The Madhya Pradesh High Court held that a cheque endorsed “Not Negotiable” still attracts liability under Section 138 of the Negotiable Instruments Act. Justice Himanshu Joshi dismissed a drawer’s plea, rejecting the argument that such endorsement nullifies penal consequences.
JABALPUR : The Madhya Pradesh High Court has ruled that a cheque marked with the endorsement “Not Negotiable” is still subject to Section 138 of the Negotiable Instruments Act, 1881.
Justice Himanshu Joshi, presiding over the Jabalpur bench, dismissed a petition from a drawer who argued that such an endorsement negated the cheque’s standing under the penal provisions of the Act.
Factual Backgrounds:
The case arises from a complaint by Anil Kumar Gupta against Dr. Sandeep Patel, the petitioner. According to the complaint, the petitioner borrowed Rs 5,00,000 from the respondent in December 2019 for personal expenses. To settle this debt, the petitioner issued a cheque for Rs 4,00,000, dated May 31, 2020. When presented for payment on July 21, 2020, the cheque bounced due to “Funds Insufficient.”
Following a statutory demand notice on September 6, 2020, the petitioner did not make the payment, prompting the respondent to file a complaint under Section 138 of the NI Act.
The petitioner then filed applications before the Judicial Magistrate First Class (JMFC), Rewa, and pursued a revision with the 9th Additional Sessions Judge (ASJ), Rewa, claiming the complaint was not valid because the cheque was marked “not negotiable.” Both lower courts rejected the applications, leading to the current petition under Section 482 of the Cr.P.C.
Arguments of Parties:
The petitioner’s counsel argued that the “not negotiable” endorsement on the cheque nullified its negotiability, thus making Section 138 inapplicable.
In support of his submissions, learned counsel for the petitioner relied upon the decision in Durga Shah Mohal Lal Bankers v. Governor General in Council and Another AIR 1952 Allahabad 590. In the said judgment, it was held that under the law governing negotiable instruments, the negotiability of a cheque is affected only when it is expressly marked “not negotiable” on its face, and not merely because it has been crossed, whether generally or specially.
In contrast, the respondent’s counsel claimed that the petition was merely an attempt to delay proceedings and avoid consequences. They contended that the “not negotiable” marking only limits transferability and does not eliminate the underlying debt or the applicability of Section 138.
Issue Framed:
Whether a cheque marked as “Not Negotiable is excluded from the purview of Section 138 of the N.I. Act. Section 138 of the N.I. Act criminalizes the dishonour of a cheque issued towards discharge of a legally enforceable debt or liability, subject to fulfillment of the statutory requirements?
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Analysis of the Court:
The Court determined the essential issue to be whether a cheque marked “Not Negotiable” is excluded from Section 138’s application. Justice Joshi pointed out that Section 138 penalizes the dishonor of a cheque issued for a legally enforceable debt and noted that the definition of “cheque” under Section 6 of the NI Act does not exempt those marked “Not Negotiable.”
The Court remarked:
“The endorsement ‘Not Negotiable’ does not render the cheque non-existent or invalid. It merely restricts the transferee from acquiring a better title than that of the transferor, as contemplated under Section 130 of the N.I. Act. The drawer’s obligation to honour the cheque remains unaffected.”
Regarding the case cited by the petitioner, the Court indicated that the Durga Shah Mohal Lal Bankers case actually supports the notion that a cheque remains a negotiable instrument unless expressly rendered non-negotiable by law.
The court Said,
“The judgment relied upon by the petitioner in Durga Shah Mohal Lal Bankers (supra) rather supports the settled legal position that a cheque remains a negotiable instrument unless its negotiability is expressly destroyed by law. Even then, such endorsement does not extinguish the drawer’s liability arising from the issuance of the cheque”.
Furthermore, it clarified that,
“such endorsement does not extinguish the drawer’s liability arising from the issuance of the cheque.”
Final Order:
The High Court found no jurisdictional error in the rulings of the lower courts. Emphasizing that inherent powers under Section 482 Cr.P.C. should be used cautiously and only to prevent the abuse of judicial process, the Court saw no exceptional circumstances in this case.
The trial court correctly held that the issues of whether the cheque was issued in discharge of a legally enforceable debt and whether the statutory conditions under Section 138 were fulfilled are matters requiring evidence and cannot be determined at an interlocutory stage by invoking Section 142 of the N.I. Act. The revisional court also properly appreciated the legal position and committed no jurisdictional error calling for interference.
As a result, the petition was dismissed as lacking merit.
Case Title: Dr. Sandeep Patel Versus Anil Kumar Gupta MISC. CRIMINAL CASE No. 21806 of 2024
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