What question did the Supreme Court answer?

Whether cheque dishonour is an offence only for two reasons named in Section 138 NI Act or also for similar reasons like signature mismatch and account closed.

What did the Court finally hold?

Dishonour due to reasons intended to defeat payment—such as account closed or signature changed—can fall under Section 138. The provision must stay effective and workable.

Why is signature mismatch covered?

If the drawer changes specimen signatures to stop payment, it mirrors insufficiency of funds. The mischief is the same, so Section 138 applies.

Who gets the benefit of presumption under Section 139?

The payee/holder in due course. The law presumes the cheque was issued for discharge of debt unless the drawer rebuts it.

Does this case quash all defences?

No. Genuine, non-fraud reasons may still exist. But courts will not allow technical tricks that defeat the statute’s purpose.

Laxmi Dyechem v. State of Gujarat, (2013) 1 CompLJ 137 (SC)

Cheque Dishonour & Section 138 NI Act —

Supreme Court of India 2013 (2013) 1 CompLJ 137 (SC) Negotiable Instruments Bench: Not specified ~7 min read

Author: Gulzar Hashmi Location: India Published: 25 Oct 2025 Slug: laxmi-dyechem-v-state-of-gujarat-2013-1-complj-137-sc

Quick Summary

The Supreme Court read Section 138 NI Act in a practical way. The Court said: do not let smart tricks defeat cheque law. If a drawer blocks payment by tactics like changing signatures or closing the account, it can still be an offence under Section 138.

CASE_TITLE: Laxmi Dyechem v. State of Gujarat PRIMARY_KEYWORDS: Section 138 NI Act; cheque dishonour; signature mismatch SECONDARY_KEYWORDS: account closed; stop payment; Section 139 presumption AUTHOR_NAME: Gulzar Hashmi LOCATION: India PUBLISH_DATE: 25 Oct 2025

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Issues

Is cheque dishonour an offence under Section 138 only in two listed situations, or also in similar situations that defeat payment?

Rules

Section 138, Negotiable Instruments Act, 1881: Penalises cheque dishonour in defined circumstances to protect commercial trust.
Section 139, NI Act: Presumes the cheque was issued for a legally enforceable debt or liability, unless rebutted.

Facts — Timeline

Timeline illustration for Laxmi Dyechem case facts

Business: Appellant (proprietorship) sold chemicals to Respondent-company on a running account; invoices raised over time.

Dues: As per Appellant’s books, ₹4,91,91,035 remained outstanding.

Cheques issued: Respondent gave many post-dated cheques. 117 cheques bounced due to incomplete signatures, no image found, or signatures did not match.

Statutory notice: Appellant sent notice under Section 138. Respondent claimed a mandate change and asked for return of cheques for fresh ones—but never issued fresh cheques.

Complaints: Cheques remained unpaid. Appellant filed 40 complaints under Section 138 before the trial court.

High Court orders: On 19 Apr 2010 and 27 Aug 2010, Gujarat High Court quashed the 40 complaints, holding such dishonour reasons were not under Section 138.

Supreme Court appeal: Appellant challenged the quashing before the Supreme Court.

Arguments

Appellant (Laxmi Dyechem)

Dishonour due to signature mismatch or similar tactics should still attract Section 138.
Courts must protect the workability of the statute; otherwise, it becomes sterile.
Presumption under Section 139 supports liability unless rebutted.

Respondent

Section 138 is limited to specific grounds; signature-related returns are outside it.
Mandate change was notified; old cheques should be replaced.
Accounts were disputed; liability not settled.

Judgment

The Supreme Court allowed the appeals and restored the complaints. The Court read Section 138 as a penal + remedial provision that must remain effective. If the drawer, after issuing a cheque, closes the account or changes specimen signatures to block payment, it can still fall under Section 138.

Ratio Decidendi

The phrase “amount of money… is insufficient” in Section 138 is a genus. Reasons like account closed, payment stopped, referred to drawer, or signature mismatch caused to defeat payment are species of that genus. The law targets the mischief, not narrow labels.

Why It Matters

Prevents technical evasion of cheque liability.
Strengthens commercial certainty and trust in banking.
Guides courts to apply Section 138 with a workability focus.

Key Takeaways

Purpose-based reading of Section 138: keep it effective.
Signature mismatch can qualify when used to stop payment.
Account closed / stop payment ≈ insufficiency of funds in effect.
Section 139 presumption supports the payee.

Mnemonic + 3-Step Hook

Mnemonic: “Stop the Cheque? Law Applies.”

Signature change to block payment → still Section 138.
Closed account / stop payment → mischief is the same.
Aim: keep the law effective, not sterile.

IRAC

Issue	Rule	Application	Conclusion
Are only two contingencies under Section 138 actionable?	Ss. 138–139 NI Act; purposive, workable interpretation.	Signature mismatch/mandate change used post-issue to defeat payment mirrors insufficiency.	No. Similar evasion tactics also attract Section 138; complaints restored.

Glossary

Insufficiency (Genus): Broad idea in Section 138 capturing different ways of blocking payment.
Species Examples: Account closed; stop payment; referred to drawer; signature mismatch (used to defeat payment).
Section 139 Presumption: Law presumes cheque for debt/liability unless drawer rebuts it.