Jabalpur: In a significant ruling that clarifies the scope of criminal liability in cheque bounce cases, the Madhya Pradesh High Court has held that merely marking a cheque as "Not Negotiable" does not shield a person from prosecution under Section 138 of the Negotiable Instruments (NI) Act, 1881.
The Court emphasized that while such an endorsement might restrict how a cheque is transferred from one person to another, it does not erase the underlying debt or the legal obligation of the drawer to ensure the cheque is honored.
The decision was delivered by Justice Himanshu Joshi in the case of Dr. Sandeep Patel v. Anil Kumar Gupta.
Background:
The case originated from a financial transaction in December 2019. The complainant, Anil Kumar Gupta, alleged that Dr. Sandeep Patel (the petitioner) borrowed a loan of ₹5,00,000 for family needs, promising to return it within a few months.
To repay part of this loan, Dr. Patel issued a cheque for ₹4,00,000 dated May 31, 2020, drawn on the Bank of Maharashtra, Rewa Branch. However, when the complainant presented the cheque for payment in July 2020, it was returned by the bank with the memo: "Funds Insufficient."
Following the standard legal procedure, Gupta sent a statutory demand notice to Dr. Patel. When the doctor failed to pay the amount within the 15-day notice period, Gupta filed a criminal complaint under Section 138 of the NI Act before the Judicial Magistrate First Class (JMFC), Rewa.
Dr. Patel challenged the proceedings at the very start. His primary defense was technical: the cheque had the words "Not Negotiable" written on it.
He argued that once a cheque is marked "Not Negotiable," it loses its character as a "negotiable instrument" under the law. Consequently, he claimed that the penal provisions of Section 138—which specifically deal with the dishonor of negotiable instruments—could not be applied to him.
Both the Trial Court (JMFC) and the Revisional Court (9th Additional Sessions Judge, Rewa) rejected this argument. They held that the impact of the "Not Negotiable" marking was a matter of evidence that should be decided during the trial, not at a preliminary stage. Dissatisfied, Dr. Patel moved the High Court under Section 482 of the CrPC to quash the case.
Arguments in the High Court:
For the Petitioner: Advocate Lawkush Prasad Mishra, representing Dr. Patel, relied heavily on an old Allahabad High Court judgment (Durga Shah Mohal Lal Bankers). He argued that the negotiability of a cheque is destroyed if it is marked as "not negotiable" on its face. He contended that if the instrument isn't "negotiable," it cannot fall under the strict criminal liability of Section 138.
For the Respondent: Advocate Neerja Agrawal, appearing for the complainant, argued that the petition was simply a tactic to delay the trial. She clarified that "Not Negotiable" is a concept that relates to the title (ownership rights) of the person who receives the cheque, but it has nothing to do with whether the drawer owes money or whether the cheque itself is valid for payment.
Court’s Observations:
Justice Himanshu Joshi analyzed the definition of a "cheque" under Section 6 of the NI Act. The Court made several key observations: