The Telegraph
Since 1st March, 1999
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SC ruling on cheques

New Delhi, March 11 (PTI): The Supreme Court has ruled that stopping payment of post-dated cheques issued to discharge one’s debt or liability could amount to penal offence.

“A post-dated cheque will lose its credibility and acceptability if its payment can be stopped routinely,” a bench of Justices M.B. Shah and Arun Kumar said in a recent judgment that would help financial institutions and banks to recover loans.

Referring to an amendment to Section 138 of the Negotiable Instruments Act, making bouncing of cheques a penal offence, the bench said the amendment was brought forward to inculcate faith in the efficacy of banking operations and giving credibility to negotiable instruments in business transactions.

The bench said the purpose of a post-dated cheque was to provide some accommodation to the drawer of the cheque and, hence, it was all the more necessary that he was not allowed to abuse the accommodation.

given to him by a creditor who had accepted the post-dated cheques.

“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,” it said.

“In today’s world where use of cash in day to day life is almost getting extinct and people are using negotiable instruments in commercial transactions and plastic money for the daily needs as consumers, it is all the more necessary that people’s faith in such instruments should be strengthened rather than weakened.”

Provisions contained in the Sections were intended to discourage people from not honouring their commitments by way of payments through cheques, it said.

“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 by the drawee or the holder of the cheque in due course,” the court added.

“Whether a case for punishment under that provision is made out, will depend on outcome of the trial.”

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