Case at a Glance
A developer issued a Rs. 1,21,10,000 cheque to a housing society to refund money after a failed land deal. After the cheque bounced, the developer paid Rs. 20 lakh in two instalments, but the society re-presented the same cheque for the full amount without recording the part payment on it. Both the trial court and the appellate court convicted the developer. Justice Geetha K.B. held that, under Section 56 of the Negotiable Instruments Act and the Supreme Court’s ruling in Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel, (2022) 10 SC CK 0010, “the cheque cannot be presented for encashment without recording the part payment”, so Section 138 was not attracted. The conviction was set aside, leaving the society free to recover the balance by lawful means.
Under a Memorandum of Understanding dated 21 October 2015, Garudadhri Developers was to procure land for members of Sree Akshaya Housing Co-operative Society. The land was not procured, the MOU was cancelled on 29 November 2017, and the developer agreed to repay Rs. 1,21,10,000. Its cheque dated 12 September 2018 was dishonoured for insufficient funds on 15 September 2018. The developer then paid Rs. 10 lakh each on 20 September and 6 October 2018. The society re-presented the cheque for the full Rs. 1,21,10,000 on 14 November 2018; it bounced again, notices followed, and a complaint was filed on 16 January 2019.
The trial court (C.C. No. 2455 of 2019) convicted the developer under Section 138 on 3 August 2023 and imposed a fine of Rs. 1,35,00,000. The appellate court on 15 December 2023 upheld the conviction but reduced the amount to Rs. 1,05,00,000, accounting for the Rs. 20 lakh paid. Both sides filed revision petitions: the society against the reduction, and the developer against the conviction.
The Key Question Before the Court
If the drawer makes a part payment after a cheque is issued, can the payee present the same cheque for the full amount without endorsing the part payment on it, and still prosecute under Section 138?
Section 56 and the Unendorsed Part Payment
The Court first noted the narrow scope of revision, relying on decisions such as State of Kerala v. Puttumana Illath Jathavedan Namboodiri, (1999) 02 SC CK 0014 and Kuntegowda v. Thurubaiah: interference is justified only for perversity, gross error or non-consideration of material evidence. It then found that the two Rs. 10 lakh payments were part payments towards the cheque amount, not interest, since the society admitted there was no contract for interest. The lower courts had not examined this admitted part payment at all, which the Court treated as non-consideration of material evidence.
Applying Section 56 of the NI Act and paragraph 29 of Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel, which the Karnataka High Court had also followed in M/s Nazama Traders v. M/s Arihant Marketing, the Court held that a part payment must be endorsed on the cheque before it is presented for the balance. Because the cheque was presented for the full Rs. 1,21,10,000 when that sum was no longer the amount due, its dishonour did not attract Section 138. The Court made clear that the society remains free to recover the balance through lawful means.
What the Court Actually Held
- The Rs. 20 lakh paid after the first dishonour was a part payment towards the cheque, not interest.
- Under Section 56 of the NI Act, the part payment had to be recorded on the cheque before it was presented again; without that, the cheque could not be presented for the full amount.
- Dishonour of a cheque presented for more than the amount actually due does not attract Section 138, following Dashrathbhai Trikambhai Patel.
- The developer’s revision was allowed and the society’s dismissed; the conviction and the modified sentence were set aside, and amounts deposited and withdrawn were ordered refunded under Section 148(3) within 60 days.
Why This Judgment Matters
- Payees who accept part payment often re-present the original cheque for the full sum; this ruling shows that can defeat a Section 138 case.
- It applies the Supreme Court’s Section 56 rule to a high-value cheque in Karnataka, after conviction by two courts.
- It reminds drawers that part payments should be documented so they can be proved later.
What Should Advocates Take Away From the Judgment?
For Cheque Holders
- If you receive any part payment, endorse it on the cheque before presenting it for the balance.
- Do not present a cheque for more than the amount legally due at the time of presentation.
- A defective Section 138 case does not end the debt; civil recovery remains open.
For Counsel
- In defence, look for payments made after issue of the cheque and before its presentation.
- Rely on Section 56 and paragraph 29 of Dashrathbhai Trikambhai Patel; this is a point of law that can succeed even in revision.
- Seek refund of deposited amounts under Section 148(3) when the conviction is set aside.
Key Takeaways
- Part payment after issue of a cheque must be endorsed on it before presentation for the balance.
- Presenting the cheque for the full original amount after part payment means Section 138 is not attracted.
- Revisional courts can interfere where lower courts ignore admitted material such as part payments.
- The conviction was set aside, but the society may still recover the balance by lawful means.
Frequently Asked Questions
What if the drawer pays part of the cheque amount before it is presented?
According to this ruling, following the Supreme Court, the part payment must be endorsed on the cheque under Section 56 of the NI Act before it is presented for the balance.
Is a cheque-bounce case maintainable if the full amount was presented after part payment?
The Karnataka High Court held that Section 138 is not attracted in such a case, because the cheque was presented for more than the amount due.
Does the payee lose the money?
No. The Court said the complainant is free to recover the balance through lawful means; only the criminal prosecution failed.
Conclusion
The case turned on a simple act that was not done: writing the Rs. 20 lakh part payment on the cheque. Because it was not recorded, a prosecution that had produced a Rs. 1.35 crore fine at trial collapsed in revision.
Practical takeaway: Before re-presenting any cheque, check whether part payments have been made and endorse them; otherwise the Section 138 remedy may be lost.
For more judgments, legal opinions and case analysis, visit courtkutchehry.com