LHC sets precedent in cheque misuse cases

RAWALPINDI: The Lahore High Court (LHC) Rawalpindi bench on Thursday raised concern over the apparent misuse of judicial powers by district courts in cases involving cheque dishonour and recovery.

A division bench, comprising Justice Mohammad Sajid Mehmood Sethi and Justice Jawad Hassan, set a legal precedent while ruling on a case involving the recovery of Rs70 million from Mohammad Waseem.

The private company Maple Leaf Cement sought the amount, alleging that Mr Waseem’s misappropriation had led to a loss of Rs79m. Following a settlement, Mr Waseem was asked to issue a cheque for Rs70m. However, the cheque bounced due to insufficient funds, leading to a case being filed against him.

The trial court passed a decree in the company’s favour to recover the amount under Order XXXVII of the Code of Civil Procedure (CPC) of 1908, which deals with the recovery of debt or liquidated amount.

However, the LHC division bench ruled that no suit under Order XXXVII could be filed without an agreement between the parties.

Justice Jawad Hassan, authoring the judgement, clarified that Rule 2 of Order XXXVII only permits filing a summary suit based on bills of exchange, hundis, or promissory notes.

The judgement emphasised that a cheque is a negotiable instrument under the Negotiable Instruments Act of 1881, but without “negotiation of the parties on an agreement”, such a suit cannot be initiated.

The court noted that the respondent company presented only a copy of the FIR and the cheque without any accompanying agreement or proof of a contractual relationship.

Citing Section 6 of the Negotiable Instruments Act, which defines a cheque as “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”, the court reiterated that a suit under Order XXXVII must be supported by a negotiable instrument arising from a contractual relationship.

The high court accepted the appellant’s leave to defend, setting a significant precedent that would curb the misuse of cheques in legal disputes.

According to legal experts, this decision is expected to protect vulnerable workers and individuals, ensuring they are not subjected to undue harassment through coerced cheques.

Published in Dawn, September 13th, 2024