The offence under Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”) occupies a unique space in Indian criminal jurisprudence. Though criminal in form, it is deeply rooted in commercial morality and the need to ensure the credibility of negotiable instruments. Over the years, courts have repeatedly clarified that dishonour of a cheque is not merely a private wrong but an offence against economic discipline.
In M/s New JCO & Anr. v. Utkarsh Sharma (decided on 11 December 2025), the Himachal Pradesh High Court reaffirmed a crucial principle: once the cause of action under Section 138 NI Act has arisen, any subsequent payment by the drawer does not wipe out the offence, though it may have relevance at the stage of sentencing or compounding. The judgment is significant as it addresses a commonly raised defence—that payment made before filing of the complaint, but after expiry of the statutory notice period, nullifies criminal liability.
Factual Background of the Case
The complainant, Utkarsh Sharma, alleged that the accused firm, M/s New JCO, had purchased an apple crop worth ₹4,46,472. Towards the discharge of this liability, the accused issued a cheque dated 21 April 2025 for the same amount. The cheque was dishonoured on 16 May 2025 with the endorsement “insufficient funds.”
A statutory demand notice was issued on 10 June 2025 and was admittedly served on the accused on 13 June 2025. Despite the service of notice, the payment was not made within the statutory period of 15 days. Consequently, the complainant instituted a criminal complaint under Section 138 NI Act, and the trial court took cognisance on 5 August 2025.
The accused approached the High Court under Section 482 CrPC (Section 528 BNSS) seeking quashing of the complaint and the summoning order, primarily on the ground that the entire amount had been paid on 11 July 2025 pursuant to a compromise before the Agricultural Produce Market Committee, and therefore, no legally enforceable debt subsisted on the date of filing of the complaint.
Issue Before the High Court
- Whether late payment after notice can cancel a cheque bounce offence under Section 138 NI Act.
Statutory Framework: Section 138 NI Act
Section 138 creates a deemed offence upon fulfilment of specific statutory ingredients:
- Drawing of a cheque for discharge of a legally enforceable debt or liability;
- Presentation of the cheque within its validity period;
- Dishonour of the cheque;
- Issuance of a written demand notice within 30 days of dishonour;
- Failure of the drawer to make payment within 15 days of receipt of notice.
The cause of action arises immediately after expiry of the 15-day period if payment is not made. Once this cause of action crystallises, criminal liability is complete in law.
Defence of “Subsequent Payment”: Court’s Analysis
The accused argued that since payment was made on 11 July 2025, prior to the filing of the complaint on 26 July 2025, the offence stood neutralised. The High Court categorically rejected this contention.
The Court noted that the statutory notice was served on 13 June 2025, giving the accused time until 28 June 2025 to make payment. The payment on 11 July 2025 was clearly after the cause of action had already arisen.
Relying on settled Supreme Court precedent, the Court held that:
Any payment made after the expiry of the notice period does not absolve the accused of criminal liability under Section 138 NI Act.
Supreme Court Precedents Reaffirmed
The offence, once committed, cannot be undone by unilateral acts of payment after statutory default.
Payment After Cause of Action Does Not Extinguish the Offence
Rajneesh Aggarwal v. Amit J. Bhalla (2001) 1 SCC 631
The High Court placed substantial reliance on Rajneesh Aggarwal v. Amit J. Bhalla, wherein the Supreme Court categorically held that once the offence under Section 138 of the NI Act is complete, subsequent deposit or payment of the cheque amount does not wipe out the criminal liability.
The Supreme Court clarified that while such payment may have a bearing on the quantum of sentence or the possibility of compounding, it cannot serve as a ground for quashing criminal proceedings that are otherwise legally maintainable.
Reiterating this settled position, the Himachal Pradesh High Court observed that permitting quashing solely based on subsequent payment would defeat the legislative intent of Section 138, which seeks to ensure financial discipline and credibility of negotiable instruments.
Cheque Issued as “Security”: No Safe Harbour
Another defence raised was that the cheque was a blank security cheque allegedly misused by the complainant. The Court rejected this argument by referring to authoritative Supreme Court rulings.
Sampelly Satyanarayana Rao v. IREDA (2016) 10 SCC 458
The Supreme Court clarified that the mere nomenclature of a cheque as “security” is not determinative. If a legally enforceable debt exists on the date of the cheque, Section 138 is attracted.
Sripati Singh v. State of Jharkhand (2021) AIR 2021 SC 5732
The Court further reaffirmed that a security cheque is not a “waste paper.” If the underlying liability subsists and the cheque is dishonoured, prosecution under Section 138 is maintainable.
Applying these principles, the High Court held that the accused’s plea of misuse of a security cheque raised disputed questions of fact, which cannot be adjudicated at the quashing stage.
Scope of Quashing Under Section 482 CrPC
The judgment devotes significant attention to the limited scope of inherent jurisdiction under Section 482 CrPC.
Relying on State of Haryana v. Bhajan Lal and recent Supreme Court decisions, the Court emphasised that:
- Quashing at the threshold is an exception, not the rule;
- The High Court cannot conduct a mini-trial or evaluate disputed facts;
- In cheque dishonour cases, statutory presumptions under Sections 118 and 139 NI Act operate in favour of the complainant.
The Court observed that extinguishing prosecution at a nascent stage would deprive the complainant of an opportunity to prove the case and allow the accused to bypass trial without rebutting statutory presumptions.
Conclusion
Himachal Pradesh High Court’s decision in M/s New JCO & Anr. v. Utkarsh Sharma is a reaffirmation of a foundational principle of cheque dishonour law: criminal liability under Section 138 NI Act crystallises once the statutory notice period expires without payment, and subsequent payment does not erase the offence.
By refusing to quash the proceedings at a pre-trial stage, the Court upheld the legislative intent of maintaining the sanctity of negotiable instruments and preventing strategic defaults. The ruling strikes a careful balance between commercial pragmatism and criminal accountability, ensuring that Section 138 remains an effective deterrent rather than a negotiable inconvenience.
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