Negotiable Instruments Act: Supreme Court Resolves Cheque Dishonour Dispute Through Settlement

The Supreme Court of India, in the case of M/s. Moser Baer Photo Voltaic Ltd. vs. M/s. Photon Energy Systems Ltd. & Ors., addressed a significant legal issue related to cheque dishonour under Sections 138, 141, and 142 of the Negotiable Instruments Act, 1881. This case involved a dispute over a post-dated cheque issued as security and whether the subsequent settlement of dues impacted the validity of a cheque bounce complaint.

Background of the Case

The appellant, Moser Baer Photo Voltaic Ltd., was engaged in the business of supplying solar cells and laminates. The respondent, Photon Energy Systems Ltd., had business dealings with the appellant and had outstanding dues. As part of the payment process, the respondent issued a cheque dated May 31, 2008, for an amount of Rs. 3,21,53,903/-.

Due to a temporary shortage of funds, the respondent requested that the cheque not be deposited immediately. Later, through mutual discussions and a meeting held on September 22 and 23, 2008, the outstanding amount was revised to Rs. 2,87,09,640/-.

Cheque Dishonour and Legal Notice

The appellant deposited the cheque with HDFC Bank, but it was returned on November 28, 2008, with the remark “funds insufficient.” After receiving the dishonour memo, the appellant issued a legal notice on December 18, 2008, demanding the revised outstanding amount of Rs. 2,87,09,640/-, rather than the cheque amount of Rs. 3,21,53,903/-.

On December 19, 2008, the respondent made a partial payment of Rs. 20 lakhs but disputed the remaining liability. The respondent claimed that the cheque was issued as security and was not meant for an enforceable debt. Due to the dispute over liability, the appellant filed a criminal complaint under Sections 138, 141, and 142 of the Negotiable Instruments Act before the XI Additional Chief Metropolitan Magistrate, Secunderabad.

Criminal Proceedings and High Court Decision

The Magistrate’s court took cognizance of the complaint and issued a non-bailable warrant against the accused on March 4, 2009. However, the respondents moved the High Court under Section 482 of the Criminal Procedure Code, seeking quashing of the proceedings. The High Court, in its order dated October 12, 2011, quashed the complaint on the ground that the cheque amount was different from the legally enforceable debt as stated in the legal notice.

Arguments by the Appellant (Moser Baer Photo Voltaic Ltd.)

• The appellant argued that the liability of the respondent was well established and that the cheque was issued towards an admitted debt.
• It contended that the High Court erred in quashing the proceedings solely on the ground of a difference in the cheque amount and the amount demanded in the legal notice.
• The appellant submitted that the dishonour of a cheque issued for security purposes also falls within the ambit of Section 138 of the Negotiable Instruments Act.

Arguments by the Respondent (Photon Energy Systems Ltd.)

• The respondent maintained that the cheque was issued as security and not towards an enforceable liability.
• It argued that after the settlement of dues, the appellant could not prosecute the dishonour of a cheque that did not represent the final liability.
• The respondent contended that since there was a dispute regarding the balance payable amount, the criminal complaint was not maintainable.

Supreme Court’s Observations

The Supreme Court noted that an interesting legal question arose in this case—whether, after settlements and payments subsequent to the issuance of a cheque, the complainant could disclose the true outstanding amount and issue a demand for a lesser sum, and whether in such circumstances, the criminal prosecution for dishonour of a cheque of a higher amount was legally sustainable.

The Court, however, did not address this question on merits since the parties had entered into a settlement agreement. The Supreme Court observed:

“An interesting question of law as to whether, in view of payments or settlements made after the issuance of a cheque, a complainant can disclose the true state of affairs and issue a demand for a lesser amount and whether in such circumstances the criminal prosecution for dishonour of a cheque for a higher amount is legally sustainable or not, did arise in this case. However, on account of subsequent talks between the parties, an amicable settlement has been arrived at, and hence there is no requirement now to answer the aforesaid question of law in the present proceedings.”

Final Settlement and Judgment

The Supreme Court recorded the settlement between the parties and directed the respondents to pay Rs. 1,80,00,000/- (Rupees one crore eighty lakh) in regular monthly installments of Rs. 15,00,000/- each. The Court specified that:

• The first installment of Rs. 15 lakh was to be paid by the first week of April 2016.
• The remaining 11 installments of Rs. 15 lakh each were to be paid regularly by the first week of each succeeding month.
• If the total amount of Rs. 1,80,00,000/- was paid by March 2017, the criminal complaint would stand quashed.
• However, if the full payment was not made within the stipulated time, the complainant could revive the criminal proceedings.

Implications of the Judgment

This case highlights the importance of settlements in commercial disputes and the judiciary’s role in facilitating an amicable resolution. While the legal question regarding the validity of prosecuting dishonour cases after a settlement remained unanswered, the judgment reinforces the principle that parties can mutually resolve disputes without prolonged litigation.

For businesses, this ruling emphasizes the need for clear documentation regarding post-dated cheques, enforceable liabilities, and settlement terms. It also underscores the courts’ preference for resolving commercial disputes through negotiation rather than extended criminal trials.

Conclusion

The Supreme Court’s judgment in Moser Baer Photo Voltaic Ltd. vs. Photon Energy Systems Ltd. illustrates the judiciary’s balanced approach to cheque dishonour cases under the Negotiable Instruments Act. By prioritizing settlement while keeping legal remedies open, the Court reinforced the principle of fairness in commercial transactions. This case serves as a precedent for future disputes involving post-dated cheques, enforceable liabilities, and negotiated settlements.

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Download Judgment: Ms. Moser Baer Phot vs Ms. Photon Energy S Supreme Court of India Judgment Dated 18-03-2016-1741853938023.pdf

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