New Delhi, Oct 11 (PTI) The Supreme Court Tuesday said the existence of a legally enforceable debt at the time when a cheque is presented for encashment and returns unpaid is a must for constituting a criminal offence of dishonour of cheque under the Negotiable Instruments (NI) Act.

A bench of Justices D Y Chandrachud and Hima Kohli analysed in detail the provisions of the NI Act and said, “For the commission of an offence under Section 138, the cheque that is dishonoured must represent a legally enforceable debt on the date of maturity or presentation.”

Also Read | Jharkhand Shocker: Dalit Youth Dragged Out of Home, Murdered in Hazaribagh; Case Registered.

It also said, “If the drawer of the cheque pays a part or whole of the sum between the period when the cheque is drawn and when it is encashed upon maturity, then the legally enforceable debt on the date of maturity would not be the sum represented on the cheque.”

The top court's verdict came on an appeal of a man named Dashrathbhai Trikambhai Patel against a verdict of the Gujarat High Court.

Also Read | Maharashtra CM Eknath Shinde-Led Balasahebanchi Shiv Sena Party Gets 'Two Swords and Shield' Symbol.

The high court had upheld the judgement of the lower court that no offence of dishonour of cheque was made out against his relative Hitesh Mahendrabhai Patel.

It was alleged that Hitesh Mahendrabhai Patel had borrowed a sum of Rs 20 lakh from Dashrathbhai Trikambhai Patel on January 16, 2012 and to discharge the liability, issued a cheque for the said sum as guarantee.

It was alleged that the cheque when presented was dishonoured due to insufficient funds.

Hitesh Mahendrabhai Patel had discharged his debt liability but the petitioner who was still in possession of the cheque presented it before the bank concerned but it bounced.

The court said legally enforceable debt was not in existence when the cheque was presented to the bank for encashment.

The top court decided a “core issue” of whether the offence of dishonour of a cheque would be deemed to have been committed if the cheque that is dishonoured does not represent the enforceable debt at the time of encashment.

Section 138 creates a deeming offence and its provisions prescribe stipulations to safeguard the drawer of the cheque by providing them the opportunity of responding to the notice and an opportunity to repay the cheque amount.

“The offence under Section 138 arises only when a cheque that represents a part or whole of the legally enforceable debt at the time of encashment is returned by the bank unpaid. Since the cheque did not represent the legally enforceable debt at the time of encashment, the offence under Section 138 is not made out,” Justice Chandrachud, penning the 21-page verdict, said.

The judgement said when a part or whole of the sum, noted on the cheque, is paid by the drawer then the same information must be endorsed on the instrument as prescribed under section 56 of the NI Act.

Cheque bouncing is a punishable offence and the convict may be sentenced to maximum imprisonment of two years with monetary penalty or both.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)