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Stop payment of cheques an offence: SC

By Our Legal Correspondent

NEW DELHI March 11. The Supreme Court has held that if a person issuing a post-dated cheque stops its payment by giving instructions to the drawee or the bank before the due date of payment, he would be liable for penal consequences under Section 138 of the Negotiable Instruments Act.

A two-member bench comprising Justice M.B. Shah and Justice Arun Kumar said the object of the Act was to ensure credibility in business transactions and by countermanding payment of post-dated cheque, a party should not be allowed to get away from the penal provision.

It observed that a contrary view would render Section 138 a dead letter and would provide a handle to persons trying to avoid payment under legal obligations undertaken by them through their own acts. ``If we hold otherwise, by giving instructions to banks to stop payment of a cheque after issuing the same against a debt or liability, a drawer would easily avoid penal consequences.''

Further, merely because the drawer issued notice to the drawee or to the bank for stoppage of payment, it would not preclude an action under Section 138 of the Act by the drawee or the holder of the cheque in due course, the bench said.

In all the batch of appeals before the apex court, post-dated cheques were issued but payments were stopped and proceedings under the Section were initiated before the trial court and it was argued that an offence was made out because of stop payment.

Disposing of the appeals, the bench observed that with the policy of liberalisation, which brought about increase in international trade and commerce, it became necessary to inculcate faith in banking.

It said the faith, which the legislature had desired that such instruments should inspire in commercial transactions, would be completely lost if parties were as a matter of routine allowed to interdict payment by issuing instructions to banks to stop payment of cheques. ``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 their daily needs as consumers, it is all the more necessary that people's faith in such instruments should be strengthened rather than weakened'', the bench said.

``If stoppage of payment of a post-dated cheque is permitted to take the case out of the purview of Section 138 of the Act, it will amount to allowing the party to take advantage of his own wrong.'' It observed that Sec. 138 would apply in such cases. The bench remitted the cases back to the trial courts for deciding the complaints on merits in accordance with law.

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