High Courts determining the scope of Section 138 of Negotiable Instruments Act, 1881

[By Kapil Devnani

The author is a student at the Hidayatullah National Law University, Raipur. 

Section 138 of the Negotiable Instrument Act, 1881 (hereinafter “NI Act”) is a penal provision that allows the payee to institute a suit against the payer in case the cheque drawn by him got dishonoured. Recently, in the month of January 2022, three important judgements of different High Courts regarding this provision came. The first one is Parvaiz Ahmad Bhat & Anr. v. Fida Mohamamd Ayoub, given by the Jammu and Kashmir and Ladakh High Court; the second one is Rajeswary v. State of Kerala, given by the Kerala High Court; and the last one if Kodam Danalakshmi v. State of Kerala, given by the Telangana High Court. This blog is an attempt to comprehend the scope of Section 138 through these decisions.

Parvaiz Ahmad Bhat & Anr. V. Fida Mohamamd Ayoub (Dishonour of cheque due to incomplete signature will be considered as an offence under Section 138)

Facts of the Case

In this case, the Petitioners challenged the complaint that was filed by the Respondent against them under Section 138 of the NI Act read with Section 420 of the IPC. The complaint was still pending before the CJM, however, by an order dated August 27th, 2020 the learned Magistrate issued the process against the Petitioners, to which the Petitioners responded and filed the petition before the Jammu and Kashmir and Ladakh High Court. The issue in this case was that the Petitioner’s cheque was dishonoured due to an incomplete signature on the cheque, and the High Court needed to decide whether or not this constituted an offence under Section 138 of the NI Act.

The Petitioner argued that the Respondent’s complaint is not maintainable because the cheque got dishonoured due to incomplete signature and not because of insufficient funds. They relied on the case of Vinod Tanna v. Zaheer Siddqui,  (hereinafter “Vinod Tanna’s case”) in which it was held that the dishonour of cheque just because of incomplete signature will not attract Section 138 of the NI Act. Analysing the Judgement

A mere reading of Section 138 is sufficient to conclude that this provision is attracted in two situations. First, when the individual drawing the check has insufficient funds in his or her bank account and second, if the amount to be paid is greater than the amount arranged to be paid from that account. However, there have been instances where the dishonour of the cheque was the result of some other reasons, but the judiciary allowed the application of Section 138.

The Supreme Court in NEPC Micon Limited v. Magma Leasing Limited, held that Section 138 should not be interpreted strictly and for giving this verdict it relied on the cases of Kanwar Singh v. Delhi Administration and Swantraj and Others v. State of Maharashtra, in which it was held that the narrow interpretation of this provision will defeat the legislative purpose for which it was enacted. Walking on the lines of these judgments, the Supreme Court in M.M.T.C. Ltd. v. M/S Medchl Chemicals held that in case a cheque is dishonoured because of the instruction to stop payment, then Section 138 would be attracted.

The only protection available with the petitioner in this case was the verdict of Vinod Tanna’s case, however, this verdict of the Supreme Court came up for consideration in Laxmi Dyechem v. State of Gujarat. In this case, the SC did not follow the ratio laid down in the case of Vinod Tanna and the reason was that the case of Vinod Tanna was based on the verdict of Electronics Trade & Technology Development Corpn. Ltd. v. Indian Technologists and Engineers Ltd, however, the same was overruled by the case of Modi Cements Ltd v. Kuchil Kumar Nandi. In Laxmi Dyechem, the Supreme Court held that in case the cheque is dishonoured due to incomplete signature or wrong signature, Section 138 will be attracted.

Both the judgments of Vinod Tanna and Laxmi Dyechem were given by the bench of equal strength. However, Laxmi Dyechem’s case is the latest one and based on that the SC in the present case gave the decision in the favour of the Respondent and held that in case a cheque has been dishonoured just because of incomplete signature, then in that scenario Section 138 would be attracted. 

Rajeswary v. State of Kerala (The Case of Cheque Bounce under Section 138 could be closed in case the fine is paid directly to the Complainant)

Facts of the Case

In this case, the accused was convicted by the trial Court under Section 138 of the NI Act for simple imprisonment for a period of 1 year and further to pay a fine of Rs.7,17,000/- and in case of default, additional imprisonment for further 3 months. Later on, the Kerala High Court modified the imprisonment of 1 year awarded by the Trial Court as a sentence to pay a fine of Rs.7,17,000/-. Following that, the convict paid the plaintiff the fine of Rs.7,17,000/-, which was acknowledged by the plaintiff himself when he issued a receipt of the transaction. Thereafter, the convict presented that receipt before the Trial Court and requested to close the case. However, the Court rejected this petition, stating that the convict was required by the Court’s Order to deposit the amount of fine in the Court, but he instead paid the fine directly to the plaintiff, so the Court could not accept the receipt of the payment and the case would continue. Aggrieved by this, the convict preferred an appeal before the Kerala HC.

Analysing the Judgement

The question before the HC was to determine whether the case of cheque bounce be closed in case the convict pays the fine directly to the plaintiff. To determine this, the Court relied on the judgment of Beena v. Balakrishnan, (hereinafter“Beena’s case”) in which it was held that if the person receiving the fine directly from the convict (in this case, the petitioner) files a statement within one month, acknowledging receipt of the amount received, the case will be closed. However, the Court was not very much convinced by this judgment, thus it also referred to the case of Shivankutty v. John Thomas. In this case, the Court believed that there is no defect or error in the directions given in the Beena’s case. After analysing these two verdicts, the Kerala HC gave a decision in the convict’s favour as the plaintiff himself has through an affidavit, accepted the fact that he had received the amount of fine. The HC directed the Court below to make necessary entries in the fine register and to close the case.

Kodam Danalakshmi v. State of Telangana (Joint Account Holder who does not sign the cheque cannot be prosecuted under Section 138 in case the cheque got bounced)

Facts of the Case

In this case, the petitioner who is also a joint account holder filed a petition in the Telangana HC under Section 482 of the CrPC requesting the Court to quash the trial proceedings taking place against her. According to her, she and her husband had a Joint Bank Account and her husband draw a cheque in favour of the Respondent, but the check got dishonoured and the Respondent initiated criminal proceedings under Section 138 against both of them. The side representing the petitioner contended that as she was not the signatory to that cheque, she should not be prosecuted. The Respondent argued that the petitioner was aware of that transaction and that handing over of that cheque and, as she was the joint holder in that account, she should be held liable.

Analysing the Judgement

The issue before the Telangana HC was to determine that whether the Joint Account Holder who is not a signatory to the bounced cheque can be prosecuted under Section 138? The Court while giving this judgement relied on the case of Alka Khandu Avhad v. Amar Syamprasad Mishra and Ors, in which the SC stated that:

“Section 138 of the NI Act does not speak about the joint liability. Even in case of a joint liability, in the case of individual persons, a person other than a person who has drawn the cheque on an account maintained by him, cannot be prosecuted for the offence under Section 138 of the NI Act. A person might have been jointly liable to pay the debt, but if such a person who might have been liable to pay the debt jointly, cannot be prosecuted unless the bank account is jointly maintained and that he was a signatory to the cheque.”

Further, in Mrs. Aparna A. Shah v. M/s Sheth Developers Pvt. Ltd., it was held by the SC that the proceedings under Section 138 could be initiated only against the drawer of the cheque and in case of a joint account holder, he cannot be prosecuted until and unless the cheque is signed by him.

Relying on these two judgements, the Telangana HC in the present case gave the decision in the Petitioner’s favour and held that the petitioner who is the wife of the accused is just a joint account holder and not a signatory of the cheque, thus, she cannot be prosecuted under Section 138.


The reasoning behind the verdict of Parvaiz Ahmad Bhat’s case is that Section 138 already contains a condition according to which the payee cannot file a suit against the drawer without first giving him a notice and in case the drawer makes the payment within 15 days of such notice, then no action could be taken against him. So, if the drawer is in a good mood of making payment and he had made a genuine mistake of that incomplete signature, then he will have an opportunity to make payment within 15 days and avoid the suit.

The objective behind Rajeswary’s case is purely to save time, and the direct payment of the fine to the complainant will surely serve the purpose.

The reasoning behind Kodam Danalakshmi’s case is that the phrase “such person shall be deemed to have committed an offence” in Section 138, itself, refers to the person who has drawn the cheque and no one else.

Thus, it could be concluded that all the above-mentioned verdicts given by different High Courts on Section 138 of the NI Act are based on sound reasoning.

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