latest judgment of the Apex Court, PDCs and Security Cheques are not covered under N.I.Act.

If you decide to file case u/s138 of N.I. Act, do not mention that those cheques were post dated chaques since as per latest judgment of the Apex Court, PDCs and Security Cheques are not covered under N.I.Act.

Post dated cheques are those cheques which are issued by the payer to the payee but are to be drawn only on a future date. In business world, post dated cheques are commonly and conveniently cheque issued for security purposes like loans, lease, advances etc. Let’s take a detailed glimpse on its legality and validity. Meaning of post dated cheque is a cheque which has been dated a later date from the date it has been issued to another person. Post dated cheque validity is arises only from the date it has become payable.

Enforceability of Post Dated Cheques

A post dated cheque is enforceable as a negotiable instrument only when it becomes payable on demand. It is covered under the purview of Negotiable Instrument Act, 1881.  In accordance to the Supreme Court judgement on post dated cheque in 1998, a post dated cheque will be considered as a bill of exchange and not a cheque before the date mentioned on the said instrument/document. It becomes payable only from the mentioned date on the face of the document. By bill of exchange, it means that the document will stay negotiable and will turn into cheque only on the date it will be payable on demand.

Important components of PDC

PDC can become cheque only on the date that is mentioned on the document. Prior to the said, it is just a bill of exchange.
Its validity is only for 3 months from the date that appears on the document.
PDCs are issued either as security cheques for loans or as advance to ensure the trustworthiness of the payer to its supplier.






Applicability of Section 138 of Negotiable Instrument Act

A dishonor of a cheque is a punishable offence under Negotiable Instrument Act. How the Act is applicable on Post Dated Cheques?

It is applicable on PDC once it becomes a cheque i.e. from the date it is payable on demand and the said cheque is issued to meet a legitimate liability, but gets dishonored due to insufficient funds or the reasons specified in the Act.

In accordance to Section 138 of the said Act, the dishonoring of the issued cheque by the bank due to insufficient funds in the issuer’s account or if the specified amount on the cheque is over and above the amount arranged to be discharged by the issuer after making an agreement with the its bank, then such act is a criminal offence and is punishable provided:-

The cheque is presented within 6 months before the bank from the date mentioned on the face of the instrument or its date of validity, whichever is earlier.
The beneficiary demands the drawer to make the payment as so specified in the cheque within the due period of time and such a demand should be made in writing within 15 days from the date the bank informs about the return/dishonor of the given cheque by the drawer.
The drawer of the dishonored cheque couldn’t make the payment of the said amount to the drawee within the due period of the cheque or within 15 days of acknowledging the notice, as the case may be.



Legal Punishment on dishonor of PDC/Cheque

According to the provisions of the said Act, the legal punishment for dishonor of PDC is:-

Imprisonment maximum upto 1 year or
Fine equivalent to two times the amount mentioned on the dishonored cheque or
Both, as decided by the authority


Latest ruling on dishonor of PDC by the Apex Court…..a glimpse

According to the latest judgment of Supreme Court in a cheque bounce case, if the PDC is issued for any advance payment for any purchase/supply of goods/services is not any discharge of security of a legitimate debt, then it will not attract Section 138 of the Negotiable Instrument Act. It clearly indicated that any dishonor of PDC for repayment of EMI of a loan is considered as security and hence it will be covered under the purview of the Act.