Part Payment Of Cheque Amount, Scope Of Complaint For Balance Amount

In view of this requirement of issuance of notice under Section 138(c), would a complaint be maintainable in a case where, after the issuance of the cheque, the drawee has made part payment of the cheque amount? If yes, then under what circumstances would such a complaint be maintainable?

The Supreme Court of India had an occasion to consider this very issue in the case of Dashrathbhai Trikambhai Patel V. Hitesh Mahendrabhai Patel. The Supreme Court, while dealing with an appeal against acquittal in a complaint under Section 138 of the NI Act has concluded that,
“When a part or whole of the sum represented on the cheque is paid by the drawer of the cheque, it must be endorsed on the cheque as prescribed in Section 56 of the Act. The cheque endorsed with the payment made may be used to negotiate the balance, if any. If the cheque that is endorsed is dishonoured when it is sought to be encashed upon maturity, then the offence under Section 138 will stand attracted;

The Supreme Court dismissed the appeal against acquittal preferred by the complainant on the ground that out of the cheque amount of Rs. 20,00,000/- an amount of Rs. 4,09,315/- was already paid after issuance of the cheque and therefore at the time of presentation of the cheque, the cheque amount, i.e., Rs. 20,00,000/- did not represent a legally enforceable debt. The Supreme Court has held that under such circumstances, when payment is made in the period between the date when the cheque was issued and the date when it was presented upon maturity, the part payment must be indorsed on the cheque at the time of presentation of the cheque in accordance with Section 56 of the NI Act. Since, in the said case no indorsement of the part payment was made under Section 56, the negotiation was not valid and the offence under Section 138 of the NI Act was not attracted. Since, the Supreme Court found that the cheque amount did not represent a legally enforceable debt, it did not go into the question of validity of the statutory notice where-under the appellant had demanded payment of the entire loan amount, i.e., Rs. 20,00,000/- and not the balance amount after deducting the part-payment of Rs. 4,09,315/-.

The entire decision of the Supreme Court was primarily based on Section 56 of the NI Act. Section 56 of the NI Act is quoted as follows:

56. Indorsement for part of sum due —No writing on a negotiable instrument is valid for the purpose of negotiation if such writing purports to transfer only a part of the amount appearing to be due on the instrument; but where such amount has been partly paid, a note to that effect may be indorsed on the instrument, which may then be negotiated for the balance.

1. From a perusal of the above-quoted provision, it is clear that the requirement of indorsing a note stating part payment is for the purpose of “Negotiation” only. Therefore, in order to understand Section 56, it is important first to understand the meaning of the word, “Negotiation”. Section 14 of the NI Act defines “Negotiation” the same is quoted as follows:

14. Negotiation.—When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated.

2. Definition of “negotiation” makes it clear that the said term means the act of transferring the cheque upon another so as to constitute him the holder. Thus, as per Section 56, no person can transfer a cheque (negotiate) to another so as to constitute him the holder of the cheque for paying only part of the amount stated in the cheque. However, Section 56 provides that where the amount under the cheque is partly paid then it can be “negotiated” further, by making an indorsement in the cheque stating the part-payment. Thus, the requirement of indorsement under section 56 is required for the purposes of negotiation of the cheque only and not for the purpose of presentation of the cheque. There is no requirement under the NI Act for making an indorsement of part-payment at the time of presentation of the cheque.

The above stated legal proposition is strengthened on a perusal of the definition of “indorsement” under Section 15 of the NI Act which is quoted as follows:

15. Indorsement

When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to indorse the same, and is called the "indorser".

From the above provision it is clear that under the NI Act, “indorsement” is contemplated only for the purpose of “negotiation”. Indorsement for the purpose of presentation of the cheque by the holder is not at all contemplated/ provided for under the NI Act either under Section 14 or under Section 56. This is so because, if a holder indorses upon a cheque, he becomes the “indorser” and ceases to be the “holder”. In other words the Act contemplates that only a person who wants to use the cheque to discharge his liability can indorse upon the cheque. This proposition is also fortified by Section 78 of the NI Act as per which, only the “holder” (not the indorser) is entitled to payment under the cheque. Thus, going by this angle also, it is clear that indorsement of a note by the holder is not contemplated under the NI Act much-less at the stage of presentation of cheque under the NI Act.

In view of the above, the conclusion of the Supreme Court on the basis of Section 56 is with utmost respect, erroneous.

Having concluded that there is no requirement of indorsing part payment under Section 138 of the NI Act can it be said that a complaint under Section 138 of the NI Act would be maintainable despite part-payment?

In this regard, it is necessary to take note Section 82 of the NI Act which provides for discharge of liability under a negotiable instrument. Sub-section (c) which is relevant for the purposes of the present case is as follows:

82. Discharge of Liability – The maker, acceptor or indorser respectively of a negotiable instrument is discharged from liability thereon –

(a)….

(b)….

(c) by payment – to all parties thereto, if the instrument is payable to bearer, or has been indorsed in blank, and such maker, acceptor or indorser makes payment in due course of the amount due therein.

In view of the above, until and unless the entire amount due under the cheque is paid, a person is not discharged of the liability under the Cheque. Thus, even in case of part payment, unless and until the entire amount under the cheque is paid, the holder of the cheque can present the cheque and upon its dishonour can issue a notice to the drawer demanding the drawer to pay the balance amount in order to discharge the liability under the cheque. Upon non-payment of the balance amount, the holder can file a complaint under Section 138 of the NI Act. Such an interpretation is in line with the objects of the NI Act which have been succinctly stated in the case of Sunil Todi v. State of Gujarat, (2022) 16 SCC 762 that, “The object of the NI Act is to enhance the acceptability of cheques and inculcate faith in the efficiency of negotiable instruments for transaction of business”.

aIt is also important to note that the offence under Section 138 of the NI Act occurs only if the drawer of the cheque fails to make payment of the amount due within 15 days of the delivery of the notice. Thus, even in case of part-payment of the cheque amount, if the holder of the cheque, after its dishonour gives notice demanding payment of the balance amount so as to discharge the liability under the Cheque and the maker of the cheque does not make payment of the balance amount, only in that case, an offence under Section 138 will occur. Thus, if the notice is proper, a complaint under Section 138 will be tenable on the non-payment of the balance amount.

This proposition of law is also supported by the judgment delivered by the Bombay High Court in the case of Ramnarayan v. Proprietor, Daulat Enterprises, reported in (2005) 4 Mah LJ 796. The High Court has rightly held that in case of part-payment after issuance of the cheque a complaint under Section 138 of the NI Act will be tenable if the notice issued under Section 138(c) clearly discloses the part-payment and demand is only made of the amount due after deducting the part-payment.

In view of the above, in cases where the cheque amount is paid in part after the issuance of the cheque and before its maturity and the cheque bounces after its presentation, the holder of the cheque must in the notice under Section 138(c) clearly state the amount which has been paid and the amount that is balance under the cheque. Failure to state these particulars would render the notice defective and a complaint under Section 138 will not be tenable on the basis of the said notice.

The author is an Advocate practicing at Bombay High Court, Nagpur Bench. Views are personal