Dishonouring cheque given as security cannot be held liable: Apex court

February 17, 2013: Business Line

The rule that a cheque should not be dishonoured on presentation at the pain of being penalised is not cast in stone.

The Negotiable Instruments Act itself contemplates the presumption of a cheque having been issued for consideration or discharge of debt being amenable to rebuttal.

In Vijay v. Laxman, the Apex Court was satisfied with the statement of the respondent as corroborated by a witness that he did issue a cheque for Rs 1,15,000 but only as a security for advance payment towards milk to be supplied by him to the appellant’s father. The milk having been supplied, he had demanded the cheque given as security back but was refused.

In fact, it was this very cheque that was presented and a case filed for its dishonour. The Supreme Court was satisfied that the appellant had, with a view to wrecking vengeance, given an altogether different colour to the transaction by calling it a loan for which there was no evidence.

In the event, the Apex Court upheld the High Court judgment that the cheque was given only as a security and not in repayment of loan and hence its dishonour was not liable to be visited with a penalty under Section 138.

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