Supreme Court’s interpretation of Section 138 of the Negotiable Instrument Act, 1881 – Case highlights

The Negotiable Instruments Act, 1881, (herein after “Act”) is of great importance in mercantile laws and banking laws in India. The offence of dishonour of cheque is grafted under Section 138 of the Act. Most of the subordinate courts in the country are overburdened with criminal cases pertaining to Section 138. It is to be noted that although the language of Section 138 is simple yet it has become extremely controversial due to differences in its interpretation. The phrase ‘dishonour of cheque’ has been interpreted in different manners.

This article addresses the issues faced by the Apex Court of the country relating to the dishonour of cheques due to stop payment by drawer, difference in signatures, closure of account and liability of the drawer of a post-dated cheque.

In NEPC Micon Ltd. v. Magma Leasing Ltd. (AIR 1999 SC 1952), the question was ‘whether the dishonour of cheque on the ground of ‘account closed’ was culpable under Section 138 of the Act’. Relying on the decision rendered in Kanwar Singh v. Delhi Administration, (AIR 1965 SC 871), and Swantraj & Ors v. State of Maharashtra, ((1975) 3 SCC 322), the Supreme Court held that the same comes within the purview of the offence under Section 138.

In Modi Cements Ltd. V. Kuchil Kumar Nandi ((1998) 3 SCC 249), the Supreme Court held that the expression ‘the amount of money …….. is insufficient to honour the cheque’ is genus of which the expression ‘account being closed’ is a specie. In this case, the question ‘whether the dishonour of cheque on the ground of ‘stop payment by drawer’ was punishable under Section 138’ had arisen for the consideration of the court. The three-judge bench after evaluating the earlier two decisions of the Supreme Court in Electronics Trade & Technology Development Corporation Ltd. V. Indian Technologists and Engineers (Electronics)(P) Ltd. (AIR 1996 SC 2339) and K.K. Sidharthan v. T.P. Praveena Chandran ((1996) 6 SCC 389) overruled the said judgments and opined that ‘stop payment’ also comes within the purview of offences under Section 138.

The Supreme Court in the case of Goaplast (P) Ltd. V. Chico Ursula D’souza and Anr. ((2003) 3 SCC 232) held that ‘stop payment’ and ‘dishonour of post dated cheque’ attract provisions of Section 138. The court observed that 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 a drawer of a post-dated cheque should not be allowed to abuse the accommodation given to him by a creditor by way of acceptance of the cheque.

2 thoughts on “Supreme Court’s interpretation of Section 138 of the Negotiable Instrument Act, 1881 – Case highlights

  1. 1. we are started the cable network in ludhiana on aug 2011. the lanlord give the electricity to us from other flat whith any intimation tous. When the nother flat know that the cable networj use our metter he cut the meter and electricity connect . We write to lanlord to give us a meter on 01 July 2012 on that date cut the metter. but he has not give to us we file the case in the court which comes to lok adalat whe agree in the court that he will give the meter new to him. on his consultation we issue post date cheque to him that iff he should be done tyhemeter the cheque may be cashed. but he is not give the meter then we write to him not to cash the chque as you have failed to give the metter. now he put these cheque in the bank and cheque bounced he file the complain in IS Act 138.

    please give the right way for us.

    1. Generally an offence under section 138 of the Negotiable Instrument Act,1881 does not attract if a blank cheque is issued. If a cheque is issued without date or amount, the courts presume that the drawer of the cheque has given the authority to fill up to the drawee. In such situations you have to proof that the cheque was issued with this condition that the flat owner will provide electricity. Though, the flat owner could not maintained his promise, thus ha had no authority to en-cash the cheque. In this regard he must be held guilty of misuse of Judicial Process.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.