Bombay High Court has given a landmark judgment on Sections 138 and 87 of the Negotiable Instruments Act, of 1881. According to the judgment putting the date on the cheque without the consent of the drawer amounts to ‘material alterations’ under Section 87 of the NIA and renders the instrument void under Section 138 of the NIA.
What is Section 138 of the Negotiable Instruments Act?
Section 138 was incorporated in the NIA in the year 1988 by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act of 1988. The object of Section 138 was to punish unscrupulous persons who purported to discharge their liability by issuing cheques without really intending to do so, as demonstrated by the state of their account.
Section 87 of NIA
Section 87 of the NIA talks about the effects of material alterations in the negotiable instrument. It says that material alterations in the instrument render it void. However, it provides for two exceptions in which material alteration would not render the negotiable instrument void. They are:
- If the parties consent to the material alterations.
- If parties have a common intention for the material alteration.
Bombay High Court Judgment with respect to the alteration of the date on the Negotiable Instrument
Name of the Case: M/s Pinak Bharat and Company v. Shri Anil Ramrao Naik and State of Maharashtra
Case No.: Criminal Appeal No. 1630 of 2011 and Criminal Appeal No. 1631 of 2011.
Facts: The complainant had given a loan of INR 1 crore to the accused. For this purpose, they signed a Memorandum of Understanding (MoU). The MoU provided various ways in which this loan can be repaid. The complainant chose the refund of INR 1 crore with interest. For this purpose, two blank signed security cheques were given by the accused to the complainant. The cheque did not contain the name of the payee or the date. The complainant deposited the two cheques after filling in the name of the payee and date without the information and consent of the accused. It is pertinent to note here that when the cheques were deposited without the consent and knowledge of the drawer, a Civil Suit for an extension of the repayment period was already pending in court. The cheques were returned unpaid with the reason ‘Refer to Drawer’. Thereafter, the complainant filed a complaint under Section 138 of the NIA for the dishonor of the cheque.
Judgment
The accused took the defence of material alterations under Section 87 of the NIA. According to Section 87 of the NIA, as discussed above, material alterations in the negotiable instrument without the consent and common intention of the parties renders the negotiable instrument void. The court said that filling in the payee’s name is justified as the cheque was handed over to him which means that he had the right to fill in the name of the payee. Filling in the date without the consent of the drawer was problematic. The court found out that the accused had not consented to fill in the date of the cheque, and it was filled without the knowledge of the drawer. The court applied the test under Section 87 to determine whether the negotiable instrument is void or not. In order to determine whether the common intention was present or not, the court looked into the facts and circumstances in which the cheque was deposited. According to facts, the cheque was deposited after a Civil Suit for an extension of the repayment period was filed by the accused, which indicates that on those dates, the accused had no intention of paying the cheque. The case of the complainant failed on both conditions, i.e., neither the drawer had consented to the date on the cheque, nor was there a common intention. Thus, the court held in favour of the accused and dismissed the appeal rendering the negotiable instrument void.
What is a Security Cheque?
A security cheque is like collateral given to the financer by the person who is incurring some debt or liability. In India, there is a practice of giving signed blank cheques as security for rent of lease and informal loans.
Conclusion
The judgment by the Bombay High Court is a landmark judgment for security cheques given for rent of lease and informal loans. As there is a practice that blank cheques are given by the drawer and the payee can fill in the dates himself. But now, this judgment makes necessary the consent of the parties with respect to filling in the particulars in the negotiable instrument. The court held that putting dates without the consent of the drawer will render the negotiable instrument void as it amounts to material alteration under section 87 of the Negotiable Instrument Act, of 1881.