Dishonor of a blank cheque


A cheque is a written instrument that orders a bank to pay on demand a certain amount of money from the drawer’s account to the bearer of the instrument. It is a widely used method of payment in business transactions.

With the advent of digitalisation and increase in trade and business, the use of cheques in various commercial and contractual transactions has enhanced but so have the cheque dishonouring disputes. The Indian courts are flooded with the Cheque bounce cases with close to 38 lakh cases still pending (as of October 2008) as per 213th report of the Law Commission of India.[1]

Sections 138 to 142 of the Negotiable Instruments Act, 1881[2], pertains to dishonouring of cheques. The legislative intent is to promote the efficacy of banking operations and to ensure credibility in transacting business through cheques. Section 138 of the Negotiable Instruments Act, 1881 imposes criminal liability on a person who issues a cheque towards discharge of a debt or liability as a whole or part and the cheque is dishonoured by the bank on presentation. The criminal liability is punishable with imprisonment or fine or with both. However, unneeded prosecution of a genuine drawer of the cheque is averted. To give him an opportunity to atone, the prosecution under Section 138 of the Act has been made subject to certain conditions stipulated in the proviso to Section 138 of the Negotiable Instruments Act, 1881[3].

A blank cheque is a cheque that has been duly signed by the drawer but it does not yet have the amount of money that is to be paid to the drawee, written on it.


Dishonour of a blank cheque

Over the period of time, various developments pertaining to issuance, bouncing and dealing of blank cheques have taken place by the Hon’ble courts of India. The earlier views held by the various Indian courts regarding dishonour of a blank cheque are as follows:

In Avon Organics Ltd. v. Pioneer Products Limited and Others[4], the respondent issued a blank cheque without mentioning the amount and the date. He sent it with a letter requesting the complainant to present the blank cheque in the bank after a month. The issue raised in this case was whether the blank cheque will come within the definition of the cheque to be covered under Section 138 of The Negotiable Instrument Act, 1881.

It was observed by the High Court that if the cheque is not drawn for a stated amount it would not be covered within the definition of a bill of exchange. An act of complainant in writing the amount and date was a material change and it could not be enforced. It was further held that alteration without the knowledge of the person who issued the cheque rendered the cheque invalid.

In Bindu v. Sreekantan Naira[5], it was unequivocally held that admission of the signature on a cheque does not tantamount to confirmation of execution. The right of the accused to oppose that the blank cheque was misused by the complainant is not defeated by such mere admission of signature.

In Indus Airways Private Limited v. Magnum Aviation Private Limited[6], the accused (drawer) entered into an agreement with the complainant (drawee) for sale of its product. Thereafter, he issued blank cheques as security and handed them over to the complainant. No debt or liability existed when the drawer issued the said blank cheques. Therefore, a complaint based on blank cheques issued as security payment was held not to be maintainable and was thus dismissed.


Slight development pertaining to dishonor of a blank cheque was made by the High Court of Madras, in the following case:


In E. Dhanuskodi v. D. Sreedhar[7], the acquittal of the respondent (accused) was upheld by Madras High Court for an offence punishable under Section 138 of Negotiable Instruments Act, 1881. The court held that different pen, ink, and manipulation of the amount showed that the complainant had failed to demonstrate due execution of the cheque. Facts of the case are that the respondent (accused) borrowed a sum of Rs 1,50,000 from the appellant (complainant) and issued a cheque to the appellant towards his liability to repay the same. However, the cheque was dishonoured. Thereafter, the appellant initiated the process under Section 138 of The Negotiable Instruments Act, 1881, and the trial court convicted the respondent holding him guilty. However, the Additional District Judge on appeal reversed the decision of the trial court and acquitted the respondent. Thus, an appeal was filed in Madras High Court by the appellant.

The High Court of Madras observed that the presumptions under Sections 118 and 139 of The Negotiable Instruments Act, 1881[8] in favour of the appellant (complainant) come to play on the satisfaction of Court that the cheque in question was duly executed. It was observed that the execution of the cheque does not mean the mere handing over a blank cheque, but it means that the cheque is given in the full form.

It was held that the appellant (complainant) cannot be justified in doing material alteration beyond the knowledge of the accused and it would be certainly unlawful if a complainant is allowed to fill up details of cheque such as date and amount in a blank cheque beyond the knowledge of the accused. Thus, the petition in the present case was dismissed and the acquittal of the respondent was upheld.


However, the Supreme Court in the following judgment took a different view and put the controversy to rest

In Bir Singh v. Mukesh Kumar[9], the issue addressed by the Supreme Court was whether the payee of a blank cheque is disentitled to the benefit of the presumption under Section 139 of the Negotiable Instruments Act, 1881, of a cheque duly drawn having been issued in discharge of a debt or other liability only because he is in a fiduciary relationship with the person who has drawn the cheque.

The Supreme Court observed that a bare reading of Section 139 of the Negotiable Instruments Act, 1881, construes that unless the contrary is proved, it is to be presumed that the holder of a cheque received the cheque of nature referred in Section 138 of the Negotiable Instruments Act, 1881. It was stated that the presumption under Section 139 is a presumption of law. Reliance was made on the decisions rendered in Kumar Exports v. Sharma Carpets[10], Hiten P. Dalal v. Bratindranath Banerjee[11], K. N. Beena v. Muniyappan and Anr[12]and Laxmi Dyechem v. State of Gujarat & Ors[13]in which the law was settled that the onus of proving that the cheque issued was not in discharge of any debt or other liability is on the drawer of the cheque. It is obligatory on the courts to raise the presumption provided under Section 139 of the Negotiable Instruments Act, 1881. However, the said presumption is rebuttable and can be rebutted by the accused by proving the contrary by leading cogent evidence that there was no debt or any other liability.

Further, it was observed that the object of Chapter XVII of the Negotiable Instruments Act, 1881, is to infuse credibility to negotiable instruments including cheques. That it is immaterial that the cheque is filled by any person other than the drawer provided it is duly signed by the drawer and the same would not invalidate the cheque. The presumption under Section 139 of the Negotiable Instruments Act, 1881 shall be attracted.

The Supreme Court while deciding upon the issue, made the following observations:

"33. A meaningful reading of the provisions of the Negotiable Instruments Act including in particular, Sections 20, 87 and 139, makes it amply clear that a person who signs a cheque and makes it over to the payee remains liable unless he adduces evidence to rebut the presumption that the cheque had been issued for payment of a debt or in discharge of a liability. It is immaterial that the cheque may have been filled in by any person other than the drawer, if the cheque is duly signed by the drawer. If the cheque is otherwise valid, the penal provisions of Section 138 would be attracted.

34. If a signed blank cheque is voluntarily presented to a payee, towards some payment, the payee may fill up the amount and other particulars. This in itself would not invalidate the cheque. The onus would still be on the accused to prove that the cheque was not in discharge of a debt or liability by adducing evidence."

Hence, it was held that the existence of a fiduciary relationship between the drawer and the payee would not disentitle the payee to the benefit of the presumption under Section 139 of the Negotiable Instrument Act, 1881, in the absence of the evidence of exercise of undue influence or coercion.


Conclusion

It can be inferred that various developments pertaining to the dishonour of blank cheques have taken place. The real object of the Negotiable Instruments Act, 1881 is to infuse credibility to negotiable instruments and to ensure a speedy trial in cases of dishonour of cheque.


References:

[1] Law Commission of India, “213th Report on Fast Track Magisterial Courts For Dishonoured Cheque Cases” (November, 2008). [2] The Negotiable Instruments Act, 1881, available at: http://legislative.gov.in/sites/default/files/A1881-26.pdf(last visited on February 03, 2020) [3] (2007) 6 SCC 555. [4] 2004 (1) CRIMES 567 (AP) [5] AIR 2007 (DOC) 195 (KER) [6] AIR 2007 (DOC) 269 (Del) [7] 2018 SCC OnLine Mad 5124 [8] The Negotiable Instruments Act, 1881, S. 118, 139. [9] (2019) 4 SCC 197 [10] (2009) 2 SCC 513 [11] (2001) 6 SCC 16 [12] (2001) 8 SCC 458 [13] (2012) 13 SCC 375

Submitted by:

Vasu Manchanda

Faculty of Law, Delhi University.


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