Introduction:

In this significant ruling, the Jammu and Kashmir and Ladakh High Court has clarified that a drawer of a cheque cannot escape criminal liability under Section 138 of the Negotiable Instruments Act, 1881, by deliberately using a signature that does not tally with the specimen signature available with the bank, if such conduct is intended to prevent the cheque from being honoured. The petition before the Court arose from a complaint filed by Abdul Hamid Lone, who alleged that Abdul Hamid Wani owed him a sum of ₹14 lakhs and had issued a cheque towards discharge of that legally enforceable debt. Upon presentation, the cheque was dishonoured with the endorsement “alterations require drawer’s authentication.” Despite issuance of the statutory demand notice, the accused did not make payment within the prescribed period, compelling the complainant to institute proceedings under Sections 138 and 142 of the Negotiable Instruments Act. The Magistrate, after considering the complaint and preliminary material, took cognizance and issued process against the accused. Aggrieved by the summoning order and the very maintainability of the complaint, the accused approached the High Court seeking quashing of both the complaint and the summoning order, asserting that the cheque had been materially altered by the complainant and that no offence under Section 138 was made out since there was no insufficiency of funds and the dishonour was allegedly caused by manipulation of the cheque by the payee. The matter therefore required the High Court to examine whether deliberate acts by the drawer, including signature mismatch or unauthenticated alterations, can still attract penal consequences under Section 138 when such acts are intended to ensure dishonour of the cheque.

Arguments:

On behalf of the petitioner-accused, it was argued that the cheque in question was not dishonoured due to insufficiency of funds but due to alterations which, according to the petitioner, were fraudulently made by the complainant himself. The petitioner contended that the actual liability was only ₹14,000 and not ₹14 lakhs, and that the complainant had allegedly converted the figures and words on the cheque to inflate the amount. It was further argued that the endorsement by the bank stating “alterations require drawer’s authentication” clearly indicated that the dishonour was not attributable to the conduct of the drawer but to tampering by the payee, and therefore the essential ingredients of Section 138 were not satisfied. Emphasis was laid on the fact that the petitioner had sufficient balance in his account, which, according to him, demonstrated that there was no intention to default on payment. It was also contended that under Section 87 of the Negotiable Instruments Act, a negotiable instrument becomes void if materially altered without consent, and therefore, if the cheque itself was void, no prosecution under Section 138 could be sustained. The petitioner further argued that criminal prosecution in such circumstances would amount to abuse of the process of law and that the High Court should exercise its inherent jurisdiction to prevent harassment through frivolous litigation. On the other hand, the complainant resisted the quashing petition by submitting that the cheque was issued towards discharge of a legally enforceable debt of ₹14 lakhs, that the dishonour was the result of deliberate acts attributable to the drawer, and that the accused had failed to reply to the statutory notice, thereby allowing adverse inference to be drawn against him. It was contended that the defence of forgery or alteration raised by the accused involved disputed questions of fact which could not be adjudicated at the stage of quashing and could only be decided after evidence is led at trial. The complainant further relied on settled law that the scope of Section 138 is not confined to cases of insufficiency of funds but extends to all situations where the drawer intentionally creates conditions to ensure dishonour of the cheque. The State also supported the continuation of proceedings, arguing that the Magistrate had rightly taken cognizance after finding prima facie material and that the High Court should not interfere at the threshold when factual controversies remain unresolved.

Court’s Judgment:

Justice Sanjay Dhar, while dismissing the quashing petition, undertook a detailed examination of the scope and object of Section 138 of the Negotiable Instruments Act and the judicial interpretation accorded to it by the Supreme Court. The Court framed the central issue as whether dishonour of a cheque on account of alterations or signature mismatch, when attributable to deliberate conduct of the drawer, would fall within the ambit of Section 138. Relying heavily on the Supreme Court judgment in M/s Lakshmi Dyechem v. State of Gujarat (2012) 13 SCC 375, the Court held that the contingencies mentioned in Section 138 cannot be read in a narrow or pedantic manner. The Court reiterated that the expression “amount of money is insufficient” is a genus and that various situations such as “account closed,” “payment stopped,” or “signature differs” are species that fall within the same legislative intent, namely, preventing drawers from defeating the credibility of banking instruments by technical or manipulative acts. The Court emphasized that what is material is not merely the technical reason for dishonour but whether the drawer has, by an act or omission, ensured that the cheque is not honoured. Justice Dhar categorically observed that so long as the act or omission of the drawer is intended to prevent the cheque from being honoured, the dishonour would constitute an offence under Section 138. Applying this principle, the Court held that if a drawer deliberately appends a signature that does not match the specimen signature with the bank, or deliberately makes unauthenticated overwriting or alterations, such conduct must be treated as a conscious attempt to frustrate encashment and therefore squarely attracts penal liability. The Court further considered the argument based on Section 87 of the Negotiable Instruments Act and agreed that material alteration would render the instrument void; however, it clarified that the crucial question as to who made the alteration is a pure question of fact which cannot be determined in proceedings under Section 482 CrPC or its equivalent inherent jurisdiction. The Court observed that the petitioner had failed to respond to the statutory demand notice, and had he replied and raised the plea of forgery at that stage, the factual matrix might have been different. Having chosen to remain silent, the petitioner could not seek summary termination of criminal proceedings by raising disputed defences that require evidentiary adjudication. The Court therefore held that the complaint disclosed prima facie commission of an offence and that the Magistrate had rightly taken cognizance and issued process. It was also observed that inherent jurisdiction cannot be exercised to stifle legitimate prosecution where allegations and defences are intertwined with disputed facts. Consequently, the Court dismissed the petition, while granting liberty to the accused to raise all permissible defences before the trial court, thereby reaffirming the principle that intentional acts aimed at defeating cheque payments cannot be used as a shield against prosecution under the Negotiable Instruments Act.