Part-Payment Made After Cheque Is Drawn Must Be Endorsed On Cheque

The N.I. Act's Section 138 will not apply if the cheque that is being presented does not
include the borrower's endorsement of any partial payments.

In Dashrathbhai Trikambhai Patel v. Hitesh Mahenrabhai Patel (Crl. A. No. 1479/2022), the
Supreme Court addressed the question of whether the dishonoured cheque would constitute
an offence under Section 138 of the Negotiable Instruments Act, 1881 ("the Act") if it did not
represent the enforceable debt at the time of encashment.

Facts of the case

According to the allegations, the first Respondent-accused borrowed Rs. 20,00,000 from the
Appellant on January 16, 2012, and on March 17, 2014, it sent a cheque for the same amount
to pay off the debt.

Additionally, it was claimed that the cheque was returned for insufficient amounts on April 2,
2014, when it was presented.

On April 10, 2014, the Appellant called on the first Respondent to settle the legally
enforceable debt of Rs. 20,00,000/-by issuing a statutory notice under Section 138 of the Act.

In response to the statutory notice, the first Respondent made the following allegations,
among others, on April 25, 2014:

There was a family connection between the Appellant and the first Respondent. The first
Respondent's sister was married to the appellant's son.

The first respondent received a loan of forty lakh rupees from the appellant. The parties had
an oral arrangement that the first respondent would give the appellant rupees 80,000 in cash
and rupees one lakh in checks every three months. The appellant received two checks as
security. After the whole amount borrowed was paid, it was agreed that the appellant would
return both checks; the respondent's sister was the target of the appellant's son's divorce
action. Nonetheless, the appellant still has the dowry that was provided at the time of the
marriage, and the appellant has abused the checks that were provided as security.

In accordance with Section 138 of the Act, the Appellant filed a criminal complaint against
the first Respondent on May 12, 2014.
In a ruling dated August 30, 2016, the Trial Court cleared the first Respondent of violating
Section 138 of the Act on the grounds that, between April 8, 2012 and December 2013, he
paid the Appellant a total of Rs. 4,09,3,015, partially relieving him of his liability for the debt
of Rs. 20,00,000/-.

Additionally, the Trial Court noted in its ruling that the Appellant had not produced sufficient
evidence to establish that he was owed a legally enforceable debt of Rs. Twenty lakh.

The appellant then filed an appeal with the Gujarat High Court challenging the Trial Court's
decision.

By dismissing the Appeal, the High Court upheld the Trial Court's ruling that the first
Respondent's debt to the Appellant was partially discharged, making the notice of demand
filed under Section 138 of the Act invalid. The High Court's judgement was dated January
2022. During the analysis, the following conclusions were recorded:

During his cross-examination, the appellant acknowledged that the first respondent had
deposited Rs. 4,09,315 in his account. The amount drawn on the check is presumed by statute
to be a debt or liability owing by the drawer to the drawee. The required notice that the
Appellant sent out should have included the portion that the first Respondent had paid. The
amount in the cheque exceeds the amount owed to the appellant. As a result, the statutory
notice given in accordance with Section 138 is void. Since it did not acknowledge the partial
payment that was made and the check served as collateral for the funds that the appellant had
lent, the notification is omnibus. The partial payment that had previously been paid was not
acknowledged when the undated cheque was sent to the bank.

Remarks from the Court:

The Supreme Court noted that when the check is offered for encashment, it must support the
individual's partial payment and constitute a "legally enforceable debt" as defined by Section
138 of the Act. The Supreme Court specifically focused on the language of Sections 138 and
56 of the Act while reaching its decision. In Sunil Today v. State of Gujarat, the Supreme
Court cited its ruling in which the two-judge bench interpreted the term "debt or other
liability," as specified by Section 138 of the Act. The phrase was found to include a "amount
of money promised to be paid on a future day because of a present obligation" in its
definition. The Court noted that the definition of "debt" would include a postdated cheque
written after the debt was incurred. According to the Court's ruling, Section 138 would
include situations in which a debt arises after a cheque is issued but before it is delivered for
payment. According to the ruling, a significant portion of the analysis determining whether
post-dated checks provided as security would be covered by Section 138 of the Act depends
on how relevant time is.

As a result, the Supreme Court noted in the current Appeal that Sections 138 and 56 require
that any partial payment of the obligation be endorsed on the cheque under Section 56 of the
Act, 1881, if it is paid after the cheque was issued but before it is cashed. As a result, the
cheque cannot be submitted for encashment unless the part payment is recorded. This may be
done in one of two ways: either by noting the part payment or by include the debt in the
cheque or an attachment to the cheque. As a result, since the unendorsed cheque does not at
the time of encashment represent a legally enforceable debt, the crime under Section 138
would not be implicated if it is dishonoured upon presentation.

Additionally, the Supreme Court specifically emphasised the ruling in Joseph Sartho v.
Gopinathan, a case from the High Court of Kerela Division Bench, which stated that the
drawer of the cheque could not be found guilty of an offence under Section 138 of the Act,
1881, because "the representation in the cheque was for a sum higher than the amount that
was due on the date that it was presented for encashment." The Court additionally noted that
prior to the cheque being cashed at maturity, the first Respondent had made partial payments
after the debt was accrued. The Honourable Court concluded that, as of the maturity date, the
amount of Rs. 20,00,000/-represented on the check was not a lawfully enforceable liability.
Supreme Court orders are summed up as follows: If the drawer of the cheque pays part or all
of the amount between the time the cheque is drawn and when it is cashed upon maturity,
then the legally enforceable debt on the date of maturity would not be the sum represented on
the cheque; If the drawer of the cheque pays part or all of the amount represented on the
cheque, it must be endorsed on the cheque as required by Section 56 of the Act, 1881, for the
dishonoured cheque to be considered an offence under Section 138. that
Rs. The check amount of $20,000,000 was not a secured debt when due.