Filling up blank cheque may not always amount to material alteration: Gujarat High Court

The Gujarat High Court in the recent landmark decision in Nikhil P Gandhi v. State of Gujarat has struck down the contention that when a signed blank cheque leaf is handed over to the other party by way of security, the same can never be filled up and if it is filled up it would amount to a material alteration within the meaning of Section 87 of the  Negotiable Instruments Act, 1882 (hereinafter referred to as the “Act”).  

The matter involved the issue of a blank cheque provided by the accused company, Gujarat Pipavav Port Limited to M/s. Sharda Steel Corporation, the complainant, as a security deposit for carrying out supply of Steel, Cement, etc. for the purpose of the construction of a port.

In the course of the business, a dispute arose between the accused company and the complainant firm. The complainant firm preferred three Special Civil Suits Nos. 35 of 2000, 36 of 2000 and 37 of 2000 in the Court of the Civil Judge, Senior Division, Amreli, for recovery of a certain amount raised through bills. Whilst the Civil Suits were still pending, in the year 2008 with the consent of the parties, the learned Civil Judge passed an order in the Special Civil Suit No. 36 of 2000 appointing M/s. Chhajed & Doshi Company, Chartered Accountants, as a mediator for the purpose of settling the accounts.

M/s. Chhajed & Doshi Company submitted its report dated 28th April 2009, according to which, the accused company owes a sum of Rs.15,82,23,865/- (Rupees Fifteen Crore Eighty Two Lac Twenty Three Thousand Eight Hundred Sixty Five Only) to the complainant firm. The complainant firm, thereafter, started demanding the amount from the accused company. There was lot of correspondence between the complainant and the accused company between 2010 and 2013 in that regard. Ultimately, the complainant decided to fill up the blank signed cheque, which was drawn by the then Managing Director on behalf of the company as a security. The cheque was filled up on 28th March 2013. The cheque was dishonoured by the bank with an endorsement of “account closed”.

The complainant, thereafter, issued a statutory notice and called upon the company to make good the amount mentioned in the cheque. The drawer of the cheque gave a reply denying his liability. The complainant, thereafter, proceeded to file a criminal complaint in the Court of the learned Chief Judicial Magistrate at Mahuva. Thereafter, applications were filed by the company and the directors for quashing of the criminal proceedings initiated for the offence punishable under Section 138 of the Act.

After hearing the arguments and the authorities cited by both the parties, Hon’ble Justice J.B. Pardiwala rightly observed that such circumstances would depend upon the facts of each case.

The Court observed that when a person takes a bill in an incomplete  form, he cannot be a bonafide holder for value since it can only be said  that he has taken a piece of blank paper and not a bill and that he can take it as a bill only under the authority given to his transferor. Section 20  of  the  Act would make it clear that there can be  no  material alteration of a cheque leaf only for the reason that it was subsequently filled up. But at the same time it cannot be said that whenever a signed blank cheque leaf is given, it gives authority to the holder to fill up the same according to his whims and fancies.

There may be instances where an implied authority is given to the person, at the time of entrusting a signed blank cheque containing the signature of the drawer of the cheque, to fill the columns therein. If   a   principal   or   employer   deputes   his   agent   or   employee   to purchase an article and if the dealer fills up that signed blank cheque leaf showing the exact amount covered by the bill then it cannot be said that what was handed over by the  drawer of the cheque is only a signed blank cheque leaf. In such cases an implied authority to the trader/seller of the article to fill up the cheque leaf can certainly be inferred.

The contention that when a signed blank cheque leaf  is handed over, it can never be filled up and that if it is filled up it would  amount to a material alteration within the meaning of using Section 87  of   the  Act,   does   not   stand   to   rhyme   or   reason.  

The collective reading of the various provisions of the Act show that it is possible for the drawer of a cheque to give a blank cheque signed to the payee and consent either impliedly or expressly to the said cheque being filled up at a subsequent point in time and present the same for payment by  the “drawee”.

Finally, the Court held that whenever a blank cheque or post-dated cheque is issued, a trust is reposed that the cheque will be filled in or used according to the understanding or agreement between the parties. If there is a prima facie reason to believe that the said trust is not honoured, then the continuation of prosecution under Section 138 of the Act would be abuse of the process of law.