Stop payment will fall under dishonour of cheque
Not only the cases of dishonour of cheques on account of insufficiency of funds or on account of exceeding of arrangement but the cases involving dishonour of cheques on account of “stop payment“, “account closed” and “Signature Mismatch” also fall within the ambit of offence under the Section 138 of the Negotiable Instruments Act (NI Act), states the Jammu and Kashmir and Ladakh High Court Mohammad Shafi Wani v Noor Mohammad Khan..
The High Court adds that the Section 138 of the Negotiable Instruments Act (NI Act) must be interpreted in a liberal manner so as to achieve the object for which the said provision has been enacted.
Deciding the case the high court observed that at first blush, it appears that it is only in two situations that Section 138 of the NI Act is attracted,
- firstly, when there are insufficient funds available in the bank account of the person who is drawing the cheque and
- secondly, where it exceeds the arrangement.
However, the provision has been interpreted by the Supreme Court in several judgments in a manner so as to include within its ambit even the cases where the dishonour of cheque has taken place for the reasons other than the aforesaid two reasons, the High Court added.
SC precedents in such matters
The High Court examined the Supreme Court (SC) precedents on the subject and noted that the SC has in Kanwar Singh v Delhi Administration [AIR 1965 SC 871] and State of Tamil Nadu v M. K. Kandaswami and Others [1975 AIR 1871] clearly stated that while interpreting a penal provision which is also remedial in nature, a construction that would defeat its purpose or have the effect of scrapping it from the statute book, should be avoided. And if more than one constructions are possible, the court should choose to adopt construction that would preserve the workability and efficacy of the Statute and avoid an interpretation that would render the provision sterile. The SC in the matter had accordingly held that when a cheque is returned by the banker of a drawer with the comments “account closed” the same would constitute an offence under Section 138 of NI Act.
Similar judgement in another case
In another case in Sheikh Owais Tariq v Satvir Singh also, the Jammu & Kashmir and Ladakh High Court has held that a complaint under Section 138 of the Negotiable Instruments Act, 1881, is maintainable even if a cheque is dishonoured with the reason ‘Account Frozen’.
SC says stop payment would not obviate N I 138 offence
Dishonour on the ground that the payment has been stopped, regardless whether such stoppage is with or without notice to the drawer, and regardless whether the stoppage of payment is on the ground that the amount lying in the account was not sufficient to meet the requirement of the cheque, would attract the provisions of Section 138, says the SC in M/s Laxmi Dyechem v State of Gujarat & Others.
The SC relied on a three-Judge Bench decision of this Court in Modi Cements Ltd. v Kuchil Kumar Nandi [(1998) 3 SCC 249] in arriving at this decision.
Reference
- Mohammad Shafi Wani v Noor Mohammad Khan
- Kanwar Singh v Delhi Administration [AIR 1965 SC 871]
- State of Tamil Nadu v M. K. Kandaswami and Others [1975 AIR 1871]
- M/s Laxmi Dyechem v State of Gujarat & Others
- Modi Cements Ltd. v Kuchil Kumar Nandi [(1998) 3 SCC 249]
