The Lahore High Court (LHC) Rawalpindi bench has raised concerns over the misuse of judicial powers by district courts in cases involving cheque dishonor and recovery. The court’s decision sets a new precedent, clarifying the legal framework surrounding such cases.
The case in question involved the recovery of Rs70 million from Mohammad Waseem, following allegations by Maple Leaf Cement that his misappropriation led to a loss of Rs79 million. As part of a settlement, Waseem issued a cheque for Rs70 million, which subsequently bounced due to insufficient funds, prompting legal action against him.
The trial court had initially ruled in favor of Maple Leaf Cement, allowing recovery under Order XXXVII of the Code of Civil Procedure (CPC) of 1908, which pertains to the recovery of debt or liquidated amounts.
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However, the LHC division bench, comprising Justice Mohammad Sajid Mehmood Sethi and Justice Jawad Hassan, overturned this decision. The court ruled that a suit under Order XXXVII cannot be filed without an agreement between the parties. Justice Jawad Hassan, who authored the judgment, clarified that Rule 2 of Order XXXVII permits filing a summary suit only based on bills of exchange, hundis, or promissory notes.
The judgment emphasized that while a cheque is a negotiable instrument under the Negotiable Instruments Act of 1881, initiating a suit requires “negotiation of the parties on an agreement.” The court noted that Maple Leaf Cement had only presented a copy of the FIR and the cheque, without any supporting 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.