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A stop payment instruction is not necessarily a defense if the cheque was issued for a valid debt; the instruction alone does not preclude the offence if other conditions of Section 138 are met. ["Vijay Kumar VS State of Uttar Pradesh - Allahabad"], ["Gaurav Sharma vs State of U.P. - Allahabad"]
Payment Already Made and Its Impact
In certain cases, the issuance of a cheque after the account was closed or after the debt was settled can still attract Section 138 if the cheque was issued for a legally enforceable debt on the date of issuance. The courts consider the date of debt existence and whether the cheque was issued for a valid liability. ["P. M. Moidu, S/o. Mammmunhi VS K. M. Abdulla, S/o. Mohammed - Kerala"], ["Gaurav Sharma vs State of U.P. - Allahabad"]
Legal Proceedings and Case Attractiveness (138 Case)
Courts emphasize that if the cheque was issued without a legally enforceable debt or the debt was already paid, then Section 138 proceedings are not sustainable. The timing of payment, issuance, and dishonour are critical factors. ["Shaliwahan Singh Rathore S/o Shri Raj Singh Rathore VS State Of Rajasthan Through P. p. - Rajasthan"]
Conclusion
In the fast-paced world of business transactions, cheques remain a common payment method in India. However, when a cheque bounces due to a 'stop payment' instruction, it often leads to legal disputes under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). Whether this action by the drawer (the person issuing the cheque) amounts to a criminal offence is a frequent question for businesses, individuals, and legal professionals alike.
This blog post delves into the legal nuances, drawing from judicial precedents and statutory provisions. Note: This is general information based on established case law and should not be considered specific legal advice. Consult a qualified lawyer for your situation.
Whether the Petitioners Act of Stopping Payment on the Cheques Constituted an Offense under Section 138 of the Act.
This issue arises when a payee presents a cheque for encashment, only for it to be dishonoured because the drawer has instructed the bank to stop payment. Does this trigger criminal liability under Section 138 NI Act? Generally, yes, but with important caveats.
Section 138 NI Act penalizes the dishonour of a cheque due to insufficient funds or if the amount exceeds the arranged payment from that account. The offence is triggered when the cheque is presented within its validity period (typically three months from the date on the cheque) and returned unpaid M. M. T. C. Ltd. VS Medchl Chemicals and Pharma (P) Ltd. - Dishonour Of Cheque (2001)SANGEETA PANDEY VS STATE OF UTTAR PRADESH - Allahabad (1997).
Key ingredients include:- Issuance of a cheque by the drawer.- Presentation within the validity period.- Dishonour due to insufficient funds or stop payment.- Failure to pay within 15 days of receiving a demand notice.
Issuing a stop payment instruction does not automatically shield the drawer from Section 138 liability. Courts have consistently held that dishonour due to stop payment can still constitute an offence, provided other conditions are met K. K. Sidharthan VS T. P. Praveena Chandran - Supreme Court (1996)M. M. T. C. Ltd. VS Medchl Chemicals and Pharma (P) Ltd. - Dishonour Of Cheque (2001)Sidharthan VS Praveena Chandran - Kerala (1996).
In Modi Cements Ltd. v. Kuchil Kumar Nandi, the Supreme Court clarified: a stop payment instruction does not negate Section 138 applicability. The presumption under Section 139—that the cheque was issued for discharge of a debt or liability—holds even in such cases G. Murali Bajaj, Proprietor, Maya Electronics, rep. by its Power of Attorney S. Saravanan, S/o Sitaraman, Erode VS Selvaraj, Proprietor, Southern Electronics, Erode - Madras (2009)SANGEETA PANDEY VS STATE OF UTTAR PRADESH - Allahabad (1997).
However, the drawer can rebut this presumption by proving:- No existing debt or liability.- Sufficient funds were available, and stop payment was due to a genuine dispute M. M. T. C. Ltd. VS Medchl Chemicals and Pharma (P) Ltd. - Dishonour Of Cheque (2001)M. M. T. C. Ltd. VS Medchl Chemicals & Pharma P. Ltd. - Rajasthan (2001).
For instance, if the drawer notifies the payee not to present the cheque before presentation, Section 138 may not apply K. K. Sidharthan VS T. P. Praveena Chandran - Supreme Court (1996)M. M. T. C. Ltd. VS Medchl Chemicals and Pharma (P) Ltd. - Dishonour Of Cheque (2001).
Several judgments reinforce these principles while highlighting exceptions:
No Legally Enforceable Debt: Liability under Section 138 requires a legally enforceable debt. In one case, proceedings were quashed as there is no legally enforceable debt or liability due to failure of respondent to fulfill payment obligations. The court noted: Jurisdiction under Section 138 NI Act is ousted when the cheque does not pertain to discharge of any debt or other liability Fourness Dhar VS Corsica Shabong - 2022 Supreme(Megh) 317. One essential ingredient is that the cheque must be for a legally enforceable debt (Para 11).
Security Cheques: Cheques issued as security do not typically attract Section 138 unless proven otherwise. In a petition under Section 482 CrPC, the court refused to quash proceedings, stating disputed facts (like security purpose) must be resolved at trial: The challenge made before this Court is pertaining to disputed facts which can only be agitated before the trial court by adducing proper evidence Sankar Biswas S/o Sri. Kalipada Biswas VS State of Assam - 2019 Supreme(Gau) 475Sankar Biswas VS State of Assam - 2019 Supreme(Gau) 385. The presumption under Section 138 holds if the cheque is returned unpaid.
Mere Stop Payment Instruction: Mere instruction to stop payment if issued to banker would attract offence under Section 138 of Negotiable Instruments Act VASANTHI SURESH vs SATHIYANESAN - 2023 Supreme(Online)(MAD) 14938. Even post-dated cheques with stop payment can trigger liability V. P. Sakhariya VS V. Abdul Azeez - 2015 Supreme(Mad) 937.
Undated or Inchoate Cheques: An undated cheque filled and presented within time limits is valid. Date was filled in Ex.P2 and same was presented for encashment which is well within prescribed period of limitation... What is relevant for purpose of reckoning period of limitation is date drawn on cheque and not date of issuance V. V. Chari VS Meenakshi Developers - 2018 Supreme(Kar) 376.
Burden of Proof: The accused bears the burden to rebut the Section 139 presumption. In a case involving lost cheque claims, the court emphasized: The burden of proof regarding consideration for a dishonoured cheque lies with the accused Thangaraj VS Byrappa - 2016 Supreme(Mad) 3186.
Company Liability and Impleadment: For companies, complaints must implead necessary parties under Section 141. Absence of subsisting liability at issuance can lead to acquittal V. P. Sakhariya VS V. Abdul Azeez - 2015 Supreme(Mad) 937.
While stop payment often leads to Section 138 cases, exceptions exist:- Sufficient Funds with Valid Dispute: If funds were available and stop payment was due to a transaction dispute (e.g., non-delivery of goods), the offence may not stand M. M. T. C. Ltd. VS Medchl Chemicals and Pharma (P) Ltd. - Dishonour Of Cheque (2001)M. M. T. C. Ltd. VS Medchl Chemicals & Pharma P. Ltd. - Rajasthan (2001). Courts may direct civil resolution for underlying disputes Ashish Dwivedi VS State of Uttaranchal - Uttarakhand (2008).- Prior Notification: If the payee was informed not to present the cheque, no offence K. K. Sidharthan VS T. P. Praveena Chandran - Supreme Court (1996).- No Consideration: Blank stop payment advice doesn't rebut presumption; full evidence is needed V. V. Chari VS Meenakshi Developers - 2018 Supreme(Kar) 376.
In one scenario, after partial payment of Rs. 60 crores, stop payment on remaining instalments was issued, but courts scrutinized if remaining liability existed Fourness Dhar VS Corsica Shabong - 2022 Supreme(Megh) 317.
If facing a Section 138 complaint:1. Assess Timing: Verify when stop payment was issued relative to presentation M. M. T. C. Ltd. VS Medchl Chemicals and Pharma (P) Ltd. - Dishonour Of Cheque (2001).2. Gather Bank Statements: Prove sufficient funds at presentation time.3. Document Disputes: Provide evidence of no debt or security purpose; rebut at trial, not via quashing petitions Sankar Biswas S/o Sri. Kalipada Biswas VS State of Assam - 2019 Supreme(Gau) 475.4. Respond to Demand Notice: Within 15 days to avoid complaint.5. Seek Alternatives: Mediation or civil suits for disputes.
For payees:- Send statutory demand notice promptly.- Preserve bank memos showing 'stop payment' or insufficient funds.
Generally, stopping payment on a cheque can constitute an offence under Section 138 NI Act if dishonoured upon presentation, with the presumption favoring the payee under Section 139. However, drawers may defend by proving no liability or valid reasons, as seen in cases like Modi Cements and others G. Murali Bajaj, Proprietor, Maya Electronics, rep. by its Power of Attorney S. Saravanan, S/o Sitaraman, Erode VS Selvaraj, Proprietor, Southern Electronics, Erode - Madras (2009).
Key Takeaways:- Stop payment ≠ automatic immunity.- Rebut presumption with strong evidence.- Disputed facts go to trial, not high court quashing.- Always ensure cheques represent genuine debts.
References: K. K. Sidharthan VS T. P. Praveena Chandran - Supreme Court (1996)M. M. T. C. Ltd. VS Medchl Chemicals and Pharma (P) Ltd. - Dishonour Of Cheque (2001)Sidharthan VS Praveena Chandran - Kerala (1996)G. Murali Bajaj, Proprietor, Maya Electronics, rep. by its Power of Attorney S. Saravanan, S/o Sitaraman, Erode VS Selvaraj, Proprietor, Southern Electronics, Erode - Madras (2009)SANGEETA PANDEY VS STATE OF UTTAR PRADESH - Allahabad (1997)Ashish Dwivedi VS State of Uttaranchal - Uttarakhand (2008)Fourness Dhar VS Corsica Shabong - 2022 Supreme(Megh) 317VASANTHI SURESH vs SATHIYANESAN - 2023 Supreme(Online)(MAD) 14938Sankar Biswas S/o Sri. Kalipada Biswas VS State of Assam - 2019 Supreme(Gau) 475Sankar Biswas VS State of Assam - 2019 Supreme(Gau) 385V. V. Chari VS Meenakshi Developers - 2018 Supreme(Kar) 376Thangaraj VS Byrappa - 2016 Supreme(Mad) 3186V. P. Sakhariya VS V. Abdul Azeez - 2015 Supreme(Mad) 937
Stay informed on NI Act developments to navigate cheque-related risks effectively.
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The petitioner submits that the facts of the given case are totally different from the instant case. ... (2003) 3 SCC 232, where this Court held that ‘stop payment instructions’ and consequent dishonor of the cheque of a post-dated cheque attracts provision of Section 138. ... If we are to accept this proposition it will make Section 138#HL_E....
Moreover, by now it is well settled that dishonour of cheque issued as security can also attract offence under Section 138 of the Negotiable Instruments Act. Hon’ble Apex Court in case titled Sripati Singh v. ... Merely the statement given by the accused that he had paid the entire consideration amount, may not be sufficient to exonerate him from his liability, especial....
Therefore, this case should not be considered as a dishonour of cheque simplicitor. ‘Stop payment’ instruction was not issued because of insufficient and paucity of fund. ... The said letter was received by the accused person on 9th July, 2011 and a reply to that letter was given by the accused person 19th July, 2011. 3. ... the accused under the specific instruction to....
The petitioner then instructed his Bank to stop payment of the 2nd, 3rd and 4th instalments to the respondent No. 1 and not to process any cheque if presented for payment in this connection. ... Therefore, having already paid rupees sixty crores, the remaining amount to be paid by the respondent No. 1 is Rs. 55,88,423/- (Rupees fifty-five lakhs eighty-....
the cheque, would attract the provisions of Section 138.” ... Thereafter, opposite party no. 2 sent registered notice on 09.08.2023 to the applicant demanding the payment of cheque amount within 15 days, but applicant has not paid any amount, therefore, the complaint was filed and statement under Section 200 Cr.P.C. was also filed on ....
Proviso (b) to Section 138 further provides that a notice demanding the payment of the ‘said amount of money’ shall be made by the drawee of the cheque. (2016) 10 SCC 458 , it was held that the test for the application of Section 138 is whether there was a legally enforceable debt on the date mentioned in the cheque. If the answer is in the affirmative, then the provisi....
In the year 1997, he lost his cheque book and Ext.P1 cheque bearing No.2249 is one among the cheque leaves in the cheque book lost. Immediately, he informed the bank and gave a stop payment letter, and the account was closed in the year 1997 itself. ... But it was returned dishonoured stating reason “payment stopped by the drawer and account closed”. T....
of complaint and instructed to stop payment if issued to banker would attract offence punishable under Section 138 of Negotiable Instruments Act. ... of the respondent regarding the issuance of the cheque in question towards a loan and mere instruction to stop payment if issued to bank would attract offence under Section 138 of Negoti....
Having re-assessed the material on record, it discloses that the Trial Court mainly relies upon the document at Ex.D2 - stop payment letter in coming to the conclusion that stop payment letter was given prior to the issuance of Cheque. ... It is the specific case of DW1 that Cheque was misused and defence was set up ....
This happens when the amount mentioned in the cheque is greater than the amount available in the account from which the cheque has been drawn of. Section-138 of the Negotiable Instruments Act aims to lay down legal consequences of a case where a cheque gets dishonoured. ... The Hon’ble Apex Court, in case Dashrathbhai Trikambhai Patel (supra) decided t....
Thereafter, the complainant issued Demand Notice on 17.04.2007 for payment of the cheque amount but as the cheque amount was not paid, the complainant filed a case under Section 138 of NI Act. The learned trial court accordingly took the cognizance under said Section of law and issue summon to the accused-petitioner. Initially, the accused appeared before the court and prayed for dispensing his personal appearance by filing a petition under Section 205 of Code of the Criminal....
Initially, the accused appeared before the court and prayed for dispensing his personal appearance by filing a petition under Section 205 of Code of the Criminal Procedure (CrPC)and the learned trial court vide order dated 13.07.2007 directed for appearance of the accused person. Thereafter, the complainant issued Demand Notice on 17.04.2007 for payment of the cheque amount but as the cheque amount was not paid, the complainant filed a case under Section 138 of NI Act. of che....
No doubt, petitioner has replied to the legal notice Ex.P4 as per Ex.P5, the liability to discharge the legal debt towards final bill of the construction agreement cannot held to be not proved by the complainant. Mere an advice given to the bank for stop payment of the cheque amount would not attract character of rebuttal presumption. Filling of the date as 21.06.2002 and presenting it for encashment with the bankers on 24.06.2002 is in accordance with law, more particularly ....
D.W.1 (Yes Bank, Hosur Branch, Branch Manager) in his evidence had stated that the Respondent had issued stop payment on the ground that the cheque was lost and after receipt of the letter to effect stop payment, if a letter was given to issue the cheque amount, the cheque amount would be paid if there was money in the account. It is evidence of P.W.5 (Bank Manager) that if money was to be paid even after issuance of stop payment if the customer gives in writing, then, they w....
(iv) The Trial Court has acquitted the respondent/accused on the basis that since the appellant/complainant had already preferred a complaint under Sections 406 and 420 IPC, he is barred from preferring a complaint under Section 138 of the Negotiable Instruments Act. In case of the post dated cheque, even stop payment instruction issued by the Drawer to the Bank would attract Section 138 of the Negotiable Instruments Act. To substantiate the same, the learned counsel relied u....
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