No Criminal Liability Under Section 138 NI Act for Dishonour of Cheque Issued Towards Refund of Money Paid for Illegal Act; Void Agreement Creates No Legally Enforceable Debt: Punjab & Haryana High Court
Case Name: Jagmohan Singh v. Shamsher Singh
Date of Judgment: 09.10.2026
Citation: CRM-M-544-2019
Bench: Hon’ble Mr. Justice Jasjit Singh Bedi
Held: The Punjab and Haryana High Court held that dishonour of a cheque issued towards refund of money paid under an illegal agreement for securing employment does not constitute an offence under Section 138 of the Negotiable Instruments Act, 1881. Where the underlying transaction is void and opposed to public policy, the amount sought to be recovered cannot be treated as a legally enforceable debt or liability.
The Court further clarified that the statutory presumption under Section 139 of the NI Act regarding discharge of a legally enforceable liability does not arise where the complainant’s own case establishes that the cheque was issued in connection with a void transaction.
Summary: The dispute arose when the complainant allegedly paid ₹2,20,000 to the petitioner on 05.09.2017 in consideration of his promise to secure employment for the complainant’s brother with Reliance Company. When the promised employment did not materialise, the petitioner issued a cheque dated 05.07.2018 for ₹2,20,000 towards refund of the amount.
The cheque was dishonoured with the endorsement “payment stopped by drawer”, following which the complainant initiated proceedings under Sections 138, 142 and 143 of the Negotiable Instruments Act. The petitioner challenged the complaint and summoning order under Section 482 CrPC, contending that the cheque was issued pursuant to an unlawful agreement incapable of creating an enforceable debt.
The High Court examined the requirement of a legally enforceable liability under Section 138 NI Act in conjunction with Sections 23 and 2(g) of the Indian Contract Act, 1872. It observed that an agreement whose object or consideration is unlawful or opposed to public policy is void and cannot form the foundation of criminal liability for cheque dishonour.
Relying upon Avtar Singh v. Ranjit Singh, 2024 NCPHHC 121202, Khaleel Khan P. v. Sunil Kumar G.C., and P. Kulanthaisamy v. K. Murugan, 2026 ACD 238, the Court reiterated that money advanced under an unlawful arrangement for procuring employment does not constitute a legally recoverable debt merely because a cheque was subsequently issued for its refund.
The Court concluded that, since the underlying agreement was itself void and contrary to public policy, the cheque could not be regarded as having been issued towards discharge of a legally enforceable liability.
Decision: The High Court allowed the petition under Section 482 CrPC and quashed Complaint Case No. 4146 of 2018 dated 21.09.2018, the summoning order dated 13.10.2018 passed by the Judicial Magistrate First Class, Karnal, and all consequential proceedings under the Negotiable Instruments Act.
The Court held that the statutory ingredients of Section 138 NI Act were not satisfied because the cheque arose from an unlawful employment-related transaction and did not represent a legally enforceable debt.