In this case (AIR 1998 SC 1057), the appellant filed a complaint under Section 138 of the Negotiable Instruments Act, 1881, against the respondent for not paying the debt. The fact of the case provides that the respondent had bought cement from the appellant and gave three cheques to clear the amount due. When these cheques were presented to the bank, they were returned with the remark “payment stopped by the drawer.” The question before the Supreme Court was whether a cheque returned because of a stop payment order can be treated as dishonoured under Section 138 of the Act.
Issue before the Court
The issue before the Supreme Court was whether the bank’s remark “payment stopped” is enough to allow a complaint to be filed under Section 138 of the Negotiable Instruments Act.
Arguments in the Case
It was argued that Section 138 applies only when a cheque is dishonoured because there is not enough money in the account, or when the cheque amount is more than the limit allowed by the bank. In this case, since the cheques were returned due to stop payment and not for lack of funds, the offence under Section 138 was not committed.
Analysis of the Court
The Supreme Court observed that if a person issues a cheque but later tells the payee not to present it for payment, it goes against the purpose of Section 138. If the cheque is still presented and the bank refuses payment because of such instructions, Section 138 will not apply.
The Court said that if a drawer issues a cheque to settle a debt but immediately asks the bank to stop payment, it would defeat the purpose of Sections 138 and 139. Allowing this would mean that a person could escape legal liability even after giving a cheque for a genuine debt.
The Court stressed that Chapter XVII of the Act, which covers Sections 138 to 142, was created to ensure trust in cheque transactions and to support the proper working of the banking system. If someone gives a cheque for a real debt but then orders the bank to stop payment before the payee presents it, that person can still be punished under Section 138. This section applies whenever a cheque is dishonoured. It treats the act of stopping payment before the cheque is deposited as a criminal offence.
Concluding Remark
The Court also clarified that Section 138 does not assume that the person issuing the cheque is dishonest. But if the cheque was issued to pay a debt and the bank refuses to pay it because of stop payment instructions, it will be treated as dishonoured under this section. This decision has a major impact on business transactions because it ensures that cheques remain a reliable way of payment.
