no defence to the banker, if the forgery had been that of a clerk of a customer, that the latter had taken the clerk into his service without sufficient inquiry as to his character. Attempts have often been made to extend the principle of Young v. Grote, 4 Bing 253 beyond the case of negligence in the immediate transaction, but they have always failed. According to the learned Lord Chancellor, leaving blank spaces on either side of the figure '2' in the cheque amounted to a clear breach of duty which the customer owed to the banker. The learned Lord Chancellor said: "If the customer chooses to dispense with ordinary precautions because he has complete faith in his clerk's honesty, he cannot claim to throw upon the banker the loss which re- sults. No one can be certain of preventing forgery, but it is a very simple thing in drawing a cheque to take reasonable and ordi- nary precautions against forgery.

Result 24
Supreme Court of India
Kusum Ingots And Alloys Ltd vs Pennar Peterson Securities Ltd. And Ors
Honourable Judges K.T. Thomas, D.P. Mohapatra
Date of Judgment: 23 Feb 2000
Segment Number (Approximate Page Number): 7

"22-A - Direction not to dispose of assets - The Board may, if it is of opinion that any direction is necessary in the interest of the sick industrial company or creditors or shareholders or in the public interest, by order in writing direct the sick industrial com-pany not to dispose of, except with the consent of the Board, any of its assets - (a) during the period of preparation or consideration of the scheme under section 18; and (b) during the period beginning with the recording of opinion by the Board for winding up of the company under sub-section (1) of section 20 and up to commencement of the proceedings relating to the winding up before the concerned High Court." On a reading of the provisions of Section 138 NI Act it is clear that the ingredients which are to be satisfied for making out a case under the provision are : (i) a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account for the discharge of any debt or other liability; (ii) that cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity whichever is earlier; (iii) that cheque is returned by the bank unpaid. either because of the amount of money standing to the credit of the account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank; (iv) the payee or the holder in due course of the cheque 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 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; (v) the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice; If the aforementioned ingredients are satisfied then the person who has drawn the cheque shall be deemed to have committed an offence. In the explanation to the section clarification is made that the phrase "debt or other liability" means a legally enforceable debt or other liability. Section 141 NI Act is a provision specifically dealing with the offen-ces by companies.

Result 25
Supreme Court of India
M/S Laxmi Dyechem vs State Of Gujarat & Ors
Honourable Judges T.S. Thakur, Gyan Sudha Misra
Date of Judgment: 27 Nov 2012
Segment Number (Approximate Page Number): 13

7. As already noted, the Legislature intends to punish only those who are well aware that they have no amount in the bank and yet issue a cheque in discharge of debt or liability which amounts to cheating and not to punish those who bona fide issues the cheque and in return gets cheated giving rise to disputes emerging from breach of agreement and hence contractual violation. To illustrate this, there may be a situation where the cheque is issued in favour of a supplier who delivers the goods which is found defective by the consignee before the cheque is encashed or a post-dated cheque towards full and final payment to a builder after which the apartment owner might notice breach of agreement for several reasons. It is not uncommon that in that event the payment might be stopped bona fide by the drawer of the cheque which becomes the contentious issue relating to breach of contract and hence the question whether that would constitute an offence under the NI Act. There may be yet another example where a cheque is issued in favour of a hospital which undertakes to treat the patient by operating the patient or any other method of treatment and the doctor fails to turn up and operate and in the process the patient expires even before the treatment is administered. Thereafter, if the payment is stopped by the drawer of the cheque, the obvious question would arise as to whether that would amount to an offence under Section 138 of the NI Act by stopping the payment ignoring Section 139 which makes it mandatory by incorporating that the offence under Section 138 of the NI Act is rebuttable. Similarly, there may be innumerable situations where the drawer of the cheque for bonafide reasons might issue instruction of ‘stop payment’ to the bank in spite of sufficiency of funds in his account. 8. What is wished to be emphasized is that matters arising out of ‘stop payment’ instruction to the bank although would constitute an offence under Section 138 of the NI Act since this is no longer res- integra, the same is an offence subject to the provision of Section 139 of the Act and hence, where the accused fails to discharge his burden of rebuttal by proving that the cheque could be held to be a cheque only for discharge of a lawful debt, the offence would be made out.

Result 26
Supreme Court of India
Hmt Watches Ltd vs M.A. Abida & Anr
Honourable Judges Prafulla C. Pant, Dipak Misra
Date of Judgment: 19 Mar 2015
Segment Number (Approximate Page Number): 2

7. Section 138 of the Negotiable Instruments Act, 1881 reads as under: "138. Dishonour of cheque for insufficiency, etc., of funds in the accounts. - Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for "a term which may extend to two year", or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless- (a) The cheque has been presented to the bank within a period of six months from the date on which it is 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 cheques 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 purpose of this section, "debt or other liability" means a legally enforceable debt or other liability." 8. Section 139 of the Negotiable Instruments Act, 1881 provides that there shall be a presumption in favor of holder of a cheque as to the debt or liability. It reads as under: "139. Presumption in favour of holder. - It shall be presumed, unless the Contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, or any debt or other liability." 9. Section 140 of the Negotiable Instruments Act, 1881 prohibits what cannot be a defence in a prosecution in respect of offence punishable under Section 138 of the N.I. Act. It reads as under: "140. Defence which may not be allowed in any prosecution under section 138. - Defence which may not be allowed in any prosecution under section 138 It shall not be a defence in a prosecution of an offence under section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that section."

Result 27
Supreme Court of India
Dalmia Cement (Bharat) Ltd vs M/S.Galaxy Trades & Agencies Ltd. & Ors
Honourable Judges R.P.Sethi, K.T.Thomas
Date of Judgment: 19 Jan 2001
Segment Number (Approximate Page Number): 7

In Sadanandan Bhadran v. Madhavan Sunil Kumar [1998 (6) SCC 514] this Court held that clause (a) of the proviso to Section 138 did not put any embargo upon the payee to successively present a dishonoured cheque during the period of its validity. On each presentation of the cheque and its dishonour a fresh right and not cause of action accrues. The payee or holder of the cheque may, therefore, without taking pre-emptory action in exercise of his right under clause (b) of Section 138 of the Act, go on presenting the cheque so as to enable him to exercise such right at any point of time during the validity of the cheque. But once a notice under clause (b) of Section 138 of the Act is 'received' by the drawer of the cheque, the payee or the holder of the cheque forfeits his right to again present the cheque as cause of action has accrued when there was failure to pay the amount within the prescribed period and the period of limitation starts to run which cannot be stopped on any account. This Court emphasised that "needless to say the period of one month from filing the complaint will be reckoned from the date immediately falling the day on which the period of 15 days from the date of the receipt of the notice by the drawer expires" (emphasis supplied). In SIL Import, USA v. Exim Aides Silk Exporters, Bangalore [1999 (4) SCC 567] the respondents therein was an exporter of finished silk goods and the appellant company based at USA was an importer. The appellant owed a certain amount towards sale consideration of goods exported to it by the respondent and issued some cheque in their favour. Two of such cheques were returned dishonoured with reason "no sufficient funds". The respondents sent a notice to the appellant-company by fax on 11.6.1996 and notice by registered post on the next day which was received by the appellant on 25th June, 1996. The respondents filed a complaint before the Magistrate in respect of the said cheques on 8.8.1996. The appellant contended that the cause of action having accrued on the expiry of 15 days from the date of notice sent by fax on 26th June, 1996, the limitation for filing the complaint expired on 27th June, 1996, therefore, the complaint filed on 8.8.1996 could not be taken congnizance of by the trial court.

Result 28
Supreme Court of India
M/S M. M. T. C. Ltd. & Anr vs M/S Medchl Chemicals & Pharma P. Ltd. & ...
Honourable Judges K.T.Thomas, S.N.Variava
Date of Judgment: 19 Nov 2001
Segment Number (Approximate Page Number): 5

It is next held as follows: "This is a special provision incorporated in the Negotiable Instrument Act. It is necessary to allege specifically in the complaint that there was a subsisting liability and an enforceable debt and to discharge the same, the cheques were issued. But, we do not find any such allegation at all. The absence of such vital allegation, considerably impairs the maintainability." In the case of Maruti Udyog Ltd. v. Narender reported in (1999) 1 SCC 113, this Court has held that, by virtue of Section 139 of the Negotiable Instruments Act, the Court has to draw a presumption that the holder of the cheque received the cheque for discharge of a debt or liability until the contrary is proved. This Court has held that at the initial stage of the proceedings the High Court was not justified in entertaining and accepting a plea that there was no debt or liability and thereby quashing the complaint. A similar view has been taken by this Court in the case of K. N. Beena v. Muniyappan reported in 2001 (7) SCALE 331, wherein again it has been held that under Section 139 of the Negotiable Instruments Act the Court has to presume, in a complaint under Section 138, that the cheque had been issued for a debt or liability. There is therefore no requirement that the Complainant must specifically allege in the complaint that there was a subsisting liability. The burden of proving that there was no existing debt or liability was on the respondents. This they have to discharge in the trial. At this stage, merely on basis of averments in the Petitions filed by them the High Court could not have concluded that there was no existing debt or liability. Lastly it was submitted that a complaint under Section 138 could only be maintained if the cheque was dishonoured for reason of funds being insufficient to honour the cheque or if the amount of the cheque exceeds the amount in the account. It is submitted that as payment of the cheques had been stopped by the drawer one of the ingredients of Section 138 was not fulfilled and thus the complaints were not maintainable.

Result 29
Supreme Court of India
Rathish Babu Unnikrishnan vs The State Govt Of Nct Of Delhi
Honourable Judges K.M. Joseph, Hrishikesh Roy
Date of Judgment: 26 Apr 2022
Segment Number (Approximate Page Number): 2

In other words, as the complainant was still holding the shares of the appellant’s company when the cheques were presented, the complainant is not entitled to receive any payment at that stage, through encashment of the cheques, made available to him 4. The complainant per-contra contends that when the cheque are issued and the signatures thereon are admitted, the presumption of a legally enforceable debt will arise in favour of the holder of the cheque. In a situation such as this, it is for the accused to rebut the legal presumption by adducing necessary evidence Page 3 of 16 before the trial Court. Reading the provisions of Section 118 of the N.I. Act, it is submitted by Mr. K.M. Nataraj, learned ASG and Ms. Rebecca M. John the learned Senior Counsel for the complainant, that it is obligatory for the Court to raise the legal presumption against the accused when his cheque is dishonoured on presentation. The learned Magistrate therefore correctly drew such presumption which of course is rebuttable by the appellant, by adducing evidence in course of trial. It is specifically contended by the complainant that in share purchase transactions, the consideration is first paid to the seller as per the customary practice and only thereafter the formalities with respect to the share transfer is completed. In support of such contention, the respondent relies on Section 56 (1) of the Companies Act, 2013 and also the Form SH-4 in the said Act, relating to transfer of securities. 5. The records would show that there were transactions between the parties under which the complainant invested a substantial sum in the appellant’s company. Page 4 of 16 At later stage, dispute arose amongst them but they resolved that the invested money would be returned to the complainant and the shares allotted to the complainant will be proportionately transferred to the appellant. With such understanding, the four cheques forming the part of the criminal complaint were handed over by the appellant. When the complainant presented one of those cheques, the same was dishonoured by the bank with the endorsement, “fund insufficient”. Further, the complainant issued notice stating that the appellant had failed to make the due payment. Thereafter, he filed the complaint under Section 138 of the N.I. Act which led to the summons and process against the appellant. 6. As noted earlier, the appellant’s basic contention is that the cheque in question was not issued in discharge of “legally recoverable debt”. They also raised a contention on the obligation of the complainant to transfer the concerned shares. A defence plea is raised by the appellant to the effect that the cheques in question were issued as “security” Page 5 of 16 and not in discharge of any “legally recoverable debt”.

Result 30
Supreme Court of India
Canara Bank vs Canara Sales Corporation & Ors
Honourable Judges V. Khalid, G.L. Oza
Date of Judgment: 22 Apr 1987
Segment Number (Approximate Page Number): 13

If owing to the neglect of such precautions it is put into the power of any 'dishonest person to increase the amount by forgery, the customer must bear the loss as between himself and the banker." The principles so settled by the House of Lords was pressed into service before this Court in the above case. This Court held that the principle settled by the House of Lords could not help the bank. The accepted principle that if the signatures on the cheque is genuine, there is a mandate by the customer to the bank to pay was reiterated. It was also held that if an unauthorised person got hold of such a cheque and encashed it, the bank might have had a good defence hut, however, if the signatures on the cheque or at least one of the signatures are or is not genuine ,' there is no mandate on the bank to pay and the question of any negligence on the part of the customer, such as leaving the cheque book carelessly so that a third party could easily get hold of it would afford no defence to the bank. This Court distinguished Macmillan's case, observing that if any of the signatures was forged the question of negligence of the customer in between the signature and the presenta- tion of the cheque never arose. The suit was, however, dismissed on another point and that of jurisdiction. That takes us to the question as to whether there is a duty on the part of the customer to examine the pass book and inner part of cheques and to communicate to the banker within a reasonable time of the debits which he does not admit. The kindered question connected with this is whether a customer is estopped from disputing the debits shown in the pass book when the pass book is returned without any comment and whether such a conduct would constitute a "stated and settled account." To answer this it is necessary to examine the question whether the customer owes a duty to the bank to inform it about the correctness or mis-statements in the entries in the pass book within a reasonable time and wheth- er failure to do so would amount to such negligence as to non-suit him in a suit for recovery of the amount paid on a forged cheque. When does negligence constitute estoppel ? For negligence to constitute an estoppel it is necessary to imply the existence of some duty which the patty against whom estoppel is alleged owes to the other party.

Relevant High Court Judgments
Year From: 1950, Year To: 2024

Result 1
Karnataka High Court
S.R. Muralidar vs Ashok G.Y.
Honourable Judges K. Sreedhar Rao
Date of Judgment: 17 April 2001
Segment Number (Approximate Page Number): 7

12. The relevant portion of the provisions of Section 138 of the Act is extracted hereunder: "138. Dishonour of cheque for insufficiency, etc., of funds in the account.--Where any cheque drawn by a person on account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount, of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both". 13. Keeping in view the legislative intendment of providing efficacious and expeditious remedy to the business community and to make the transaction of issuance of cheques as a matter of a serious concern to prevent the persons from unscrupulously resorting to issue of cheques without concern for contractual commitments is made an offence when the cheque issued is dishonoured on the ground that money standing in the credit of the account is insufficient to honour or that it exceeds the amount arranged to be paid from the account by the agreement made with the Bank. 14. In NEPC Micon Limited and Others v Magma Leasing Limited, it has been held thus: "The return of a cheque by the Bank unpaid on the ground that the "account is closed" would mean that the cheque is returned as unpaid on the ground that "the amount of money standing to the credit of that account is insufficient to honour the cheque". The reason is that the cheque was dishonoured as the amount of money standing to the credit of "that account" was "nil" at the relevant time apart from it being closed. The closure of the account would be an eventuality after tbe entire amount in the account is withdrawn. It means that there was no amount in the credit of "that account" on the relevant date when the cheque was presented for honouring the same.

Result 2
Gujarat High Court
Shree Corporation vs Anilbhai Puranbhai Bansal - Director ...
Honourable Judges J.B.Pardiwala
Date of Judgment: 23 March 2018
Segment Number (Approximate Page Number): 52

Therefore, he must have made an endorsement of the amount received and presented the cheque, to collect the balance amount due. [8] Section 138 of the Act is quoted below for convenient reference: "138. Dishonour of cheque for insufficiency, etc., of funds in the account- Where cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to hounour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both: Provided that, nothing contained in this Section shall apply unless: (a) the cheque has been presented to the bank within a period of six months from the date of which it is drawn or within the period of its validity, whichever is earlier, R/SCR.A/3653/2012 JUDGMENT (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 purpose of this section, 'debt or other liability' means a legally enforceable debt or other liability. Going by the above provision, a cheque must be for payment of any amount of money to another person for discharging in whole or in part of any debt or other liability. In this case, once part payment was received, the cheque no longer was one for payment of money for discharging in whole or in part of any debt or other liability. In fact, the amount covered by the cheque was admittedly larger than the amount of debt or liability.

Result 3
Madras High Court
Rasipuram Lorry Owner'S Association vs /
Honourable Judges G.Jayachandran
Date of Judgment: 4 February 2021
Segment Number (Approximate Page Number): 14

But when the cheque was dishonored, there was a revival of the debt and the suit had to be filed within the normal period of limitation. In our view, the learned trial Judge was right, in holding that the claim for the amount of Rs. 35,000 on the original debt was barred by the law of limitation." 9. The Ruling of the Punjab and Haryana High Court in Northern India Finance Corporation (P) Ltd. v. R.L. Soni https://www.mhc.tn.gov.in/judis/ A.S.No.988 of 2009 & M.P.No.1 of 2009 [AIR 1973 P & H 35.] . The relevant portion of para 5 it is held thus: "5. I have no doubt in my mind that if the cheque had been encashed and if the cheque could be treated to be of the respondent, this would have amounted to part payment within the meaning of Section 19 of the Limitation Act, and would have saved the suit from getting barred by time. If, however, the cheque is not honoured, it cannot be said that the amount represented by the cheque has been "paid" by the drawer to the payee. Section 19 starts with the words where payment on account of a debt or of interest" is made before the expiration of the prescribed period "by the person liable to pay the debt" or by his agent duly authorised in this behalf. As already stated, I will assume that G.S. Bakshi was the duly authorised agent of the respondent for making the payment on behalf of the respondent to the company. But the cheque having, however been dishonored, it cannot be said that any payment at all was made by anybody to the company by that cheque." In the light of the ratio laid down in the decisions, it is contended that the issuance of a https://www.mhc.tn.gov.in/judis/ A.S.No.988 of 2009 & M.P.No.1 of 2009 dishonored cheque cannot be construed as a part payment to save the limitation under Section 19 or 20 of the Limitation Act. Besides the plaintiff has to based his claim on the original cause of action for recovery of the debt i.e. the date of handloan and that remedy should have been pursued within the period of limitation, the issuance of cheques can at the best offer as a piece of evidence to corroborate the original cause of action and does not constitute a cause of action by itself to institute a suit.

Result 4
Punjab-Haryana High Court
Rajesh Meena vs State Of Haryana And Others
Honourable Judges Manoj Bajaj
Date of Judgment: 1 July 2019
Segment Number (Approximate Page Number): 6

In M/s Kusum Ingots & Alloys Ltd. Vs. M/s Pennar Peterson Securities Ltd. and others etc, 2000(2) SCC 745), the necessary ingredients required to constitute the offence punishable under the above provision were highlighted which read as under:- (i) a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account for the discharge of any debt or other liability; (ii) that cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity whichever is earlier; (iii) that cheque is returned by the bank unpaid. either because of the amount of money standing to the credit of the account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank; (iv) the payee or the holder in due course of the cheque 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 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; 7 of 15 CRM-M-14537-2018 and other connected matters -8- (v) the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice. Here it would be appropriate to deal with the argument of the learned counsel for the petitioner that the offence would be made out only in case if the cheque is dishonoured on account of "insufficient funds" or when "the amount exceeds the arrangement with the Bank". In NEPC Micon Ltd. Vs. Magma Leasing Ltd. 1999 (2) R.C.R.(Criminal) 648, the Hon'ble Supreme Court had examined the applicability of Section 138 NI Act in respect of the cheque, which was dishonoured as the account was closed. The relevant observations are reproduced:- "Further, the offence will be complete only when the conditions in the proviso (a), (b) and (c) are complied with. Hence, the question is, in a case where cheque is returned by the bank unpaid on the ground that the account is closed, would it mean that cheque is returned as unpaid on the ground that the amount of money standing to the credit of that account is insufficient to honour the cheque.

Result 5
Punjab-Haryana High Court
Ashwani Chawla vs M/S Impulse Overseas Pvt Ltd
Honourable Judges P.B. Bajanthri
Date of Judgment: 5 September 2018
Segment Number (Approximate Page Number): 5

Section 446 makes it clear that, in respect of a company in winding up or where proceedings in winding up have been filed, the Company Court, now Tribunal has to see that the Company are not recklessly given away or frittered, the main obligation of the Company Court would be to oversee the affairs of the company in order to make the debts of its secured or unsecured creditors as also of its share holders and powers have been accordingly 6 of 20 vested on it. 8. It is relevant to reproduce Section 138 of the Negotiable Instruments Act, 1881 (for short the 'Negotiable Instruments Act') which reads as under:- "138. Dishonour of cheque for insufficiency, etc., of funds in the account.--Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for 8 [a term which may be extended to two years'], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless-- (a) the cheque has been presented to the bank within a period of six months from the date on which it is 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, 9 [within thirty days] of the receipt of information by him from the bank regarding the return of the 7 of 20 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."

Result 6
Punjab-Haryana High Court
Rajesh Meena vs State Of Haryana And Others
Honourable Judges Manoj Bajaj
Date of Judgment: 1 July 2019
Segment Number (Approximate Page Number): 5

At this stage, before adverting to the merits of this case, it would be appropriate to have a glance at Section 138 NI Act which is extracted below:- 138 Dishonour of cheque for insufficiency, etc., of funds in the account. --Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for 19 [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in 6 of 15 CRM-M-14537-2018 and other connected matters -7- this section shall apply unless-- (a) the cheque has been presented to the bank within a period of six months from the date on which it is 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, 20[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. The above provision has been dealt with in detail by the Hon'ble Supreme Court on number of occasions.

Result 7
Punjab-Haryana High Court
Gopi Ram Jain vs Attar Singh
Date of Judgment: 24 January 2019
Segment Number (Approximate Page Number): 14

Ltd. vs. Indian Technologists & Engineers [AIR 1996 SC 2339] which had taken a contrary view. We are in respectful agreement with the view taken in Modi's case. The said view is in consonance with the object of the legislation. On the faith of payment by way of a post-dated cheque, the payee alters his position by accepting the cheque. If stoppage of payment before the due date of the cheque is allowed to take the transaction out of the purview of Section 138 of the Act, it will shake the confidence which a cheque is otherwise intended to inspire regarding payment being available on the due date. NEPC Micon Ltd. & Ors. Vs. Magma Leasing Ltd. [(1999) 4 SCC 253] was a case in which the drawer of the cheque closed the account in the Bank before presentation of the cheque and the cheque when presented was returned by the Bank with the remark "account closed". The question arose whether in this situation Section 138 of the Act would be attracted. It was contended on behalf of the appellant that Section 138 being a penal provision it should be strictly interpreted. Section 138 according to the appellant applied only in two situations i.e. either because the money standing to the credit of the 18 of 33 CRM-M-14159-2017 account of the drawer is insufficient to honour the cheque or it exceeds the amount arranged to be paid from that account by an agreement made with the bank. Rejecting the contentions raised on behalf of the accused this Court held that return of a cheque on account of account being closed would be similar to a situation where the cheque is returned on account of insufficiency of funds in the account of the drawer of the cheque. Before one closes his account in the Bank he withdraws the entire amount standing to credit in the account. Withdrawal of the entire amount would therefore mean that there were no funds in the account to honour the cheque which squarely brings the case within Section 138of the Act. On the question of strict interpretation of penal provisions raised on behalf of the accused it was observed: "If the interpretation, which is sought for, were given, then it would only encourage, dishonest persons to issue cheques and before presentation of the cheques, close the account and thereby escape from the penal consequences of Section 138."

Result 8
Bombay High Court
Royal Bank Of Scotland N.V vs Andhra Bank
Honourable Judges A.K. Menon
Date of Judgment: 4 May 2018
Segment Number (Approximate Page Number): 57

Since the 1st defendant bank is guilty of negligence and was liable to the plaintiff who was the true owner of the cheques for the face value of the cheques which the defendant no.1 had converted. (xiii) In Capital and Counties Bank Limited (supra) , it was found that one Gordon who traded as Gordon & Munro, held several crossed SPS_3of1998.odt cheques drawn by various persons on banks payable to Gordon & Munro or order. Gordon was a clerk appointed by Jones who forged endorsement in the name of the firm and encashed them in his account with the Capital and Counties Bank. The bank manager dealt with the cheques without negligence and in the ordinary course of business, all cheques were honoured. None of the cheques were returned. It was found that if the bankers deal with crossed cheques in an ordinary way by treating them as cash instead of making themselves as a mere conduit pipe for conveying the cheque to the bank on which it is drawn and receiving the money from that bank for their customer. They were collecting the cheque not merely for their customer but chiefly for themselves, and therefore, were not entitled to protection under section 82 of the Bills of Exchange Act which protected bankers only where they received the payment of a crossed cheque as agents for collection for a customer. The bankers were not protected when they receive payment as holders of the cheque on their own account. Thus, similar to the decision in Carpenter's Company in this case also defendant bank was held liable. (xiv) In Akrokerri (Atlantic) Mines (supra), the action was for the proceeds of certain cheques as money had and received, or alternatively for damages for conversion. The plaintiff had their office in London, one clerk Nobbs, from time to time fraudulently procured SPS_3of1998.odt the Directors to sign cheques drawn on the company's bankers and made payable to the order of different persons with whom the company regularly had business relations. The cheques were crossed and handed over to Nobbs to be forwarded to the different payees. Nobbs forged endorsement on the cheques for himself and presented the cheques through the defendant bank. He received the proceeds of the cheques from the defendant bank where he had opened an account in a false manner.

Result 9
Himachal Pradesh High Court
Prem Lal vs Of
Date of Judgment: 12 January 2024
Segment Number (Approximate Page Number): 11

It is a cheque as per Section 138 of the Negotiable Instruments Act. The trial Court after appreciating the entire facts and circumstances of the case, dismissed the application and there is no illegality or infirmity in the order of the trial Court and the learned counsel prays for dismissal of the revision petition. 4. On reading the order passed by the trial Court, it is clearly seen that the petition for discharge was filed only after the commencement of trial, the complainant before the trial Court was examined and marked Exs.A1 to A5. In this petition Branch Manager, Lakshmi Villas Bank Mr. Loganathan was examined as PW 1 and Exs. 1 to 3 documents were marked. It is revealed that the present cheque in question was presented for collection before the Lakshmi Vilas Bank, Mettur Brach and the cheque was returned with an endorsement "Exceeds Arrangements". The complainant issued a notice demanding the amount, but after the issuance of the notice, no amount was paid. Hence, the complaint was lodged under Section 138 of the Negotiable Instruments Act. In this case, the cheque in question was issued to the complainant and it was presented for payment the cheque was dishonoured as it exceeds arrangements and the cheque was not returned by the banker stating that the cheque was not a CTS cheque, further the cheque was not returned on the above said ground or not, but returned as per RBI guidelines. There is . no restriction by the RBI restricting the use of old cheques/non-CTS issued to the customer. 5. In view of the above circumstances, the cheque in question was returned only on the ground exceeds arrangements and the cheque was not returned by the Banker on the ground, it is not a CTS cheque and it should not be used by the customer. of 6. This Court is of the considered view that dishonour of cheque by the banker stating as it exceeds arrangements for the said offence comes within the purview of the Negotiable Instruments Act. The trial Court has to decide rt whether the respondent has committed the offence under Section 138 of the Negotiable Instruments Act. 7. Hence, the arguments of the learned counsel for the petitioner is liable to discharge is untenable and the arguments of the learned counsel for the petitioner are liable to be rejected.

Result 10
Calcutta High Court
Krishan Gupta And Anr. vs State Of West Bengal And Anr.
Honourable Judges Ashim Kumar Roy
Date of Judgment: 23 March 2007
Segment Number (Approximate Page Number): 4

In the case of NEPC Micon Ltd. and Ors. v. Magma Leasing Ltd. reported in 1999 SCC (Cri) 524 : 1999 Cri LJ 2883, relied upon by the Learned Advocate of the opposite party. The Hon'ble Apex Court held as follows: (7) Further, the offence will be complete only when the conditions in provisos (a), (b) and (c) are complied with. Hence, the question is, in a case where a cheque is returned by the bank unpaid on the ground that the "account is closed", would if mean that the cheque is returned as unpaid on the ground that "the amount of money standing to the credit of that account is insufficient to honour the cheque? In our view, the answer would obviously be in the affirmative because the cheque is dishonoured as the amount of money standing to the credit of "that account" was "nil" at the relevant time apart from it being closed. Closure of the account would be an eventuality after the entire amount in the account is withdrawn. It means that there was no amount in the credit of "that account" on the relevant date when the cheque was presented for honouring the same. The expression "the amount of money standing to the credit of that account is insufficient to honour the cheque" is a genus of which the expression "that account being closed" is a specie. Alter issuing the cheque drawn on an account maintained, a person, if he closes "that account" apart from the fact that it may amount to another offence, it would certainly be an offence under Section 138 as there was insufficient or no fund to honour the cheque in "that account". Further, the cheque is to be drawn by a person for payment of any amount of money due to him "on an account maintained by him" with a banker and only on "that account" the cheque should be drawn. This would be clear by reading the section along with proviso (a), (b) and (c). (8) Secondly, proviso (c) gives an opportunity to the drawer of the cheque to pay the amount within 15 days of the receipt of the notice as contemplated in proviso (b). Further, Section 140 provides that it shall not be a defence in prosecution for an offence under Section 138 that the drawer has no reason to believe when he issued the cheque that the cheque may be dishonourd on presentment for the reasons stated in that section.

Result 11
Andhra High Court
Smt. Villa Naga Lakshmi vs Mutta Srinivasa Rao And Anr.
Honourable Judges Ramesh Ranganathan
Date of Judgment: 24 October 2006
Segment Number (Approximate Page Number): 5

7. Before examining the rival contentions, it is necessary to take note of Sections 138 and 142 of the Negotiable Instru ments Act which read as under: 138. Dishonour of Cheques for insufficiency, etc. of funds in the account: Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both : Provided that nothing contained in this section shall apply unless: (a) the cheque has been presented to the bank within a period of six months from the date on which it was 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 or other liability" means a legally enforceable debt or other liability.

Result 12
Delhi High Court
M/S Ikf Technologies Ltd. & Ors. vs Sasi Bhusan Raju
Honourable Judges Pratibha Rani
Date of Judgment: 17 December 2012
Segment Number (Approximate Page Number): 10

29. In the case of M.S.Narayana Menon @ Mani vs. State of Kerala & Anr. AIR 2006 (6) SCC 39, the Apex Court, while dealing with the issue, inter alia, observed as under : "If the defence is acceptable as probable the cheque therefore cannot be held to have been issued in discharge of the debt as, for example, if a cheque is issued for security or for any other purpose the same would not come within the purview of Section 138 of the Act.€Ÿ 30. In the case Jyoti Build-Tech Pvt. Ltd. & Ors. vs. Mideast Pipeline Products 183 (2011) DLT 680, the cheque in question for a sum of Rs.4.29 lacs was issued towards advance payment and adjustable to the final value of the work carried out, which got dishonored. A complaint under Section138 NI Act was filed and from the averments made in the complaint, it could be made out that there was dispute between the parties with regard to the work performed by the complainant. While observing that the dispute between the parties was business related dispute and cheque was returned under the instructions that payment was stopped by the drawer, in para 10 to 12 of the report, it was observed as under : "10. The presumption that the cheque was for consideration has itself been rebutted by the complainant by making a truthful disclosure in the complaint, but unfortunately for the complainant this statement of truthfulness would be akin to a self goal. I repeat. The averments in para 5 of the complaint evidenced that the cheque was not for a valuable consideration when it was drawn. It was towards advance payment for work yet to be done and would have acquired a consideration only then. 11. Under the circumstances, it is apparent that the learned Metropolitan Magistrate who has taken cognizance of the complaint and summoned the accused has not applied himself correctly. It has been ignored by the learned Metropolitan Magistrate that it is not a case of a cheque being dishonored for lack of sufficient funds. It is not a case where the instruction to the banker to stop payment was a ruse to get over insufficiency of funds in the account. The statutory notice served and its response, which was before the learned Metropolitan Magistrate, has obviously not been perused by the learned Metropolitan Magistrate.

Result 13
Allahabad High Court
Bobby Anand @ Yogesh Anand vs State Of U.P. And Another
Date of Judgment: 17 May 2023
Segment Number (Approximate Page Number): 14

138. Dishonour of cheque for insufficiency, etc., of funds in the account. --Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless-- (a) the cheque has been presented to the bank within a period of six months from the date on which it is 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, 20 [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 or other liability" means a legally enforceable debt or other liability.] 139. Presumption in favour of holder.--It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability." 42. The Legal Fiction created under Section 138 of the N.I. Act, when a cheque is returned by the bank unpaid has been explained as follows: "A bare perusal of the aforementioned provision would clearly go to show that by reason thereof a legal fiction has been created. A legal fiction, as is well known, although is required to be given full effect, has its own limitations.

Result 14
Delhi High Court
Axis Bank vs Punjab National Bank & Anr
Honourable Judges S. Ravindra Bhat, R.K.Gauba
Date of Judgment: 20 March 2015
Segment Number (Approximate Page Number): 13

The court ruled on the issue of "standard of care" at the stage of opening an account in the following manner:- "26. We have already observed that the principle enunciated in the Commissioners of Taxation v. English Scottish and Australian Bank [1920 AC 683] is that the opening of the account is material as shedding light on the question whether there was negligence in collecting a cheque does bring out the true position that there must be sufficient connection established between the opening of the account and the collection of the cheque before a defence under section 131 could be held to be barred. The question would then be one of facts as to how far the two stages can be regarded as so intimately associated as to be considered as one transaction. ... Even if there was negligence in opening of the account that act ipso facto would not result in loss to the true owner of the cheque collected. While collecting the cheque for a customer the bank is under obligation to present it promptly so as to avoid any loss due to change of position. When it receives the money collected then also there is no direct loss to the true owner. It is only when the amount is paid or withdrawn by the customer that the loss results. During this period what is important to note is that at every step in collection of the money and making payment the banker is bound by the banker-- customer relationship and rights and obligations flowing therefrom. Even so, if there was anything to rouse suspicion regarding the cheque and ownership of the customer the banker may find itself beyond the protection of section 131. The scope or ambit of possible suspicion will depend on various situations that may have prevailed between the drawer of the cheque and the customer..." 27... It is a settled law that the test of negligence for the purpose of section 131 of the Act is whether the transaction of paying in any given cheque coupled with the circumstances antecedent and present is so out of the ordinary course that it ought to arouse doubts in the banker's mind and cause him to make inquiries. ... The banker is bound to make inquiries when there is anything to rouse suspicion that the cheque is being wrongfully dealt with in being paid into the customer's account.

Result 15
Delhi High Court
Dhanjit Singh Nanda vs State & Anr.
Honourable Judges Mool Chand Garg
Date of Judgment: 9 February 2009
Segment Number (Approximate Page Number): 8

Corporation 1991 (3) CRIMES 72. The N.I. Act was amended by Parliament taking into consideration the increasing trend of dishonouring of the cheque and to save the commercial transactions which are undertaken by the parties based upon negotiable instruments such as a cheque and it is with a view to ensure that once a cheque is issued it is encashed on presentation, the amendments were made and in particular provisions of Sections 138 and 142 were incorporated, which reads as under: "138. Dishonour of cheque for insufficiency, etc., of funds in the accounts Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for 2["a term which may extend to two year"], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless- (a) The cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. (b) The payee or the holder induce 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, 3["within thirty days"] of the receipt of information by him from the bank regarding the return of the cheques 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.

Result 16
Delhi High Court
Ajanta Raj Proteins Pvt Ltd & Anr vs Himanshu Foods Pvt Ltd
Honourable Judges Prathiba M. Singh
Date of Judgment: 31 January 2018
Segment Number (Approximate Page Number): 9

In a case like the present one, where there were a series of transactions between the parties and some amount remained outstanding, the giving of the cheque, which was given as a security, would not by itself construe the cause of action. It is only when the payment is not made and the person in whose favour, the cheque has been issued, seeks to encash the cheque and it is thereafter dishonoured, that the right to sue itself arises. Until and unless the cheque is dishonoured, the Plaintiff cannot maintain a suit under Order XXXVII of the CPC in case of a cheque. There could be a situation where a cheque which has been issued as security for a future payment would be presented only when amounts become due and payable in future. The law of limitation has been designed not to reject claims of parties but to only ensure that old claims are not re- agitated and there is a finality after a particular period. 22. In Rohini Strips (supra), the Court was dealing with an Order XXXVII suit where cheques were issued for price of goods. It is in the said context that the Division Bench of this Court clearly upheld the finding that the cause of action commences to run from the date when the cheques were returned unpaid. However, on the other hand in Empire Home Appliances (supra), the learned Single Judge has distinguished the judgment of Rohini Strips (supra). The facts in Empire Home Appliances (supra) are distinguishable from the facts of the present case inasmuch as, in the said case, the suits were not simpliciter suits for recovery based on a cheque. The suits there were based on supply of goods, receipt of goods, credit notes issued, and thus, a much more detail factual analysis was required therein. 23. In the present case, however, though the transaction between the parties relates to supply of skimmed milk powder, the suit is a simple suit under Order XXXVII of the CPC based on a cheque. The cheque was valid on the date it was presented. It was returned due to 'insufficient funds'. It is the Defendants' contention that the cheque for Rs.15,00,000/- has been issued as a security, however, there is no document to this effect. The Plaintiff simply submits that the cheque in question was dishonoured and that gave it a cause of action to file the suit for recovery.

Result 17
Madras High Court
S.Kamatchi vs M/S.Arkaa Medicament
Honourable Judges A.Selvam
Date of Judgment: 1 July 2009
Segment Number (Approximate Page Number): 5

11.Before contemplating the rival submissions made by either counsel, it would be apropos to look into the provision of Section 138 of the Negotiable Instruments Act, 1881 and the same reads as follows; "Dishonour of cheque for insufficiency, etc., of funds in the accounts.- Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless- (a)the cheque has been presented to the bank within a period of six months from the date of on which it is 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 fifteen 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 purpose of this section, "debt or other liability" means a legally enforceable debt or other liability." 12.From the explanation given to the said section one can easily discern that the cheque in question should be given in connection with a legally enforceable debt or other liability and in a nut-shell on the date of issuance of cheque in question a legally enforceable debt or other liability must be in existence.

Result 18
Allahabad High Court
Smt. Vimla Devi & Another vs State Of U.P. & Another
Date of Judgment: 9 February 2017
Segment Number (Approximate Page Number): 9

Explanation.- For the purposes of this section,- (a) "company" means any body corporate and includes a firm or other association of individuals; and (b) "director", in relation to a firm, means a partner in the firm. 20. The prosecution launched against the petitioner was under Section 138 Negotiable Instruments act, 1881. Section 138 Negotiable Instrument Act reads under :- "138. Dishonour of cheque for insufficiency, etc, of funds in the account.- Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both : Provided that nothing contained in this section shall apply unless - (a) the cheque has been presented to the bank within a period of six months from the date on which it is 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 or other liability" means a legally enforceable debt or other liability.

Result 19
Calcutta High Court (Appellete Side)
Chloride Power Systems And Solutions ... vs The State Of West Bengal & Anr
Date of Judgment: 9 February 2023
Segment Number (Approximate Page Number): 6

But even in such cases, the question whether or not there was lawfully recoverable debt or liability for discharge whereof the cheque was issued, would be a matter that the trial court will have to examine having regard to the evidence adduced before it keeping in view the statutory presumption that unless rebutted, the cheque is presumed to have been issued for a valid consideration. In view of this the responsibility of the trial judge while issuing summons to conduct the trial in matters where there has been instruction to stop payment despite sufficiency of funds and whether the same would be a sufficient ground to proceed in the matter, would be extremely heavy." 7. Dashrathbhai Trikambhai Patel (supra) dealt with the case where part payment was made after the cheque was issued and Hon'ble Apex Court held 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 would not be the sum represented on the cheque. 8. In this case no payment though was made yet the fact remains that the accused person issued a cheque in order to discharge his obligation to pay against particular number of goods being supplied. Exhibit-5 unerringly indicates supply was not in terms of the purchase order. Therefore, the drawer of the cheque cannot be held liable to pay the cheque amount when there is mismatch between the articles or goods for which the cheque was issued and the goods or articles actually supplied. The accused person in this case has been able to prove that the cheque amount being a sum of Rs. 4,81,309/- was not the legally enforceable debt when the cheque was presented and the payment was stopped under the instruction of drawer. Therefore, the accused person cannot be said to have committed an offence within the meaning of Section 138 of the N.I. Act. To maintain a proceeding under Section 138 of the N.I. Act it is incumbent upon the complainant to prove that there is a legally enforceable debt and the cheque was drawn for discharge in whole or in part of any debt or liability. 9. Under such circumstances, the impugned judgement, in my humble opinion, does not warrant any interference. The appeal thus cannot be accepted.

Result 20
Gujarat High Court
Vasant Jayantilal Modi vs State Of Gujarat
Date of Judgment: 23 November 2022
Segment Number (Approximate Page Number): 35

R/CR.MA/1304/2022 JUDGMENT DATED: 23/11/2022 It is important to note that the transaction spoken of is a commercial transaction between two parties which involves payment of money for a debt or liability. The explanation to Section 138 makes it clear that such debt or other liability means a legally enforceable debt or other liability. Thus, a debt or other liability barred by the law of limitation would be outside the scope of Section 138. This, coupled with fine that may extend to twice the amount of the cheque that is payable as compensation to the aggrieved party to cover both the amount of the cheque and the interest and costs thereupon, would show that it is really a hybrid provision to enforce payment under a bounced cheque if it is otherwise enforceable in civil law. Further, though the ingredients of the offence are contained in the first part of Section 138 when the cheque is returned by the bank unpaid for the reasons given in the Section, the proviso gives an opportunity to the drawer of the cheque, stating that the drawer must fail to make payment of the amount within 15 days of the receipt of a notice, again making it clear that the real object of the provision is not to penalise the wrongdoer for an offence that is already made out, but to compensate the victim. 46. Likewise, under Section 139, a presumption is raised that the holder of a cheque received the cheque for the discharge, in whole or in part, of any debt or other liability. To rebut this presumption, facts must be adduced which, on a preponderance of probability (not beyond reasonable doubt as in the case of criminal offences), must then be proved. Section 140 is also important, in that it shall not be a defence in a prosecution for an offence under Section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that Section, thus making it clear that strict liability will attach, mens rea being no ingredient of the offence. Section 141 then makes Directors and other persons statutorily liable, provided the ingredients of the section are met. Interestingly, for the purposes of this Section, explanation (a) defines "company" as meaning any body corporate and includes a firm or other association of individuals.

Result 21
Karnataka High Court
Electronic Research Private Ltd vs Canara Bank
Honourable Judges S.Sujatha, Jyoti Mulimani
Date of Judgment: 22 December 2020
Segment Number (Approximate Page Number): 29

Defendant Nos.4 and 5 who were acting as the authorized representatives of the plaintiff - assessee have presented the said crossed cheques along with Demand Draft challans and obtained the Demand Draft challans in favour of Customs Madras, Customs Calcutta, Customs Mumbai and in the name of two shipping companies namely, South India Shipping Services and United India Shipping Services who were the clearing agents of plaintiff company at Madras. Issuance of Demand Drafts against crossed cheques drawn in favour of particular account is against the mandate of the cheque and the instructions of the plaintiff. As such, the defendant No.1 - Bank has violated the mandate of the cheque which is against the provisions of the Act. Thus, the banker - defendant No.1 shall be liable to the plaintiff for any loss if may sustain owing to - 70 - the cheque having been so paid by issuing demand drafts. At this juncture, it is apt to refer to the Hon'ble Apex Court judgment rendered in Canara Bank, supra, in paragraphs 24, 42 and 44, it is held thus:- "24. The relationship between the customer of a bank and the bank is that of a creditor and debtor. When a cheque which is presented for encashment contains a forged signature the bank has no authority to make payment against such a cheque. The bank would be acting against law in debiting the customer with the amounts covered by such cheques. When a customer demands payment for the amount covered by such cheques, the bank would be liable to pay the amount to the customer. The bank can succeed in denying payment only when it establishes that the customer is disentitled to make a claim either on account of adoption, estoppel or ratification. The principle of law regarding this aspect is as follows: When a cheque duly signed by a customer is presented before a bank with whom he has an account there is a mandate on the bank to pay the amount - 71 - covered by the cheque. However, if the signature on the cheque is not genuine, there is no mandate on the bank to pay. The bank, when it makes payment on such a cheque, cannot resist the claim of the customer with the defence of negligence on his part such as leaving the cheque book carelessly so that third parties would easily get hold of it. This is because a document in cheque form, on which the customer's name as drawer is forged, is a mere nullity.

Result 22
Bombay High Court
Nkhil P Thampi And Anr vs State Of Maharashtra And Anr
Honourable Judges Amit Borkar
Date of Judgment: 8 March 2023
Segment Number (Approximate Page Number): 16

138. Dishonour of cheque for insufficiency, etc., of funds in the account.--Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this act, be punished with imprisonment for [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless-- (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, wp4128-2021 & connected-Final.doc 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.

Result 23
Delhi High Court
Krish International P.Ltd. & Ors. vs State & Anr.
Honourable Judges G.P.Mittal
Date of Judgment: 30 January 2013
Segment Number (Approximate Page Number): 4

23. Section 138 of the Negotiable Instruments Act 1881 reads as under:- €•138. Dishonour of cheque for insufficiency, etc., of funds in the account.- Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returnedby the bank unpaid, either because of the amount of money standing returned by the bank unpaid, either because of the amount of money standing returned by the bank unpaid, either because of the amount of money standing returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless- (a) the cheque has been presented to the bank within a period of six months from the date on which it is 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.

Result 24
Bombay High Court
Tridhaatu Asset Holdings Llp And Ors vs Ramkrishnan Subramanian And Anr
Honourable Judges Amit Borkar
Date of Judgment: 8 March 2023
Segment Number (Approximate Page Number): 16

138. Dishonour of cheque for insufficiency, etc., of funds in the account.--Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this act, be punished with imprisonment for [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless-- (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, wp4128-2021 & connected-Final.doc 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.

Result 25
Punjab-Haryana High Court
M/S Ncubate India Service Pvt Ltd vs M/S Fast Track Communication And Anr
Date of Judgment: 26 April 2022
Segment Number (Approximate Page Number): 6

I had signed the said cheque. Ritesh had given me receiving of the same which is Ex.DW1/B. Ritesh had called me in January 2016 when I was out of station, and informed me about the arrival of my goods. I had asked from him how you have sent these goods without any order of mine then I refuse to take the delivery of the goods. Thereafter, Ritesh informed me that he had returned the goods to the company through Vikas roadways in January 2016. Copy of builty is Ex.DW1/A. Thereafter, I had no contact with Ritesh and I had also winded up my work therefore, I had no contact with the company also. I became aware of this case when I received the summon from this court. Company had no outstanding against me because goods had already been returned. Except this, I had no transaction with the company. Company has misuse the cheque which was a security cheque." 9. A reading of the aforesaid evidence clearly shows that the Manager of Transport Company has specifically deposed that the delivery of goods was returned back to the company and was handed over to Sanjay Parida, who is undisputedly an employee of the appellant-complainant. Besides, the receipt of the invoiced goods by the respondent-accused could not be established. A perusal of the running account/ledger produced by the appellant-complainant as Annexure A-9 would show that total outstanding reflected in the ledger balance was Rs.2,40,865/- i.e. the amount of the cheque. In the absence of the appellant-complainant having failed to establish the liability owed by the respondent-accused to the appellant-complainant for the 8 of 38 said sum of money, there was no occasion for the respondent-accused to have executed a cheque in this regard. Furthermore, the previous Area Manager of the appellant-complainant has himself acknowledged that the cheque in question was issued as a security cheque and an endorsement to that effect was also made thereupon. Thus, a reasonable suspicion with respect to the pre- existing liability has been created by the respondent-accused. The burden would thus shift upon the appellant-complainant company to establish existence of a pre-existing liability and a legally enforceable debt, in lieu whereof the cheque in question is claimed to have been issued by the respondent-accused.

Result 26
Delhi High Court
Magnum Aviation (Pvt.) Ltd. vs State & Ors.
Honourable Judges Shiv Narayan Dhingra
Date of Judgment: 27 August 2010
Segment Number (Approximate Page Number): 2

We therefore cancel our purchase order raised against the above mentioned items and it is requested to return our both the cheques failure to which we will apply to Court of Law. Thanking You With Regards" 4. The contention of the petitioner is that the moment purchase order was signed, since the orders were of urgent nature and second order was also placed within a week of the first order, the petitioner placed orders for procurement of these parts with its suppliers overseas and made substantial advance payments to the overseas suppliers. The goods were procured by the petitioner. When the cheque of respondent No.2 got dishonoured on 15th March, 2007, the petitioner informed respondent No.2 about dishonour of the cheque as well as that the shipment was ready and requested the respondent to make payment as per terms of purchase order so that the shipment could be sent to him. Even the second cheque dated 20th March, 2007, got dishonoured. It is only after two days, that is, on 22nd March, 2007 that the petitioner received aforesaid letter from the respondent. After receipt of this letter, the petitioner immediately responded vide letter dated 23rd March, 2007 that the order could not be cancelled since the material has already been procured and the petitioner had already made payment to the foreign suppliers. It is thereafter that the petitioner sent a legal notice calling upon the respondent to make payments against the cheques. 5. The only issue which this petition raises is whether the cheques issued at the time of signing the contract, as a condition of the contract, can be said to be against a liability or they are the cheques issued for no liability. The liability as per dictionary meaning is the state of being liable, that is, for which one is responsible or liable or has obligation. Liability and legal debt are two different terms. Legal debt is one which is recoverable at a point of time. A debt is a liability owing from one person to another person, however, a liability may be incurred without a debt being in existence. It is not necessary that while incurring a liability debt should already be there. A liability can be incurred without a debt being there. It is not necessary that a cheque is always issued against debt. A cheque can be issued against liability also.

Result 27
Madras High Court
N.Alex Britto vs T.A.Alexander
Honourable Judges R.Mala
Date of Judgment: 2 September 2010
Segment Number (Approximate Page Number): 4

At this juncture, it is appropriate to incorporate Section 138 of the Negotiable Instrument Act:- Dishonour of cheque for insufficiency, etc., of funds in the account:- where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for ( a term which may be extended to two years), or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless- (a) the cheque has been presented to the bank within a period of six months from the date on which it is 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. 8. It is appropriate to consider the decision relied upon by both the counsels, in R.Jayalakshmi Vs. Rashida, dated 22.10.1991, in cases where the cheque is returned unpaid with the endorsement ''refer to drawer''. In paragraph 7 of the Judgment, this Court held that:- ''The endorsement ''refer to drawer'' is an euphemistic way of informing the payee that the drawer of the cheque has got no amount o his credit to honour the cheque. Such is not the case herein. In all the complaints, the cheques were returned unpaid with the endorsement '' refer to drawer'' and ''payment countermanded by the drawer''.

Result 28
Punjab-Haryana High Court
Rajesh Meena vs State Of Haryana And Others
Honourable Judges Manoj Bajaj
Date of Judgment: 1 July 2019
Segment Number (Approximate Page Number): 7

In our view, the answer would obviously be in the affirmative because cheque is dishonoured as the amount of money standing to the credit of that account was nil at the relevant time apart from it being closed. Closure of the account would be an eventuality after the entire amount in the account is withdrawn. It means that there was no amount in the credit of that account 8 of 15 CRM-M-14537-2018 and other connected matters -9- on the relevant date when the cheque was presented for honouring the same. The expression the amount of money standing to the credit of that account is insufficient to honour the cheque is a genus of which the expression that account being closed is specie. After issuing the cheque drawn on an account maintained, a person, if he closes that account apart from the fact that it may amount to another offence, it would certainly be an offence under Section 138 as there was insufficient or no fund to honour the cheque in that account; Further, cheque is to be drawn by a person for payment of any amount of money due to him on an account maintained by him with a banker and only on that account cheque should be drawn. This would be clear by reading the Section along with provisos (a), (b) & (c )." In the above case, before the Hon'ble Supreme Court where the proceedings were challenged on the same ground, i.e. maintainability of complaint as the cheque was dishonoured because account stood closed. Relying upon various other judgments on the issue, the Hon'ble Supreme Court held that the provisions of Section 138 NI Act cannot be interpreted narrowly because if argument of the drawer is accepted, it would defeat the legislative intent. Similarly, where the drawer had stopped the payment and the cheque in question was dishonoured, whether it would be punishable under Section 138 NI Act was another question posed before the Hon'ble Supreme Court, in M.M.T.C Ltd. and Anr Vs. Medchl Chemicals and Pharma (P) 9 of 15 CRM-M-14537-2018 and other connected matters -10- Ltd. and Anr, 2001 (1) SCC 234, wherein following observations were made:- "It has been held that even though the cheque is dishonoured by reason of 'stop payment' instruction an offence under Section 138 could still be made out. It is held that the presumption under Section 139 is attracted in such a case also.

Result 29
Madras High Court
G.Hubert Fenelon vs D.Sridharan
Honourable Judges A.K. Rajan
Date of Judgment: 20 August 2002
Segment Number (Approximate Page Number): 4

This order was passed in a petition filed by the Central Government under Section 4 01 of the Company Law. Therefore, the learned counsel for the petitioner submitted, the cheques/interest warrants already issued were cancelled by the Company Law Board and therefore, there was no existing liability to pay any amount and therefore, the complaint has to be dismissed. 6. Learned counsel appearing for the respondent submitted that once a cheque has been issued and once it is dishonoured, the offence under Section 138 of the Negotiable Instruments Act has been committed and the offence continues till the amounts are paid. In this case, the offence was complete on 22nd March, 2000. The Company Law Board passed the order only on 11th April, 2000. Therefore, the order of the Company Law Board will not affect the complaint already filed. In support of his argument, the counsel for the respondents relied upon a decision of the Supreme Court in Pankaj Mehra v. State of Maharashtra ((2000) 2 Supreme Court Cases 756), wherein the Supreme Court has held that, " Section 138 of the Negotiable Instruments Act, no doubt, contemplates only when the cheque is drawn by a person 'for the discharge, in whole or in part, of any debt or other liability'. The explanation to Section 138 says that 'for the purposes of this section, 'debt or other liability' means a legally enforceable debt or other liability'. Therefore, the first limb of the contention is forceful that for the offence under Section 138, the cheque should have been drawn for discharging a legally enforceable debt or other liability. But the second limb of the contention is tenuous as the debt would not cease to be legally enforceable merely because somebody has filed a petition for winding up. " Relying upon this decision, learned counsel for the respondents submitted that subsequent to the issue of cheque, even in cases where petition for winding up of the company is filed or if the person is adjudged an insolvent, the liability under Section 138 of the Negotiable Instruments Act, is not absolved. Therefore, once a cheque has been issued for the existing liability on the date when it was payable, any subsequent development will not absolve the liability. Therefore, the persons who gave the cheques cannot be absolved of their criminal liability; therefore, the complaint filed cannot be dismissed.

Result 30
Himachal Pradesh High Court
Talyahar vs Pawan Kumar
Honourable Judges Sandeep Sharma
Date of Judgment: 3 September 2021
Segment Number (Approximate Page Number): 6

Since, this witness in his cross-examination categorically denied suggestion put to him that accused had issued a blank cheque in favour of complainant-bank, response made by him to other suggestion that blank cheques are not taken as security while granting Cash Credit Limit, may not be of much relevance, as far as the case of the accused is concerned. At no point of time, suggestion, if any, ever came to be put to the aforesaid witness of the bank that accused had not issued any cheque, at any point of time, rather accused took contradictory defence, on the one hand accused tried to set up a case that he had issued a blank security cheque and on the other hand, he . also took a defence that no cheque was issued by him in favour of complainant-bank. No doubt, presumption as available under Sections 118 and 139 of the Act, are rebuttable by the accused, but there is no material led on record suggestive of the fact that accused was able to raise any probable defence to rebut the specific case of the complainant-bank that accused with a view to discharge his lawful liability, issued cheque in question and same was dishonoured on account of "funds insufficient'. Cheque Ext. CW-1/C, was issued on 18.07.2016 and same was dishonoured on the same day though memo Ext. CW-1/D. It also stands proved on record that cheque was presented within the period of its validity. Similarly, legal notice Ext. CW-1/E, was sent on 11.08.2016, through postal receipt Ext. CW-1/F. Bare perusal of aforesaid notice clearly proves that legal notice was sent within 30 days from receiving information of the dishonour of the cheque, i.e Ext. CW-1/C. Since, accused despite having received legal notice failed to pay the cheque amount, complainant-bank had no option but to institute the proceedings under Section 138 of the Act. Since, accused at no point of time, disputed that legal notice was not sent to him on the correct address, legal notice sent through registered post on the address available in the bank is deemed to be served. 9. The Hon'ble Apex Court in M/s Laxmi Dyechem V. State of Gujarat, 2013(1) RCR(Criminal), has categorically held that if the accused is able to establish a probable defence which creates doubt about the existence of a legally enforceable debt or liability, the prosecution can fail.

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