Landmark Judgment on Object of Section 138-142 of NI Act Amaresh Patel LANDMARK JUDGMENT Fri, Oct 11, 2019, at ,10:30 PM Title of the Case – Object of Section 138 – 142 of NI Act Name of the case – Modi Cements Ltd vs. Shri Kuchil Kumar Nandi, (1998) 3 SCC 249 (Supreme Court) Date of Judgment – 02nd March 1998 Judges: Justice M.K. Mukherjee, Justice S.P. Kurdukar and Justice K.T. Thomas Subject and sections involved – Section 138 of Negotiable Instruments Act, 1881 Issue: Whether mere endorsement of the Bank “payment stopped” is sufficient to entertain the complaint u/s 138 of NI Act? Fact of the Case: Appellant, Modi Cements Ltd, is a company known for selling cement throughout India. It was alleged by appellant that respondent, Kuchil Nandi, purchased from them non-levy Modi Cement on credit against the orders placed on behalf of his concerns. These orders were placed by the respondent with the Calcutta office of the appellant and it was agreed that the price of the consignments was to be paid by the respondent at the said office. After taking accounts it was found that on 23.2.1994 the respondent incurred a liability/debt of Rs. 1,10,53,520.30 payable to the appellant towards the purchased price of the cement supplied by them to the respondent. In partial discharge of the said liability/debt the respondent drew three cheques in favour of the appellant. Click Here to Get All Important Judgment of the Month Ratio of the Case: The three-judge bench of Supreme Court held that even “stop payment” instruction would attract the mischief of section 138. It was observed that if after the cheque is issued to the payee or to the holder in due course and before it is presented for encashment, notice is issued to him not to present the same for encashment and yet the payee or holder in due course present the cheque to the bank for payment and when it is returned on instruction, Section 138 of NI Act does not get attracted. Object of the Act The object of Sections 138-142 of the Negotiable Instruments Act, 1881 is to promote the efficacy of banking operations and to ensure credibility in transacting business through cheques. Section 138 of the Act is a penal provision wherein if a person draws a cheque on an account maintained by him with the Banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part of any debt or other liability, is returned by the Bank unpaid, on the ground either because of the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence. The distinction between the deeming provision and the presumption is well discernible. To illustrate, if a person, draws a cheque with no sufficient funds available to his credit on the date of issue, but makes the arrangement or deposited the amount thereafter before the cheque is out in the bank by the drawer, and the cheque is honored, in such a situation drawing of presumption of dishonesty on the part of the drawer under Section 138 would not be justified. Section 138 of the Act gets attracted only when the cheque is dishonored. (20) On careful reading of Section 138 of the Act, we are unable to subscribe to the view that Section 138 of the Act draws presumption of dishonesty against drawer of the cheque if he without sufficient funds to his credit in his bank account to honor the cheque issues the same and, therefore, amounts to an offence under Section 138 of the Act. For the persons stated hereinabove, we are unable to share the views expressed by this Court in the above two cases and we respectfully differ with the same regarding interpretation of Section 138 of the Act of the limited extent as indicated above.