SOME USEFUL INFORMATION on "MATERIAL ALTERATION :
Material Alteration is nowhere defined, but S. 87 talks about the effect of Material Alteration as “Any material alteration of Negotiable Instrument renders the same void as against anyone who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties;……..”
The principle laid down by section 87 is that any change in written instrument which causes it to speak a different language in legal effect from that which it originally spoke, namely, which changes the legal relation of the parties to it, is a material change, or technically, an alteration and such a change invalidates the instrument against the persons not consenting to the change. In other words an alteration of Negotiable Instrument is material if it might easily affect a party’s substantial rights whether such result actually follows or not.
The question as to whether the filling up of a blank cheque by the holder thereof after the same has been issued by the drawer would amount to ‘material alteration’ for the purpose of S. 87 of the act has been defined by various High Courts. A single judge of Kerala High Court in Capital Syndicate Vs. Jameela held that if a drawer issues a cheque leaf with his signature only and without the name of the payee and the specifying the amount and date, the filling up of the name of the payee and the specifying the amount and date would amount to material alteration u/s.87 of the act and therefore the criminal proceedings u/s. 138 of the act would not lie if such a cheque is dishonored. The court observed that “…..the subsequent insertion of the amount and the name of the payee without the consent of the drawer would amount to material alteration rendering the instrument void u/s. 87 of the Act”. In the said judgment the Kerala High Court cited with approval the decision of a division bench of the Kerala High Court in Bhaskaran Chandrasekharan v. Radhakrishanan in which the court had considered whether the putting of the date in an undated cheque subsequent to the issue of the same when there was no dispute regarding consideration, signature, amount and the name of the payee, would amount to material alteration rendering the instrument void u/s. 87 of the Act. the Court held that: “ When a cheque is issued for valid consideration, with no dispute regarding signature, amount and name, it cannot be said that putting a date on cheque by the payee who is the holder of the cheque in due course would amount to material alteration rendering the instrument void. In fact there is no material alteration. When a cheque is admittedly issued with blank date, and when the payee has no objection with regard to the name, amount and signature, it can be assumed that there is an implied consent for putting the date as and when required by the beneficiary at get it enchased”. The court further held that: “Alteration of the date in the cheque may be material alteration. Alteration may have the effect of lengthening the period of limitation or shortening it. So alteration of payee’s name is material which affects the character of the instrument, and so also the relationship of the parties. So also the alteration of signature as well as the amount. All this would amount to material alteration”.
A division bench of Kerala High Court in Lillykutty v. Lawrence held as follows: “…..there are instances where blank cheques are issued to the payee. If any amount is due to the payee from the drawer of the cheque and that amount is shown in the cheque which is admittedly signed by the drawer, the presumption could be drawn that the cheque has been validly issued. An implied consent can be presumed in such a situation. Once a cheque is drawn by a person on an account maintained by the bank and is returned with the endorsement “funds insufficient”, it amounts to dishonor within the meaning of S. 138 of NIA. S. 138 confirms the presumption provided under S. 118(a) and 118(g) of the Act….when the drawer has issued the cheque whether the entire body was written by the drawer written beyond the instructions of drawer, whether the amount is due or not, those and such matters are defenses which drawer has to raise and prove it. Therefore the mere fact that the payee’s name and the amount shown in the cheque are in different hand writing is not a reason for not honouring the cheque by the bank. Banks would normally see whether the instrument is that of the drawer and the cheque has been signed by the drawer himself. The burden is therefore entirely on the drawer of cheque to establish that the date, amount and the payee’s name are written by somebody else without the knowledge and consent of the drawer”.
A single judge of Andhra Pradesh High Court in Avon Organics Ltd. V. Pioneer Products Ltd. & ors. also observed and held as follow: “whenever blank cheques are filled up and presented, a presumption can be drawn u/s. 139 of the Act. It’s a rebuttable presumption. The question is whether the accused is able to rebut the presumption. I’m of the considered view that he has rebutted the presumption in this case as he has not given consent to fill up the cheque in particular amount, in figures and words and the date portion. It constitutes alteration of the cheque. I also state that it was issued for the legally enforceable liability, namely, towards the amount due under the invoices. But the instrument issued without mentioning the figures, words and date portion in the cheque do not amount a cheque or a bill of exchange at the time of its issuing. Subsequently, it can be altered only with the consent of the party, who has issued the cheque. Otherwise, it amounts to material alteration. When it does not constitute a cheque and the same is filled up and presented to the bank, it cannot be said that the accused has committed an offence…..the person who accepts the blank cheque certainly has to take it along with the risks to be faced under law. It’s not opened to him to complain subsequently when the amount has not been realized, etc. I’m of considered view of that the cheque issued without mentioning the amount for which it is drawn is not a cheque at all. It’s not a bill of exchange at all as it’s not drawn for a certain amount. When such is the thing, the question of invoking S. 138 of the Act does not arise”.
It follows from the judgments above that the subsequent insertion of the amount and the name of the payee in the cheque that has been issued by the drawer with his signature only and without the name of the payee and the specifying the amount and date would amount to material alteration rendering the instrument void under S. 87 of the Act unless the name of the payee and the amounts are inserted with the consent of the drawer.
However, the aforesaid judgments do not consider S 20 of the Act. So what is to be considered is the provisions of the said S. 20 of the Act which reads as follow:
“20. Inchoate stamped instruments- Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in [India], and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount, provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereunder”.
Thus S. 20 of the Act permits he drawer of negotiable instrument to issue a blank instrument to another person who may complete the instrument for an amount not exceeding the amount intended by the drawer to be paid under the instrument. Therefore, although the judgments discussed above have clearly laid down an incomplete instrument where the name of the payee and the amounts are not mentioned is not a cheque at all for the purposes of the Act and any subsequent insertion of the amount and name of the payee would amount to a material alteration, S. 20 as aforesaid permits the holder in due course of an incomplete instrument to subsequently insert the name of the payee and amount provided, the amount so inserted does not exceed the amount intended by the drawer to be paid under the instrument.
Also it may be noted that S. 87 of the Act provides that the alteration of a written instrument, though it may be material, may not invalidate such an instrument if it is carried out to in order to carry out the common intention of the original parties.
Apart from the aforesaid judgments there are some other judgments of various High Courts which have held that for proceedings u/s. 138 of the Act to be maintainable, the cheques that have been dishonoured must have been issued by the drawer voluntarily for discharge of a subsisting debt or legal liability and should not have been issued as a security for the purposes of a contract.
The Andhra Pradesh High Court in Taher N. Khambati v. Vinayak Enterprises & Ors. while holding the cheques should have been voluntarily issued for discharge of a debt or legal liability as envisaged u/s. 138 has observed as follows: “…..Section 138 of the Act is introduced with a view to avoid the malignant trade practices of indiscriminately issuing cheques without funds. The amendment is introduced with a view to curb instances of issuing such cheques indiscriminately. So, having regard to the purpose with which this provision is introduced, it is doubtful whether a case of this nature can be construed as attracting the provisions of Section 138 of the act. In the instant case, the appellant advanced money to the respondents and obtained a pronote. It was stipulated that the respondents should pay interest every month. At the same time appellant-creditor took blank signed cheques from the respondents with the understanding that the complainant could fill the other columns in the cheque and present it if the respondents committed default in payment of interest. The respondents paid interest for about 8 months and thereafter stopped payment of interest. Then the appellant paid put the date as 15-1-91, wrote his own name in the space intended for the payee and also mentioned amount as Rs. 1,18, 337/- and presented the cheque. Even at the time he presented the cheque, he would have expected that the cheque would be honoured. He was presenting the cheque only with the view to get endorsement which would enable him to proceed under S. 138 of the Act. If this sort of practice is allowed, every creditor should abuse the provisions of the S. 138 of the Act by obtaining blank cheques and putting the debtors in the fear of presentation insist on discharge of the debts at any time. I do not think that would have been the intention of the Legislature while incorporating S. 138 in the Negotiable Instrument act. Though, the appellant did not state the circumstances under which the complainant this signed blank cheque from the respondent. So, the appellant has obtained a signed blank cheque with a view to make use of it, as a threat to respondents for realization of the amount. So, it cannot be construed that the respondent had issued the cheque voluntarily for discharge of any debt or legal liability as envisaged under section 138. I, therefore find that the facts and circumstances of the case are not attracted by the provisions of Section 138 of the Act…”
The Madras High Court in M/s Balaji Seafoods Exports (India) Ltd. And another v. Mac Industries Ltd. held that on the date when a blank cheque has been issued by a drawer there should be a subsisting debt or liability between the parties. It further held that the dishonour of an undated cheque which has been issued only as security does not attract the provision of S. 138 of the Act at all. The Madras High Court while holding as above, observed as follows: “…..Thus, what we find is that the cheque has been given as a security. It was not a post dated cheque, but it was a blank cheque. It was handed on the date when the first agreement was entered into in the month of December, 1995. Now, the point to be considered is, as to whether such a cheque issued in 1995 as security can be brought u/s. 138 of the Act….. It is to be pointed out that on the date when the contract was entered into between the parties there was no subsisting liability or debt. That is why the contract itself makes it clear that the cheque has to be handed over as a security….An undated cheque for Rs.35 lakhs was handed over as security for the purpose of the contract. It was not handed over with the intension of making it as an instrument of immediate negotiation to discharge a subsisting liability or debt. Thus, this is a case where one of the parties to the contract had obtained a signed undated cheque of Rs.35 lakhs as a security. As dispute arose between the parties, the cheque is now utilized by the complainant to resort to Section 138 of the Act by filing in a date convenient to him….therefore, I am of the view that as an undated cheque having been given only as security, the provision of Section 138 of the Negotiable Instruments Act are not at all attracted and hence, the complaint against the complaint the accused under Section 138 of the Negotiable Instruments Act cannot be maintained at all….”