Rajiv KULKARNI
Asked April 06, 2014

Stop Payment & S.138

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what is the significance of STOP PAYMENT? how does it relate to S.138?

Answer 1

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Jayanth Ravi

“STOP PAYMENT” refers to a practice whereby the drawer of a cheque orders his bank through a written notice, to stop the payment of a particular cheque that he has drawn in favour of a respective payee. In such a case the written notice would be considered as an order taking away from the bank the authority to make payment against the particular cheque. This practice is supposed to prevent unwanted cashing of cheques due to many reasons such as misplace of cheque, issue of alternate cheque, discharge of liability by payment through other modes etc. Sometimes this practice is used by customers to stop payment due to supply of inferior goods or poor service which violates the terms agreed upon between the parties.

In many cases the practice of STOP PAYMENT has been used by drawers to cheat their creditors and escape from liability of payment and to avoid proceedings under Sec 138 of Negotiable Instruments Act, 1881. The proviso to this section lays down that the following conditions be satisfied to attract liability under the section:

The cheque is drawn on a bank for the discharge of a legally enforceable debt or other liability. The cheque has returned by the bank unpaid. The cheque is returned unpaid because the amount available in that account is insufficient or because it exceeds the amount arranged to be paid from that account by an agreement made with that bank, The payee gives a notice to the drawer claiming the amount within 15 days of the receipt of the information by the Bank and The drawer fails to make payment within 15 days of the receipt of notice.

Clearly payment blocked by STOP PAYMENT doesn’t strictly qualify to claim liability under Sec. 138 as one of its conditions is that the reason for non-payment should be lack of funds or that it exceeds the amount arranged to be payable from that account due to an agreement made with the bank. Thus in order to bring liability under Sec. 138 for payment refused due to STOP PAYMENT order, the provisions of Sec. 138 will have to be liberally interpreted in favour of the payee. This means that blocking of payment though the practice of STOP PAYMENT must be construed as dishonour of cheque within the terms of Sec. 138. Thankfully there have been enough cases in various High Courts and even a case by the Supreme Court wherein it has been held that the use of the practice of STOP PAYMENT in order to escape liability from payment of a legally enforceable debt would be construed as dishonour of a cheque attracting liability under Sec. 138. But it has to be kept in mind that the procedure laid down in Sec. 138, regarding provision of a notice to the drawer of cheque as well as other requirements such as the debt being legally enforceable, have to be complied with as far as possible. In such a case, it would be legally valid to argue liability under Sec. 138 when payment of cheque has been denied through the practice of STOP PAYMENT.

References:

http://www.legalserviceindia.com/articles/nego.htm

http://www.aaptaxlaw.com/IPC/Payment-Stopped-by-Drawyer-Cheque-Returned-Effect-Applicability-of-Section-138-NI-Act.html

http://www.tcl-india.net/node/235

Pulsive Technologies P. Ltd. vs. State of Gujarat & Ors., SC, 22.08.2014

Mahendra A. Dadia And Others vs State Of Maharashtra,  1999 (5) BomCR 124

M/s Electronics Trade & Technology Development Corpn. Ltd. Vs M/s Indian Technologists & Engineers Ptv Ltd., Supreme Court, Appeal 124 of 1996

Calcutta Sanitary Wares And Anr. vs C.T. Jacob, 1993 76 CompCas 347 Ker

 

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