No offence under section 138 NI Act if cheque is presented for full amount without endorsing part payment made by borrower: Supreme Court

In a significant judgement, the Supreme Court on Tuesday held that no offence for dishonor of cheque under section 138 of NI 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 the section 56 of 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 that’s dishonored, explained the court.

Affirming the judgement of  Gujarat High Court, which approved the acquittal of the accused in the case, a bench comprising Justices DY Chandrachud and Hima Kohli  

Summarized the findings as follows:

1. For the commission of an offence under section 138, the cheque that is dishonored must represent a legally enforceable debt on the date of maturity or presentation;
2. 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;
3. 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 in section 56 of 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 dishonored when it is sought to be encashed upon maturity, then the offence under section 138 will stand attracted.

Judgment: Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel & Anr.