In a major order that will help financial institutions and banks to recover loans, the Supreme Court has ruled that stop payment of post-dated cheques issued by a person to discharge his debt or liability could amount to a penal offence.

"A post-dated cheque will lose its credibility and acceptability if its payment can be stopped routinely," a bench comprising Justice M B Shah and Justice Arun Kumar said in a recent judgement.

Referring to an amendment to Section 138 of the Negotiable Instruments Act making bouncing of cheques a penal offence, the bench said the amendment was brought forward with the object of inculcating faith in the efficacy of banking operations and giving credibility to negotiable instruments in business transactions.

The faith, which the legislature had desired that such instruments should inspire in commercial transactions, would be completely lost if parties, as a matter of routine, were allowed to interdict payment by issuing instructions to banks to stop payment of cheques, it said.