Across India, there are approximately 35 lakh cheque bounce cases. Recently, in February, Justice N. Anand Venkatesh referred to 2022 data and highlighted that around 9% of the pending cases in India are related to cheque bounce. The number of such cases is only increasing.

Another point to consider is that blank cheques are still very common in India. Whether it's for business or personal reasons, if you borrow money from non-banking or financial institutions, you often need to provide a blank cheque. Once you hand over a blank cheque, your situation can become as precarious as the story where the king’s life was in the hands of a parrot. Either you pay the requested amount or you face the legal consequences.

In this article, we will explore the legality of blank cheques and the implications of the Supreme Court's ruling on this issue.

The Legal Framework: Section 139 of the Negotiable Instruments Act

Before diving into the Supreme Court's decision, it is important to understand Section 139 of the Negotiable Instruments Act. This section establishes that unless proven otherwise, a cheque is presumed to have been issued for the repayment of a debt or any other obligation.

In simpler terms, if a person holds a cheque from someone else, the court will initially presume that the cheque was issued for a legitimate financial transaction. The onus of proving otherwise lies on the person who issued the cheque.

For instance, if Ajay borrows ₹50,000 from Vijay and gives a cheque to Vijay for the same, and the cheque bounces, Vijay can file a legal case under Section 138 of the Negotiable Instruments Act. According to Section 139, the court will assume that the cheque was issued as part of a valid transaction (i.e., to repay the debt). Ajay will need to prove that he issued the cheque for reasons other than repayment. If he fails to provide evidence, the court is likely to rule in Vijay's favor.

This means that the person who issues the cheque (the drawer) has the responsibility to prove that it was not issued for any legitimate financial obligation, failing which they can face legal consequences.

Supreme Court's Ruling on Blank Cheques

On February 10, 2021, the Supreme Court made a significant ruling in the case of M/s. Kalamani Tex vs P. Balasubramanian [(2021) SCC Online SC 75]. The court stated:

• If someone issues a blank cheque, it will be presumed that the cheque was given for a valid payment. If the person who issued the cheque claims that it was not for payment, they must prove this in court. Until this is proven, the law will consider the cheque to have been issued for legitimate financial purposes.

This principle is also outlined in Section 118(g) of the Negotiable Instruments Act, which states that unless proven otherwise, a cheque is assumed to have been issued for a valid purpose.

Misuse of Blank Cheques and Fraud

In India, people sometimes hand over blank cheques under trust, but the recipient may fill in any amount and present it to the bank. In such cases, if the cheque bounces, the person who issued the cheque can be held legally liable under Section 138 of the Negotiable Instruments Act, which can lead to punitive action.

According to the Supreme Court’s ruling, if the cheque was issued for a legitimate financial obligation, legal action can be taken against the person who issued the cheque. In such cases, the onus lies on the drawer to prove that the cheque was not issued for a valid payment.

Other Key Supreme Court Rulings on Blank Cheques

• In Bir Singh vs Mukesh Kumar [(2019) 4 SCC 197], the Supreme Court clarified that if a person voluntarily issues a blank cheque, it will be assumed that they have also given permission to the recipient to fill in the cheque and use it.

• In T. Nagappa vs Y.R. Muralidhar [(2008) 5 SCC 633], the Court ruled that the burden of proving that a cheque was not issued for a legally enforceable debt lies on the accused.

• In Rangappa vs Sri Mohan [(2010) 11 SCC 441], the Supreme Court held that the presumption under Section 139 is mandatory and can only be rebutted if the accused provides strong and credible evidence.

• In A.V. Murthy vs B.S. Nagabasavanna [(2002) 2 SCC 642], the Court reaffirmed that once the issuance of a cheque is admitted, the presumption under Section 139 automatically applies, and the burden shifts to the accused to prove otherwise.

Precautions to Take When Dealing with Blank Cheques

• Avoid issuing blank cheques unless absolutely necessary.

• If you must issue a blank cheque, write “Only for Account Payee” and specify a fixed amount to avoid misuse.

• Always keep a written record of any transactions involving cheques so that you can prove your side in case of a dispute.

What to Do if Your Cheque Bounces?

If your cheque bounces and the other party is filing a case against you, you should:

1. Immediately send a legal notice.

2. In court, prove that the cheque was fraudulently filled and that you had no valid financial obligation.

3. If you receive a bounced cheque, you can also take legal action under Section 138, which may result in imprisonment for up to two years and a fine.

Always consult a lawyer when you receive a legal notice under the Negotiable Instruments Act and ensure you respond within the prescribed time. In your response, mention that the cheque presented was not issued for any legal obligation.

Conclusion

Cheques are powerful legal instruments, and their validity is equally strong. If you give someone a blank cheque, don’t assume you are legally free. There has been ongoing discussion about removing criminal liability for cheque bounce cases and turning them into civil disputes, but this is still under deliberation. Some of the main arguments for such a change are:

1. Court Pendency: The growing number of cheque bounce cases is putting pressure on the judiciary.

2. Simplifying Business Transactions: In many countries, cheque bounce is treated as a civil matter, making business transactions easier.

3. Criminal Penalties: The existing law, which can lead to two years of imprisonment and fines, is considered too harsh by some.

4. Mens Rea (Intent): Many cheque bounce cases arise from financial difficulties, and questions are raised about whether such cases should be treated as crimes.

As of now, Section 138 remains in effect, and cheque bounce cases are still considered criminal offenses. If any changes occur in the future, they would be a significant shift in the business and legal landscape.

What are your thoughts on this? Do you think cheque bounce cases should only be civil cases? Let us know in the comments!

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