Does Part Payment Avoid Section 138 NI Act Cases?

In the fast-paced world of business transactions, cheques remain a common payment method in India. But what happens when a cheque bounces due to insufficient funds, and the drawer (accused) claims part payments were already made? A frequent question arises: Part payment paid by the accused 138 is not attract – essentially, does a part payment by the accused prevent the attraction of offence under Section 138 of the Negotiable Instruments Act, 1881 (NI Act)?

This blog post dives deep into this nuanced issue, drawing from key judicial precedents. We'll explore the critical role of endorsements, presumptions under the NI Act, and practical remedies. Note: This is general information based on case law and not specific legal advice. Consult a lawyer for your situation.

Main Legal Finding on Part Payments and Section 138

Under Section 138 of the NI Act, a cheque dishonoured due to insufficient funds or similar reasons can lead to criminal liability if the drawer fails to pay within 15 days of receiving a demand notice. However, part payments made by the accused after cheque issuance but before its presentation change the game.

Courts have consistently held that such part payments require an endorsement on the cheque under Section 56 of the NI Act to reflect the reduced balance. Without this endorsement, presenting the cheque for the full original amount does not represent a legally enforceable debt, making Section 138 inapplicable. Even sending a notice demanding only the balance doesn't cure this defect – the complainant's remedy typically lies in civil proceedings, not criminal prosecution.

Santhosh VS Nandakumar B Menon - Dishonour Of Cheque (2015)

Santhosh VS Nandakumar B Menon - Crimes (2015)

As clarified in Joseph Sartho v. G. Gopinathan (2008(4) KHC 463), if any payment has been made after the issuance of the cheque, but before presentation of the cheque on the date mentioned in the cheque, unless endorsement as required under Section 56 of the Negotiable Instruments Act is made in the cheque, then the complainant is not entitled to present the cheque for the entire amount and even sending notice for the balance amount will not cure the defect and in such circumstances offence under Section 138 is not attracted.

Santhosh VS Nandakumar B Menon - Dishonour Of Cheque (2015)

Key Points:- Part payments prior to presentation necessitate endorsement under Section 56; failure invalidates Section 138 as the full amount isn't legally due.- Notice demanding full amount (or even balance) post-part payment without endorsement doesn't sustain the offence; it may be seen as an abuse of process.- Partial payments before complaint filing may lead to acquittal under Section 138, though courts can impose compensation for the remaining debt. 2009 0 Supreme(MP) 1265

Requirement of Endorsement for Pre-Presentation Part Payments

Section 56 mandates that any payment or adjustment must be endorsed on the instrument by the holder. Without it, the cheque no longer accurately reflects the debt at presentation.

The endorsement as required under Section 56 of the Negotiable Instruments Act has to be obtained before presenting the cheque to claim the balance amount available after deducting the amount paid from the amount shown in the cheque. If such an endorsement is not obtained by the payee of the cheque and if he presented the cheque for the entire amount, then it cannot be said that the said amount was legally due to him as on the date of the presentation of the cheque.

Santhosh VS Nandakumar B Menon - Dishonour Of Cheque (2015)

In another ruling: Negotiable Instruments Act, 1881 - Sections 138 and 56 - ... endorsement of part payments is necessary for the cheque to represent a legally enforceable debt at the time of presentation - Without this endorsement, proceedings under Section 138 cannot be sustained. 2025 0 Supreme(Mad) 4715

This ratio decidendi has led courts to quash proceedings where endorsements were missing, emphasizing the cheque must mirror the actual debt. 2025 0 Supreme(Mad) 4715

Impact of Part Payments Post-Dishonour or Notice

Timing is crucial. Part payments after dishonour or notice don't automatically absolve liability if they don't fully settle the cheque amount within 15 days.

Partial payments made by the accused after the issuance of the cheque do not absolve the liability under Section 138 of the Negotiable Instruments Act.

R. Gopikuttan Pillai VS Sankara Narayanan Nair - Dishonour Of Cheque (2003)

Yet, in cases of substantial pre-complaint payments: Since the accused had made part payments, the cheque did not represent the full amount due, and thus the offence under Section 138 was not established. 2024 0 Supreme(Kar) 243

Even upon acquittal, courts may order compensation: Partial payment before the filing of the complaint can absolve the drawer of a cheque from liability under Section 138... (but) compensation of Rs. 25,000 each ordered for remaining Rs. 30,000 debt. 2009 0 Supreme(MP) 1265

Relatedly, under Section 139, a presumption exists that the cheque was issued for a legally enforceable debt. The accused must rebut this on preponderance of probabilities with evidence like bank records. Mere denial isn't enough. 2019 3 Supreme 662

From additional precedents, even stop payment instructions (a common defence) attract Section 138 liability if the presumption isn't rebutted: Penal liability under Section 138 of NI Act gets attracted when stop payment instruction is issued either before or after presentation of the cheque.

Reddys Laboratories Limited VS Reddy Pharmaceuticals Limited

It is trite to say that an accused in a trial under section 138 of the NI Act has only two options... a cheque which is dishonoured, will have to be drawn by a person on an account maintained by him with the bank. 2023 0 Supreme(Cal) 345

Exceptions, Limitations, and Settlements

• Timing Critical: Endorsement is mandatory only for pre-presentation payments; post-notice partials may not bar Section 138 if the full cheque amount per notice remains unpaid.
• Abuse of Process: Filing without endorsement can be quashed under Section 482 CrPC.

  R. B. Ramakrishnan VS A. Meena - Dishonour Of Cheque (2011)

  (E.g., payments of Rs.49,000 admitted, notice for full amount invalid.)
• Settlements: Full settlement post-conviction or proceedings leads to acquittal as offences are compoundable under Section 147 NI Act. Since matter had been compromised... Rs.45,000/- had been paid... appellant held entitled to acquittal. 2007 8 Supreme 245

Civil suits remain viable for balances without valid Section 138 claims.

Santhosh VS Nandakumar B Menon - Dishonour Of Cheque (2015)

Practical Recommendations

For complainants:- Obtain Section 56 endorsement before re-presenting or adjust notices accurately.- Document all transactions meticulously.

For accused:- Seek immediate endorsement for part payments.- Adduce bank records to rebut Section 139 presumption.- Explore early compounding to avoid trials.

Parties should prioritize settlements, as courts favor them with compensation directives.

Conclusion and Key Takeaways

Part payments don't universally shield against Section 138, but pre-presentation ones without endorsement typically do – shifting focus to civil remedies. Post-notice partials may sustain liability unless fully rebutted.

Key Takeaways:- Always endorse part payments under Section 56.- Rebut presumptions with solid evidence.- Consider compounding for quick resolutions.

Stay informed on NI Act updates to navigate cheque disputes effectively. For tailored advice, reach out to a legal expert.

References (select case IDs for further reading):1.

Santhosh VS Nandakumar B Menon - Dishonour Of Cheque (2015)