No offence under S. 138 NI if cheque is presented for full amount without endorsing part payment: Supreme Court

No offence under S. 138 NI if cheque is presented for full amount without endorsing part payment: Supreme Court

In an appeal against the judgement of the Gujarat High Court, the Supreme Court held that no offence for dishonour of cheque under Section 138 of the Negotiable Instruments Act is made out if the cheque is presented for the full amount without endorsing the part-payment made by the borrower after the issuance of the cheque.

The Court held that the sum reflected on the cheque will not be the "legally enforceable debt" as per Section 138 NI Act, when it has been presented for encashment without endorsing the part-payment. Part-payments must be endorsed on the cheque as per Section 56 of the NI Act. If such endorsement is made, the cheque can be presented for the balance amount, and the offence under Section 138 NI Act will be attracted if such a cheque with endorsement of the part-payment gets dishonoured, explained the Court.

The facts of this case are that the cheque was issued for an amount of Rs 20 lakhs., pursuant to which the borrower made a part payment of Rs. 4,09,315/- to the drawee of the cheque. However, the cheque was presented for Rs 20 lakhs, without endorsing the part-payment.

The Supreme Court noted that in this factual scenario, the complaint under Section 138 NI Act is not sustainable when the cheque got dishonoured after being presented for the full amount.

Affirming the judgment of the Gujarat High Court, which approved the acquittal of the accused in the case, a bench comprising Justices DY Chandrachud and Hima Kohli held as follows :

1. When the drawer of the cheque has paid a part or whole of the sum between the period when the cheque is drawn and when it is encashed upon maturity, the legally enforceable debt will not be the sum represented on the cheque.

2. When a part or whole of the sum is paid by the drawer of the cheque, it must be endorsed in the cheque as per Section 56 of the Negotiable Instruments Act. The cheque endorsed with the payment may be used to negotiate the balance, if any.

3. If the cheque that is endorsed is dishonoured when it is sought to be encashed on maturity then the offence under Section 138 NI Act will stand attracted.

Whilst considering the present case, the Court noted that the accused had made part payments after the debt was incurred and before the cheque was presented for encashment. The sum of Rupees 20 lakhs represented on the cheque was not the legally enforceable debt on the date of maturity. Hence, the accused cannot be deemed to have committed offence under Section 138 NI Act.

In this case, the Court further noted that the notice of demand was also issued for Rupees 20 lakhs.

The present appeal against the decision of the Gujarat High Court was thus dismissed.