A Section 482 application sought quashing of a Section 138 NI Act complaint where the bank negligently endorsed a stop-payment cheque as 'insufficient funds'. The court found the dishonour still attracted Section 138, presumption under Section 139 applies, and dismissed the application while directing an enquiry into the bank's negligence.
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Neutral Citation No. - 2024:AHC:198803
Court No. - 79
Case :- APPLICATION U/S 482 No. - 21929 of 2024
Applicant :- Ziaurrahman Opposite Party :- State of U.P. and Another Counsel for Applicant :- Brajesh Kumar Solanki,Samrat Vikram Singh Counsel for Opposite Party :- Ramesh Kumar Shukla,G.A.
Hon'ble Arun Kumar Singh Deshwal,J.
Lucknow and for that reason cheque in question was returned with the endorsement 'fund insufficient' instead of 'stop payment'. In the return memo issued by the bank at the time of bouncing of cheque, it is clearly mentioned that 'cheque is dishonoured for insufficiency of fund'. Admittedly, there is no dispute about the signature of the applicant on the cheque in question. However, this is a sheer negligence on the part of the bank who despite receiving intimation from the applicant on 15.09.2022, returned the cheque in question presented before the bank on 01.11.2022 with the endorsement 'fund insufficient' instead of 'stop payment'.
available to him during the trial.
“ 8. The object of bringing Sections 138 to 142 of the Negotiable Instruments Act on statute appears to be to inculcate faith in the efficacy of banking operations and credibility in transacting business of negotiable instruments. Despite several remedies, Section 138 of the Act is intended to prevent dishonesty on the part of the drawer of negotiable instrument to draw a cheque without sufficient funds in his account maintained by him in a bank and induces the payee or holder in due course to act upon it. Therefore, once a cheque is drawn by a person of an account maintained by him for payment of any amount or discharge of liability or debt or is returned by a bank with endorsement like (i) refer to drawer, (ii) exceeds arrangements, and (iii) instruction for stop payment and like other usual endorsement, it amounts to dishonour within the meaning of Section 138 of the Act. Therefore, even after issuance of notice if the payee or holder does not make the payment within the stipulated period, the statutory presumption would be of dishonest intention exposing to criminal liability.”
said judgement is being quoted as under:
“ 11. Hon'ble the Apex Court in the case of Laxmi Dyechem Vs. State of Gujarat reported in (2012) 13 SCC 375 , observed that even if a cheque is returned by the bank with the endorsement 'signature differ' even that is sufficient to issue process for Section 138 N.I. Act because after dishonouring the cheque, drawer gets statutory notice giving him opportunity to arrange the payment of amount covered by cheque and it is only when the drawer despite getting opportunity on receiving said notice failed to make the payment within 15 days, proceeding under Section 138 N.I. Act is initiated. Paragraph no.16.2 and 17 of the Laxmi Dyechem (supra) is being quoted as under:-
"16.2. There may indeed be situations where a mismatch between the signatories on the cheque drawn by the drawer and the specimen available with the bank may result in dishonour of the cheque even when the drawer never intended to invite such a dishonour. We are also conscious of the fact that an authorised signatory may in the ordinary course of business be replaced by a new signatory ending the earlier mandate to the bank. Dishonour on account of such changes that may occur in the course of ordinary business of a company, partnership or an individual may not constitute an offence by itself because such a dishonour in order to qualify for prosecution under Section 138 shall have to be preceded by a statutory notice where the drawer is called upon and has the opportunity to arrange the payment of the amount covered by the cheque. It is only when the drawer despite receipt of such a notice and despite the opportunity to make the payment within the time stipulated under the statute does not pay the amount that the dishonour would be considered a dishonour constituting an offence, hence punishable. Even in such cases, the question whether or not there was a lawfully recoverable debt or liability for discharge whereof the cheque was issued would be a matter that the trial court will examine having regard to the evidence adduced before it and keeping in view the statutory presumption that unless rebutted the cheque is presumed to have been issued for a valid consideration.
17. In the case at hand, the High Court relied upon a decision of this Court in Vinod Tanna case in support of its view. We have carefully gone through the said decision which relies upon the decision of this Court in Electronics Trade & Technology Development Corpn. Ltd. The view expressed by this Court in Electronics Trade & Technology Development Corpn. Ltd. that a dishonour of the cheque by the drawer after issue of a notice to the holder asking him not to present a cheque would not attract Section 138 has been specifically overruled in Modi Cements Ltd. case10. The net effect is that dishonour on the ground that the payment has been stopped, regardless whether such stoppage is with or without notice to the drawer, and regardless whether the stoppage of payment is on the ground that the amount lying in the account was not sufficient to meet the requirement of the cheque, would attract the provisions of Section 138."
12. From the above legal position, it is clear that if the cheque is dishonoured and returned with following endorsement, then it will be sufficient for prima facie case for issuing process under Section 138 N.I. Act:-
(i) case referred to drawer
(ii) instruction for stoppage of payment
(iii) exceeds arrangement
(iv) insufficient fund
(v) signature differed or mismatch
(vi) account closed”
Order Date :- 19.12.2024 S.Chaurasia
Digitally signed by :- SHUBHAM CHAURASIA High Court of Judicature at Allahabad
1 issue framed by the court
Should the summoning order and Section 138 NI Act complaint proceedings be quashed when the bank returned a stopped-payment cheque with an 'insufficient funds' endorsement due to its own negligence?
Colour shows how this judgement treated each authority
Lafarge Aggregates And Concrete India Private Ltd. Vs. Sukarsh Azad And AnotherRelied on¶6
2014 (13) SCC 779 · Who else cites this
Vijay Kumar Vs. State of U.P. & AnotherRelied on¶7
Application u/s 482 No.17464 of 2024
3 provisions across 2 enactments
Ziaurrahman
State of U.P.
Mohd. Shageer
Arun Kumar Singh Deshwal
As recorded by the court registry
7 orders share this CNR
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