Negotiable instrument act 1881 - liability of the drawer on inchoate instrument
Suresh Parthasarathy
(Querist) 07 June 2012
This query is : Resolved
Drawer of a cheque signs the instrument (date and amount in words/figures left blank)and delivers to the payee for a business consideration an inchoate / imcomplete cheque. The payee(holder in due course) / III party completes the incomplete/inchoate instruments by filling up the date & amount ( may be excess / short of the business consideration due to regular business dealings / loss in transit of the goods etc etc ) & presents for payment to the drawee. The drawee dishonours the cheque due to insufficient funds in the account of the drawer at the time of presentation of the cheque. Is the drawer of the cheque liable to the holder in due course under sec 138 of the NI ACT ? Can the payee (holder in due course) proceed against the drawer for recovery of the amount under Sec 138 ? Please advice with reference to Avon Organics Ltd V Pioneer Products. NI act under sec 20 says, the drawer of the instrument is liable to the HOLDER IN DUE COURSE. There is dis-connect between the judgement of the case referred above and the NI ACT - section 20.
ajay sethi
(Expert) 07 June 2012
Section 20 in The Negotiable Instruments Act, 1881
20. Inchoate stamped instruments. Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in 2[ India], and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount: provided that no person other than a holder in due course shall recover from the person delivering the instrument any thing in excess of the amount intended by him to be paid thereunder.
under section 20 of NI act when balnk cheque is given by drawer he gives authroty to payee to complete the instrument
avon organic case is based on section 87 of Ni act Section 87 of the Act reads as under :
"Effect of material alteration.--Any material alternation of a negotiable instrument renders the same void as against any one who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties ;
in avon case court held that the complainant must prove that authrity was given by accused to complainant to fill in the cheque details . if no such authroity given then it amounts to material lateration of cheque
ajay sethi
(Expert) 07 June 2012
there are number of judgements of various high courts that blank cheque is no cheque .you have to prove that authorisation was given to fill in blanks . if dates a, amounts filled in subseqently no case under section 138 NI lies
Suresh Parthasarathy
(Querist) 08 June 2012
Thanks a ton for the advice.
Is this a full text or anything missing as I unable to figure out after " Section 138 NI lies.....
ajay sethi
(Expert) 08 June 2012
it means no case under section 138 NI is maintanable
M V Gupta
(Expert) 08 June 2012
As per Section 20 the payee of an incomplete NI has prima facie authority to complete the instrument and present it for payment. Hence any bouncing of the cheque on presentment to the drawee bank will give a right to the payee to proceed against the drawer under Sec 138 o the NI Act.This is not a case of blank cheque when once the cheque has been completed by the payee.
