S.138, NI Act, 1881 : Supreme Court Sheds Light on the Provision

 S.138, NI Act, 1881 : Supreme Court Sheds Light on the Provision

An important Judgment was passed by Hon'ble Supreme Court on 19 September 2016.

In context of Negotiable Instruments Act, 1881, in Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited [2016] GCtR 2933 (SC), earlier one of M/s. Indus Airways Pvt. Ltd. & Ors. v M/s. Magnum Aviation Pvt. Ltd. & Anr [2014] GCtR 2931 (SC) was considered. In Sampelly, the appellant was the Director of a company which was engaged in power generation, while the respondent was a government enterprise engaged in renewable energy. The respondent agreed to advance a loan for setting up a power project and the agreement envisaged that post-dated cheques towards payment of installments of the loans would be given by way of security. The cheques having been dishonored, complaints were instituted under Section 138 which led to quashing petitions filed before the High Court. 

The submission which was urged was that dishonor of the post-dated cheques given by way of security did not amount to a legally enforceable debt or liability under Section 138 in presentia. 

After adverting to the decision in Indus Airways, it was held that if on the date of the cheque, a liability or debt exists or the amount has become enforceable, Section 138 would stand attracted and not otherwise.

The decision in Indus Airways was distinguished in Sampelly on the ground that in that case, the cheque had not been issued for discharge of a liability but as advance for a purchase order which was cancelled. On the other hand, in Sampelly, the cheque was for the repayment of a loan installment which had fallen due. It was noted that though the deposit of cheques towards the repayment of installments was described as a security in the loan agreement, the true test was whether the cheque was in discharge of an existing enforceable debt or liability or whether it was towards an advance payment without there being a subsisting debt or liability. 

Kindly note that full text Judgments of Hon'ble Supreme Court can be downloaded absolutely free of cost (without any charges except internet data) from the official website at the link 

 https://main.sci.gov.in/judgments

Then entering the date of Judgment, for example, as  19 September 2016.

Written by 

Vishal

Delhi

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