Case BriefsSupreme Court

Supreme Court: While rejecting an appeal to quash proceedings under Section 138 of the N.I. Act, 1881 at pre-trial stage, the Division Bench comprising of K.M. Joseph and Hrishikesh Roy*, JJ., held that when there is legal presumption, it would not be judicious for the quashing Court to carry out a detailed enquiry on the facts alleged, without first permitting the trial Court to evaluate the evidence of the parties.

The Bench upheld the impugned judgment of Delhi High Court wherein the High Court had – while acting as a quashing court under Section 482 of CrPC – refused to quash proceedings at pre-trial stage. The Bench observed,

“The quashing Court should not take upon itself, the burden of separating the wheat from the chaff where facts are contested.”

Factual Backdrop

Evidently, the complainant invested a substantial sum in the appellant’s company, however as some dispute arose between them, the parties decided that the invested money would be returned to the complainant and the shares allotted to the complainant will be proportionately transferred to the appellant. Pursuant to such compromise, the four cheques were issued by the appellant, which on being presented by the complainant, got dishonourned due to insufficient fund. Consequently, proceedings under NI Act came in picture.

Submissions of the Parties

The appellant argued that without satisfying the essential ingredients for the offence under Section 138 of the N.I. Act to the effect that the dishonoured cheque received by the complainant was against “legally enforceable debt or liability”, the criminal process could not have been issued. According to the appellant, the cheques in question were issued as “security” for buyback of shares and not in discharge of any “legally recoverable debt” and therefore they could not have been prematurely presented to the bank and should have been presented for encashment only after transfer of the complainant’s shareholding in the appellant’s company.

On the contrary, the complainant contended that when the cheques were issued and the signatures thereon were admitted, the presumption of a legally enforceable debt would arise in favour of the holder of the cheque. The complainant argued that the appellant should first pay and then as per the usual practice in the trade, the shares would be transferred to the appellant in due course within the time permitted by law.

Analysis and Conclusion

In HMT Watches Ltd. v. M.A. Abida, (2015) 11 SCC 776, and in Rajiv Thapar v. Madan Lal Kapoor, (2013) 3 SCC 330, it has been held that unless the Court is fully satisfied that the material produced would irrefutably rule out the charges and such materials being of sterling and impeccable quality, the invocation of Section 482 Cr.P.C power to quash the criminal proceedings, would be unmerited.

The Bench opined that when there is legal presumption, it would not be judicious for the quashing Court to carry out a detailed enquiry on the facts alleged, without first permitting the trial Court to evaluate the evidence of the parties. The quashing Court should not take upon itself, the burden of separating the wheat from the chaff where facts are contested. The Bench observed,

“The consequences of scuttling the criminal process at a pre-trial stage can be grave and irreparable.”

The Bench stated that at any rate, whenever facts are disputed the truth should be allowed to emerge by weighing the evidence. Otherwise, the accused may get an un-merited advantage in the criminal process. Hence, the Bench held that when the cheque and the signature were not disputed by the appellant, the balance of convenience was in favour of the complainant/prosecution and the accused will have due opportunity to adduce defence evidence during the trial, to rebut the presumption.

In the light of above, the Bench reached to following findings:

  1. In shares transactions, there is a time lag between money going out from the buyer and shares reaching to the seller.
  2. The burden of proving that there is no existing debt or liability, is to be discharged in the trial.
  3. The legal presumption of the cheque having been issued in the discharge of liability must also receive due weightage.
  4. In a situation where the accused moves Court for quashing even before trial has commenced, the Court’s approach should be careful enough to not to prematurely extinguish the case by disregarding the legal presumption which supports the complaint.

Consequently, the Bench held that when the proceedings are at a nascent stage, scuttling of the criminal process is not merited. Hence, the impugned judgment was upheld as the same was found to be rendered by applying the correct legal principles.

[Rathish Babu Unnikrishnan v. State (NCT of Delhi), 2022 SCC OnLine SC 513, decided on 26-04-2022]


*Judgment by: Justice Hrishikesh Roy


Appearance by:

For the Appellant: Krishnamohan K., Advocate

For the Complainant: K.M. Nataraj, ASG and Rebecca M. John Senior Counsel


Kamini Sharma, Editorial Assistant has put this report together

Case BriefsHigh Courts

Delhi High Court: Asha Menon, J., held that if no offence is attributed to the company, its Directors and other persons responsible for the conduct of its business cannot be saddled with any liability.

The petitioner had filed a complaint under Section 138 of the Negotiable Instruments Act, 1881 against the respondent. It was stated that, the commercial space owned by the petitioner had been let out upon terms and conditions in the Rent Agreement.

The above-said rent agreement was executed between the petitioner and the respondent’s company. Further, in March-April, 2013 the respondent was alleged to have issued five cheques duly signed by the Managing Director to discharge the company’s liability to pay the rent.

The above-said cheques were bounced; hence the complaint was filed.

Analysis and Decision

High Court observed that the Company upon which the primary liability rests and a person who is sought to be made vicariously liable for an offence of which the principal accused is a company, would need to have a role to play in relation to the incriminating act.

Section 141 of the N.I. Act operates only when the offence under Section 138 of the N.I. Act is committed by a company.

Further, Court stated that the Company being the primary accused must be found to have committed an offence. Thereafter, through the legal fiction created by Section 141 of the N.I. Act, the Directors and other persons responsible for the conduct of its business also become vicarious liable.

In the present matter, all the averments were against the respondent, who was described as Managing Director.

There was no pleading which suggested that the Company had committed any offence.

When no offence is attributable to the Company, it is not possible to attach liability on the Managing Director by the deeming provisions of Section 141 of the N.I. Act.

Bench added that, amendments of simple technical infirmities alone can be allowed but not the filing of a fresh complaint with improved pleadings in the garb of the amendment.

Hence, in view of the above discussion, Court denied grant permission to amend the complaint.

Therefore, the petition was dismissed. [Hari Shamsher Kaushik v. Jasbir Singh, 2022 SCC OnLine Del 1379, decided on 9-5-2022]


Advocates before the Court:

For the Petitioner: Mahesh K. Mehta, Advocate

For the Respondent: None

Hot Off The PressNews

In compliance with the Supreme Court’s decision dated 16-4-2021, passed in (2021) 10 SCC 598 “In Re: Expeditious Trial of Cases under Section 138 of Negotiable Instrument Act 1881”, the Chief Justice of Bombay High Court has issued the following practice directions: –

1. The magistrates having jurisdiction to try offences under the Negotiable Instruments Act, 1881, shall record cogent and sufficient reasons before converting a complaint under Section 138 of the N.I. Act from summary trial to summons trial in the exercise of power under the second proviso of Section 143 of N.I.Act. Due care and caution shall be exercised in this regard and the conversion of summary trial to summons trial shall not be in a mechanical manner.

2. On receipt of any complaint under Section 138 of N.I. Act, wherever it is found that any accused is resident of the area beyond the territorial jurisdiction of the magistrate concerned, an inquiry shall be conducted by the magistrate to arrive at sufficient grounds to proceed against the accused as prescribed under Section 202 of Cr.P.C.

3. While conducting any such inquiry under Section 202 of Cr.P.C., the evidence of witnesses on behalf of the complainant shall be permitted to be taken on affidavit. In suitable cases, the magistrate may restrict the inquiry to the examination of documents without insisting for examination of witnesses for satisfaction as to the sufficiency of grounds for proceeding under the said provision.

4. Trial Court shall treat service of summons in one complaint under Section 138 of the N.I. Act forming part of a transaction, as deemed service in respect of all complaints filed before the same Court relating to the dishonor of cheques issued as a part of the same transaction.

5. Trial Courts have no inherent power to review or recall the issue of summons in relation to complaints filed under Section 138 of N.I. Act. However, the same shall not affect the power of the Trial Court under Section 322 of Cr.P.C to revisit the order of issue of process in case it is brought to the court’s notice that it lacks jurisdiction to try the complaint.

6. Section 258 of Cr.P.C. has no applicability to complaints under Section 138 of the N.I.Act. The words “as far as may be” in section 143 are used only in respect of applicability of Sections 262 to 265 of the Code and the summary procedure to be followed for trials under the said Code.

7. The appellate courts before which appeals against the judgments in complaint under Section 138 of the N.I. Act are pending are directed to make an effort to settle the dispute through mediation.

The above said practice directions are to come into effect from immediate effect. High Court also directed for strict compliance of the directions.


Bombay High Court

Circular No. Rule/P.1605/2022

[Circular dt. 27-1-2022]

Case BriefsDistrict Court

Dwarka Court, New Delhi: Shipra Dhankar, MM (NI Act) on noting that the dishonour of cheque occurred in consequence of an illegal and void agreement, dismissed the complaint under Section 138 of the Negotiable Instrument Act, 1881.

What are we dealing with in the present matter?

The Complainant was approached by the accused with the proposal that, in return for a commission/liaison fee, the accused can obtain in the complainant’s favour a tender issued by the NTPC where the accused enjoys “good links” with the higher authorities.

Thereafter, the complainant, after having applied for the said tender and paid the amount demanded from him, received from the accused a tender award letter, however, the said letter was later found to be forged.

In view of the above incident, the complainant demanded his money back from the accused, pursuant to which certain cheques were drawn in his favour out of which one got dishonoured.

Complainant approached the Court due to the dishonour of the above-said one cheque.

Analysis, Law and Decision

Section 138 NI Act clarifies that “debt or other liability” means a legally enforceable debt or other liability. The said legal position was fortified by the decision of Delhi High Court in Virender Singh v. Laxmi Narain, 2006 SCC OnLine Del 1328 wherein it was found that if the consideration or object of an agreement is unlawful, illegal or against the public policy, the agreement itself is void and legally unenforceable, as a result of this, any cheque issued in discharge of a liability under such a void agreement, cannot be said to be issued in discharge of a legally enforceable debt o liability.

The Bench also relied on Section 23 of the Indian Contract Act to see whether the agreement entered into by both the parties was for a lawful consideration/object or not.

Court on noting the fact that the sole purpose of the agreement was to obtain a tender in favour of the complainant, not on the basis of its intrinsic merit, but on the basis of “good links” of the accused with the NTPC higher authorities. Such agreements are expressly rendered void and of no legal consequence by virtue of Section 23 of the Indian Contract Act.

Hence the agreement was illegal and void.

In the present matter, presumption stood rebutted by the Complainant’s own version. The complainant’s own depiction of the transaction disclosed that the same was legally unenforceable and void.

Lastly, the Court referred to the maxim “in pari delicito portior est conditio defendantis”, which embodies the principle: “the Courts will refuse to enforce an illegal agreement at the instance of a person who is himself a party to a illegality or fraud”.

In light of the above discussion, the cognizance in the present complaint was declined and the complaint was dismissed. [Virender Dahiya v. Keshav Kumar, CC No. 11747 of 2021, decided on 10-1-2022]

Case BriefsDistrict Court

XVIII Addl. Chief Metropolitan Magistrate, Bengaluru City: Manjunatha, XVII Addl. C.M.M., found the accused guilty for the offence under Section 138 of the Negotiable Instruments Act, on his failure to rebut the statutory presumption in favour of the holder of cheque.

Background

The complainant had filed the instant complaint under Section 200 of Code of Criminal Procedure read with Section 138 of the Negotiable Instruments Act against the accused alleging that, she had committed the offence punishable under Section 138 NI Act.

Complainants and the accused were well known to each other as they were residing in the same locality and in 2018, the accused had approached the complainant for a loan of Rs 4,00,000 for the purpose of urgent legal and domestic necessities and promised to repay the same within 6 months.

Considering her request the complainant had paid Rs 4,00,000 to the accused by way of cash.

The accused and her husband had executed an undertaking by acknowledging the receipt of the amount, but she failed to keep up her promises. On repeated demand and request, the accused issued a cheque but the same was returned unpaid with an endorsement “Funds Insufficient” in the drawer’s account.

Further, despite the notice, the accused had not paid the cheque amount and thereby she had committed an offence punishable under Section 138 NI Act.

Court had issued summons and later, the accused was enlarged on bail.

As per the direction of the Supreme Court in Indian Bank Assn. v. Union of India, (2014) 5 SCC 590, this Court treated the sworn in statement of the complainant as complainant evidence.

Analysis, Law and Decision

Court cited the decision of Sukur Ali v. State of Assam, (2011) 4 SCC 729, in which the Supreme Court opined that even assuming that the counsel for the accused does not appear because of the counsel’s negligence or deliberately, even then the Court should not decide a criminal case against the accused in the absence of his counsel since an accused in a criminal case should not suffer for the fault of his counsel and in such a situation the Court should appoint another counsel and in such a situation the Court should appoint another counsel as amicus curiae to defend the accused.

In the decision of K.S. Panduranga v. State of Karnataka, (2013) 3 SCC 721, Supreme Court held that, “regard being had to the principles pertaining to binding precedent, there is no trace of doubt that the principle laid down in Mohd. Sukur Ali (supra) by the learned Judges that the court should not decide a criminal case in the absence of the counsel of the accused as an accused in a criminal case should not suffer for the fault of his counsel and the court should, in such a situation, must appoint another counsel as amicus curiae to defend the accused and further if the counsel does not appear deliberately, even then the court should not decide the appeal on merit is not in accord with the pronouncement by the larger Bench in Bani Singh” .

The Court further held that in view of the aforesaid annunciation of law, it can safely be concluded that the dictum in Mohd. Sukur Ali (supra) to the effect that the court cannot decide a criminal appeal in the absence of counsel for the accused and that too if the counsel does not appear deliberately or shows negligence in appearing, being contrary to the ratio laid down by the larger Bench in Bani Singh (supra), is per incuriam. Furthermore, the transaction alleged in the case is purely a commercial transaction enetered into between two private individuals and the accused is not in judicial custody and he is not fall under any of the parameter under legal services authorities Act to get free legal aid. Under such circumstance question of appointing advocate for accused at the state cost may not arise at all.”

 Question for Consideration:

Whether the complainant proves that, accused issued cheque for Rs 4,00,000 towards discharge of her liability, which was returned unpaid on presentation for the reason “Fund Insufficient” and despite of notice she had not paid the cheque amount and thereby committed an offence punishable under Section 138 of NI Act?

Analysis, Law and Decision

Court stated that, Sections 118 and 139 of NI Act raises a presumption in favour of the holder of the cheque that he had received the same for discharge in whole or in part of any debt or other liability.

Further, it was added that the accused can take probable defence on the scale of the preponderance of probability to rebut the presumption available to the complainant.

Whether the accused had successfully rebutted the said presumptions of law?

Court observed that the accused had not disputed the issuance of cheque and her signature in the cheque.

When the drawer has admitted the issuance of the cheque as well as the signature present therein, the presumptions envisaged under section 118 read with section 139 of NI Act, would operate in favour of the Complainant.

 The Bench added that the above-said provisions laid down a special rule of evidence applicable to negotiable instruments. The presumption is one of law and thereunder the court shall presume that the instrument was endorsed for consideration.

“…when the complainant has relied upon the statutory presumptions enshrined under section 118 read with section 139 of NI Act, it is for the accused to rebut the presumptions with cogent and convincing evidence.”

It is worth noting that, Section 106 of Indian Evidence Act postulates that, the burden is on the accused to establish the fact which was especially within his special knowledge.

Hence, the burden is on the accused to prove that the cheque in question was not issued for discharge of any liability.

With regard to proof of existence of legally enforceable debt was concerned, Court referred to the decision of Supreme Court in Rangappa v. Mohan, (2010) 11 SCC 441, wherein it was observed that,

“In the light of these extracts, we are in agreement with the respondent-claimant that the presumption mandated by section 139 of the Act does indeed include the existence of the legally enforceable debt or liability”

 In another decision in, T. Vasanthakumar v. Vijayakumari, (2015) 8 SCC 378, it was held that once the accused has admitted the issuance of Cheque, as well as signature on it, the presumption under Section 139, would be attracted.

In the present matter, despite giving sufficient time, the accused neither led defence evidence nor cross-examined PW1, therefore the evidence placed by the complainant remained unchallenged and there was no reason to disbelieve the version of the complainant.

The complainant had not produced any document regarding the lending of the amount to the accused, but in the absence of any contrary evidence, the unchallenged testimony of the complainant had to be believed. As such there was no rebuttal evidence on behalf of the accused to rebut the presumption available under Sections 118 and 139 of the NI Act.

Therefore, the complainant’s case was acceptable.

The complainant proved that, for discharge of liability accused had issued a cheque and she had intentionally not maintained a sufficient amount in her account to honour the said cheque.

In view of the above discussion, the complainant had proved the guilt of the accused punishable under Section 138 NI Act.

Supreme Court in a decision of H. Pukhraj v. D. Parasmal, (2015) 17 SCC 368, observed that having regard to the length of the trial and date of issuance of cheque, it was necessary to award reasonable interest on the cheque amount along with cost of litigation.

The Bench held that rather than imposing punitive sentence if sentence of fine is imposed with a direction to compensate the complainant for its monetary loss, by awarding compensation under Section 357 CrPC, would meet the ends of justice.

Lastly, Court opined that it was just and proper to impose fine of the amount of Rs 4,55,000 which included interest and cost of litigation. [N. Muniraju v. Manjula, Criminal Case No. 25494 of 2019, decided on 1-1-2022]


Advocates before the Court:

For the complainant: S.K

For the accused: G.V.K

Banking and Negotiable InstrumentsOp EdsOP. ED.

Sections 138 to 142 of the Negotiable Instruments Act, 1881[1] (for short, “the NI Act, 1881”) were inserted in the year 1988 by amending the principal Act of 1881 with the intent of encouraging the culture of use of cheques and credibility of the instrument. “Section 138[2]” became a mostly used common term in business, friends and family circles as majority of the financial transactions, despite the massive digitalisation post-demonetisation, still take place through issuance of cheques and in case of failure of the drawer (the one who owes money and issues the cheque) to honour the amount specified in cheque, the payee (the one to whom drawer owes money and whose name is written on the cheque) turns foe and invokes prosecution under that section. As economics is sine qua non of an individual from cradle to cremation and as Section 138 is thing closely related to economic activities, Section 138 cases have a lion’s share of dockets filed up in their name in India.

Section 138 punishes the person who fails to honour the amount specified in the cheque, which he has issued towards the discharge of his debt or liability towards another person, with up to two years of imprisonment or/and with fine up to double the cheque amount.

Unlike other statues, the Amendment Act of 1988[3] did not expressly specify territorial jurisdiction of the court in which Section 138 cases are to be filed by the aggrieved complainant. As the legislature has left fallow the area of territorial jurisdiction of cheque bounce cases, different Benches of the Supreme Court at different times started cultivation into that area by using their own divergent methods, which made the area so much infertile that when in 2015, the legislature entered into that area, it also got confused and failed to meet the object with which Sections 138 to 142 were inserted in the NI Act, 1881 and also failed to cope up the present demand casted by digitalisation and globalisation.

The first case on territorial jurisdiction aspect of cheque bounce cases was of a two-Judge Bench in K. Bhaskaran v. Sankaran Vaidhyan Balan,[4] wherein, after observing that offence under Section 138 can be completed only after concatenation of the following acts:

(1) drawing of cheque;

(2) presentation of cheque to the bank;

(3) returning the cheque unpaid by the drawee bank;

(4) giving notice to drawer by demanding payment; and

(5) failure of drawer to make payment within 15 days of receipt of notice,

the Court held that the complainant can file case in any of court having jurisdiction over any of those local areas within the territorial limits of which any one of aforesaid five acts was done. To arrive at this conclusion, the Court relied upon Sections 177 to 179 of the Code of Criminal Procedure, 1973[5] (for short, “CrPC”). Thus, a liberal, and in my opinion, substantially proper approach was adopted by the Supreme Court in K. Bhaskaran case[6].

But, in Harman Electronics (P) Ltd. v. National Panasonic (India)(P) Ltd.,[7]a 2-Judge Bench held that the court within whose limits, notice was issued cannot have territorial jurisdiction as it is the communication of notice which would give rise to a cause of action, and not issuance of notice. Thus, one of the acts laid in K. Bhaskaran case[8] was plucked out in Harman Electronics case[9]. It is to be noted that before Harman Electronics case[10], in Shamshad Begum v. B. Mohammed,[11] another 2-Judge Bench by following K. Bhaskaran case[12] held that the court from whose limits, notice was sent has jurisdiction. Shamshad Begum case[13] was not even discussed in Harman Electronics case[14].

Nonetheless, in Nishant Aggarwal v. Kailash Kumar Sharma,[15] Escorts Ltd. v. Rama Mukherjee,[16]and FIL Industries Ltd. v. Imtiyaz Ahmed Bhat,[17] the 2-Judge Bench followed K. Bhaskaran case[18] and held that the court within whose limits cheque has been presented by the payee through his account has jurisdiction.

Hence, as the ratio decided in K. Bhaskaran case[19] was shifting like pendulum from one corner to another over territorial jurisdiction of courts to deal with cheque bounce cases, a 3-Judge Bench was called upon to solve this conundrum. Therein came the judgment of a 3-Judge Bench in Dashrath Rupsingh Rathod v. State of Maharashtra,[20] which made matters worse by holding that only that court will have jurisdiction wherein the drawer maintains the bank account i.e. the drawee bank.

To overrule the ratio laid in K. Bhaskaran case[21], Dashrath Rupsingh[22] observed that the moment when cheque is dishonoured by the drawee bank (bank of the drawer), offence under Section 138 gets attracted, hence as the offence is committed at the place of drawee bank, the court situated therein will have jurisdiction. For arriving at this conclusion, it gained much of the strength from a previous judgment of a 3-Judge Bench in Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd.,[23] which held that  the word “bank” in Section 138 means only a drawee bank and the cheque has to be presented by the payee within the  limitation period of six months at such drawee bank. Although Ishar Alloy case[24] was not on the point of territorial jurisdiction, which was observed even in Dashrath Rupsingh case[25], but still it relied upon Ishar Alloy case[26] by stating that “when a court interprets any statutory provision, its opinion must apply to and be determinate in all factual and legal permutations and situations”[27]and “that Ishar Alloy[28] is only case … which was decided by a three-Judge and therefore was binding on all smaller Benches”[29] and it is “logically correct”.[30] In my opinion, reliance on Ishar Alloy case[31] was wholly untenable as firstly, Ishar Alloy[32]never discussed the point of territorial jurisdiction nor it was called to do so and it is well-settled rule that only that case can be relied by a subsequent Bench, which was decided on similar facts or atleast similar legal proposition, hence Ishar Alloy[33] interpretation of the word “bank” was purely for limitation period purposes, for which I gain strength from the 2015 Amendment which allowed jurisdiction in court where the payee maintains an account. Secondly, even assuming reasons given by Dashrath Rupsingh[34] for reliance on Ishar Alloy[35] to be correct, it should be noted that  K.T. Thomas, J.  who wrote for the 2-Judge Bench in K. Bhaskaran case[36] also part of 3-Judge Bench in Ishar Alloy case[37], the judgment of which was authored by  R.P. Sethi, J. Hence, if  K.T. Thomas, J. wanted to reverse his own opinion expressed in K. Bhaskaran case[38] or if he wanted to dissent from  R.P. Sethi, J.’s opinion, then he would have authored his own judgment, which could not be found. It is for the reason that the 3-Judge Bench in Ishar Alloy case[39] knew that it was deciding the aspect of limitation and not territorial jurisdiction. Thirdly, now for practical purposes the ratio of Ishar Alloy[40] became infructuous because in that case of 20th century, cheque was presented by the payee in his account but it did not reach the drawer’s account within six months, which now, in the 21st century, is not the case due to digitalisation of entire banking system wherein cheque reaches the drawee bank, through electronic mode, within 2 to 4 days of presenting.

Although Dashrath Rupsingh [41]is partly correct in saying that an offence is committed the moment cheque is dishonoured at the drawee bank, but it is to be noted that as per Section 142(1)(b) of the NI Act, 1881[42], prosecution can be initiated only after accrual of “cause of action” under clause (c) of the proviso to Section 138 i.e. when drawer fails to make payment within fifteen days of receipt of the notice. The whole purpose of mandatory issuance of “statutory notice” by the payee is to inform the drawer that the cheque which he gave got dishonoured and if he pays back the cheque amount, then the payee will not initiate any case against him and cause of action does not survive. This can be found from the fact that the payee can present the cheque any number of times despite dishonour within six/three months from date of issuance. But Dashrath Rupsingh[43] would take none of these and held that civil law concepts like “cause of action” cannot be applied into criminal law. In my opinion, this interpretation was wholly wrong as Section 138 of the NI Act, 1881 is a hybrid version of civil and criminal law. It is exactly for this reason, the legislature in its wisdom has used the civil law term of “cause of action” for the offence under Section 138 of the NI Act, 1881, which cannot be found in other penal statues. My views gain strength from the observations of the Supreme Court in R. Vijayan v. Baby,[44] wherein it was observed that:

  1. 16. … cases arising under Section 138 of the Act are really civil cases masquerading as criminal cases.… Chapter XVII of the Act is a unique exercise which blurs the dividing line between civil and criminal jurisdictions. It provides a single forum and single proceeding, for enforcement of criminal liability (for dishonouring the cheque) and for enforcement of the civil liability (for realisation of the cheque amount)….[45]

Also, in Harman Electronics case[46] the Court gave a go-by only to one of the principles of K. Bhaskaran case[47] i.e. place from where notice was issued does not give rise to cause of action, which was correct because under no branch of law, place from where notice is issued gives rise to cause of action,and Harman Electronics case[48] did not overrule the rest of the four principles of K. Bhaskaran case[49], which held the field till Dashrath Rupsingh[50] was decided.

Even the legislature has not accepted the Dashrath Rupsingh[51]view, that immediately within a year of the judgment, it came up with an amendment in the year 2015 stating that only that court will have jurisdiction where the payee maintains his account if he presents through his account (generally happens with cross-cheques) or where it is not presented through the payee’s account, then the court where the drawer maintains his account has jurisdiction.

Now the problem with the 2015 Amendment is that it has not been drafted as per the present practical needs. Till a decade ago, for all of the bank transactions, an individual had to physically visit the bank, therefore for his/her convenience whenever the account-holder shifted his/her residence or place of business he/she used to transfer his/her bank account from one branch to another or open a new account in the bank nearer to their locality, but, now after digitalisation, most of the banking transactions are taking place digitally and online through service providers like, PhonePe, Paytm, Google Pay, etc. Hence, people are not showing much interest in transferring or opening new bank account. For example, if A maintains an account in a bank having a branch in Chennai but due to job/business purposes he has shifted to Delhi, he can easily do banking transactions online and also, present even the cross-cheque at par in all branches of that bank without compulsorily going to his branch in Chennai. But, if the cross-cheque is dishonoured, as per the 2015 Amendment, he has to initiate Section 138 complaint only in the court where his bank branch is located in Chennai, which means he has to bear the legal expenses for the lawyers in Chennai, spend his time and money in travelling from Delhi to Chennai each time he is summoned to attend the court, which one cannot say how many times he has to attend.

Now, as the statute has conferred the territorial jurisdiction and as it is well settled that once the statute confers jurisdiction, courts cannot dilute it but are bound to follow it, hence, it is urged that Parliament comes up with an amendment to the NI Act, 1881 and confers the territorial jurisdiction on the courts trying cheque bounce cases by following the principles set out in K. Bhaskaran case[52], with only the court from where notice is issued being the exception as declared in Harman Electronics case[53]. Also, if the creditor initiates complaint against the same drawer from multiple courts just to harass him, such accused always has the remedy of transfer application  as enunciated in Chapter 31 from Sections 406 to 412 CrPC[54].


 *Advocate, Telangana High Court and co-author of Consumer Protection Act: A Commentary, (Eastern Book Company).  Author can be reached at akashbaglekar@gmail.com.

[1]http://www.scconline.com/DocumentLink/wgV2j1VM.

[2]http://www.scconline.com/DocumentLink/1g6m30k5.

[3]Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988.

[4](1999) 7 SCC 510.

[5]http://www.scconline.com/DocumentLink/onWy2d4F.

[6](1999) 7 SCC 510.

[7](2009) 1 SCC 720.

[8](1999) 7 SCC 510.

[9](2009) 1 SCC 720.

[10](2009) 1 SCC 720.

[11](2008) 13 SCC 77.

[12](1999) 7 SCC 510.

[13](2008) 13 SCC 77.

[14](2009) 1 SCC 720.

[15](2013) 10 SCC 72.

[16](2014) 2 SCC 255.

[17](2014) 2 SCC 266.

[18](1999) 7 SCC 510.

[19](1999) 7 SCC 510.

[20](2014) 9 SCC 129.

[21](1999) 7 SCC 510.

[22](2014) 9 SCC 129.

[23](2001) 3 SCC 609.

[24](2001) 3 SCC 609.

[25](2014) 9 SCC 129.

[26](2001) 3 SCC 609.

[27]Dashrath Rupsingh case, (2014) 9 SCC 129, 146, para 10.

[28](2001) 3 SCC 609.

[29](2014) 9 SCC 129, 146, para 10.

[30](2014) 9 SCC 129, 160-161, para 31.

[31](2001) 3 SCC 609.

[32](2001) 3 SCC 609.

[33](2001) 3 SCC 609.

[34](2014) 9 SCC 129.

[35](2001) 3 SCC 609.

[36](1999) 7 SCC 510.

[37](2001) 3 SCC 609.

[38](1999) 7 SCC 510.

[39](2001) 3 SCC 609.

[40](2001) 3 SCC 609.

[41](2014) 9 SCC 129.

[42]http://www.scconline.com/DocumentLink/W705Y641.

[43](2014) 9 SCC 129.

[44](2012) 1 SCC 260.

[45](2012) 1 SCC 260, 266.

[46](2009) 1 SCC 720.

[47](1999) 7 SCC 510.

[48](2009) 1 SCC 720.

[49](1999) 7 SCC 510.

[50](2014) 9 SCC 129.

[51](2014) 9 SCC 129.

[52](1999) 7 SCC 510.

[53](2009) 1 SCC 720.

[54]http://www.scconline.com/DocumentLink/72Mk5H3P.

Jammu and Kashmir and Ladakh High Court
Case BriefsHigh Courts

Jammu & Kashmir and Ladakh High Court: Sanjeev Kumar, J., held that the sentence of fine under Section 138 of N.I.Act must be sufficient to adequately compensate the complainant. The Bench stated,

“The prime object of enacting Chapter XVII, of the N.I. Act is to control and discourage the menace of cheque bouncing in the course of commercial transactions and to encourage the culture of use of cheques and enhancing the credibility of the instrument.”

The Trial Court had convicted and punished the respondent under Section 138 of Negotiable Instruments Act, 1981, and held him liable to pay compensation of Rs.2.00 lakh to the petitioner. The instant appeal had been filed by the petitioner with the grievance that the respondent-accused should have also been awarded fine sufficient enough to meet the liability of the cheque issued by him which was dishonoured. The petitioner contended that the compensation awarded was only one fifth (1/5th) of the value of the cheque as the cheque issued by the respondent was for the amount of Rs. 10 lakh.

Observation and Analysis

Apparently, Section 138 of N. I. Act states that, the Criminal Court after convicting the accused, is empowered to impose punishment of imprisonment for a term, which may extend to two years, or fine which may extend to twice the amount of cheque, or both. The Bench observed that, the Trial Court is, thus, given the discretion to impose the sentence of imprisonment or fine or both.

The Supreme Court in Assistant Commissioner, Assessment-II v. Velliappa Textiles Ltd., 2003 11 SCC 405, had held that, “where the legislature has granted discretion to the court in the matter of sentencing, it is open to the court to use its discretion. Where, however, the legislature, for reasons of policy, has done away with this discretion, it is not open to the court to impose only a part of the sentence prescribed by the legislature, for that would amount re-writing the provisions of the statute.”

Similarly, in Damoder S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663, the Supreme Court had observed, “The object of bringing Section 138 into the statute was to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. It was to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficient arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers.”

Reliance on the decision of the Supreme Court on the aforesaid case, the Bench observed that unlike other forms of crime, the punishment for commission of offence under Section 138 of N. I. Act is not a means of seeking retribution, but is more a means to ensure payment of money and, therefore, in respect of offence of dishonour of cheques, it is the compensatory aspect of the remedy which should be given priority over the punitive aspect. The Bench opined that the Criminal Court while convicting an accused for commission of offence under Section 138 of N.I. Act, cannot ignore the compensatory aspect of remedy and the compensatory aspect can only be given due regard if the sentence imposed is at least commensurate to the amount of cheque, so that the fine, once imposed, can be appropriated towards payment of compensation to the complainant by having resort to Section 357 of CrPC.

Opinion and Findings       

The Bench opined that it the Court should not resort to Section 357(3) of CrPC while imposing sentence under Section 138 of N.I. Act, rather the Criminal Court should bear in mind the laudable object of engrafting Chapter XVII containing Section 138 to 142 of NI Act and give priority to the compensatory aspect of remedy. The Bench stated,

“Indisputably, the Legislature has given discretion to the Magistrate to impose a sentence of fine which may extend to double the  amount of cheque and, therefore, the sentence of fine whenever imposed by the Criminal Court upon conviction of accused under Section 138 of N.I.Act must be sufficient enough to adequately compensate the complainant.”

Therefore, the amount of cheque and the date from which the amount under the cheque had become payable along with payment of reasonable interest may serve as good guide in this regard. To make it consistent and uniform, the Bench advised to impose a fine equivalent to the amount of cheque plus at least 6% interest per annum.

Decision

Considering that the Trial Court had awarded Rs.2.00 lakh, to be paid as compensation to the complainant, when admittedly the cheque amount was to the tune of Rs.10.00 lakhs, the Bench remanded back the matter to the trial Court for considering the imposition of sentence upon the respondent de novo in the light of legal position discussed and the observations made in the instant judgment. The appeal was allowed and the impugned order was quashed to the extent it awarded sentence to the accused. [Yasir Amin Khan v. Abdul Rashid Ganie, 2021 SCC OnLine J&K 934, decided on 22-11-2021]


Kamini Sharma, Editorial Assistant has reported this brief.


Appearance by:

For the Appellant: F.A.Wani, Advocate

For the Respondent: None

Case BriefsSupreme Court

Supreme Court: In the case where the question as to how proceedings for an offence under Section 138 of the Negotiable Instruments Act, 1881 can be regulated where the accused is willing to deposit the cheque amount, the bench of AK Goel and UU Lalit, JJ held that Section 143 of the Act confers implied power on the Magistrate to discharge the accused if the complainant is compensated to the satisfaction of the Court, where the accused tenders the cheque amount with interest and reasonable cost of litigation as assessed by the Court. The Court said:

“Basic object of the law is to enhance credibility of the cheque transactions by providing speedy remedy to the complainant without intending to punish the drawer of the cheque whose conduct is reasonable or where compensation to the complainant meets the ends of justice.”

The Court, further, laid down the below mentioned guidelines to be taken note of while dealing with cases under S. 138 of the Act:

  • where the cheque amount with interest and cost as assessed by the Court is paid by a specified date, the Court is entitled to close the proceedings in exercise of its powers under Section 143 of the Act read with Section 258 Cr.P.C.
  • Normal rule for trial of cases under Chapter XVII of the Act is to follow the summary procedure and summons trial procedure can be followed where sentence exceeding one year may be necessary taking into account the fact that compensation under Section 357(3) Cr.P.C. with sentence of less than one year will not be adequate, having regard to the amount of cheque, conduct of the accused and other circumstances.
  • In every complaint under Section 138 of the Act, it may be desirable that the complainant gives his bank account number and if possible e-mail ID of the accused. If e-mail ID is available with the Bank where the accused has an account, such Bank, on being required, should furnish such e-mail ID to the payee of the cheque.
  • In every summons, issued to the accused, it may be indicated that if the accused deposits the specified amount, which should be assessed by the Court having regard to the cheque amount and interest/cost, by a specified date, the accused need not appear unless required and proceedings may be closed subject to any valid objection of the complainant. If the accused complies with such summons and informs the Court and the complainant by e-mail, the Court can ascertain the objection, if any, of the complainant and close the proceedings unless it becomes necessary to proceed with the case. In such a situation, the accused’s presence can be required, unless the presence is otherwise exempted subject to such conditions as may be considered appropriate.
  • The accused, who wants to contest the case, must be required to disclose specific defence for such contest. It is open to the Court to ask specific questions to the accused at that stage.
  • In case the trial is to proceed, it will be open to the Court to explore the possibility of settlement. It will also be open to the Court to consider the provisions of plea bargaining. Subject to this, the trial can be on day to day basis and endeavour must be to conclude it within six months.

Emphasising upon the need to conduct proceedings online, the Court said:

“There appears to be need to consider categories of cases which can be partly or entirely concluded “online” without physical presence of the parties by simplifying procedures where seriously disputed questions are not required to be adjudicated. Traffic challans may perhaps be one such category. Atleast some number of Section 138 cases can be decided online.”

The Court, hence, added that it will be open to the High Courts to consider and lay down category of cases where proceedings or part thereof can be conducted online by designated courts or otherwise. The High Courts may also consider issuing any further updated directions for dealing with Section 138 cases. [Meters and Instruments Private Ltd. v. Kanchan Mehta, 2017 SCC OnLine SC 1197, decided on 05.10.2017]

High Courts

Bombay High Court: Dismissing a plea in a  cheque bounce case, a bench comprising of S.B. Shukre, J held that only drawee bank’s jurisdiction could be considered during criminal proceedings under Section 138 of Negotiable Instruments  Act, 1881, even though the Real Time Gross Settlement (RTGS) system facility enabled the citizens to draw and pay cheques at any branches all over the country.

The Court clarified that there can be only one drawee bank and not several. When the RTGS cheques bear an endorsement “payable at all our branches”, it only means “payment instructions expedited” enabling receipt thereof immediately.The court observed that there is a difference between processing of cheque for payment, and giving approval to the processing branch for the payment. The branch which processes the cheque and obtains approval for payment from the original branch where funds are actually parked, can only be called as the facilitator. It can’t be termed as the “drawee” under Section 7 of the NI Act.

The Judge observed that the RBI has made it clear that what is contemplated under RTGS is only transfer of funds by the “drawee bank” to other branches which received the cheques. It means that dishonour of cheque takes place at the place where the “drawee bank” is situated. Sangita vs. Judicial Magistrate, First Class, 2015 SCC OnLine Bom 273 decided on 13-01-2015