Cheque dishonoured due to Stop Payment instructions may or may not be covered under Section 138 of NI Act #indianlaws

If the accused shows that in his account there were sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop-payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then offence Under Section 138 would not be made out.

Stop payment instructions whether are covered by Section 138 of the Negotiable Instruments Act, 1881 (NI Act) or not, was the subject matter of controversy before the Court.

High Court in its impugned finding had held that provisions of Section 138 of the NI Act are attracted where a cheque is returned by the bank on the ground that there is insufficient amount or that the amount of cheque exceeds the amount arranged to be paid from that account by an agreement made with the bank. It was further held that the cheque in question was returned on account of “stop payment” instructions given by the accused in view of the fact that the complainant had failed to discharge its obligations as per the agreement executed between them. The High Court had further observed that the complainant had not disclosed complete facts as required under provisos (b) and (c) of Section 138 of the NI Act and accordingly had quashed the complaint.

The Court held that the impugned finding of the High Court was incorrect as even “stop payment” instructions issued to the bank are held to make a person liable for offence punishable under Section 138 of the NI Act in case cheque is dishonoured on that count. Once the cheque is issued by the drawer a presumption under Section 139 of the NI Act must follow and merely because the drawer issues a notice to the drawee or to the bank for stoppage of the payment it will not preclude an action under Section 138 of the NI Act by the drawee or the holder of the cheques in due course.

The Supreme Court relied upon its previous judgement in the matter of MMTC Limited Vs Medchl Chemicals and held even when the cheque is dishonoured by reason of stop-payment instructions by virtue of Section 139 the court has to presume that the cheque was received by the holder for the discharge, in whole or in part, of any debt or liability. of course this is a rebuttable presumption. The accused can thus show that the “stop-payment” instructions were not issued because of insufficiency or paucity of funds. If the accused shows that in his account there were sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop-payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then offence Under Section 138 would not be made out. The important thing is that the burden of so proving would be on the accused. Thus a court cannot quash a complaint on this ground.

Whether complainant had failed to discharge its obligations or not could not have been decided by the High Court conclusively at the stage when it was dealing with a petition filed under Section 482 of the Code for quashing the complaint. Whether any money is paid by the accused to the complainant is a matter of evidence. The accused has ample opportunity to lead his defence.

[Pulsive Technologies P. Ltd. vs. State of Gujarat & Ors.]
(SC, 22.08.2014)