The key legal principle established by this judgment is that a cheque issued for the purpose of an advance payment at the time of signing a contract does not constitute an offence under Section 138 of the Negotiable Instruments Act if the cheque is dishonoured. This is because, at the time of issuing such a cheque, there is no legally enforceable debt or liability existing.

For Section 138 to apply, there must be a subsisting, enforceable debt or liability on the date the cheque is drawn. If the cheque is given as an advance payment, and the purchase order is subsequently canceled or the goods are not supplied, the cheque cannot be considered as drawn in discharge of an existing debt or liability (!) (!) .

Furthermore, the act of issuing a cheque for advance payment, without an existing enforceable debt, does not amount to a criminal offence if the cheque is dishonoured due to the cancellation of the contract or non-supply of goods. Civil liability may arise from breach of contract or loss incurred due to such cancellation, but this does not translate into criminal liability under Section 138 (!) (!) .

Therefore, dishonour of such cheques, issued solely as advance payments at the signing of a contract, does not automatically constitute an offence under Section 138 of the Negotiable Instruments Act. The criminal liability under this section is contingent upon the existence of a legally enforceable debt or liability at the time the cheque is issued.