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Stopped Payment of Cheque: Can the Drawer Be Held Liable Under Section 138 of the Negotiable Instruments Act?
Shreya Kapil
A stopped payment on a cheque is typically requested when the cheque has been lost or declared missing. However, sometimes the drawer of the cheque may attempt to avoid his debt or liability by using the “stopped payment” as a means of deception. In these cases, the drawer may issue a cheque with the knowledge that it will not be honoured upon presentation, and attempt to create circumstances in which the bank will return the cheque with endorsements such as "stopped payment," "refer to drawer," or "A/C closed."
Dishonour of cheque is not an offence in itself. In order for dishonour of a cheque to be considered an offense, the following conditions must be met:
Ø The cheque must be drawn by a drawer.
Ø The cheque must be in discharge of some liability.
Ø The cheque must be presented to the drawee bank.
Ø The bank must return the cheque unpaid due to insufficient funds.
Ø The cheque must be presented within three months (previously six months) of the date it was drawn or within its period of validity, whichever is earlier.
Ø Within thirty days of receiving memo of the returned cheque from the bank, the payee must serve notice demanding payment of the money.
Ø The drawer must fail to pay the money within 15 days of receiving the demand notice.
It is important to note that if the drawer pays the debt within 15 days, there will be no offense.
Under Section 138 of the Negotiable Instruments Act, the offense of dishonour of a cheque is committed when the drawer fails to pay the debt within 15 days. If found guilty, the person may be punishable with imprisonment for a term of up to two years, or a fine of up to twice the amount of the cheque, or both.
Section 138 of the Negotiable Instruments Act is silent on the issue of stopped payments, but a plain reading of the section makes it clear that it only contemplates two contingencies: insufficiency of funds or an amount that exceeds the amount arranged to be paid from the account. No third contingency is mentioned in the section, and the specific wording of the section eliminates the possibility of any other contingencies. However, there have been various judgments on this matter, and Indian courts have addressed this aspect in relation to the dishonour of cheques under Section 138 of the Negotiable Instruments Act.
Landmark Judgments:
In the case of M/s. Electronics Trade & Technology Development Corpn. Ltd. v. M/s. Indian Technologists & Engineers (Electronics) Pvt. Ltd. and another, Appeal (crl.) 124 of 1996, a cheque was presented by the complainant through his bank, with the promise from the accused that it would be honoured upon presentation. However, the said cheque was dishonoured with the banker's endorsement dated 29-11-1990 which stated "1. referred to drawer. 2. instructions for stopping payment and stamped. 3. exceeds arrangements". The appellant filed complaints under Section 138 of the Negotiable Instruments Act, alleging that the accused had dishonoured a cheque due to insufficiency of funds in their accounts.
The Hon’ble Supreme Court held that: “It would thus be clear that when a cheque is drawn by a person on an account maintained by him with the banker for payment of any amount of money to another person out of the amount for the discharge of the debt in whole or in part or other liability is returned by the bank with the endorsement like (1) in this case, "I refer to the drawer" (2) "instructions for stoppage of payment" and (3) "stamp exceeds arrangement", it amounts to dishonour within the meaning of Section 138 of the Act. On issuance of the notice by the payee or the holder in due course after dishonour, to the drawer demanding payment within 15 days from the date of the receipt of such a notice, if he does not pay the same, the statutory presumption of dishonest intention, subject to any other liability, stands satisfied".
In the case of MMTC Ltd. v. Medchl Chemicals and Pharma (P) Ltd., Appeal (crl.) 1173-1174 of 2001, The Hon’ble Supreme Court held that a complaint under Section 138 of the Negotiable Instruments Act can be made not only when a cheque is dishonoured due to insufficient funds or if the amount of the cheque exceeds the amount in the account, but also when the drawer of the cheque instructs their bank to "stop payment" on the cheque. However, if the accused can show that there were sufficient funds in their account to clear the amount of the cheque at the time of presentation and that the stop-payment notice was issued for valid reasons, then the offense under Section 138 would not be made out.
References:
https://www.legalserviceindia.com/articles/nego.htm
Shreya Kapil
We have extensive experience handling a broad spectrum of cases on both the original and appellate jurisdiction relating to Civil, Criminal, Arbitration, and General litigation matters, with regular appearances before various courts, such as the High Courts, subordinate courts in several states, administrative authorities and regulators, including the Central Administrative Tribunal, National Company Law Tribunal, National/State Consumer Disputes Redressal Commission, Debt Recovery Tribunals etc
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