2001 (9) TMI 993 - SC - Companies Law

Whether the instrument which is described by both sides as a Pay Order is a cheque within the meaning of section 138 of the Negotiable Instruments Act, 1881? Held that - Appeal allowed. As learned Single Judge expressed the opinion that a demand draft may be a Bill of Exchange if it is issued by one bank drawn on another. The said observation was made in the wake of the contention that the collecting bank could claim protection under section 131. The said decision of the Bombay High Court cannot hold good because the Negotiable Instruments Act was amended by incorporating section 131A in the said Act. We, therefore, dissent from the view adopted by the learned Single Judge in the impugned judgment that the pay order is not a cheque. It is undisputed that the complainant-company is the holder of the instrument in its own right. As such it could be a holder in due course also until the concerned party adduces evidence to rebut the presumption. It is of course open to the respondents to rebut the presumption in the trial but till then the High Court could not say that the complainant is not a holder in due course at all.

Summary

Issues:
1. Whether a 'Pay Order' is considered a cheque under section 138 of the Negotiable Instruments Act, 1881.
2. Whether the complainant bank qualifies as a 'holder in due course' to file a complaint under section 138 of the Act.

Issue 1:
The case involved a 'Pay Order' dishonored by the drawer bank, leading to a complaint under section 138 of the Act. The High Court quashed the complaint, stating the instrument was not a cheque. The Supreme Court analyzed the definitions of a cheque and a Bill of Exchange under the Act. The Court held that a 'Pay Order' could be treated as a Bill of Exchange, as it contained an unconditional order to pay a certain sum, even if the drawer and drawee were the same entity. The Court referred to relevant sections and precedents, emphasizing that the holder's election to treat an instrument as a cheque is binding. Disagreement with the High Court's view led the Supreme Court to rule that the 'Pay Order' qualified as a cheque under section 138.

Issue 2:
The High Court also questioned the complainant bank's status as a 'holder in due course' due to the absence of an endorsement on the instrument. The Supreme Court examined sections 142 and 8 of the Act, defining a 'holder' and 'holder in due course.' It highlighted the presumption under section 118(g) that the holder of a negotiable instrument is a holder in due course unless proven otherwise. The Court affirmed that the complainant bank, possessing the instrument, was entitled to be a holder in due course until evidence rebutted this presumption. The Supreme Court ruled in favor of the complainant, allowing the appeal and directing the trial to proceed without delay.

This comprehensive analysis of the judgment clarifies the issues surrounding the 'Pay Order' and the complainant bank's status, providing a detailed understanding of the legal reasoning and interpretation applied by the Supreme Court in reaching its decision.