In the case of M/S Laxmi Dyechem vs State Of Gujarat & Ors on 27 November, 2012, the Supreme Court of India was confronted with a complex legal issue pertaining to the interpretation of Section 138 of the Negotiable Instruments Act, 1881. The case revolved around the dishonour of several cheques issued by the respondent-company to the appellant, a proprietorship firm engaged in the sale of chemicals. The cheques were dishonoured by the bank on the grounds that the signatures of the drawer did not match the specimen signatures available with the bank.
Facts of the Case
The appellant, M/s Laxmi Dyechem, had supplied Naphthalene Chemicals to the respondent-company against various invoices and bills. A running account was maintained in the books of the appellant in the name of the respondent-company, and the value of the goods supplied was debited from time to time. The respondent-company issued several post-dated cheques towards the payment of the outstanding amount. However, these cheques were dishonoured by the bank on the grounds that the signatures of the drawer did not match the specimen signatures available with the bank.
Issues Raised
The primary issue raised in this case was whether the dishonour of a cheque on the ground that the signatures of the drawer do not match the specimen signatures available with the bank would attract the penal provisions of Section 138 of the Negotiable Instruments Act. The High Court of Gujarat had earlier quashed 40 different complaints under Section 138 filed by the appellant against the respondents, holding that such a dishonour would not attract the penal provisions of Section 138.
Court’s Observations
The Supreme Court, in its judgment, disagreed with the High Court’s interpretation of Section 138. The Court held that the expression “amount of money …………. is insufficient” appearing in Section 138 of the Act is a genus and dishonour for reasons such as “account closed”, “payment stopped”, “referred to the drawer” are only species of that genus. The Court further held that there is no qualitative difference between a situation where the dishonour takes place on account of the substitution by a new set of authorised signatories resulting in the dishonour of the cheques already issued and another situation in which the drawer of the cheque changes his own signatures or closes the account or issues instructions to the bank not to make the payment.
The Court concluded that so long as the change is brought about with a view to preventing the cheque being honoured, the dishonour would become an offence under Section 138 subject to other conditions prescribed being satisfied. The Court, however, also noted that there may be situations where a mismatch between the signatories on the cheque drawn by the drawer and the specimen available with the bank may result in dishonour of the cheque even when the drawer never intended to invite such a dishonour.
This landmark judgment has significantly broadened the scope of Section 138 of the Negotiable Instruments Act, making it a potent tool for ensuring the credibility of cheques in business transactions.