DASHRATHBHAI TRIKAMBHAI PATEL versus HITESH MAHENDRABHAI PATEL & ANR

[2022] 16 S.C.R.

ADASHRATHBHAI TRIKAMBHAI PATEL

HITESH MAHENDRABHAI PATEL & ANR.

(Criminal Appeal No. 1497 of 2022)

OCTOBER 11, 2022

[DR DHANANJAYA Y CHANDRACHUD ANDHIMA KOHLI, JJ.]

Negotiable Instruments Act, 1881 – s.138 and s.56 r/w s.15 –Legally enforceable debt on the date of maturity – Whether offenceCu/s.138 would deem to be committed if the cheque that is dishonoureddoes not represent the enforceable debt at the time of encashment –Whether s.138 would still be attracted when the drawer of the chequemakes part payment towards the debt or liability after the chequeis drawn but before the cheque is encashed, for the dishonour ofthe cheque which represents the full sum – Held: For commission ofDan offence u/s.138, the cheque that is dishonoured must represent alegally enforceable debt on the date of maturity or presentation – Ifthe drawer of the cheque pays part or whole of the sum betweenthe period when the cheque is drawn and when it is encashed uponmaturity, then the legally enforceable debt on the date of maturityEwould not be the sum represented on the cheque – When part orwhole of the sum represented on the cheque is paid by the drawerof the cheque, it must be endorsed on the cheque as prescribed ins.56 – The cheque endorsed with the payment made may be used tonegotiate the balance, if any – If the cheque that is endorsed isdishonoured when it is sought to be encashed upon maturity, thenFthe offence u/s.138 will stand attracted – On facts, the firstrespondent made part-payments after the debt was incurred andbefore the cheque was encashed upon maturity – The sum of rupeestwenty lakhs represented on the cheque was not the ‘legallyenforceable debt’ on the date of maturity – Thus, the first respondentGcannot be deemed to have committed an offence u/s.138 when thecheque was dishonoured for insufficient funds.

Negotiable Instruments Act, 1881 – s.138 and s.56 r/w s.15 –Prosecution u/s.138 – Endorsement of part-payment on the cheque– Effect of – Held: When such an endorsement is made, theinstrument could still be used to negotiate the balance amount.H

DASHRATHBHAI TRIKAMBHAI PATEL v. HITESH MAHENDRABHAIPATEL & ANR.

Negotiable Instruments Act, 1881 – s.138 – Term ‘debt orother liability’ used in s.138 – Meaning of – Discussed

Dismissing the appeal, the Court

HELD: 1. Based on analysis of case precedents, the

following principles emerge:

(i) Where the borrower agrees to repay the loan within aspecified timeline and issues cheque for security but defaultsin repaying the loan within the timeline, the cheque matures forpresentation. When the cheque is sought to be encashed by thedebtor and is dishonoured, Section 138 of the Act will be attracted;(ii) However, the cardinal rule when cheque is issued for securityis that between the date on which the cheque is drawn to the dateon which the cheque matures, the loan could be repaid throughany other mode. It is only where the loan is not repaid throughany other mode within the due date that the cheque would maturefor presentation; and (iii) If the loan has been discharged beforethe due date or if there is an ‘altered situation’, then the chequeshall not be presented for encashment. [Para 12][533-F-H; 534-A-B]

1.2. An offence under Section 138 of the NegotiableInstruments Act, 1881 arises if the cheque represents legallyenforceable debt on the date of maturity. The offence under Section138 is tipped by the dishonour of the cheque when it is sought tobe encashed. Though post- dated cheque might be drawn torepresent legally enforceable debt at the time of its drawing,for the offence to be attracted, the cheque must represent legallyenforceable debt at the time of encashment. If there has been amaterial change in the circumstance such that the sum in thecheque does not represent legally enforceable debt at the timeof maturity or encashment, then the offence under Section 138 isnot made out. [Para 16][536-A-C]2. Under Section 56 read with Section 15 of the Act, anendorsement may be made by recording the part-payment of thedebt in the cheque or in note appended to the cheque. Whensuch an endorsement is made, the instrument could still be usedto negotiate the balance amount. If the endorsed cheque whenpresented for encashment of the balance amount is dishonoured,

Athen the drawee can take recourse to the provisions of Section138. Thus, when part- payment of the debt is made after thecheque was drawn but before the cheque is encashed, suchpayment must be endorsed on the cheque under Section 56 ofthe Act. The cheque cannot be presented for encashment withoutrecording the part payment. If the unendorsed cheque isBdishonoured on presentation, the offence under Section 138 wouldnot be attracted since the cheque does not represent legallyenforceable debt at the time of encashment. [Para 29][541-D-F]

3. Conclusion:

Ci) For the commission of an offence under Section 138, thecheque that is dishonoured must represent legally enforceabledebt on the date of maturity or presentation;

(ii) If the drawer of the cheque pays part or whole of thesum between the period when the cheque is drawn and when it isDencashed upon maturity, then the legally enforceable debt on thedate of maturity would not be the sum represented on the cheque;

(iii) When part or whole of the sum represented on thecheque is paid by the drawer of the cheque, it must be endorsedon the cheque as prescribed in Section 56 of the Act. The chequeEendorsed with the payment made may be used to negotiate thebalance, if any. If the cheque that is endorsed is dishonouredwhen it is sought to be encashed upon maturity, then the offenceunder Section 138 will stand attracted;

(iv) The first respondent has made part-payments after theFdebt was incurred and before the cheque was encashed uponmaturity. The sum of rupees twenty lakhs represented on thecheque was not the ‘legally enforceable debt’ on the date ofmaturity. Thus, the first respondent cannot be deemed to havecommitted an offence under Section 138 of the Act when thecheque was dishonoured for insufficient funds; and

(v) The notice demanding the payment of the ‘said amountof money’ has been interpreted by judgments of this Court tomean the cheque amount. The conditions stipulated in theprovisos to Section 138 need to be fulfilled in addition to theingredients in the substantive part of Section 138. Since in this

DASHRATHBHAI TRIKAMBHAI PATEL v. HITESH MAHENDRABHAIPATEL & ANR.

case, the first respondent has not committed an offence underSection 138, the validity of the form of the notice need not bedecided. [Para 30][541-G; 542-A-F]

Indus Airways Private Limited v. Magnum AviationPrivate Limited (2014) 12 SCC 539 : [2014] 5 SCR56; Sampelly Satyanarayana Rao v. Indian RenewableEnergy Development Agency Limited (2016) 10 SCC45 : [2016] 6 SCR 531; Sripati Singh v. State ofJharkand 2021 SCC OnLine SC 1002; Sunil Todi v.State of Gujarat [Supreme Court decision in CriminalAppeal No. 1446 of 2021]; NEPC Micon Ltd. v. MagnaLeasing Ltd. AIR 1995 SC 1952 : [1999] 2 SCR 932;Rahul Builders v. Arihant Fertilizers & Chemicals(2008) 2 SCC 321 : [2007] 11 SCR 951; Suman Sethiv. Ajay K Churiwal (2000) 2 SCC 38 and KR Indira v.G. Adinarayana (2003) 8 SCC 300 : [2003] 4 Suppl.SCR 535 – referred to.

Joseph Sartho v. Gopinathan (2008) 3 KLJ 784;Alliance Infrastructure Project Ltd. v. Vinay Mittal ILR(2010) III Delhi 459 and Shree Corporation v. AnilbhaiPuranbhai Bansal [2018] 2 GLH 105 – referred to.

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.1497 of 2022.

From the Judgment and Order dated 12.01.2022 of the High Courtof Gujarat at Ahmedabad in Criminal Appeal No.1488 of 2016.

Mehmood Umar Faruqui, Kausar Raza F., Anik Timbalia, Advs.for the Appellant.

Nakul Dewan, Sr. Adv., Purvish Jitendra Malkan, Ms. Dharita P.Malkan, Alok Kumar, Ms. Deepa Gorasia, Ms. Khushboo Malkan, Ms.Bhavna Sarkar, Narayan Laxman Rao, Neil Chatterjee, Ms. TansiFotedar, Ms. Deepanwita Priyanka, Advs. for the Respondents.

The Judgment of the Court was delivered byBDR DHANANJAYA Y CHANDRACHUD, J.

1. This appeal arises from judgment dated 12 January 2022 ofthe High Court of Gujarat. The High Court dismissed an appeal againstthe judgment of the Additional Chief Judicial Magistrate dated 30 August2016 by which the first respondent was acquitted of the offence underCSection 138 of the Negotiable Instruments Act 1881[1]. At the core, theissue is whether the offence under Section 138 of the Act would deemto be committed if the cheque that is dishonoured does not represent theenforceable debt at the time of encashment.

The FactsD

2. On 10 April 2014, the appellant issued statutory notice underSection 138 of the Act to the first respondent-accused. It was allegedthat the first respondent borrowed sum of rupees twenty lakhs fromthe appellant on 16 January 2012 and to discharge the liability, issued acheque dated 17 March 2014 bearing cheque No. 877828 for the saidEsum. It was further alleged that the cheque when presented on 2 April2014 was dishonoured due to insufficient funds. The appellant issuedthe notice calling the first respondent to pay the legally enforceable debtof Rs. 20,00,000:

“Therefore, my client hereby calls upon you to make payment ofFRs. 20,00,000/- towards the legally enforceable debt due andpayable by you within period of 15 days from the date of receiptof this particular notice, […]”

3. On 25 April 2014, the first respondent addressed response tothe statutory notice where he alleged the following:

(i)The first respondent and the appellant are related to eachother. The appellant’s son married the first respondent’ssister;

(ii)The appellant lent the first respondent loan of rupees fortyAlakhs. There was an oral agreement between the partiesthat the first respondent would pay rupees one lakh everythree months by cheque and rupees eighty thousand in cashto the appellant. Two cheques were given to the appellantfor security. It was agreed that the appellant would returnBboth the cheques when the sum lent was paid in full;

(iii)The appellant’s son-initiated divorce proceedings againstthe respondent’s sister. However, the dowry that was givenat the time of marriage is still in the possession of theappellant; and

(iv)The cheques that were issued for security have beenmisused by the appellant.

4. On 12 May 2014, the appellant filed criminal complaint againstthe first respondent for the offence under Section 138 of the Act. On 19May 2014, the first respondent issued another reply to the legal notice.By the said reply, the earlier reply to the legal notice was sought to beamended by replacing the acknowledgment of having received loan ofrupees forty lakhs to rupees twenty lakhs.

5. By judgment dated 30 August 2016, the Trial Court acquittedthe first respondent of the offence under Section 138 on the ground thatthe first respondent paid the appellant sum of rupees 4,09,315 between8 April 2012 and 30 December 2013 partly discharging his liability inrespect of the debt of rupees twenty lakhs. The split up of the paymentsis set out below:

The Trial Court observed that the appellant has failed to provethat he was owed legally enforceable debt of rupees twenty lakhs:

“Therefore, the plaintiff’s complaint proved that the accused haspaid Rs, 4,09,315 out of the amount due as per fact. So that on theday the plaintiff deposited in the bank to recover legal amountBof Rs, 20,00,000/- The court believes that the prosecution hasfailed to prove that fact.”

6. The appellant filed an appeal against the judgment of the TrialCourt before the High Court of Gujarat. On 10 October 2019, the firstrespondent moved an application before the High Court of Gujarat seekingCto place on record the amended reply dated 19 May 2014. By an orderdated 11 October 2018, the High Court allowed the application for placingthe additional evidence on record. The High Court by its judgment dated12 January 2022 dismissed the appeal, thereby upholding the judgmentof the Trial Court acquitting the first respondent. The High Court affirmedthe finding of fact by the Trial Court that part of the debt owed by theDfirst respondent to the appellant was discharged and thus the notice ofdemand issued under Section 138 of the Act is not valid. In the course ofthe analysis, the following findings were entered:

(i)The appellant has in the course of his cross-examinationaccepted that the first respondent had deposited rupeesE4,09,315 in his account;

(ii)There is statutory presumption that the sum drawn in thecheque is debt or liability that is owed by the drawer ofthe cheque to the drawee. The part -payment made by thefirst respondent ought to have been reflected in the statutoryFnotice issued by the appellant. The sum in the cheque ishigher than the amount that was due to the appellant. Thus,the statutory notice issued under Section 138 is not valid. Itis an omnibus notice since it did not recognise the part-payment that was made; and

G(iii) The cheque was security for the money lent by theappellant. The undated cheque was presented to the bankwithout recognising the part- payment that was alreadymade.

The Submissions

7. Mr Mehmood Umar Faruqui, counsel appearing on behalf ofthe appellant submitted that:

(i)There is nothing on record to show that the payment ofrupees 4,09,315 was made towards the discharge of thedebt of rupees twenty lakhs;

(ii)The payment of rupees 4,09,315 was before the issuanceof the cheque; and

(iii)The first respondent did not make any payment of the sumthat was due since the statutory notice that was servedupon him on 15 April 2014.

8.Mr Nakul Dewan, senior counsel appearing on behalf ofthe first respondent submitted that:

(i)The term ‘debt or other liability’ used in Section 138 of theAct has been defined in the Explanation clause to mean aD‘legally enforceable debt or other liability’. Thus, the demandmade in the statutory notice must be for sum that is legallyenforceable;

(ii)If the debtor has paid part of the debt, statutory noticeseeking the payment of the entire sum in the cheque withoutEany endorsement under Section 56 of the part-paymentmade would not be legally sustainable; and

(iii)Since the first respondent has paid off part of the debt,the appellant cannot initiate action if the cheque whichrepresented the principal amount without deducting orendorsing part payment has been dishonoured.

The Analysis

9. The rival submissions fall for our consideration. Section 138 ofthe Act reads as follows:

“138. Dishonour of cheque for insufficiency, etc., of fundsin the account.—Where any cheque drawn by person on anaccount maintained by him with banker for payment of anyamount of money to another person from out of that account forthe discharge, in whole or in part, of any debt or other liability,

530SUPREME COURT REPORTS

Ais returned by the bank unpaid, either because of the amount ofmoney standing to the credit of that account is insufficient to honourthe cheque or that it exceeds the amount arranged to be paidfrom that account by an agreement made with that bank, suchperson shall be deemed to have committed an offence and shall,without prejudice to any other provision of this Act, be punishedBwith imprisonment for 8 [a term which may be extended to twoyears’], or with fine which may extend to twice the amount of thecheque, or with both:

Provided that nothing contained in this section shall apply unless—C(a) the cheque has been presented to the bank within period ofsix months from the date on which it is drawn or within the periodof its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as thecase may be, makes demand for the payment of the said amountDof money by giving notice; in writing, to the drawer of thecheque, [within thirty days] of the receipt of information by himfrom the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of thesaid amount of money to the payee or, as the case may be, to theEholder in due course of the cheque, within fifteen days of thereceipt of the said notice.

Explanation.—For the purposes of this section, “debt of otherliability” means legally enforceable debt or other liability.

(emphasis supplied)

F10. Section 138 of the Act provides that drawer of cheque isdeemed to have committed the offence if the following ingredients arefulfilled:

(i)A cheque drawn for the payment of any amount of moneyto another person;

(ii)The cheque is drawn for the discharge of the ‘whole orpart’ of any debt or other liability. ‘Debt or other liability’means legally enforceable debt or other liability; and

(iii)The cheque is returned by the bank unpaid because ofinsufficient funds.H

However, unless the stipulations in the proviso are fulfilled theoffence is not deemed to be committed. The conditions in the provisoare as follows:

(i)The cheque must be presented in the bank within six monthsfrom the date on which it was drawn or within the period ofits validity;

(ii)The holder of the cheque must make demand for thepayment of the ‘said amount of money’ by giving noticein writing to the drawer of the cheque within thirty daysfrom the receipt of the notice from the bank that the chequewas returned dishonoured; and

(iii)The holder of the cheque fails to make the payment of the‘said amount of money’ within fifteen days from the receiptof the notice.

11. The primary contention of the first respondent is that the offenceunder Section 138 was not committed since the amount that was payableto the appellant, as on the date the cheque was presented for encashment,was less than the amount that was represented in the cheque. The questionbefore this Court is whether Section 138 of the Act would still be attractedwhen the drawer of the cheque makes part payment towards the debtor liability after the cheque is drawn but before the cheque is encashed,for the dishonour of the cheque which represents the full sum.12. It must be noted that when part-payment is made after theissuance of post-dated cheque, the legally enforceable debt at the timeof encashment is less than the sum represented in the cheque. part-payment or full payment may have been made between the date whenthe debt has accrued to the date when the cheque is sought to beencashed. Thus, it is crucial that we refer to the law laid down by thisCourt on the issuance of post-dated cheques and cheques issued for thepurpose of security. In Indus Airways Private Limited v. MagnumAviation Private Limited[2], the issue before two-Judge Bench ofthis Court was whether dishonour of post-dated cheques which wereissued by the purchasers towards ‘advance payment’ would be coveredby Section 138 of the Act if the purchase order was cancelledsubsequently. It was held that Section 138 would only be applicable where

Athere is legally enforceable debt subsisting on the date when the chequeis drawn. In Sampelly Satyanarayana Rao v. Indian RenewableEnergy Development Agency Limited[3], the respondent advanced aloan for setting up power project and post-dated cheques were givenfor security. The cheques were dishonoured and complaint was institutedunder Section 138. Distinguishing Indus Airways (supra), it was heldBthat the test for the application of Section 138 is whether there was alegally enforceable debt on the date mentioned in the cheque. It washeld that if the answer is in the affirmative, then the provisions of Section138 would be attracted. In Sripati Singh v. State of Jharkand[4], thisCourt observed that if cheque is issued as security and if the debt isCnot repaid in any other form before the due date or if there is nounderstanding or agreement between the parties to defer the repayment,the cheque would mature for presentation:

“17. cheque issued as security pursuant to financial transactioncannot be considered as worthless piece of paper under everyDcircumstance. ‘Security’ in its true sense is the state of being safeand the security given for loan is something given as pledge ofpayment. It is given, deposited or pledged to make certain thefulfilment of an obligation to which the parties to the transactionare bound. If in transaction, loan is advanced and theborrower agrees to repay the amount in specifiedEtimeframe and issues cheque as security to secure suchrepayment; if the loan amount is not repaid in any otherform before the due date or if there is no otherunderstanding or agreement between the parties to deferthe payment of amount, the cheque which is issued asFsecurity would mature for presentation and the drawee ofthe cheque would be entitled to present the same. On suchpresentation, if the same is dishonoured, the consequencescontemplated under Section 138 and the other provisions of N.I.Act would flow.

G18. When cheque is issued and is treated as ‘security’ towardsrepayment of an amount with time period being stipulated forrepayment, all that it ensures is that such cheque which isissued as ‘security’ cannot be presented prior to the loan

3 (2016) 10 SCC 458H4 2021 SCC OnLine SC 1002

or the instalment maturing for repayment towards whichsuch cheque is issued as security. Further, the borrowerwould have the option of repaying the loan amount or suchfinancial liability in any other form and in that manner if theamount of loan due and payable has been discharged withinthe agreed period, the cheque issued as security cannotthereafter be presented. Therefore, the prior discharge ofthe loan or there being an altered situation due to whichthere would be understanding between the parties is sinequa non to not present the cheque which was issued assecurity. These are only the defences that would be available tothe drawer of the cheque in proceedings initiated under Section138 of the N.I. Act. Therefore, there cannot be hard and fastrule that cheque which is issued as security can never bepresented by the drawee of the cheque. If such is the understandinga cheque would also be reduced to an ‘on demand promissorynote’ and in all circumstances, it would only be civil litigation torecover the amount, which is not the intention of the statute. Whena cheque is issued even though as ‘security’ the consequenceflowing therefrom is also known to the drawer of the cheque andin the circumstance stated above if the cheque is presented anddishonoured, the holder of the cheque/drawee would have theoption of initiating the civil proceedings for recovery or the criminalproceedings for punishment in the fact situation, but in any event,it is not for the drawer of the cheque to dictate terms with regardto the nature of litigation.”

(emphasis supplied)

Based on the above analysis of precedent, the following principlesemerge:

(i)Where the borrower agrees to repay the loan within aspecified timeline and issues cheque for security butdefaults in repaying the loan within the timeline, the chequematures for presentation. When the cheque is sought to beGencashed by the debtor and is dishonoured, Section 138 ofthe Act will be attracted;

(ii)However, the cardinal rule when cheque is issued forsecurity is that between the date on which the cheque isdrawn to the date on which the cheque matures, the loan

could be repaid through any other mode. It is only wherethe loan is not repaid through any other mode within thedue date that the cheque would mature for presentation;and

(iii)If the loan has been discharged before the due date or ifBthere is an ‘altered situation’, then the cheque shall not bepresented for encashment.

13. In Sunil Todi v. State of Gujarat[5], two judge Bench of thisCourt expounded the meaning of the phrase ‘debt or other liability’. Itwas observed that the phrase takes within its meaning ‘sum of moneyCpromised to be paid on future day by reason of present obligation’.The court observed that post-dated cheque issued after the debt wasincurred would be covered within the meaning of ‘debt’. The court heldthat Section 138 would also include cases where the debt is incurredafter the cheque is drawn but before it is presented for encashment. Inthis context, it was observed:D“26. The object of the NI Act is to enhance the acceptability ofcheques and inculcate faith in the efficiency of negotiableinstruments for transaction of business. The purpose of theprovision would become otiose if the provision is interpreted toexclude cases where debt is incurred after the drawing of theEcheque but before its encashment. In Indus Airways, advancepayments were made but since the purchase agreement wascancelled, there was no occasion of incurring any debt. The truepurpose of Section 138 would not be fulfilled, if ‘debt or otherliability’ is interpreted to include only debt that exists as on theFdate of drawing of the cheque. Moreover, Parliament has usedthe expression ‘debt or other liability’. The expression “or otherliability’ must have meaning of its own, the legislature havingused two distinct phrases. The expression ‘or other liability’ has acontent which is broader than ‘a debt’ and cannot be equatedwith the latter. In the present case, the cheque was issued inGclose proximity with the commencement of power supply. Theissuance of the cheque in the context of commercial transactionmust be understood in the context of the business dealings. Theissuance of the cheque was followed close on its heels by thesupply of power. To hold that the cheque was not issued in the

H5 Criminal Appeal No. 1446 of 2021

context of liability which was being assumed by the company topay for the dues towards power supplied would be to produce anoutcome at odds with the business dealings. If the company wereto fail to provide satisfactory LC and yet consume power, thecheques were capable of being presented for the purpose ofmeeting the outstanding dues.”

14. The judgments from Indus Airways (supra) to Sunil Todi(supra) indicate that much of the analysis on whether post-dated chequesissued as security would fall within the purview of Section 138 of theAct hinges on the relevance of time. In Indus Airways (supra), thisCourt held that for the commission of the offence under Section 138,there must have been debt on the date of issuance of the cheque.However, later judgments adopt more nuanced position while discussingthe validity of proceedings under Section 138 on the dishonour of post-dated cheques. This Court since Sampelly Satyanarayana Rao (supra)has consistently held that there must be legally enforceable debt on thedate mentioned in the cheque, which is the date of maturity.

15. This Court in NEPC Micon Ltd. v. Magna Leasing Ltd.[6]held that the Courts must interpret Section 138 with reference to thelegislative intent to supress the mischief and advance the remedy. Theobjective of the Act in general and Section 138 specifically is to enhancethe acceptability of cheques and to inculcate faith in the efficacy ofnegotiable instruments for the transaction of business.[7] Section 138criminalises the dishonour of cheques. This is in addition to the civilremedy that is available. Through the criminalisation of the dishonour ofcheques, the legislature intended to prevent dishonestyon the part of thedrawer of negotiable instrument.[8] The interpretation of Section 138must not permit dishonesty of the drawee of the cheque as well. chequeis issued as security to provide the drawee of the cheque with leverageof using the cheque in case the drawer fails to pay the debt in the future.Therefore, cheques are issued and received as security with thecontemplation that part or the full sum that is addressed in the chequemay be paid before the cheque is encashed.

6 AIR 1995 SC 1952

7 Sunil Sodhi v. State of Gujarat, Criminal Appeal No. 1446 of 2021

8 M/s Electronics Trade and Technology Development Corporation Ltd., 1996(3) Crimes82 (SC)

A16. The judgments of this Court on post-dated cheques when readwith the purpose of Section 138 indicate that an offence under theprovision arises if the cheque represents legally enforceable debt onthe date of maturity.The offence under Section 138 is tipped by thedishonour of the cheque when it is sought to be encashed. Though apost- dated cheque might be drawn to represent legally enforceableBdebt at the time of its drawing, for the offence to be attracted, the chequemust represent legally enforceable debt at the time of encashment. Ifthere has been material change in the circumstance such that the sumin the cheque does not represent legally enforceable debt at the timeof maturity or encashment, then the offence under Section 138 is notCmade out.

17. The appellant contended that the cheque was issued by thefirst respondent on 17 March 2014. However, the payment of rupees4,09,315 received from the first respondent was between 8 April 2012and 30 December 2013. It was contended that since the payments wereDmade before the issuance of cheque, it cannot be considered as part-payment for the discharge of liability.

18. The appellant in his cross- examination conducted on 17 March2016 has categorically mentioned that he did not take any receipt onlending rupees twenty lakhs to the first respondent. The appellant statedEthat ‘cheque against the cheque’ was given. The relevant portion ofthe cross-examination is extracted below:

“[…] I have paid the Income Tax Return for the accounting year2012-13. It is true that I have shown the transaction of RupeesTwenty Lakhs in the said return. I am ready to present the IncomeFTax Return for the Accounting Year of Rupees Twenty Lakhs tothe Accused; I have not acknowledged the receipt. It is truethat I have given the cheque against the said cheque andnot taken the receipt.”

(emphasis supplied)

G19. In the testimony recorded under Section 145 of the Act, theappellant stated that he lent the first respondent sum of rupees twentylakhs on 16 January 2012 and that the respondent gave cheque ofrupees twenty lakhs stating that it may be deposited on the date specifiedin it:

“The plaintiff and the Defendant of this case being Vevai andhas house- like relationship, he has given the amount to theplaintiff as per his requirement on dtd. 16/01/2012 and for thepayment of the amount paid by the Plaintiff to the in this case, hisbank State Bank of India, AUDa Garden, Prahladnagar Branch,Ahmedabad Cheque Number: 8877828 of Rs. 20,00,000/- (RupeesTwenty Lakhs Only) and stated that the above cheque wasdeposited by the plaintiff on the date specified in it givingthe plaintiff the firm confidence and assurance that theplaintiff would definitely get the amount due from us.”

(emphasis supplied)

Further, in the cross-examination, the appellant stated that theamount that was paid by the first respondent was not paid as rewardor gift:

“I cannot say whether the accused has also paid me this amountin the count of Rupees Twenty Lakhs. The accused did not evengive me that amount as reward/gift.”

20. It was the contention of the first respondent that the chequewas not dated. On the other hand, it was the contention of the appellantthat the cheque was dated 17 March 2014. The Courts below did notrecord finding on whether the cheque was un-dated or was dated 17March 2014. However, it was conclusively held that the cheque wasissued by the first respondent for security on the date when the loan wasborrowed. It was also categorically recorded by the Courts below that asum of rupees 4,09,315 that was paid by the first respondent was paid topartly fulfil the debt of rupees twenty lakhs. The appellant in his cross-examination has stated that ‘cheque against cheque’ was given whenhe loaned the sum of rupees twenty lakhs. Thus, it can be concludedthat the cheque was given as security to discharge the loan, eitherundated or dated as 17 March 2014. Merely because the sum of rupees4,09,315 was paid between 8 April 2012 and 30 December 2013, whichwas after 17 March 2014, it cannot be concluded that the sum was notpaid in discharge of the loan of rupees twenty lakh. The sum of rupees4,09,315 was paid after the loan was lent to the first respondent. Theappellant in his cross- examination has not denied the receipt of thepayments. He has also stated it was not received as ‘gift or reward’.In view of the above discussion, at the time of the encashment of the

Acheque, the first respondent did not owe sum of rupees twenty lakhsas represented in the cheque at the time of encashment of the chequethat was issued for security.

21. The High Court while dismissing the appeal against acquittalheld that the notice issued by the appellant is an omnibus notice since itBdoes not represent legally enforceable debt. Relying on the judgmentof this Court in Rahul Builders v. Arihant Fertilizers & Chemicals[9],it was held that the legal notice was not issued in accordance with proviso(b) to Section 138 since it did not represent the ‘correct amount’. Theappellant has contended that the requirement under Section 138 is tosend notice demanding the ‘cheque amount’. It was contended thatCthe offence under Section 138 was made out since the appellant in thestatutory notice demanded the payment of rupees twenty lakhs whichwas the ‘cheque amount’.

22. Section 138 of the Act stipulates that if the cheque is returnedunpaid by the bank for the lack of funds, then the drawee shall be deemedDto have committed an offence under Section 138 of the Act. However,the offence under Section 138 of the Act is attracted only when theconditions in the provisos have been fulfilled. Proviso (b) to Section 138states that notice demanding the payment of the ‘said amount of money’shall be made by the drawee of the cheque.E23. This Court has interpreted the phrase ‘the said amount ofmoney’ as it finds place in proviso (b) to Section 138. In Suman Sethi v.Ajay K Churiwal[10], the appellant issued cheque for rupees twentylakhs in favour of the first respondent. The cheque was dishonoured. Ademand notice for an amount higher than the cheque amount was issued.FA two-Judge Bench of this Court held that the demand has to be madefor the ‘said amount’, which is the cheque amount. It was also observedthat the question of whether the notice demanding an amount higherthan the cheque amount is valid would depend on the language of thenotice:

G“8. It is well-settled principle of law that the notice has to beread as whole. In the notice, demand has to be made for the“said amount” i.e. the cheque amount. If no such demand is madethe notice no doubt would fall short of its legal requirement. Where

9 (2008) 2 SCC 321H10 (2000) 2 SCC 38

in addition to the “said amount” there is also claim by way ofinterest, cost etc. whether the notice is bad would depend on thelanguage of the notice. If in notice while giving the break-up ofthe claim the cheque amount, interest, damages etc. are separatelyspecified, other such claims for interest, cost etc. would besuperfluous and these additional claims would be severable andwill not invalidate the notice. If, however, in the notice an omnibusdemand is made without specifying what was due under thedishonoured cheque, the notice might well fail to meet the legalrequirement and may be regarded as bad.”

24. In KR Indira v. G. Adinarayana[11], it was held that the noticedid not demand the payment of the cheque amount but the loan amount.It was observed that for the purposes of proviso (b), the amount coveredin the dishonoured cheque must be demanded. In Rahul Builders (supra),the drawee demanded the payment of rupees 8,72,409 which was higherthan the sum of rupees 1,00,000 represented in the cheque. It wasreiterated that the phrase ‘payment of the said amount’ in proviso (b)would mean the cheque amount. Since the demand in the notice was notseverable as the cheque amount could not be severed from the demandfor the additional amount, it was held that it was an omnibus notice.Justice SB Sinha writing for two-Judge Bench of this Court observed:

“10. […] One of the conditions was service of notice makingdemand of the payment of the amount of cheque as is evidentfrom the use of the phraseology “payment of the said amount ofmoney”. […] It is one thing to say that the demand may not onlyrepresent the unpaid amount under cheque but also other incidentalexpenses like costs and interests, but the same would not meanthat the notice would be vague and capable of two interpretations.An omnibus notice without specifying as to what was the amountdue under the dishonoured cheque would not subserve therequirement of law. Respondent 1 was not called upon to pay theamount which was payable under the cheque issued by it. Theamount which it was called upon to pay was the outstandingamounts of bills i.e. Rs 8,72,409. The noticee was to respond tothe said demand. Pursuant thereto, it was to offer the entire sumof Rs 8,72,409. No demand was made upon it to pay the said sumof Rs 1,00,000 which was tendered to the complainant by cheque

Adated 30-4-2000. What was, therefore, demanded was the entiresum and not part of it.”

25. Section 138 creates deeming offence. The provisos prescribestipulations to safeguard the drawer of the cheque by providing them theopportunity of responding to the notice and an opportunity to repay theBcheque amount. The conditions stipulated in the provisos need to befulfilled in addition to the ingredients in the main provision of Section138. It has already been concluded above that the offence under Section138 arises only when cheque that represents part or whole of thelegally enforceable debt at the time of encashment is returned by thebank unpaid. Since the cheque did not represent the legally enforceableCdebt at the time of encashment, the offence under Section 138 is notmade out.26. The appellant contends that the purpose of Section 138 of theAct would be defeated if the dishonour of the cheque issued for securityis not included within the purview of Section 138 where the payment ofDa part of the cheque amount is made. It was contended that it wouldlead to possibility where the drawer of the cheque could evadeprosecution under Section 138 by paying small amount of the debtwhile defaulting on the remaining payment. Section 56 stipulates that ifthere is an endorsement on negotiable instrument that part of thesum mentioned in the cheque has been paid, then the instrument may be

Enegotiated for the balance. Section 56 reads as follows:

“56. Indorsement for part of sum due.- No writing on anegotiable instrument is valid for the purpose of negotiation if suchwriting purports to transfer only part of the amount appearing tobe due on the instrument; but where such amount has been partlyFpaid note to that effect may be indorsed on the instrument, whichmay then be negotiated for the balance.”

27. Section 15 defines the phrase ‘indorsement’ as follows:

“15. Indorsement.- When maker or holder of negotiableinstrument signs the same, otherwise than as such maker, for theGpurpose of negotiation, on the back or face thereof or on slip ofpaper annexed thereto, or so signs for the same purpose stampedpaper intended to be completed as negotiable instrument, he issaid to indorse the same, and is called the “indorse”.”

28. Division Bench of the Kerala High Court has held in JosephSartho v. Gopinathan[12]that since the representation in the cheque wasfor sum higher than the amount that was due on the date that it waspresented for encashment, the drawer of the cheque cannot be convictedfor the offence under Section 138 of the Act. The High Court of Delhiaddressed the same issue in Alliance Infrastructure Project Ltd. v.Vinay Mittal[13]. The High Court observed that when part payment ismade after the cheque is drawn, the payee has the option of eithertaking new cheque for the reduced amount or by making an endorsementon the cheque acknowledging that part payment was made accordingto the provisions of Section 56 of the Act. It was also held that the noticeof demand which requires the drawer of the cheque to make paymentof the whole amount represented in the cheque despite receiving partrepayment against the sum, before the issue of notice, cannot be validunder Section 138(b) of the Act. similar view was taken by the HighCourt of Gujarat in Shree Corporation v. Anilbhai PuranbhaiBansal[14].

29. Under Section 56 read with Section 15 of the Act, anendorsement may be made by recording the part-payment of the debt inthe cheque or in note appended to the cheque. When such anendorsement is made, the instrument could still be used to negotiate thebalance amount. If the endorsed cheque when presented for encashmentof the balance amount is dishonoured, then the drawee can take recourseto the provisions of Section 138. Thus, when part- payment of the debtis made after the cheque was drawn but before the cheque is encashed,such payment must be endorsed on the cheque under Section 56 of theAct. The cheque cannot be presented for encashment without recordingthe part payment. If the unendorsed cheque is dishonoured onpresentation, the offence under Section 138 would not be attracted sincethe cheque does not represent legally enforceable debt at the time ofencashment.

30. In view of the discussion above, we summarise our findingsbelow:

(i)For the commission of an offence under Section 138, thecheque that is dishonoured must represent legallyenforceable debt on the date of maturity or presentation;

12 (2008) 3 KLJ 78413 ILR (2010) III Delhi 45914 [2018 (2) GLH 105]

A(ii)If the drawer of the cheque pays part or whole of thesum between the period when the cheque is drawn andwhen it is encashed upon maturity, then the legallyenforceable debt on the date of maturity would not be thesum represented on the cheque;

B(iii)When part or whole of the sum represented on the chequeis paid by the drawer of the cheque, it must be endorsed onthe cheque as prescribed in Section 56 of the Act. Thecheque endorsed with the payment made may be used tonegotiate the balance, if any. If the cheque that is endorsedis dishonoured when it is sought to be encashed uponCmaturity, then the offence under Section 138 will standattracted;

(iv)The first respondent has made part-payments after the debtwas incurred and before the cheque was encashed uponmaturity. The sum of rupees twenty lakhs represented onDthe cheque was not the ‘legally enforceable debt’ on thedate of maturity. Thus, the first respondent cannot bedeemed to have committed an offence under Section 138of the Act when the cheque was dishonoured for insufficientfunds; andE(v)The notice demanding the payment of the ‘said amount ofmoney’ has been interpreted by judgments of this Court tomean the cheque amount. The conditions stipulated in theprovisos to Section 138 need to be fulfilled in addition to theingredients in the substantive part of Section 138. Since inFthis case, the first respondent has not committed an offenceunder Section 138, the validity of the form of the noticeneed not be decided.

31. For the reasons indicated above, the appeal against thejudgment of the High Court of Gujarat dated 12 January 2022 is dismissed.G32. Pending application(s), if any, stand disposed of.

Bibhuti Bhushan Bose