Case Study _ Negotiable Instrument Act

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NEGOTIABLE INSTRUMENTS ACT

ULTRA-TRICKY PROBLEM-BASED MAINS QUESTIONS & ANSWERS

Q1. (Security Cheque + Future Liability + Stop Payment)

A took a loan of ₹20 lakhs from B. At the time of loan agreement, A issued two post-dated cheques marked as “security”. Later, disputes arose and A issued stop-payment instructions. On presentation, the cheque was dishonoured with endorsement “payment stopped by drawer”. B files complaint under Section 138 NI Act.
Decide.

Answer:

Issues:

  1. Whether security cheque attracts Section 138

  2. Whether stop-payment dishonour is covered

  3. Whether legally enforceable debt existed

Law:

  • Section 138 – Dishonour for insufficiency or other reasons

  • Sections 118 & 139 – Presumption of debt

  • Section 43(5) – Not relevant

Application:

  • Merely labeling a cheque as “security” does not exclude Section 138

  • If on date of presentation, debt had crystallized, offence is made out

  • Stop-payment does not defeat liability if debt exists

Case-law:

  • Sampelly Satyanarayana Rao v. IREDA (2016)

  • Modi Cements v. Kuchil Kumar Nandi (1998)

  • Laxmi Dyechem v. State of Gujarat (2012)

Conclusion:

Complaint is maintainable, subject to proof of enforceable debt.

Q2. (Blank Cheque + Different Ink + No Date)

X handed over a signed blank cheque to Y towards repayment of loan. Y filled in the amount, date and name using different ink. Cheque was dishonoured. X contends manipulation and denies liability.
Decide.

Answer:

Issue:

Whether filling up of blank cheque invalidates prosecution.

Law & Presumption:

  • Section 20 – Inchoate instrument

  • Section 139 – Presumption of debt

Case-law:

  • Bir Singh v. Mukesh Kumar (2019)

  • Rangappa v. Mohan (2010)

Principle:

✔️ Drawer giving signed cheque gives implied authority to fill details
✔️ Different ink or handwriting irrelevant

Conclusion:

Defence fails; complaint maintainable.

Q3. (Notice Returned Unclaimed + Accused Silent)

Cheque dishonoured on 1 March. Notice sent on 20 March to correct address. Postal endorsement: “Unclaimed”. Accused claims no notice served.
Decide.

Answer:

Law:

  • Section 138(b) – Notice mandatory

  • Section 27, General Clauses Act

Case-law:

  • C.C. Alavi Haji v. Palapetty Muhammed (2007)

Principle:

Unclaimed/refused notice = deemed service.

Conclusion:

Statutory requirement satisfied; complaint valid.

Q4. (Company Not Arraigned + Director Alone)

Cheque issued by company. Complaint filed only against Managing Director. Company not made accused.
Decide.

Answer:

Law:

  • Section 141 – Vicarious liability

  • Company is principal offender

Case-law:

  • Aneeta Hada v. Godfather Travels (2012)

Conclusion:

Complaint not maintainable; liable to be quashed.

Q5. (Cheque Issued to Time-Barred Debt)

Cheque issued in 2024 for a loan advanced in 2017, no acknowledgment in writing. Dishonoured.
Decide.

Answer:

Issue:

Whether time-barred debt is “legally enforceable”.

Law:

  • Section 25(3), Contract Act

  • Section 138 NI Act

Case-law:

  • A.V. Murthy v. B.S. Nagabasavanna (2002)

Principle:

Cheque amounts to written promise to pay time-barred debt.

Conclusion:

Section 138 attracted.

Q6. (Death of Accused During Trial)

Accused dies during pendency of Section 138 proceedings. Complainant seeks substitution of legal heirs.
Decide.

Answer:

Law:

  • Criminal liability is personal

Case-law:

  • H.P. Housing Board v. Varinder Kumar Garg (2005)

Conclusion:

Proceedings abate; substitution impermissible.

Q7. (Cheque Dishonour + Moratorium under IBC)

Company under IBC moratorium. Cheque dishonoured. Complaint filed under Section 138.
Decide.

Answer:

Law:

  • Section 14 IBC – Moratorium

  • Section 138 NI Act

Case-law:

  • P. Mohanraj v. Shah Brothers (2021)

Conclusion:

Proceedings stayed against company, may continue against directors (subject to facts).

Q8. (Payee Not Named + Bearer Cheque)

Cheque issued without mentioning payee’s name. Later filled by holder and dishonoured.
Decide.

Answer:

Law:

  • Section 20 NI Act

  • Section 139

Case-law:

  • Bir Singh v. Mukesh Kumar (2019)

Conclusion:

Valid instrument; Section 138 applies.

Q9. (Partial Payment Before Presentation)

Drawer paid part amount before presentation of cheque but payee presented cheque for full amount.
Decide.

Answer:

Law:

  • Legally enforceable debt must exist to the extent of cheque amount

Case-law:

  • Alliance Infrastructure v. Vinay Mittal (2010)

Conclusion:

Complaint not maintainable for excess amount.

Q10. (Cheque Lost + FIR + Stop Payment)

Drawer lodged FIR regarding lost cheque and instructed bank to stop payment. Cheque later presented by payee.
Decide.

Answer:

Law:

  • Presumption under Section 139

  • Stop payment not a defence per se

Case-law:

  • Rangappa v. Mohan (2010)

Conclusion:

Accused must prove misuse; mere FIR insufficient.

🔥 EXAMINER-PLEASING STRATEGY

  • Frame Issues → Law → Case-law → Conclusion

  • Quote latest SC judgments

  • Avoid emotional language; write judicial

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