SUPREME COURT OF INDIA HOLDS THAT DISHONOURED CHEQUES IN PURSUANCE TO AGREEMENTS TO SELL ARE MAINTAINABLE UNDER SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT, 1881

The Supreme Court of India in the case of Ripudaman Singh vs Balakrishna, passed a judgement dated 13.03.2019 holding that the Complaint under Section 138 of Negotiable Instruments Act, 1881 (“the Act”) is maintainable when the cheques are dishonoured in pursuance to an Agreement to Sell.

In the above case the Petitioner entered into an Agreement to sell dated 28.05.2013 with the Respondent. The total sale consideration was Rs. 1.75 Crores. As per the Agreement Rs. 1.25 Crores was paid in cash and for the balance amount the Respondent issued two  post-dated cheques of Rs. 25 Lakhs each in favour of the Petitioners. The cheques were then presented for clearing and both the cheques returned unpaid with the banker’s remark “Insufficient Funds”. The Petitioners sent two Legal Notices to the Respondent under Section 138 of the Act.  

The Respondent filed two separate Applications pleading to discharge the respective Complaints to the Judicial Magistrate, First Class Indore. The applications were dismissed by the Judicial Magistrate.

The Respondent filed a Petition under Section 482 of The Code of Criminal Procedure (Cr Pc) in The High Court of Madhya Pradesh. The High Court allowing the petitions held that the cheques have not been issued for creating any liability or debt but for the payment of balance sale consideration. Further, the High Court quashed the Complaint under Section 138 of the Act affirming that the Respondent did not owe any money to the Petitioners.

The Petitioners further appealed in the Supreme Court of India. The Apex Court held that the cheques were not issued for creating any liability or debt, but ‘only’ for the payment of balance consideration and that in consequence, there was no legally enforceable debt or other liability. The cheques were issued under and in pursuance of the Agreement to sell, though it is well settled that an Agreement to sell does not create any interest in immoveable property, it nonetheless constitutes a legally enforceable contract between the parties to it. A payment which is made in pursuance of such an agreement is hence a payment made in pursuance of a duly enforceable debt or liability for the purposes of Section 138 of the Act.  

Suchit Patel

Associate

The Indian Lawyer