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DISHONOUR OF CHEQUE

SECTION 138 OF NEGOTIABLE INSTRUMENT ACT

DEBT & LIABILITY

In Union of India vs. Raman Iron, AIR 1974 SC 1265, the Hon’ble Supreme Court observed that “the word ‘debt’ is applicable to a sum of money which has been promised at a future day as to a sum now due and payable. When there is an obligation to pay a sum of money at a future date, it is debt owing but when the obligation is to pay a sum of money in presenti, it is a debt due”.

In First National Bank Limited vs. Seth Sant Lal, AIR 1959 Punj. 328, the High Court of Punjab and Haryana, held that “the term liability is of a large and comprehensive signification and when construed in its usual and ordinary sense, it expresses the state of being under obligation in law or in justice”.

In Hameed Joharan vs. Abdul Salam, (2001) 7 SCC 573,  the Hon’ble Supreme Court observed that “the word ‘enforce’ has been attributed a meaning to give force or effect to; to compel obedience to (Black Law Dictionary)”.

ISSUING A CHEQUE

In Gopan vs. Tonny Varghese, 2009 (1) DCR 314, Kerala High Court held in Para 13 that drawing of a cheque means “executing”.

EXECUTION

In In Re: Kuttadan Velayudhan and Others, AIR 2001 Kerala 123, while dealing with the presumption under Section 114 of the Evidence Act for determining as to whether signing of a document means the execution of the document and after noticing three types of cases viz. (1) when defendants merely submitted that signed papers were entrusted to a person and those papers were made use for the purpose of executing an agreement; (2) the signed papers were given on the understanding that a particular document will be made, but contrary to that assurance, a different document was fabricated; (3) where the defendants even though have signed the documents, never intended to bring it in force, a Division Bench of Kerala High Court held in Para 9 that:

“9. To sign means to affix the signature. But when it comes to signing of a written instrument, it implies more than the act of affixing signature. It implies more than the clerical act of writing the name. The intention of the person signing is important. The person should have affixed the signature in the instrument in token of an intention to be bound by its conditions. It has been said that for a signing consists of both the act of writing a person’s name and the intention in doing this to execute, authenticate or to sign as a witness. The execution of a deed or other instrument includes the performance of all acts which may be necessary to render it complete as a deed or an instrument importing the intended obligation of every act required to give the instrument validity, or to carry it into effect or to give it the forms required to render it valid. Thus, the signature is an acknowledgment that the person signing has agreed to the terms of the document. This can be achieved only if a person signs after the document is prepared and the terms are known to the person signing. In that view of the matter, mere putting of signature can not be said to be execution of the document.

It was further held in Para 15 that:

“when a person says that he put the signatures on a blank paper that does not mean that he had admittedly executed the document”.

In Para 16, the Division Bench further repelled the contention that ‘the burden lies on the person who has subscribed his signature to a blank paper’, by observing that:

“we can not ignore the circumstances under which where a person may be compelled to give signed blank papers to another person. The person who signs the paper may not know what are the conditions which will be imposed by the other side. Hence, in such circumstances, a general proposition cannot be laid down that the burden should be on the person who has subscribed his signature to a blank paper.”

VOLUNTARINESS OF ISSUING A CHEQUE

In Taher N. Khambati vs. Vinayak Enterprises, 1 (1995) BC 473, the Andhra Pradesh High Court, while considering the fact of obtaining a pronote against the money advanced and also taking a blank signed cheque from the respondents with the understanding that in case of default in payment in interest, the complainant could fill other columns of the cheque, held that as the appellant has obtained this blank signed cheque with a view to make use of it, as a threat to the respondents for realisation of the amount. So it cannot be construed that the respondents issued the cheque voluntarily for discharge of any debt or legal liability as envisaged under Section 138”.

PRESUMPTION UNDER SECTION 138 N.I.ACT

In N.I.Shaju vs. T.K.Paulose Thondanala House, 2010 (1) DCR 609, the Kerala High Court, held in Para 11 that the presumption under Section 139 of the N.I.Act is for execution and not for signing only.

EXISTENCE OF DEBT OR LIABILITY

In Shanku Concretes Pvt. Ltd. Vs State of Gujarat, 2001 DCR 100, the High Court of Gujarat observed in Para 10 per Justice J.R.Vohra, J that the expression “for the discharge, in whole or in part, of any debt or other liability,”, the pre-existing condition is, there must be the existence of any debt or any other liability, for which the cheque might have been issued and bounced”.

In Indira Baxi & Anr. Vs. Sunita Goyal, 2001 DCR 440, the Madhya Pradesh High Court, directed the Trial Court to consider the absence of any debt or liability in view of the payments made by the accused after receipt of notices.

DISTINCTION BETWEEN “CHEQUE ISSUED AS SECURITY” & “CHEQUE IN DISCHARGE OF LIABILITY”

In K.K.Bakshi & Anr. Vs. State & Anr., (1) 2008 CCR 34 (DHC), the High Court of Delhi noticed distinction between “cheque issued as security” and “cheque in discharge of liability”.

BLANK CHEQUE

In C. Anthony vs. K.G.Raghavan Nair, 2002 (6) SLT 272, the Hon’ble Supreme Court held that the blank cheque was not covered under section 138 of the N.I.Act as the ink used in the body of the cheque was different from the ink used in the signatures of the cheque.

In Manjit Singh Obhan vs. State of Maharashtra & Ors., 2008 (2) DCR 622, Mumbai High Court held that “if blank signed cheques are issued without mentioning the amount and date, it may be considered that the cheques were not issued for valuable consideration”.

In Ravi Chopra vs. State & Anr., 2008 (2) DCR 235, the Hon’ble High Court repelled the contention that a blank cheque was not a cheque within the meaning of Section 138 as subsequent filling amounted to alteration under Section 87 and it was held to be a cheque in view of Section 118 and Section 87 of the N.I.Act.

UNDATED CHEQUE

In Balaji Seafoods Exports (India) Ltd. Vs. Mac Industries Ltd., 1999 DCR 38 =1999 Cur Cri R 424, while dealing with the case of a signed undated cheque which was issued as a security at the time of entering into a contract, the Hon’ble High Court of Madras, after examining provisions of Section 46 of the N.I.Act, observed in Para 8 that “on the date when the cheque was handed over, there was no legally enforceable debt or other liability” and thus held in Para 10 that “as an undated cheque having given only as security, the provisions of Section 138 of the N.I. Act are not at all attracted”.

POST DATED CHEQUE

In Swastic Coaters vs. Deepak Bros., 1998 DCR 258, it was held that the post dated cheques issued towards price of goods to be supplied by the complainant is not covered under Section 138 of the N.I.act.

CHEQUE ISSUED AS A SECURITY

In Sreenivasan vs. State of Kerala, 2000 DCR 199, the Kerala High Court held that “when a cheque has been issued as a security, no complaint will lie under section 138 of the Negotiable Instruments Act.”

BURDEN TO PROVE

In Jogesh Prasad Singh vs. Ramchander Prasad Singh, AIR 1950 Pat 370, the High Court of Patna held that “It is true that in case of this sort, the initial onus is on the person who alleges that the document was executed by the persons whose names appear thereon as the executants. But where these persons admit their endorsements and allege that they made those endorsements on blank paper, the onus is very easily shifted”.

STATUTORY PRESUMPTIONS & BURDEN TO PROVE

In Kali Ram vs. State of Himachal Pradesh, {(1973) 2 SCC 808}, a three judges bench of the Hon’ble Supreme Court held that “one of the cardinal principles which has always to be kept in view in our system of administration of justice for criminal cases is that a person arraigned as an accused is presumed to be innocent unless that presumption is rebutted by the prosecution by production of evidence as may show him to be guilty of the offence with which he is charged. The burden of proving the guilt of the accused is upon the prosecution and unless it relieves itself of that burden, the courts cannot record a finding of the guilt of the accused. There are certain cases in which statutory presumption arise regarding the guilt of the accused, but the burden in those cases is upon the prosecution to prove the existence of facts which have to be present before the presumption can be drawn. Once those facts are shown by the prosecution to exist, the Court can raise the statutory presumption and it would, in such an event, be for the accused to rebut the presumption. The onus even in such cases upon the accused is not as heavy as is normally upon the prosecution to prove the guilt of the accused. If some material is brought on the record consistent with the innocence of the accused which may reasonably be true, even though it is not positively proved to be true, the accused would be entitled to acquittal.”

In C.Bhaskaran Nair vs. B.Mohanan, 2009 (2) DCR 673, Kerala high Court held that  the burden to prove the case is on the complainant, and in case of denial of execution, there is no presumption.

In Kalavathy vs. Parthasarthy, 2009 (2) DCR 610, Kerala High Court held that mere admission of signature is not sufficient.

PROVING OF A DOCUMENT

In Ramji Dayawala & sons (P) Ltd. vs. Invest Import, AIR 1981 SC 2085, the Hon’ble Supreme Court laid down that “undoubtedly, mere proof of handwriting of a document would not tantamount to proof of all the contents or the facts stated in the document. If the truth of the facts stated in a document is in issue, mere proof of the handwritings and execution of the document would not furnish evidence of the truth of the facts or contents of the document. The truth or otherwise of the facts or contents so stated would have to be proved by admissible evidence i.e. by the evidence of those persons who can vouchsafe for the truth of the facts in issue”.

BURDEN TO PROVE EXISTENCE OF DEBT OR LIABILITY

In Arumugham Pillai vs. State of Kerala, 2005 (2) Bankman 158, the Kerala High Court, after examining provisions of Scetion 43 of N.I.Act and Section 2 (d) of the Contract Act, in view of the evidence that the cheque P2 was issued without any consideration, held in Para 6 that “if a holder of the cheque presents the same for encashment, it is his burden to prove that the cheque was issued in discharge of a legally enforceable debt or other liability.

CLOSED ACCOUNT COVERED UNDER SECTION 138 N.I.ACT

In NEPC Micon Ltd. & Ors. Vs. Magma Leasing Ltd., 1999 (2) Civil Court Cases 471 (SC), the Hon’ble Supreme Court held that account closed amounts to insufficient funds.

STOP PAYMENT COVERED UNDER SECTION 138 N.I.ACT

In MMTC Ltd. Vs. Medche Chemicals and Pharma (P) Ltd., {(2002) 1 SCC 234}, the Hon’ble Supreme Court held in Para 19 that Stop payment tantamount to insufficient funds.

In H.D.F.C. Bank Ltd. vs. Amit Kumar Singh, 2009 (3) JCC (NI) 185, the Delhi High Court held that the MM was justified to dismiss the complaint on failure of the complainant to give proof of the “receipt of notice” by the accused.

In Allopi Prasad & sons vs. Harish Chandra, AIR 1973 All. 368, the Allahabad High Court held that the burden to prove that the holder of cheque is holder in due course lies on the plaintiff where fraud is alleged in view of proviso to Section 118(g) of the Evidence Act.

In case of Lost cheque, See illustration ( c ) of S-403 IPC.

In V.Ponnappa Moothan Sons vs. The catholic Syrian Bank & ors., 1990 (19) DRJ 293 (SC), the Hon’ble supreme court dealt holder in due course and Section 118 (g) of the N.I.Act.

In Harman Electronics (p) Ltd. Vs. National Panasonic India Ltd., 2004 (2) C.C.Cases (HC) 92

In Virender Singh vs. Laxmi Narain & Anr., 2007 (1) Bankman 118, the Delhi High Court, held that if a contract is void ab initio, no action under Section 138 lies as there would be no legally enforceable debt.