The Supreme Court of India (the “Supreme Court”) in its recent judgment in the case of M/s Laxmi Dyechem vs. State of Gujarat & Ors  has extended the ambit of Section 138 of Negotiable Instruments Act, 1881 (the “Act”) to dishonor of cheques due to mismatch of signature of drawer on the cheque with the specimen signature available with the bank.
One of the respondents in the case issued several cheques signed by its authorised signatory in favour of Laxmi Dyechem. Several of these cheques were dishonoured by the bank on the ground that the signatures on the cheques were incomplete or that the signatures of the drawer did not match the specimen signatures available with the bank. The cheques remained unpaid despite notice being served upon the respondents under Section 138 of the Act. The trial court took cognizance of the matter and one of the signatories of the cheque filed a Special Criminal Application before the Gujarat High Court (the “High Court”).
The High Court in its judgment gave a narrow and strict interpretation to Section 138 of the Act and held that dishonour of cheque on grounds of mismatch of signatures will not attract ingredients of Section 138 of the Act and insufficient fund as a ground for dishonour of cheque cannot be extended to the instances where cheques is dishonoured due to mismatch of signatures.
Key issue before the Court:
The principal question before the Court was whether dishonour of a cheque would constitute an offence only in one of the two conditions mentioned under Section 138 of the Act and not in case where signatures on the cheque mismatch the specimen signatures available with the bank.
Judgment of the Court:
The Supreme Court relying on its judgment in NEPC Micon Ltd. v. Magma Leasing Ltd. held that the expression “amount of money……. is insufficient” as appearing in Section 138 of the Act is a “genus” and dishonour of cheque on grounds such as “account closed”, “payment stopped”, “referred to the drawer” inevitably result into dishonour of cheques issued by the drawer and thus such grouds are different “species” of that genus. The Supreme Court gave similar interpretation to dishonour of cheques due to mismatch of signature or due to “image is not found” and held that these grounds are also different specie of the aforementioned genus.
The Supreme Court further held that there may be a situation where the drawer of the cheque changed his signature with a fraudulent intention that such change in signature would result in dishonour of cheque. In such situation mismatch of signature of drawer on cheque with the specimen signatures would constitute dishonour within the meaning of Section 138 of the Act subject to the condition that the drawer fails to make payment within the stipulated time despite receiving statutory notice under Section 138 of Act.