Madras HC Quashes Builder’s Cheque-Bounce Case, Citing Refund-Security Cheques And ₹10-Crore Payment Under Disputed Settlement

The respondent filed a complaint under Sections 138 and 141 of the Negotiable Instruments Act, 1881 (NI Act), alleging that the petitioners owed approximately ₹44.47 crore following financial and commercial dealings.

The complaint concerned 14 cheques, which were dishonoured with the remarks “Payment Stopped by Drawer” and “Exceeds Arrangement”

The petitioners maintained that the cheques were security instruments connected with a phased refund arrangement following cancellation of property bookings, and that the amount actually refundable was substantially lower than the respondent’s claim

After the respondent lodged an FIR, the parties executed a settlement dated 16 June 2026: the petitioners paid ₹10 crore and agreed to pay a further ₹20 crore; the petitioners later challenged the settlement in a pending civil suit

The petitioners sought to quash the complaint in S.T.C. No. 17013 of 2026 under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023

1. Whether the cheques represented a legally enforceable debt or liability, particularly when the complaint did not specify the dates and amounts of the alleged advances or explain the computation of the claimed outstanding sum

2. Whether the Section 138 proceedings were maintainable in light of the settlement dated 16 June 2026 and the petitioners’ payment of ₹10 crore under it

Section 138 of the NI Act applies where a cheque is dishonoured and was issued towards a legally enforceable debt or other liability; Section 139 provides a presumption in favour of the holder that the cheque was issued in discharge of such debt or liability

Under Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel, a cheque must represent a legally enforceable debt on the date of its presentation, and an intervening part-payment may reduce the liability below the cheque amount

Indus Airways Private Limited v. Magnum Aviation Private Limited confirms that a cheque must relate to a subsisting legally enforceable obligation, rather than an obligation that does not exist when payment is sought

The Court also referred to the limited power to quash proceedings where the complaint discloses no offence or suffers from a fundamental legal defect, as stated in Municipal Corporation of Delhi v. Ram Kishan Rohtagi and Rajendra Bihari Lal v. State of Uttar Pradesh

Section 3 of the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003, prohibits charging exorbitant interest on a loan

The Court found that the complaint did not identify the dates or amounts of the alleged advances, provide a transaction-wise account, explain how the ₹44.47 crore figure was calculated, or specify the interest claimed

It considered those omissions alongside the petitioners’ account that the cheques secured a phased refund arrangement, the alleged repayments, and the ₹10 crore payment under the later settlement.

In the Court’s view, those circumstances made the nature and extent of the liability on the dates of presentation material, particularly under Dashrathbhai’s rule that the cheque must represent the subsisting debt when presented

It therefore concluded that the respondent had not made out a prima facie case that the cheque amounts corresponded to legally enforceable liabilities on those dates

It allowed the petition and quashed the entire proceedings in S.T.C. No. 17013 of 2026; the connected miscellaneous petitions were closed