Can a cheque be presented for encashment if the holder of cheque has received part payment from the drawer before presentation of the cheque?

The answer to the above question is that a cheque can be presented for encashment by the holder of the cheque even if the part payment has been received by the holder after the issuance of the cheque. However, if the part- payment of the debt is made after the cheque is issued but before it is presented for encashment, the law mandates the holder of the cheque to make an endorsement on the cheque with respect to the part payment received out of the sum mentioned on the cheque. If the endorsed cheque is subsequently dishonoured upon presentation, the drawer of the cheque can be prosecuted under section 138 of the Negotiable Instruments Act.

Why is an endorsement on the cheque required?

It is well settled law that to attract the offence of 138 of the Negotiable Instruments Act, the cheque must represent a legally enforceable debt on the date of its presentation.

Now let’s understand in simple terms as to what is “Legally enforceable debt”?

Under the Negotiable Instruments Act, a legally enforceable debt refers to the amount payable by the drawer to the holder of the cheque at the time of its presentation. It is mandatory that the cheque must accurately reflect the amount of debt payable by the drawer. If the cheque depicts an amount higher than the debt payable by the drawer on the date of its presentation, the cheque will not be considered valid for prosecuting the drawer under section 138 NI Act.

The Apex Court in numerous judgments has held that offence under section 138 of Negotiable Instruments Act is not attracted if the cheque is presented for encashment without endorsing the part payments made by the drawer after the cheque was issued but before it was presented for encashment in view of the fact that the cheque in the abovementioned circumstances does not represent legally enforceable debt on the date of its presentation.

The Hon’ble Supreme Court of India in its judgment dated 11.10.2022 titled as “Dashrathbhai Trikambhai Patel Vs. Hitesh Mahendrabhai Patel & Anr” answered the issue whether offence under section 138 NI Act would deem to be committed if the cheque that is dishonoured does not represent the enforceable debt at the time of its presentment. The Apex Court while answering the aforementioned question held that when part or whole of the sum represented on the cheque is paid by the drawer of the cheque before the presentation of the cheque for its encashment, the holder of the cheque must endorse the part payment received on the cheque. It was further held that when the cheque is endorsed, the same can be presented for encashment of the remaining amount.

In another judgment dated 24.07.2024 titled as Daya Rani Vs. Rajeev Gulati & Anr., the Hon’ble High Court of Delhi held that in case a cheque is issued for a certain amount and before its presentation by the holder, part of the said amount is paid by the drawer of the cheque, then the holder of the cheque has to necessarily make an endorsement of the said part-payment upon the cheque and only after such endorsement the cheque can be presented for encashment. It was also held that if the endorsement regarding the part payment is not made upon the cheque, then even if the said cheque is dishonoured upon presentment, the drawer of the cheque cannot be prosecuted against under Section 138 of NI Act.

The Hon’ble Karnataka High Court in it’s judgment dated 08.08.2023 titled as “Mr. Usman @ Suben vs Abdhul Khadar” observed that if the drawer of the cheque pays a part or whole of the cheque amount between the period when the cheque is drawn and when it is presented for encashment, then the legally enforceable debt on the date of presentment would not be the sum represented on the cheque. It was also held that when a part or whole of the sum represented on the cheque is paid by the drawer of the cheque, it must be endorsed on the cheque before presenting the same for encashment.

The Hon’ble High Court of Gujarat in its order dated 24.08.2023 in the matter titled as “Shree Hirani Enterprise Through Chiragbhai Rambhai Hirani Vs. State of Gujarat” clearly held that despite receiving the part payment against the cheque amount, in absence of endorsement on the cheque regarding the said part payment, the cheque cannot be treated as a valid instrument in the eye of law as the sum mentioned on the cheque at the date of presentment does not indicate “legally enforceable debt” so as to attract the offence punishable under Section 138 of the Negotiable Instruments Act.

Conclusion

In cases where part payments have been made by the drawer after the issuance of the cheque but before its presentment, no offence under Section 138 of the Negotiable Instruments Act is committed if the cheque is presented without endorsing those part payments on the cheque.