Payment
by cheque is considered in law as Payment received
Issuance
of Cheque is an acknowledgment of liability
1.
The
Apex Court in the case of Commissioner Of Income Tax, Bombay Versus Ogale Glass
Works Limited, [AIR 1954 SC 429], in Para 11, inter alia, said –
It is said in Benjamin on Sale, 8th Edition, p. 788: “The
payment takes effect from the delivery of the bill, but is defeated by the
happening of the condition, i.e. non-payment at maturity”. In Byles on Bill,
20th Edition, the position is summarized pithily as follows: A cheque, unless dishonoured, is payment”.
To the same effect are the passages to be found in Hart
on franking 4th Edition, Volume I. p.342. In Felix Hadley & Co. V/s.
Hadley', 1898 2 Ch 680. Byrne, J. expressed the same idea in the following
passage in his Judgment:
“In this case I think what took place amounted to a
conditional payment of the debt; the condition being that the cheque or bill
should be duly met or honoured at the proper date. If that be the true view,
then I think the position is exactly as if an agreement had been expressly made
that the bill or cheque should operate as payment, unless, defeated by
dishonour of by not being met; and I think that that agreement is implied from
giving and taking the cheques and bills in question”.
2.
The
Full Bench of Gujrat High Court in the case of
Hindustan Apparel Industries Versus Fair Deal Corporation [AIR 2000 Guj 261] whilst referring to aforesaid
proposition of law, have held that the payment by cheque, which is dishonoured,
would amount to acknowledgement of a debt and a liability. However, in cases where post dated cheque was issued and
later dishonoured on presentation, the aforesaid proposition that “Cheque is payment”, may not apply. [AIR 1967 SC 1118]. At the same time, I am of view that the
proposition “Cheque is payment” may safely be applied in all cases, where the
date on which the post dated cheque was given, the debt duly accrued on that
date, and only the date of payment is postponed.
3. The key question arises
as how this proposition “Cheque
is payment”, and it constitute “an acknowledgment of liability” would help the
litigant in securing their payment of the dishonoured cheque.
4. What can be done is – as soon as the
cheque is dishonoured, a Summary Suit or regular Suit may be filed; and
simultaneously an Application / Notice of Motion under O.38 of CPC, 1908, may
be taken out, inter alia, praying for interim relief of, “directing the Defendant to furnish security for
certain sum of money, either by furnishing the bank guarantee or by depositing
the said sum of money in the Court”, or to effect the conditional attachment of
his immovable property, pending the disposal of the Suit”; inter alia, on the
premise that, “in the eyes of law “Cheque is considered as payment”, and at the same time
cheque, which is dishonoured, in the eyes of law is considered as
acknowledgement of liability”; and that
the Defendants have prima facie no defense; and if the claim of the Plaintiffs
is not secured by passing appropriate interim order against the Defendants,
there would be a paper decree in the hands of the Plaintiffs and claim made by
the Plaintiffs would not be recovered. Whereas the aforesaid ground is not
available under O.38, Section 151 of CPC may be invoked. In the case of Vareed
Jacob v. Sosamma Geevarghese, [(2004) 6 SCC 378], the Hon’ble Apex Court
observed to say that, “Even if in a given case circumstances do not fall within
Order 39 CPC, the courts can issue the same under Section 151 CPC if the court
is of the opinion that interest of justice requires issue of such interim
injunction. The same analogy may be applied in invoking O.38 in Summary Suits
also.
5. In the alternative of taking out Application /
Motion for Interim relief, the Writ of Summons may be served at the earliest
and thereafter, in Summary Suits, if the Defendant fails to file his appearance
within 10 days from the service of said Summons, the Plaintiff may immediately apply
for decree under O.37 R.2(3) of CPC, 1908; and in cases of regular Suits the
Plaintiff may apply for the Suit to be heard ex parte under O.9 R.6 if the
Defendant fail to file his written statement within 30 days from the date of
service of Summons.
6. And, in case the Defendant takes out the proceedings
under O.37 R.4 / O.9 R.13, to set aside the ex parte decree, the Plaintiffs may
pray that “the ex parte may be set aside only on the ground that the Defendant
would furnish security for certain sum of money, either by furnishing the bank
guarantee or by depositing the said sum of money in the Court”, or to effect
the conditional attachment of his immovable property, pending the disposal of
the Suit”, inter alia, on the premise that “in the eyes of law “Cheque is considered as payment”, and
at the same time cheque, which is dishonoured, in the eyes of law is considered
as acknowledgement of a liability”; and that
the Defendants have prima facie no defense; and if the claim of the Plaintiffs
is not secured by passing appropriate order against the Defendants, there would
be a paper decree in the hands of the Plaintiffs and claim made by the
Plaintiffs would not be recovered.
7. At the same time, the Notice u/s 138 of Negotiable
Instruments Act, 1881, may be issued, within 30 days from the date of
intimation of Bank memo of returned cheque. The biggest drawback of 138
proceeding is that, being it is a criminal proceeding, the Accused is not
obliged to file any reply to the allegations made, although the presumption of
existence of consideration, is available to Complainant by virtue of sections
139 and 118 of the said Act.
8. If the Defendant is ordered in the Suit to furnish
security for certain sum of money, either by furnishing the bank guarantee or
by depositing the said sum of money in the Court”, etc, section 138 criminal
proceedings may not be adopted. And, in other cases, preferably, and as far as
possible, the 138 Complaint may be filed after securing that the Defendant
files his reply in the Suit. The said Reply of Defendant which is filed under oath,
may be used in evidence by the Complainant. By doing this, there would be
little scope for the accused to raise frivolous pleas during cross examination
of the complainant, which ordinarily are raised in every 138 criminal
proceedings; and, in all probabilities, the accused may come forward for
settlement.
9. The proposition that “cheque is payment and is considered as acknowledgement
of a liability” further strengthens the
presumption of law (sections 118 & 139) that the concerned dishonoured
cheque was given is discharge of a debt.
Lawful
defense: Jammu & Kashmir Bank versus Shree Digvijay 154 (2008) DLT 80
Para
8: The principles
with respect to grant or refusal of leave to defend were enunciated in M/s
Mechelec Engineers and Manufacturers V/s. Basic equipment Corporation (1976) 4
SCC 687.
Para
9: They have been
reiterated on several occasions by the Supreme Court, including Uma Shankar
Kamal Narain V/s. M. D. Overseas Ltd. , (2007) 4 scc 133 : 2007 (94) DRJ
655[sc]; Defiance Knitting Industries (P)Ltd. V/s. Jay Arts, (2006) 8 SCC 25;
State Bank of Saurashtra V/s. Ashit shipping Services (P.) Ltd. and Anr. AIR
2002 SC 1993; Milkhiram (India) Private Ltd. and Ors. V/s. Chamanlal Bros. AIR
1965 SC 1698; raj Duggal V/s. Ramesh Kumar Bansal, 1991 Supp (1) SCC 191, pg
192.
Para
10: Therefore,
broadly, the settled position is that if the application for grant of leave
raises an issue which is by its nature triable, leave to defend must be
granted. An issue is a material proposition of fact or law which is affirmed by
one party and denied by the other (See Order XIV, R.1 ). A triable issue then
is an issue liable to a judicial trial, i. e. , an issue for the determination
of which, a trial is warranted. By way of illustration, some indications, as to
whether an issue answers the description of being a "triable issue",
were given by the Supreme Court in the Raj Duggal case (supra), which come to
this: existence of a fair dispute as to the meaning of a relevant document;
dispute as to the amount actually due; or where the alleged facts are of such a
nature as to entitle the defendant to interrogate the plaintiff; or to
cross-examine his witnesses, leave should not be denied. That the application
raises an issue which is triable, is an onus for the applicant/defendant to
discharge. In case of his failure to show the triability of the issue raised,
the court must refuse the leave to defend. Such onus is however light and the
grant of leave is always to be preferred except in a crystal clear case. This
approach also seems to be the intention of the legislature which is clearly
expressed in the negative language used in proviso to Rule 3 (5) of Order 37,
which states, inter alia, "provided that the leave to defend shall not be
refused unless the court is satisfied. ". The rationale for imposing a
light onus of proof is that the ordinary rule is the observance of the
principles of natural justice, including the rule of audi alteram partem. This
is a highly cherished norm of the Indian judicial system. In another context
highlighting the respect that should be accorded to the principles of natural
justice, it was held by the Supreme Court in sangram Singh V/s. Election
Tribunal, Kotah, Bhurey Lal Baya (1995)2 SCR 1:
"now a
code of procedure must be regarded as such. It is procedure, something designed
to facilitate justice and further its ends; not a penal enactment for
punishment and penalties; not a thing designed to trip people up. Too technical
a construction of sections that leaves no room for reasonable elasticity of
interpretation should therefore be guarded against (provided always that
justice is done to both sides) lest the very means designed for the furtherance
of justice be used to frustrate it. Next, there must be ever present to the
mind the fact that our laws of procedure are grounded on a principle of natural
justice which requires that men should not be condemned unheard, that decisions
should not be reached behind their backs, that proceedings that affect their
lives and property should not continue in their absence and that they should
not be precluded from participating in them. Of course, there must be
exceptions and where they are clearly defined they must be given effect to. But
taken by and large, and subject to that proviso, our laws of procedure should
be construed, wherever that is reasonably possible, in the light of that
principle. "
Para
11: The Code of
Civil Procedure endorses the principles of natural justice in its entire
scheme. In this sense, by curtailing the ordinary procedure, Order 37 is a
deviation from the general rule and accordingly is to be permitted only in
crystal clear cases as it affects the valuable rights, of the defendant,
including the right to be heard. The regard for observance of principles of
natural justice is pervasive and is manifest throughout the code, including
Order 37 where it provides for the derogation from the ordinary procedure only
to the extent expressly provided for under that order. While adjudicating an
application for grant of leave, the adjudicating court must therefore strive to
strike a subtle balance between the two competing claims: a) right not to be
condemned unless given an opportunity of being heard and b) a defendant must be
prevented from raising frivolous defences and playing delay tactics when the
case is otherwise clear. The High court of Jammu and Kashmir took this view in
Mrs. Parvinder Kaur V/s. Ram Lal AIR 1991 Jandk 5
"order 37
of CPC deals with summary procedure for suits covered by it with the object to
abridge the proceedings providing rapidity of disposal. The provisions of the
Order are merely procedural and cannot be construed as negativating or
superseding the substantive rights of the debtor available to them under the
ordinary law. When the defendant enters an appearance and is served a summons
for judgment in the form prescribed, he has a right to pray by affidavit or
otherwise permission/leave to defend the suit after disclosing such facts as
are deemed sufficient to entitle him. Such a prayer when made has to be
disposed of by the Court in accordance with the provisions of law. The leave petition
cannot be refused unless the Court is satisfied that the facts disclosed by the
defendant do not indicate that he had substantial defence to raise or that the
defence intended to be put up by the defendant was frivolous or vexatious. In
other words, the general rule is to grant leave if substantial defence is
disclosed and exception is to refuse the leave only after holding that the
defence raised was either frivolous or vexatious. If the defence disclosed is
bona fide, the leave should be granted unconditional. The claim of the
defendant and the pleas available to them in suits covered by Order 37 of the
C. P. C. cannot be snatched or taken away under the cloak or on the
hyper-technical pleas of the non-compliance of some directions of sub-rule (5)
of Rule 3 of Order 37 of CPC. Justice cannot be sacrificed on the altar of
technicalities and has to be dispensed with substantially and bona fide. If the
pleas raised by the defendant are held to be mala fide, imaginary, without
basis, frivolous or vexatious, the leave may be refused, but not otherwise.
"
Para
12: The
expression "defence", as used in Rule 3 of Order 37, means lawful
defence i. e. any defence available to a defendant under law. Such a defence
may accordingly be a defence rooted in facts or in law. In other words, the
defendant may plead any defence, which arises as an issue either of law or of
fact. If law itself imposes an obligation on the court to consider an issue,
the proceedings cannot be said to be lawfully concluded until the court discharges
that obligation. Such an obligation arises particularly where, owing to a legal
provision, there is an illegality or irregularity in the very institution of a
matter before a court. While such a question or any other question of law,
materially affecting the ultimate decision, arises before a court in an O.37
suit, the court while determining an application for leave must take the
following recourse:
(a) If the
question raised is a pure question of law i. e. it is not contingent on any
issue of fact, the court must directly determine it and the leave to defend
need not be granted on this basis alone; (b) If the question is a mixed
question of law and fact but may be determined from the averments in the plaint
and the application for leave to defend, the court must determine it without
granting leave to defend; (c) If the issue is one where the law and fact are so
inextricably mixed up that a decision on the issue cannot be reached at without
appreciating the evidence, the court must grant leave to defend; (d) If the
issue of law is not decisive of all the rights of the parties or is decisive of
only a part of the claims of the parties, and the other rights or the remaining
claims arise as a matter of fact and evidence, the court must grant leave to defend
in respect of all the rights, claims and issues.
Para
13: This has been
the practice of the courts in England also where after reviewing several
authorities, the court, in R G Carter Ltd v Clarke [1990] 2 All ER 209, 1990 1
WLR 578, 8 March 1990, observed:
"as will
be seen, I said: 'it is quite different if you are dealing with a triable issue
which arises as a matter of law. 'aathis aspect was considered, and the same
conclusion reached, by this court in European Asian bank AG v Punjab and Sind
Bank [1983] 2 All ER 508 at 516, [1983] 1 wlr 642 at 654, the reasoning of
Robert Goff LJ being quoted and followed in Israel Discount Bank of New York v
Hadjipateras [1983] 3 all ER 129 at 135, [1984] 1 WLR 137 at 145. aal would not
resile from this view, even if I could, but it is as well to bear in mind the
reason for this exception. aait is this. aaif a judge is satisfied that there
are no issues of fact between the parties, it would be pointless for him to
give leave to defend on the basis that there was a triable issue of law. aathe
only result would be that another judge would have to consider the same
arguments and decide that issue one way or another. aaeven if the issue of law
is complex and highly arguable, it is far better if he then and there decides
it himself, entering judgment for the plaintiff or the defendant as the case
may be on the basis of his decision. aathe parties are then free to take the
matter straight to this court, if so ad vised. aathis was the situation in the
classic case of Cow v Casey [1949] 1 All ER 197, [1949] 1 KB 474. aabut it is
quite different if the issue of law is not decisive of all the issues between
the parties or, if decisive of part of the plaintiff's claim or of some of
those issues, is of such a character as would not justify its being determined
as a preliminary point, because little or no savings in costs would ensue. aait
is an a fortiori case if the answer to the question of law is in any way
dependent on undecided issues of fact. "
Benefit
of statutory presumption available u/s 118 of Negotiable Instruments Act, 1881:
Laxmichand versus
Pravin 2013 AIR CC 1178 (Bom);
Para
13: The
object of introducing Chapter XVII in the Negotiable Instruments Act was to
ensure that persons drawing cheques to do so with responsibility by making the
lapse to honour the commitment, a criminal offence. In Goa Plast (P) Ltd. v.
Chico Urrsula D'Souza, 2004(2) SCC 235 and in various other decision, the
Supreme Court has noticed that it is now well-known that the object of the
provision of section 138 of the Act is for proper and smooth functioning of
business through banking transactions. In particular, that the use of cheques
as negotiable instruments would primarily depend upon the integrity and honesty
of the parties. It was noticed that cheques were misused as a device interalia
for defrauding the creditors and stalling the payments. It was also noticed in
a number of decisions of the Supreme Court that dishonour of a cheque by the
bank causes incalculable loss, injury and inconvenience to the payee and the
entire credibility of the business transactions within and outside the country
suffers a serious setback. The Supreme Court also noticed that the remedy
available in a civil court is a long-drawn process and an unscrupulous drawer
normally takes various pleas to defeat the genuine claim of the payee.
Para
14: When a
summary suit instituted is based on a cheque which is dishonoured, effect of
Sections 138 and 139 of Negotiable Instruments Act raising statutory
presumption that the cheque was issued in discharge of a liability, is a
relevant consideration to be kept in mind. The said Sections cast a burden upon
the defendant to rebut the presumption. Summary suits instituted on cheques
which are dishonoured will, therefore, stand on a higher footing than summary
suits instituted on the basis of other documents. In such cases, the Court will
have to take into consideration the statutory presumption which is raised when
the cheques are dishonoured. The object behind providing a statutory
presumption under the Negotiable Instruments Act has to be kept in mind while
judging the credibility of a defence raised by the defendant in summary suit.
Thus, the test of more than "shadowy" and less than
"probable" as adverted to by the Apex Court cannot apply in cases
where the law requires a person to explain certain state of affairs. The
judgments which are relied upon by the Learned Counsel do not consider the
effect of the statutory presumptions raised under the Negotiable Instruments
Act when a cheque is dishonoured. In our opinion, when a cheque is dishonoured,
the Court is enjoined with the duty to scrutinize the defence put up by the
defendant with a much higher degree of care and circumspection. Such summary
suits cannot be treated as on par with the cases instituted on contracts or invoices
etc. where such statutory presumptions do not operate.
Para
15: The
legislative intent behind enactment of Sections 138 and 139 of the Negotiable
Instruments Act is to prevent abuse of the banking system. Thus, one who issues
a cheque extends a solemn promise to pay. Based on this promise and action, the
recipients arrange their affairs and quite often enter into further
transactions. Unless extra ordinary circumstances are made out, one who issues
cheque is deemed to have undertaken to pay. Negotiable Instruments Act enforces
the promise strictly by raising statutory presumption and treating it as an
offence. This provision elevates a cheque to a higher status than the other
instruments, such as written contract etc. to which no such statutory
presumption is attached. What needs to be emphasized is that presumption in
respect of a dishonoured cheque places a higher burden on the defendant to
elucidate the defence than the burden which is cast on a defendant where the
suit is filed on the basis of ordinary instruments. In the cases based on
dishonour of cheques, the defendant must satisfy the conscience of the Court
and cannot take shelter behind the rules formulated primarily in respect of
suits based on ordinary instruments. The Court while exercising the discretion
to grant leave or otherwise to the defendant in such cases, cannot be oblivious
of the legislative intent to place the promise made through a cheque on a
higher pedestal than the promise made through an ordinary instrument. This is
not to state that moment a Summary Suit is lodged based on a dishonoured
cheque, it must be decreed without anything more. What needs to be emphasised
is that the fact that there is a statutory presumption attached to the
dishonoured cheque will constitute an important ingredient while considering
the question whether leave to defend should be granted in cases of dishonoured
cheques and the Court must scrutinise the defence strictly. The object of the
summary procedure is ultimately to see that the defendant does not needlessly
prolong the litigation by creating untenable, frivolous and casual defences so
as to deprive the plaintiff of the monies due to him.
Benefit
of statutory presumption available u/s 118 of Negotiable Instruments Act, 1881:
V. K. Enteprises versus Shiva Steels (2010) 9 SCC 256:
Para
8: Order XXXVII
C.P.C. has been included in the Code of Civil Procedure in order to allow a
person, who has a clear and undisputed claim in respect of any monetary dues,
to recover the dues quickly by a summary procedure instead of taking the long
route of a regular suit. The Courts have consistently held that if the
affidavit filed by the defendant discloses a triable issue that is at least
plausible, leave should be granted, but when the defence raised appears to be
moonshine and sham, unconditional leave to defend cannot be granted. What is
required to be examined for grant of leave is whether the defence taken in the
application under Order XXXVII Rule 3 C.P.C. makes out a case, which if
established, would be a plausible defence in a regular suit. In matters
relating to dishonour of cheques, the aforesaid principle becomes more relevant
as the cheques are issued normally for liquidation of dues which are admitted.
In the instant case, the defence would have been plausible had it not been for
the fact that the allegations relating to the interpolation of the cheque is
without substance and the ledger accounts relating to the dues, clearly
demonstrated that such dues had been settled between the parties. Moreover, the
issuance of the cheque had never been disputed on behalf of the Petitioner
whose case was that the same had been given on account of security and not for
presentation, but an attempt had been made to misuse the same by dishonest
means.
Bare
defense that Defendant did not executed subject negotiable instrument – no defense: AIR 2009 Raj 7:
Para
10: Of course,
the learned trial Court has not made any comment upon the validity of the
defence sought to be raised by the defendant, but in the opinion of this Court,
it is not necessary for the learned trial Court to closely and fully examine
the merit of the defence while deciding the application under Order 37, Rule 3(5),
C. P. C. In the present case, the defendant himself has come up before this
Court though being satisfied with the grant of leave to defend, but aggrieved
by the condition of imposition of security, which goes without saying will be
of course subject to final decision of the trial by the learned trial Court.
Imposition of condition while granting leave to defend is within the domain of
the learned trial Court as provision itself indicates. How far the learned
trial Court should go to examine the merit of the defence cannot be delineated
in water tight compartment otherwise comments made at threshold of trial are
bound to affect the trial itself. A prime facie satisfaction about nature of
defence put up in the application is all that is required. The judgments cited
at bar lay down the broad propositions of law, about which there is no dispute,
but the impugned order clearly shows that mere denial of execution of
promissory note is not enough to grant leave to defend without imposition of
condition of security. Thus, the case could fall in proposition (e) laid down
by the Hon'ble Supreme Court in Basic Equipment's case (supra). This Court
therefore, does not feel inclined to interfere with the condition of giving
security. In the present case, no allegation of fraud etc. has been made by the
defendant in the said application while seeking leave to defend. Therefore,
this Court is satisfied that imposition of this condition by the learned trial
Court is not required to be interfered with.
Regards
Sandeep Jalan
Advocate
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