The Supreme Court on Tuesday held that a cheque is dishonoured only if it represents a “legally enforceable debt” on the date of its maturity or presentation.

“For the commission of an offence under Section 138 (of the Negotiable Instruments Act), the cheque that is dishonoured must represent a legally enforceable debt on the date of maturity or presentation,” a judgment by a bench of justices DY Chandrachud and Hima Kohli clarified the law.

Section 138

Section 138 makes cheque bouncing or dishonour of a cheque a criminal offence, liable for punishment with imprisonment for a term which may extend to two years or with fine which may stretch to twice the amount of the cheque.

The court was dealing with a situation where the drawer of the cheque would have paid part of the debt for which he or she may have given a post-dated cheque as security.

Justice Chandrachud, who authored the verdict, said “if 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”.

Part-payment

That is, in case a part-payment is made after the issuance of a post-dated cheque, the legally enforceable debt at the time of encashment would be less than the sum written on the post-dated cheque given as security.

In such cases 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 under 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,” Justice Chandrachud held.

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