Lost cheques not classified as ‘dishonoured’

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Lost cheques ‘dishonoured’
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An intriguing question recently arose before the Supreme Court in Raj Kumar Khurana v NCT of Delhi – whether the return of a cheque by a bank because it was reported lost by the drawer would attract penal provisions under section 138 of the Negotiable Instruments (NI) Act, 1881.

In the case, a complaint under section 138 read with section 142 of the NI Act and under section 420 of the Indian Penal Code was filed by Madan Lal Sharma against Khurana on the ground that Sharma had business dealing with him. According to the complaint, during the course of this dealing, Khurana admitted he was liable to pay Rs1,452,095 (US$35,600) and provided a cheque for this amount, promising that it would be honoured on its presentation. Sharma’s cheque was, however, dishonoured by the bank with the remarks “said cheque reported lost by the drawer”. Following the issuance of legal notice, a complaint under section 138 was filed by Sharma before the Metropolitan Magistrate in Delhi.

Khurana denied his liability, alleging that two blank cheques were stolen from his office. He lodged a complaint with the bank on 16 April 2001 regarding the lost cheques and also lodged a complaint with the police. Thus, there was no occasion for Khurana to hand over the cheque in question to Sharma on 25 June 2001. Sharma with malafide intention to extract money from Khurana filed the complaint based on false and fabricated cheques and other documents, however, no offence under section 138 of the NI Act exists on this basis. Finding no favour from the trial court, Khurana filed an application before Delhi High Court to quash the proceedings under section 482 of the Criminal Procedure Code, 1973, which was dismissed. Khurana then appealed to the Supreme Court challenging the order of dismissal by Delhi High Court.

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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.

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