Cheques Dishonored With Endorsements 'Insufficient Fund', 'Account Closed', 'Signature Mismatch' Attract S. 138 NI Act: Allahabad HC

The Allahabad High Court has observed that if the cheque is dishonoured and returned with the endorsements - case referred to drawer, instruction for stoppage of payment, exceeds arrangement, insufficient fund, signature differed or mismatch or account closed - then it will be sufficient for prima facie case for issuing process under Section 138 NI Act. A bench of Justice Arun Kumar Singh Deshwal added that despite the bank's above-mentioned endorsements for returning the cheque, summoning the cheque drawer under Section 138 of the NI Act is proper. The Court also said that while disputing the bank's endorsement can always be raised during the trial, but it cannot be grounds for quashing the complaint proceeding at the initial stage. To hold thus, the High Court referred to the apex court's decisions in the cases of NEPC Micon Ltd. vs. Magma Leasing Ltd (1999), M/S. Modi Cements Ltd. Vs. Shri Kuchil Kumar Nandi 1998 and Laxmi Dyechem Vs. State of Gujarat 2012. For context, in NEPC Micon Ltd. case, it was observed that when the cheque is returned by a bank with an endorsement account closed, it would amount to returning the cheque unpaid, because the amount of money standing to the credit of that account, is insufficient to honour the cheque as envisaged under Section 138 of the Act. In the Laxmi Dyechem case, the Supreme Court held that even if a cheque is returned by the bank with the endorsement 'signature differ,' that is sufficient to issue a process for Section 138 NI Act. In Laxmi's case, the SC reasoned that after dishonouring the cheque, the drawer gets statutory notice allowing him to arrange the payment of the amount covered by the cheque. It is only when the drawer, despite getting the opportunity to receive said notice, fails to make the payment within 15 days that proceeding under Section 138 of the NI Act is initiated. The case in brief The Court made these observations while dismissing a Section 482 CrPC application filed by one Vijay Kumar seeking to quash the summoning order and the entire proceeding of a Complaint Case under Section 138 of the NI Act. Essentially, the complainant (Opposite party no.2) filed a complaint against the applicant under Section 138 NI Act with the allegation that he had given Rs.3,00,000/- on the applicant's request in October 2022. To repay that amount, the applicant issued a Cheque of Rs.3,00,000/- (on July 4, 2023) to the complainant, however, when the same was presented before the bank, the same was returned by the bank (July 12, 2023) with the endorsement 'account closed'. Thereafter, on August 09, 2023, the complainant sent a registered notice to the applicant demanding payment of the cheque amount within 15 days, but the applicant has not paid any amount. Therefore, the instant complaint was filed, and a statement under Section 200 CrPC was also filed on the affidavit. Based on the material on record, the Magistrate summoned the applicant, which is impugned in the present case. The counsel for the applicant argued that the cheque in question was missing, for which the applicant had already filed a police report on July 13, 2022, and also filed a complaint to stop the payment. However, the opposite party, No. 2, had misused the cheque and filed the complaint; therefore, the cheque cannot be said to have been issued in the discharge of any liability. It was also contended that the bank returned the cheque in question with the endorsement 'account closed', not for insufficiency of funds; therefore, no liability under Section 138 of the NI Act is attracted. On the other hand, the AGA for the State has submitted that the defence raised by learned counsel for the applicant is a disputed question of fact. The same can be decided during the trial; on this ground, the proceeding cannot be quashed. After considering the rival submissions of learned counsel for the parties and on perusal of the record, this Court opined that whether the cheque was a missing cheque was a disputed question of fact that can be decided during trial. Even otherwise, the Court noted that a police complaint regarding the missing cheque was not lodged as per the procedure, but a simple application was submitted before the S.H.O. of the concerned police station. So far as the second contention of counsel for the applicant is concerned, the Court noted that since the cheque has been bounced and returned by the bank with the endorsement of 'account closed', given the above legal position, summoning the application under Section 138 NI act was not illegal. Appearances Counsel for Applicant: Ashish Kumar Pandey,Nandini Mishra Counsel for Opposite Party: GA Case title - Vijay Kumar vs. State Of Up Another 2024 LiveLaw (AB) 353 Case citation: 2024 LiveLaw (AB) 353 Click Here To Read/Download Order

Cheques Dishonored With Endorsements 'Insufficient Fund', 'Account Closed', 'Signature Mismatch' Attract S. 138 NI Act: Allahabad HC

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