FACTS IN BRIEF:- The case arose out of a complaint filed by the Appellant company under Section 138 of the Negotiable Instruments Act, 1881. The respondent had to settle the monetary liability resulting from the transaction of cement purchase from the appellant company. In partial discharge of the said liability the respondent drew three cheques in favour of the appellant company, which were returned by the bank with the endorsement “payment stopped by the drawer”. Thus the precise issue for consideration before the Apex Court was, ‘ Whether return of cheque from the bank because of stop payment instruction amounted to dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881.’
ARGUMENTS:- It was argued that since the fact, that the cheque was dishonoured because of the amount of money standing to the credit of that account was insufficient to honour the cheque or that it exceeded the amount arranged to be paid from that account by an agreement made with that Bank, was not sufficed, an offence under Section 138 of the Act was not made out.
JUDGMENT:- The Supreme Court observed that in the event of holding that if after the cheque was issued to the payee or to the holder in due course and before it was presented for encashment, notice was issued to him not to present the same for encashment and yet the payee or holder in due course present the cheque to the bank for payment and when it was returned on instruction Section 138 was not attracted, then the very object of introducing Section 138 would be defeated. Thus it was contrary to the spirit and object of Sections 138 and 139 of the Act to give instructions to the Bank to stop the payment immediately after issuing a cheque against a debt or liability the drawer as it would allow the drawer to easily get rid of the penal consequences notwithstanding the fact that a deemed offence was committed.
FOR COMMON MAN:- The judgment is of seminal importance to the commercial world as the Court held that Section 138 of the Negotiable Instruments Act, 1881 was not based upon the presumption of dishonesty against the drawer of the cheque and that the cheque would be considered dishonoured under the said Section if the bank refused to honour the cheque on the instruction of stop payment, immediately after issuing a cheque against a debt or liability.
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