PUNJAB AND SINDH BANK versus VINKAR SAHAKARI BANK LTD. AND ORS.

Citation: [2001] SUPP. 3 S.C.R. 104 · Decided: 17-09-2001 · Supreme Court of India · Bench: K.T. THOMAS · Disposal: Appeal(s) allowed
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Judgment (excerpt)

A 
PUNJAB AND SINDH BANK 
v. 
VINKAR SAHAKARI BANK LTD. AND ORS. 
SEPTEMBER 17, 2001 
B 
[K.T. THOMAS AND S.N. VARIAVA, JJ.] 
. 
Negotiable Instruments Act, 1881-Sections 4, 5, 6, 17, 50, 118(g), 
131A and 138-Pay order whether a cheque-Held pay order is a cheque 
since it is closer to a Bill of Exchange because of the unconditional order of 
C 
the maker to pay a certain sum to the person concerned. 
D 
E 
F 
G 
H 
Banking Practice : 
Holder in due course-Holder of pay order could be holder in due course 
unless the presumption is rebutted-Evidence Act, 1872, Section 114. 
Certain pay order was dishonoured by the drawer bank. The holder 
of the pay order filed a complaint under section 138 of the Negotiable 
Instruments Act, 1881. Single Judge of the High Court quashed the 
complaint on the premises that the pay order was not a cheque· and that 
the complainant bank was not the holder in due course and therefore the 
complainant has no locus standi to file complaint. Hence the present appeal. 
Respondents contended that the 'Pay Order' is only a draft issued by 
the bank and it may at best be a promissory note and not a cheque. 
Allowing the appeal, the Court 
HELD : 1. Pay order is a cheque. within the meaning of section 138 of 
the Negotiable Instruments Act, 1881. [107-E] 
2.1. A cheque is a Bill of exchange drawn on a specified banker and 
not expressed to be payable otherwise than on demand. Under the Bill of 
Exchange, the maker or the drawer of a Bill of Exchange must direct a 
'certain person' to pay a particular sum of money, whereas the essential 
postulate for a promissory note is that there should be an unconditional 
undertaking to pay a certain sum by the drawer. [107-F; 108-A; CJ 
2.2. In the instant case, the draft or a pay order dishonoured by the 
104 
PUNJAB AND SINDH BANK v. VINKAR SAHAKARI BANK LTD. 
105 
drawer bank cannot be brought within the purview of the definition of 
promissory note in section 4 of the Negotiable Instruments Act, 1881. An 
unconditional undertaking to pay a certain sum by the drawer cannot be 
read out from the instrument. The instrument is closer to a Bill of Exchange 
because of the unconditional order of the maker to pay a certain sum to 
the person concerned. [108-C; DJ 
3. The postulate in section 5 of the Act that the Bill of exchange shall 
contain an unconditional order directing "a certain person to pay" need 
not necessarily refer to third person. Such "a certain person" could as well 
be the bank which has drawn the Bill of Exchange. So long as the instrument 
is in the possession of a holder or a holder in due course such instrument 
would operate as a Bill of Exchange even if the drawer and the drawee 
happened to be the same person or banking institution. [108-D; El 
A 
B 
c 
4. Section 131 of the Act is intended to widen the scope of crossed 
drafts as to contain all incidences of a crossed cheque which is for the 
purpose of foreclosing a possibility of holding the view that draft cannot be 
D 
crossed. Therefore, it cannot be said that section 131A is intended to limit 
the operation of the draft as a cheque only for crossing purposes. Under 
section 17 of the Act even if it is possible to construe the draft either as a 
promissory note or as a Bill of Exchange, Law has given the option to the 
holder to treat it as he chooses. Therefore, in the instant case since the 
complainant-bank who is the holder has elected to treat the instrument as 
E 
a cheque it cannot but be treated as a cheque thereafter. This is an 
irretrievable corollary of exercising such an election by the holder himself. 
[109-A-D] 
5. In the instant case in view of sections 8, 9 and 142 of the Act, 
complainant bank was within its right to possess the cheque and to receive 
F 
or recover the amount covered by the instrument. The complainant is the 
holder of the instrument on its own right by virtue of section 118(g) the 
complainant could be a holder in dne conrse until the concerned party 
adduces evidence to rebut the presumption. It is open to the respondents to 
rebut the presumption in the trial but till then the High Court can not say 
G 
that the complainant is not a holder in due course at all. [111-D; F] 
Capital and Countries Bank v. Gordon, (1903) AC 240; Bibi Kazmi 
Begum v. Lachman Lal Sao and Ors., AIR (1930) Patna 239; Birbhum Central 
Co-operative Bank Ltd. v. Pioneer Bank Ltd., AIR (1956) Calcutta 615 and In 
the matter of the Palai Central Bank Ltd., AIR (1962) Ker
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