Tuesday, December 4, 2012

Even dishonour of cheque due to ‘signature mismatch’ would be violation of sec. 138: SC

In the instant case, the following issues came up for consideration before Supreme Court:

1) Whether section 138 of the Negotiable Instrument Act covers dishonour of cheques other than due to insufficiency of funds?

2) Whether section 138 covers dishonour of cheques on the ground that “signatures do not match with specimen signatures on records of bank”?

The Supreme Court held as under:

a) The expression “amount of money …………. is insufficient” appearing in Section138 of the Act is a genus. Dishonour for reasons such “as account closed”, “payment stopped”, “referred to the drawer” are only species of that genus;

b) Just as dishonour on the ground that the account has been closed is a dishonour falling in the first contingency referred to in Section 138, so also dishonour on the ground that the “signatures do not match” or that the “image is not found”, which too implies that the specimen signatures do not match the signatures on the cheque would constitute a dishonour within the meaning of Section 138 of the Act;

c) If after issue of the cheque the drawer closes the account it must be presumed that the amount in the account was nil, hence, insufficient to meet the demand of the cheque;

d) A similar result can be brought about by the drawer changing his specimen signature given to the bank or in the case of a company changing the mandate of those authorized to sign the cheques on its behalf;

e) So long as the change is brought about with a view to prevent the cheque from being honoured the dishonour would become an offence under Section 138 subject to other conditions prescribed being satisfied.

Thus, it held that the dishonour due to signature mismatch would be covered by Sec. 138 of the Negotiable Instrument Act, and, thus, the trial Court could now proceed with the trial of the complaints filed by the appellants expeditiously - Laxmi Dyechem v. State of Gujarat [2012] 28 taxmann.com 1 (SC)

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