Advocate Sushila
SUPREME COURT HOLDS DISHONOUR OF CHEQUE ISSUED AS A SECURITY ALSO ATTRACTS THE PROVISIONS OF SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881
Advocate Sushila Ram 30 Oct 2021

A Two Judge Bench of the Hon’ble #SupremeCourt of India comprising of Justices M.R. Shah and A.S. Bopanna passed a Judgment dated 28-10-2021 in the case of Sripati Singh (since deceased) His Son Gaurav Singh v. The State of Jharkhand & Anr. {Criminal Appeal Nos. 1269­1270 of 2021 (Arising out of SLP (Criminal) No.252­253/2020)} held that the #dishonour of #cheque issued as a #security will also be an offence under Section 138 of the Negotiable Instruments Act, 1881 (#NIAct).

For reference Section 138 of the N.I. Act is reproduced as follows:

Dishonour of cheque for insufficiency, etc., of funds in the account. —Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless—

a)     the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

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

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

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

In the instant case, Respondent No.2 and the Appellant had known each other as the daughter of the Appellant and Respondent No. 2 were pursuing their education together in London. After returning to India, the Respondent No. 2 settled in Bangalore and the cordial relationship amongst the families continued. Thereafter, Respondent No. 2 came to know that the Appellant was involved in business and approached him at Daltonganj for seeking financial assistance to the tune of Rs.1 Crore so as to enable the Respondent No. 2 to invest the same in his business. Since the Respondent No. 2 assured that the same would be returned, the Appellant advanced a total sum of Rs. 2 Crores between January 2014 to July 2014. The said amount was transferred from the account of the Appellant and his daughter. Towards the said transaction, the Parties entered into four Agreements thereby acknowledging the receipt of the loan.

The Respondent No. 2 gave an assurance that the amount would be returned during June/July 2015. Towards the same, three cheques amounting to Rs. 1 Crore was handed over to the Appellant. Thereafter, three more cheques for Rs. 1 Crore were also given. The Appellant met Respondent No. 2 in the month of July 2015 and the Respondent No. 2 assured him that the amount will be repaid during October, 2015. Based on such assurance, the Appellant presented the cheques for realisation on 20-10-2015. On presentation, the said cheques were returned due to ‘insufficient funds’ in the Bank Account of Respondent No.2.


To read more, please visit the link below:


https://theindianlawyer.in/supreme-court-holds-dishonour-of-cheque-issued-as-a-security-also-attracts-the-provisions-of-section-138-of-the-negotiable-instruments-act-1881/


#supremecourt #dishonour #cheque #security #negotiableinstrument

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