On 11th October 2022, the Supreme Court in a division bench comprising of Justice Dr Dhananjaya Y Chandrachud and Justice Hima Kohli observed that whether Section 138 of the NI Act, 1881 would be attracted when the drawer of the cheque makes a part payment towards the debt after the cheque is drawn but before the cheque is encashed, for the dishonour of the cheque which represents the full sum. (Dashrathbhai Trikambhai Patel V. Hitesh Mahendrabhai Patel & Anr.)
Facts of the Case:
On 10 April 2014, the appellant issued a statutory notice u/s 138 of the Act to the first respondent alleging that he had borrowed a sum of rupees twenty lakhs from the appellant on 16 January 2012 and to discharge the liability, issued a cheque dated 17 March 2014. It was further alleged that the cheque when presented on 2 April 2014 was dishonoured due to insufficient funds. The appellant issued the notice calling the first respondent to pay the legally enforceable debt of Rs. 20,00,000. On 25 April 2014, a response was addressed to the statutory notice by the respondent alleging that appellant’s son married the first respondent’s sister, forty lakhs were lent to the respondent which would return by paying rupees one lakh every three months by cheque and rupees eighty thousand in cash. Moreover, two cheques were given to the appellant for security. It was agreed that the appellant would return both the cheques when the sum lent was paid in full but they have been misused by the appellant. On 12 May 2014, the appellant filed a criminal complaint against the respondent for the offence u/s 138. On 19 May 2014, respondent issued a notice to amend and replace forty lakh rupees with twenty lakhs. But on 30 August 2016, the Trial Court acquitted the first respondent of the offence u/s 138 on the ground that the first respondent paid the appellant a sum of rupees 4,09,3015 between 8 April 2012 and 30 December 2013 partly discharging his liability. The appellant filed an appeal against the judgment of the Trial Court before the HC of Gujarat. But the same was dismissed on 12 January 2022 giving rise to the present appeal.
Contentions of the Appellant:
The counsel for the appellant submitted that, “There is nothing on record to show that the payment of rupees 4,09,315 was made towards the discharge of the debt of rupees twenty lakhs; The payment of rupees 4,09,315 was before the issuance of the cheque; and he also did not make any payment of the sum that was due since the statutory notice that was served upon him on 15 April 2014.”
Contentions of the Respondents:
The counsel for the respondent submitted that, “The term ‘debt or other liability’ used in Section 138 of the Act has been defined in the Explanation clause to mean a ‘legally enforceable debt or other liability’. Thus, the demand made in the statutory notice must be for a sum that is legally enforceable; If the debtor has paid a part of the debt, a statutory notice seeking the payment of the entire sum in the cheque without any endorsement under Section 56 of the part-payment made would not be legally sustainable; and since the respondent1 has paid off a part of the debt, the appellant cannot initiate action if the cheque which represented the principal amount without deducting or endorsing a part payment has been dishonoured.”
Observations and Judgement of the Court:
The Hon’ble court observed that, “when a part or whole of the sum represented on the cheque is paid by the drawer of the cheque, it must be endorsed on the cheque as prescribed in Section 56 of the Act. The cheque endorsed with the payment made may be used to negotiate the balance, if any. If the cheque that is endorsed is dishonoured when it is sought to be encashed upon maturity, then the offence under Section 138 will stand attracted. For the commission of an offence under Section 138, the cheque that is dishonoured must represent a legally enforceable debt on the date of maturity or presentation; if f the drawer of the cheque pays a part or whole of the sum between the period when the cheque is drawn and when it is encashed upon maturity, then the legally enforceable debt on the date of maturity would not be the sum represented on the cheque. The notice demanding the payment of the ‘said amount of money’ has been interpreted by judgments of this Court to mean the cheque amount. The conditions stipulated in the provisos to Section 138 need to be fulfilled in addition to the ingredients in the substantive part of Section 138. Since in this case, the first respondent has not committed an offence under Section 138, the validity of the form of the notice need not be decided.”
The appeal was dismissed and the judgement given by Gujarat HC was upheld.
Case: Dashrathbhai Trikambhai Patel V. Hitesh Mahendrabhai Patel & Anr.
Citation: Criminal Appeal No. 1497 of 2022
Bench: Justice Dr Dhananjaya Y Chandrachud and Justice Hima Kohli
Date: October 11, 2022
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