Claim Only That Amount You Deserve In A Cheque To Have Valid Claim Under Section 138 Ni Act Honourable Supreme Court Read Judgement

In the realm of financial transactions, checks serve as a common instrument for transferring funds. However, issues arise when a check bounces due to insufficient funds or other reasons. To address such matters, laws like Section 138 of the Negotiable Instruments Act (NI Act) in India come into play. In a recent judgment, the Supreme Court clarified the importance of claiming only the rightful amount in such cases. Let's delve deeper into this judgment and understand the significance of claiming the correct amount to have a valid claim under Section 138 NI Act.

Understanding Section 138 NI Act: Section 138 of the Negotiable Instruments Act, 1881, deals with dishonor of checks due to insufficient funds or other reasons. It provides a legal recourse to the payee when a check issued to them bounces. To initiate legal action under Section 138, certain conditions must be met, including the presentation of the check within a specified period and the drawer's failure to make payment within the stipulated time.

The Importance of Claiming the Right Amount: The recent judgment by the Honourable Supreme Court emphasizes the significance of claiming only the amount due under the bounced check. In legal proceedings under Section 138 NI Act, it's crucial for the payee to accurately determine the outstanding amount owed to them. Claiming an amount higher than what is legitimately due could jeopardize the validity of the claim and result in legal complications.

Key Points from the Supreme Court's Judgment: In the recent judgment, the Supreme Court reiterated that claiming an amount higher than what is due under the bounced check renders the claim invalid under Section 138 NI Act. The Court emphasized that the payee must establish the existence of a legally enforceable debt corresponding to the amount claimed in the notice sent to the drawer of the check. Failure to adhere to this requirement could lead to the dismissal of the complaint filed under Section 138.

Clarification on Legal Principles: The Supreme Court clarified that while determining the amount due under a bounced check, interest or other charges cannot be included unless they are expressly stipulated in the agreement between the parties. Merely adding interest or penalty arbitrarily without legal basis would not suffice. The amount claimed must be strictly in accordance with the terms of the agreement or any legal provision applicable to the transaction.

Ensuring Compliance with Legal Requirements: To ensure compliance with the legal requirements under Section 138 NI Act, it's imperative for the payee to meticulously calculate the outstanding amount owed to them. This involves reviewing the terms of the underlying transaction, including any agreements or contracts governing the payment. Any additional charges, such as interest or penalties, must be properly documented and supported by relevant evidence.

Sending a Legal Notice: Once the correct amount due under the bounced check is determined, the payee must send a legal notice to the drawer demanding payment within the prescribed timeframe. The notice must accurately specify the amount claimed and provide the drawer with an opportunity to settle the debt. Failure to comply with the notice within the stipulated period empowers the payee to initiate legal proceedings under Section 138 NI Act.

Supreme Court Judgement: Summary ( Criminal Appeal No. 1497 of 2022 )

This case, Dashrathbhai Trikambhai Patel vs. Hitesh Mahendrabhai Patel & Anr., revolved around the dishonor of a cheque issued under Section 138 of the Negotiable Instruments Act (NI Act). Here is a summary of the key points from the judgment:

1. Facts of the Case:

   • The appellant issued a statutory notice to the respondent after a cheque for ₹20 lakhs, issued by the respondent, was dishonored due to insufficient funds.
   • The respondent had borrowed ₹20 lakhs from the appellant, but before the cheque was presented, the respondent made a partial repayment of ₹4,09,315.
   • The cheque represented the full amount of ₹20 lakhs, which did not account for the partial repayment made by the respondent before the cheque's encashment.

2. Trial Court and High Court Rulings:

   • The Trial Court acquitted the respondent, holding that the cheque was not for a legally enforceable debt of ₹20 lakhs, as part of the debt had already been repaid.
   • The High Court upheld the Trial Court's decision, noting that the statutory notice did not reflect the partial payment made by the respondent, making the demand for ₹20 lakhs invalid.

3. Supreme Court Ruling:

   • The Supreme Court upheld the High Court’s ruling and dismissed the appeal.
   • The Court emphasized that for an offence under Section 138 of the NI Act to be made out, the cheque must represent a legally enforceable debt at the time of its encashment.
   • In this case, the cheque did not represent the correct debt amount, as a portion of the debt had been repaid before the cheque’s presentation.
   • The Court further held that if a partial payment is made after a cheque is issued but before its encashment, the payment must be endorsed on the cheque. If not, the cheque cannot be presented for the full amount.

4. Key Legal Principles:

   • A cheque must represent a legally enforceable debt at the time of encashment, not just at the time of issuance.
   • Any partial repayment made before the cheque is encashed must be endorsed on the cheque as required by Section 56 of the NI Act.
   • A cheque that no longer represents the full debt due to partial payment cannot result in an offence under Section 138 when dishonored.

In conclusion, the Supreme Court affirmed that since the cheque did not represent a legally enforceable debt at the time of encashment, the dishonor of the cheque did not constitute an offence under Section 138. The appeal was therefore dismissed