Supreme Court: Explaining the scope of the term ‘debt or any other liability’ under Section 138 of the NI Act, the bench of Dr. DY Chandrachud and AS Bopanna, JJ has held that the true purpose of Section 138 would not be fulfilled, if ‘debt or other liability’ is interpreted to include only a debt that exists as on the date of drawing of the cheque.
What is “debt”?
Aiyar’s Judicial Dictionary defines debt as follows: “Debt is a pecuniary liability. A sum payable or recoverable by action in respect of money demand.”
Lindey L.J in Webb v. Strention[1] defined debt as “… a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in praesenti, solvendum in futuro.”
In Banchharam Majumdar v. Adyanath Bhattacharjee[2], the full bench of Calcutta High Court held,
“Standing alone, the word ‘debt’ is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds: solvendum in praesenti and solvendum in future … A sum of money which is certainly and in all events payable is a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt or does not become a debt until the contingency has happened.”
Thus, the Court noticed that the term debt also includes a sum of money promised to be paid on a future day by reason of a present obligation. A post-dated cheque issued after the debt has been incurred would be covered by the definition of ‘debt’. However, if the sum payable depends on a contingent event, then it takes the color of a debt only after the contingency has occurred.
Whether Section 138 only covers a debt that exists as on the date of drawing of the cheque?
The explanation to Section 138 of the NI Act provides that ‘debt or any other liability’ means a legally enforceable debt or other liability. The proviso to Section 138 stipulates that the cheque must be presented to the bank within a period of six months from the date on which it is drawn or within its period of validity.
Moreover, Parliament has used the expression ‘debt or other liability’. The expression “or other liability’ must have a meaning of its own, the legislature having used two distinct phrases. The expression ‘or other liability’ has a content which is broader than ‘a debt’ and cannot be equated with the latter.
The object of the NI Act is to enhance the acceptability of cheques and inculcate faith in the efficiency of negotiable instruments for transaction of business. The purpose of the provision would become otiose if the provision is interpreted to exclude cases where debt is incurred after the drawing of the cheque but before its encashment.
“The true purpose of Section 138 would not be fulfilled, if ‘debt or other liability’ is interpreted to include only a debt that exists as on the date of drawing of the cheque.”
[Sunil Todi v. State of Gujarat, 2021 SCC OnLine SC 1174, decided on 03.12.2021]
[1] 1888 QBD 518
[2] (1909) ILR 36 Cal 936
Counsels
For appellants: Senior Advocates Sidharth Luthra and Meenakshi Arora
For second respondent: Senior Advocates Mohit Mathur and Rebecca John,
For State of Gujarat: Advocate Aastha Mehta
*Judgment by: Justice Dr. DY Chandrachud
