Cheque Issued for Illegal Consideration Not Enforceable Under Section 138 NI Act: Punjab and Haryana High Court

On October 15, 2024, the Punjab and Haryana High Court dismissed an appeal challenging the acquittal of an accused in a cheque dishonor case, reinforcing the principle that cheques issued for illegal purposes, such as bribes, do not give rise to criminal liability under Section 138 of the Negotiable Instruments Act, 1881. The judgment was delivered by Justice Manjari Nehru Kaul in CRM-A-233-2021 titled Surinder Singh v. Ram Dev.

The appellant, Surinder Singh, had filed a complaint against the respondent, Ram Dev, under Section 138 of the NI Act, after a cheque for ₹1,00,000 issued by the respondent was dishonored. The cheque had been given as part of a settlement between the parties, following an allegation that the respondent, along with his accomplices, had fraudulently assured the appellant that they could secure employment for certain individuals in the Punjab Police in exchange for ₹1,20,000.

The appellant, realizing that no appointments had been secured, registered an FIR under Sections 420 (Cheating) and 120-B (Criminal Conspiracy) of the Indian Penal Code (IPC) against the respondent’s brother-in-law and others. Subsequently, a compromise was reached, and the respondent issued a cheque to the appellant to settle the matter.

However, when the appellant attempted to encash the cheque, it was returned unpaid with the bank stating that the respondent’s account had been closed. The appellant then sent a legal notice to the respondent, demanding payment, but no payment was made, leading to the initiation of criminal proceedings under Section 138 of the NI Act.

The trial court acquitted the respondent, finding that the cheque was issued in relation to an illegal transaction — a bribe paid to secure government jobs. The court held that such a payment did not constitute a legally enforceable debt or liability, a requirement under Section 138 of the NI Act.

In his appeal, the appellant argued that the trial court erred by focusing on the illegality of the transaction rather than on the respondent’s failure to honor the cheque. He contended that since the respondent admitted to taking the money and then issued a cheque as part of a compromise, it should be treated as a legally enforceable debt. The appellant further noted that the respondent did not deny issuing or signing the cheque, which raised a presumption under the NI Act that it was issued to discharge a debt.

Justice Manjari Nehru Kaul upheld the trial court's decision, emphasizing that a cheque issued in furtherance of an illegal or immoral transaction, such as a bribe, cannot be considered a legally enforceable debt under Section 138 of the NI Act.

The court referred to the appellant's own admission during cross-examination, where he conceded that the payment made to the respondent was a bribe to secure employment in the Punjab Police. In light of this admission, the court concluded that the cheque was issued in relation to an illegal transaction, rendering it outside the purview of Section 138.

The court held, "Under Section 138 of the NI Act, the mere issuance of a cheque does not constitute an offence unless it is proven that the cheque was issued for the discharge of a debt or liability that is legally enforceable. A payment made as a bribe, being an illegal and immoral transaction, does not constitute a legally enforceable liability."

The High Court confirmed that there was no legally enforceable debt in this case, as the cheque represented a bribe, an illegal transaction that cannot attract criminal liability under the Negotiable Instruments Act. The court found that the trial court's findings were consistent with settled legal principles, and thus, the appeal was dismissed.

Date of Decision: October 15, 2024

Surinder Singh v. Ram Dev