2018 (3) TMI 1980 - HC - Indian Laws

Dishonor of Cheque - it is submitted that on the due date the debt was of a lesser amount then the amount of the cheques which were dishonoured - whether the criminal proceedings should be quashed? - section 138 of the NI Act. What the expression amount of money means in a case where the admitted liability of the drawer of the cheque gets reduced on account of the part payment made by him after issuing but before the presentation of cheque in question? HELD THAT - The drawer of a cheque may make payment of a part of the amount of the cheque only with a view to circumvent and get out of his liability under Section 138 of Negotiable Instrument Act. But this can easily be avoided by payee of the cheque either by taking the cheque of the reduced amount from the drawer or by making an endorsement on the cheque acknowledging the part payment received by him and then presenting the cheque for encashment of only the balance amount due and payable to him. In fact Section 56 of Negotiable Instrument Act specifically provides for an endorsement on a Negotiable Instrument in case of part-payment and the instrument can thereafter be negotiated for the balance amount - it is not open to the complainant to take the plea that the drawer of the cheque could have escaped the liability by paying the actual amount due from him to the payee of the cheque. In order to make the notice legal and valid it must necessarily specify the principal amount payable to the payee of the cheque and the principal amount demanded from the drawer of the cheque should not be more than the actual amount payable by him though addition of some other demands in the notice by itself would not render such a notice illegal or invalid. In the decisions R. Gopikuttan Pillai 2003 (3) TMI 771 - KERALA HIGH COURT and M/s. Thekkan Co. 2003 (6) TMI 473 - KERALA HIGH COURT the court took the view that even if the accused has made part payment and the complainant has acknowledged the same the same will not be sufficient for the accused to exonerate himself from his liability under section 138 of the N.I. Act. To put it in other words an accused who has made the part payment will not be entitled to raise the same as a defence in a prosecution under section 138 of the Act. The criminal proceedings initiated by the complainant against the writ applicants deserve to be quashed - Application allowed.

Summary

Issues Involved:
1. Quashing of Criminal Proceedings
2. Validity of Legal Notice under Section 138 of the Negotiable Instruments Act
3. Part Payment and its Effect on Liability under Section 138

Detailed Analysis:

1. Quashing of Criminal Proceedings:
The writ applicants sought to quash the criminal proceedings in Criminal Case Nos. 1241, 1240, 1239, 1242, and 1243 of 2008, pending in the court of the learned Metropolitan Magistrate (N.I. Court No.8) Ahmedabad. The applicants argued that the cheques issued became invalid due to a Memorandum of Understanding (MOU) executed between the parties, which altered the original debt obligations.

The court held that the criminal proceedings deserved to be quashed. The court emphasized that the MOU altered the debt obligations, and the cheques did not represent the actual debt on the due date. Therefore, the prosecution under Section 138 of the Negotiable Instruments Act was not maintainable.

2. Validity of Legal Notice under Section 138 of the Negotiable Instruments Act:
The applicants argued that the legal notice issued by the complainant was invalid as it demanded the entire cheque amount, despite part payments being made. The court noted that the statutory notice demanded the aggregate amount of the cheques, not the reduced amount after part payments.

The court referred to various precedents and held that the legal notice must specify the principal amount payable to the payee. If the notice demands more than the actual amount due, it is not a valid notice under Section 138(b) of the Negotiable Instruments Act. The court concluded that the notice in question was ominous and thus invalid, leading to the quashing of the criminal proceedings.

3. Part Payment and its Effect on Liability under Section 138:
The applicants contended that part payments made after the issuance of the cheques but before the presentation should be considered, and the cheques should not be treated as dishonored for the full amount.

The court referred to the Division Bench decision in Joseph Sartho (supra), which overruled earlier judgments that part payments did not absolve the accused from liability under Section 138. The Division Bench held that once part payment is received, the cheque no longer remains for payment of money for the discharge of the debt in whole or part. Therefore, the accused cannot be held liable under Section 138 if the cheque amount exceeds the actual debt due.

The court adopted this reasoning and concluded that the criminal proceedings should be quashed as the cheques did not represent the actual debt due on the presentation date.

Conclusion:
The court allowed all five writ applications, quashing the criminal proceedings in Criminal Case Nos. 1241, 1240, 1239, 1242, and 1243 of 2008. The court emphasized the importance of issuing a valid legal notice under Section 138 of the Negotiable Instruments Act and considered part payments in determining the actual debt due. The court also advised Magistrates to scrutinize legal notices for compliance with the law before issuing process orders.