2003 (3) TMI 533 - SC - Indian Laws

Applicability of section 138 of the Negotiable Instruments Act 1881 to a case in which a person issuing a post-dated cheque stops its payment by issuing instructions to the drawee bank before the due date of payment? Held that - Appeal allowed. On the faith of payment by way of a post-dated cheque the payee alters his position by accepting the cheque. If stoppage of payment before the due date of the cheque is allowed to take the transaction out of the purview of section 138 of the Act it will shake the confidence which a cheque is otherwise intended to inspire regarding payment being available on the due date. The impugned judgments of the High Court and the Judicial Magistrate 1st Class Panaji Goa are set aside hold that section 138 of the Negotiable Instruments Act will be attracted in the facts of the case. However whether a case for punishment under that provision is made out will depend on outcome of the trial. The cases are remanded to the concerned Judicial Magistrate for deciding the complaints filed by the appellant herein on merits in accordance with law. All the appeals are allowed. Nothing contained in this judgment be taken as expression of opinion on merits.

Issues Involved:
1. Applicability of Section 138 of the Negotiable Instruments Act, 1881, when payment of a post-dated cheque is stopped before the due date.
2. Interpretation of Section 138 in light of the object and purpose of the legislation.
3. Presumption under Section 139 of the Act.
4. Relevance of previous judgments, particularly Anil Kumar Sawhney v. Gulshan Rai and Modi Cements Ltd. v. Kuchil Kumar Nandi.
5. Judicial interpretation of penal provisions in the context of the Act.

Detailed Analysis:

1. Applicability of Section 138 of the Negotiable Instruments Act, 1881:
The primary issue in these appeals is whether Section 138 of the Negotiable Instruments Act, 1881, applies when the drawer of a post-dated cheque instructs the bank to stop payment before the due date. The Supreme Court analyzed the facts where the respondent issued post-dated cheques, later instructed the bank to stop payment, and subsequently, the cheques were dishonored when presented.

2. Interpretation of Section 138:
The Court emphasized the legislative intent behind Chapter XVII of the Act, which includes Sections 138 to 142. The objective is to promote faith in banking operations and ensure the credibility of negotiable instruments. The Court stated, "The penal provisions contained in sections 138 to 142 of the Act are intended to ensure that obligations undertaken by issuing cheques as a mode of payment are honoured." The Court highlighted that allowing stoppage of payment for post-dated cheques would undermine the efficacy of these provisions and the trust in commercial transactions.

3. Presumption under Section 139:
Section 139 creates a presumption in favor of the holder of a cheque that it was issued for the discharge of any debt or liability. The Court noted, "This presumption coupled with the object of Chapter XVII of the Act... persuades us to take a view that by countermanding payment of post-dated cheque, a party should not be allowed to get away from the penal provision of section 138 of the Act." The burden of proof to rebut this presumption lies on the drawer of the cheque.

4. Relevance of Previous Judgments:
The lower courts relied on the judgment in Anil Kumar Sawhney v. Gulshan Rai, interpreting that a post-dated cheque is a bill of exchange until the date it bears, and thus, stopping payment before this date would not attract Section 138. However, the Supreme Court clarified that the context in Anil Kumar Sawhney was different, focusing on the limitation period under Section 138. The Court reiterated the principle from Modi Cements Ltd. v. Kuchil Kumar Nandi, stating, "Once a cheque is issued by a drawer, a presumption under section 139 must follow and merely because the drawer issued notice to the drawee or to the bank for stoppage of payment it will not preclude an action under section 138 of the Act."

5. Judicial Interpretation of Penal Provisions:
The Court addressed the argument for strict interpretation of penal provisions, referencing NEPC Micon Ltd. v. Magma Leasing Ltd. The Court asserted that the legislative intent must guide the interpretation to prevent misuse and uphold the statute's purpose. The Court observed, "Any interpretation which withdraws the life and blood of the provision and makes it ineffective and a dead letter, should be averted."

Conclusion:
The Supreme Court set aside the judgments of the lower courts, holding that Section 138 of the Negotiable Instruments Act is attracted in cases where payment of a post-dated cheque is stopped before the due date. The cases were remanded to the Judicial Magistrate for trial on merits. The Court emphasized that the interpretation of Section 138 should align with the legislative intent to maintain the credibility and efficacy of cheques in commercial transactions.

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