Published on: 22 November 2022 at 10:13 IST
Court – Supreme Court of India
Citation – Dashrathbhai Trikambhai Patel v/s Hitesh Mahendrabhai Patel (2022)
Hon’ble Supreme Court of India has held that bouncing of security cheque is liable to be charged under Section 138 of the Negotiable Instruments Act, 1881 if a person defaults in repaying the loan within the timeline.
However, if the loan has been discharged before the due date of the debt or if there is an ‘altered situation’, then the cheque shall not be presented for encashment.
Para – 15
Based on the above analysis of precedent, the following principles emerge:
(i) Where the borrower agrees to repay the loan within a specified timeline and issues a cheque for security but defaults in repaying the loan within the timeline, the cheque matures for presentation. When the cheque is sought to be encashed by the debtor and is dishonoured, Section 138 of the Act will be attracted;
(ii) However, the cardinal rule when a cheque is issued for security is that between the date on which the cheque is drawn to the date on which the cheque matures, the loan could be repaid through any other mode. It is only where the loan is not repaid through any other mode within the due date that the cheque would mature for presentation; and
(iii) If the loan has been discharged before the due date or if there is an ‘altered situation’, then the cheque shall not be presented for encashment.
Drafted By Abhijit Mishra
Key Words – Cheque, Loan, Borrower, Encashment.