The Madhya Pradesh High Court has ruled that a cheque marked with the endorsement “Not Negotiable” does not fall outside the ambit of Section 138 of the Negotiable Instruments Act, 1881. Justice Himanshu Joshi, presiding over the Jabalpur bench, dismissed a petition filed by a drawer who sought to quash proceedings on the grounds that such an endorsement destroyed the instrument’s status under the penal provisions of the Act.
Background of the Case
The case originated from a complaint filed by the respondent, Anil Kumar Gupta, against the petitioner, Dr. Sandeep Patel. According to the complaint, the petitioner borrowed a loan of ₹5,00,000 from the respondent in December 2019 for family needs. To discharge this liability, the petitioner issued a cheque for ₹4,00,000 dated May 31, 2020.
When presented for payment on July 21, 2020, the cheque was dishonoured with the endorsement “Funds Insufficient.” Despite a statutory demand notice served on September 6, 2020, the petitioner failed to make the payment, leading to the filing of a complaint under Section 138 of the NI Act.
The petitioner moved applications before the Judicial Magistrate First Class (JMFC), Rewa, and subsequently a revision before the 9th Additional Sessions Judge (ASJ), Rewa, arguing that the complaint was not maintainable because the cheque bore the words “not negotiable.” Both subordinate courts rejected the applications, leading to the present petition under Section 482 of the Cr.P.C.
Arguments of the Parties
The counsel for the petitioner argued that the “not negotiable” note on the cheque destroyed its negotiability, thereby making the provisions of Section 138 inapplicable. The petitioner relied on the judgment in Durga Shah Mohal Lal Bankers Vs. Governor General in Counsel and other (AIR 1952 Allahabad 590), contending that marking a cheque as “not negotiable” on its face destroys its negotiability under the law of negotiable instruments.
Conversely, the respondent’s counsel submitted that the petition was a “thinly veiled attempt to protract the proceedings and evade the consequences.” It was argued that the “not negotiable” marking merely restricts transferability but does not negate the underlying debt or the applicability of Section 138.
Court’s Analysis
The Court identified the core issue as whether a cheque marked “Not Negotiable” is excluded from the purview of Section 138.
Justice Joshi observed that Section 138 criminalizes the dishonour of a cheque issued for a legally enforceable debt and that the definition of “cheque” under Section 6 of the NI Act does not carve out any exclusion for those bearing “Not Negotiable” endorsements.
The Court noted:
“The endorsement ‘Not Negotiable’ does not render the cheque non-existent or invalid. It merely restricts the transferee from acquiring a better title than that of the transferor, as contemplated under Section 130 of the N.I. Act. The drawer’s obligation to honour the cheque remains unaffected.”
Regarding the citation provided by the petitioner, the Court remarked that the Durga Shah Mohal Lal Bankers case actually supports the position that a cheque remains a negotiable instrument unless its negotiability is expressly destroyed by law, and even then, “such endorsement does not extinguish the drawer’s liability arising from the issuance of the cheque.”
The High Court upheld the Trial Court’s view that whether the cheque was issued toward a legally enforceable debt is a matter of evidence to be decided during the trial, not at an interlocutory stage.
Decision
The High Court concluded that there was no jurisdictional error in the orders passed by the lower courts. Highlighting that the inherent powers under Section 482 Cr.P.C. are to be exercised “sparingly and only to prevent abuse of the process of law,” the Court found no exceptional circumstances in this case.
The petition was dismissed as being devoid of merits.
Case Details:
- Case Title: Dr. Sandeep Patel Versus Anil Kumar Gupta
- Case No: MISC. CRIMINAL CASE No. 21806 of 2024
- Bench: Justice Himanshu Joshi
