The Supreme Court of India examined the interplay between Section 138 and Section 56 of the Negotiable Instruments Act, 1881. The Court held that where a borrower makes part-payment towards a loan after the issuance of a cheque, the payee is obligated under Section 56 to endorse the part-payment on the instrument prior to presentation.

If the cheque is presented for the full amount without such endorsement, the statutory notice of demand claiming the entire face value becomes legally flawed. Consequently, criminal proceedings under Section 138 cannot be sustained for the unadjusted amount.

The Division Bench of the High Court examined petitions challenging the denial of Input Tax Credit (ITC) due to procedural mismatch between supplier returns and purchaser credit ledgers.

The Court observed that genuine purchasing dealers who have paid the tax to registered suppliers cannot be penalized merely due to procedural delays or default on the part of selling dealers when the bona fides of the transaction, tax invoices, and bank payment records are established.