Negotiable Instruments Act

Case BriefsHigh Courts

Punjab & Haryana High Court: Surinder Gupta, J. dismissed a petition dealing with the question whether accused under Negotiable Instruments Act, 1881 should be allowed to give his evidence in affidavit similar to that of a complainant.

The petitioner was facing trial in a complaint filed under the provisions of NI Act and sought permission from the trial court to submit his evidence through affidavit but the trial court refused to grant permission for the same while relying on observations in case of Mandvi Cooperative Bank Limited v. Nimesh B Thakore, (2010) 3 SCC 83.

Counsel for the petitioner, R.S. Rai argued that in the case of India Bank Association v. Union of India, (2014) 5 SCC 590 the accused was granted permission to submit his evidence on affidavit with the guideline that accused may submit his affidavit unless there is a justified ground to deny such permission. Further, the counsel argued that the order of trial court relying on observation of Mandvi Cooperative Bank Limited case was not sustainable.

While denying the petition and holding the order of trial court valid, the High Court stated the observation laid down by the Supreme Court in the case of Mandvi Cooperative Bank Limited that there is a basic difference in the nature of evidence of complainant and accused in a case of dishonoured cheque and it is wrong and unjustified to draw analogy between both, the Supreme Court opined that accused may not be able to provide any evidence and if any evidence is provided the nature of it may not be necessarily documentary and the defence will try to lead other kinds of evidences to rebut the presumption that the issuance of cheque was not in the discharge of any debt or liability. The Supreme Court discarded the observation laid down by High Court that Section 145(1) lays down the provision of filing an affidavit by the complainant so it can be assumed that accused can also file a similar affidavit.

Further, the Court opined that in case of Indian Bank Association the Supreme Court was dealing with the issue of setting guidelines/directions to be followed by the courts while trying complaints under Section 138 of the Negotiable Instrument Act that deals with dishonoured cheque and insufficiency in funds.

It was held that the law laid down in the Mandvi Cooperative Bank Limited case had not been dissented. Thus, the decision of the trial court was upheld and the petition was dismissed. [Rajni Dhingra v. Sanjeev Chugh, 2019 SCC OnLine P&H 2464, decided on 05-11-2019]

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[Disclaimer: This note is for general information only. It is NOT to be substituted for legal advice or taken as legal advice. The publishers of the blog shall not be liable for any act or omission based on this note]

Introduction

Over the years there have been many important changes in the way cheques are issued/bounced/dealt with. Commercial globalisation has resulted in giving a big boost to our country. With the rapid increase in commerce and trade, use of cheque also increased and so did the cheque bouncing disputes.[1] The object of Sections 138-142 of the Negotiable Instruments Act, 1881  is to promote the efficacy of banking operations and to ensure credibility in transacting business through cheques.[2]

Section 138 casts a criminal liability punishable with imprisonment or fine or with both on a person who issues a cheque towards discharge of a debt or liability as a whole or in part and the cheque is dishonoured by the bank on presentation.[3] Section 138 was enacted to punish unscrupulous drawers of cheques who, though purport to discharge their liability by issuing cheque, have no intention of really doing so. Apart from civil liability, criminal liability is sought to be imposed by the said provision on such unscrupulous drawers of cheques. However, with a view to avert unnecessary prosecution of an honest drawer of the cheque and with a view to give an opportunity to him to make amends, the prosecution under Section 138 of the Act has been made subject to certain conditions. These conditions are stipulated in the proviso to Section 138.[4]

In criminal law, commission of offence is one thing and prosecution is quite another. Commission of offence is governed by Section 138 of the Act. Prosecution is governed by Section 142 of the Act.[5] It is also noteworthy that Section 138 while making dishonour of a cheque an offence punishable with imprisonment and fine, also provides for safeguards to protect drawers of such instruments where dishonour may take place for reasons other than those arising out of dishonest intentions. It envisages service of a notice upon the drawer of the instrument calling upon him to make the payment covered by the cheque and permits prosecution only after the expiry of the statutory period and upon failure of the drawer to make the payment within the said period.[6]

Negotiable Instruments Act, 1881

Section 138. Dishonour of cheque for insufficiency, etc., of funds in the account.—Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless —

(a) the cheque has been presented to the bank within a period of six months* from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice.

Explanation.—For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.

Classification of Offence

An offence committed under Section 138 is a non-cognizable offence (a case in which a police officer cannot arrest the accused without an arrest warrant). Also, it is a bailable offence.

Cases

Ingredients

The ingredients of the offence under Section 138 are:

(a)  cheque is drawn by the accused on an account maintained by him with a banker;

(b)  the cheque amount is in discharge of a debt or liability; and

(c)  the cheque is returned unpaid for insufficiency of funds or that the amount exceeds the arrangement made with the bank, the offence standing committed the moment the cheque is returned unpaid.

Further steps laid down by way of the proviso are distinct from the ingredients of the offence which the enacting provision creates and makes punishable. Thus, an offence within the contemplation of Section 138 is complete with the dishonour of the cheque but taking cognizance of the same by any court is forbidden so long as the complainant does not have the cause of action to file a complaint in terms of clause (c) of the proviso read with Section 142, Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129.

 Conditions precedent for constituting an offence under S. 138

There are three distinct conditions precedent, which must be satisfied before the dishonour of a cheque can constitute an offence and become punishable.

(i) The cheque ought to have been presented to the bank within a period of 6 months [3 months]* from the date on which it is drawn or within the period of its validity, whichever is earlier.

(ii) The  payee or the holder in due course of the cheque, as the case may be, ought to make a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid.

(iii) The drawer of such a cheque should have failed to make payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within 15 days of the receipt of the said notice.

It is only upon the satisfaction of all the three conditions mentioned above and enumerated under the proviso to Section 138 as clauses (a), (b) and (c) thereof that an offence under Section 138 can be said to have been committed by the person issuing the cheque, MSR Leathers v. S. Palaniappan, (2013) 1 SCC 177.

 Sentence

The sentence prescribed under Section 138 is up to two years or with fine which may extend to twice the amount or with both. What needs to be noted is the fact that power under Section 357(3) CrPC to direct payment of compensation is in addition to the said prescribed sentence, if sentence of fine is not imposed. The direction to pay compensation can be enforced by default sentence under Section 64 IPC  and by recovery procedure prescribed under Section 431 CrPC, Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560.

 Compounding of offence [recording of compromise between the parties]

Section 147 makes offence punishable under the provisions of NI Act compoundable.

If the original complainant comes to the Court and says that he is withdrawing himself from prosecution on account of compromise and he has compounded the matter, then the conviction and sentence have to be set aside. No formal permission to compound the offence is required, Rameshbhai Sombhai Patel v. Dineshbhai Achalanand Rathi, 2004 SCC OnLine Guj 469.

Though compounding requires consent of both parties, even in absence of such consent, the court, in the interests of justice, on being satisfied that the complainant has been duly compensated, can in its discretion close the proceedings and discharge the accused, Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560.

 Quashing of complaint by the High Court under S. 482 CrPC [inherent powers] 

If an accused wants the process under Sections 138 and 141 to be quashed by filing a petition under Section 482 CrPC , he must make out a case that making him stand the trial would be an abuse of process of court, Gunmala Sales (P) Ltd. v. Anu Mehta, (2015) 1 SCC 103.

Where to file a case for S. 138 offence?

If cheque delivered for collection through an account

If the cheque is delivered for collection through an account, the case will be tried by the court not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class within whose local jurisdiction the branch of the bank where the payee or holder in due course, as the case may be, maintains the account is situated. [Section 142(2)(a)]

 If cheque presented for payment by payee or holder in due course otherwise through an account

In such a situation, the case will be tried by the court not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class within whose local jurisdiction the branch of the drawee bank where the drawer of the cheque maintains the account is situated. [Section 142(2)(b)]

Debt or other liability

Explanation to Section 138 is abundantly clear that the dishonoured cheque must have been received by the complainant against a “legally enforceable debt or liability”, Nanda v. Nandkishor, 2010 SCC OnLine Bom 54.

Liability of a guarantor

The words “any cheque” and “other liablity” in Section 138 clarifies the legislative intent. If the cheque is given towards any liability which may have been incurred even by someone else (such as in a case of a guarantor), the person who draws the cheque is liable for prosecution in case of dishonour of the cheque, ICDS Ltd. v. Beena Shabeer, (2002) 6 SCC 426.

Mens rea not required for offence under S. 138

The objective of Parliament was to strengthen the use of cheques, distinct from other negotiable instruments, as mercantile tender and therefore it became essential for Section 138 to be freed from the requirement of proving mens rea [guilty state of mind]. This has been achieved by deeming the commission of an offence dehors mens rea not only under Section 138 but also by virtue of the succeeding two sections. Section 139  carves out the presumption that the holder of a cheque has received it for the discharge of any liability. Section 140 clarifies that it will not be available as a defence to the drawer that he had no reason to believe, when he issued the cheque, that it would be dishonoured, Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129.

Can a case be filed if the cheque is presented for encashment more than once?

The holder or payee of the cheque may present the cheque for encashment on any number of occasions within the period of its validity [three months from the date of issue]. A dishonour, whether based on a second or any successive presentation of a cheque for encashment, would be a dishonour within the meaning of Section 138, MSR Leathers v. S. Palaniappan, (2013) 1 SCC 177.

“Stop payment” instructions by the drawer

A complaint under Section 138 can be made not only when the cheque is dishonoured for reason of funds being insufficient to honour the cheque or if the amount of the cheque exceeds the amount in the account, but also where the drawer of the cheque instructs its bank to “stop payment”. If the accused shows that in his account there were sufficient funds to clear the amount of the cheque at the time of presentation of the cheque and that the stop-payment notice had been issued because of other valid causes, then offence under Section 138 would not be made out, MMTC Ltd. v. Medchl Chemicals and Pharma (P) Ltd., (2002) 1 SCC 234.

Case of a post-dated cheque

On the faith of payment by way of a post-dated cheque, the payee alters his position by accepting the cheque. If stoppage of payment before the due date of the cheque is allowed to take the transaction out of the purview of Section 138, it will shake the confidence which a cheque is otherwise intended to inspire regarding payment being available on the due date, Goaplast (P) Ltd. v. Chico Ursula D’Souza, (2003) 3 SCC 232.

“Account closed” by the drawer

Return of a cheque on account of account being closed would be similar to a situation where the cheque is returned on account of insufficiency of funds in the account of the drawer of the cheque which squarely brings the case within Section 138, NEPC Micon Ltd. v. Magma Leasing Ltd., (1999) 4 SCC 253.

“Signatures do not match”

The expression “amount of money … is insufficient” appearing in Section 138 of the Act is a genus and dishonour for reasons such as “account closed”, “payment stopped”, “referred to the drawer” are only species of that genus. Just as dishonour of a cheque on the ground that the account has been closed is a dishonour falling in the first contingency referred to in Section 138, so also dishonour on the ground that the “signatures do not match” or that the “image is not found”, would constitute a dishonour within the meaning of Section 138 of the Act, Laxmi Dyechem v. State of Gujarat, (2012) 13 SCC 375.

Notice under S. 138

When the notice is sent by registered post by correctly addressing the drawer of the cheque, the mandatory requirement of issue of notice in terms of clause (b) of proviso to Section 138 of the Act stands complied with. It is needless to emphasise that the complaint must contain basic facts regarding the mode and manner of the issuance of notice to the drawer of the cheque, C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555.

Presumption as to service of Notice

It is clear from Section 27 of the General Clauses Act, 1897 and Section 114 of the Evidence Act, 1872 that once notice is sent by registered post by correctly addressing to the drawer of the cheque, the service of notice is deemed to have been effected. However, the drawer is at liberty to rebut this presumption, N. Parameswaran Unni v. G. Kannan, (2017) 5 SCC 737.

 What if addressee refuses to receive Notice

The Supreme Court in a catena of cases has held that when a notice is sent by registered post and is returned with postal endorsement “refused” or “not available in the house” or “house locked” or “shop closed” or “addressee not in station” or “intimation served, addressee absent”, due service has to be presumed, N. Parameswaran Unni v. G. Kannan, (2017) 5 SCC 737.

Payment may be made within 15 days of receiving summons if Notice not received

Any drawer who claims that he did not receive the notice sent by post, can, within 15 days of receipt of summons from the court in respect of the complaint under Section 138, make payment of the cheque amount and submit to the court that he had made payment within 15 days of receipt of summons (by receiving a copy of complaint with the summons) and, therefore, the complaint is liable to be rejected, C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555.

 Presumption under S. 139

Once the execution of cheque is admitted, Section 139 creates a presumption that the holder of a cheque receives the cheque in discharge, in whole or in part, of any debt or other liability, Basalingappa v. Mudibassapa, 2019 SCC OnLine SC 491.

This presumption is no doubt rebuttable at trial but there is no gainsaying that the same favours the complainant and shifts the burden to the drawer of the instrument (in case the same is dishonoured) to prove that the instrument was without any lawful consideration, Laxmi Dyechem v. State of Gujarat, (2012) 13 SCC 375.

Note: Presumption under Section 139 is frequently read with Section 118 providing presumption of consideration, presumption as to date on the instrument, etc.

Case of a blank cheque

If a signed blank cheque is voluntarily handed over to a payee, towards some payment, the payee may fill up the amount and other particulars. This in itself would not invalidate the cheque. The onus would still be on the accused to prove that the cheque was not in discharge of a debt or liability by adducing evidence. It is immaterial that the cheque may have been filled in by any person other than the drawer, if the cheque is duly signed by the drawer, Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197.

Case of a fiduciary relationship between complainant and accused [relationship of trust and confidence]

The existence of a fiduciary relationship between the payee of a cheque and its drawer, would not disentitle the payee to the benefit of the presumption under Section 139, in the absence of evidence of exercise of undue influence or coercion, Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197.

 Rebutting the presumption

When an accused has to rebut the presumption under Section 139, the standard of proof for doing so is that of “preponderance of probabilities”. Therefore, if the accused is able to raise a probable defence which creates doubt about the existence of a legally enforceable debt or liability, the prosecution can fail. The accused can rely on the materials submitted by the complainant in order to raise such a defence and it is conceivable that in some cases the accused may not need to adduce evidence of his own, Rangappa v. Sri Mohan, (2010) 11 SCC 441.

 Not necessary for accused to appear in witness box for rebuttal

It is not necessary for the accused to come in the witness box in support of his defence. Section 139 imposes an evidentiary burden and not a persuasive burden, Basalingappa v. Mudibassapa, 2019 SCC OnLine SC 491.

Complainant to prove financial capacity if disputed by accused

It is incumbent upon the complainant to prove his financial capacity to extend the loan in question, if the accused disputes the same, Basalingappa v. Mudibassapa, 2019 SCC OnLine SC 491.  

Complaint by a company

The complainant has to be a corporeal person who is capable of making a physical appearance in the court. If a complaint is made in the name of an incorporeal person (like a company or corporation) it is necessary that a natural person represents such juristic person in the court. There may be occasions when different persons can represent the company, Associated Cement Co. Ltd. v. Keshvanand, (1998) 1 SCC 687.

Defect can be rectified later

Even if initially there was no authority given by the company in favour of the de facto complainant, still the company can, at any stage, rectify that defect. At a subsequent stage the company can send a person who is competent to represent the company, MMTC Ltd. v. Medchl Chemicals and Pharma (P) Ltd., (2002) 1 SCC 234.

Offence by companies and vicarious liability of officers of the Company

Three categories of persons can be discerned from Section 141  who are brought within the purview of the penal liability through the legal fiction envisaged in the section. They are: (1) the company which committed the offence, (2) everyone who was in charge of and was responsible for the business of the company, and (3) any other person who is a director or a manager or a secretary or officer of the company, with whose connivance or due to whose neglect the company has committed the offence, Anil Hada v. Indian Acrylic Ltd., (2000) 1 SCC 1.

Section 141 extends criminal liability on account of dishonor of cheque in case of a company to every person who at the time of the offence, was in charge of, and was responsible for the conduct of the business of the company. By a deeming provision contained in Section 141, such a person is vicariously liable to be held guilty for the offence under Section 138 and punished accordingly, SMS Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89.

Case against the Directors

A director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable for a criminal offence under the provisions, National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330.

Impleading the Company as accused necessary

The commission of offence by the company is an express condition precedent to attract the vicarious liability of others. For maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The only exception would be in a case where the company cannot be prosecuted against without obtaining sanction of a court of law or other authority. In such case, trial against the other accused may be proceeded against if ingredients of Sections 138 and 141 are otherwise fulfilled, Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661.

 Necessary averments in complaint to put vicarious liability

For making directors liable for the offences committed by the company under Section 141, there must be specific averments against the directors, showing as to how and in what manner they were responsible for the conduct of the business of the company, National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330.

Case of a Managing Director and signatory of a cheque

Specific averments against the Managing Director or Joint Managing Director are not required to be made in the complaint. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141, SMS Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89.

Offence by a partnership firm and vicarious liability of partners

For the purpose of Section 141, a firm comes within the ambit of a company.

Partner of a firm is liable to be convicted for an offence committed by the firm if he was in charge of and was responsible to the firm for the conduct of the business of the firm or if it is proved that the offence was committed with the consent or connivance of, or was attributable to any neglect on the part of the partner concerned, Katta Sujatha v. Fertilizers & Chemicals Travancore Ltd., (2002) 7 SCC 655.

 Online proceedings

At least some number of Section 138 cases can be decided online. If complaint with affidavits and documents can be filed online, process issued online and the accused pays the specified amount online, it may obviate the need for personal appearance of the complainant or the accused. Only if the accused contests, need for appearance of parties may arise which may be through counsel and wherever viable, video-conferencing can be used. Personal appearances can be dispensed with on suitable self-operating conditions. This is a matter to be considered by the High Courts and wherever viable, appropriate directions can be issued, Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560.

 Interim compensation to the complainant

Section 143-A empowers the Court trying an offence under Section 138, to order the drawer of the cheque to pay interim compensation to the complainant which shall not be more than 20% of the amount of the cheque. Such interim compensation has to be paid by the drawer within a period of 60 days (extendable by 30 days) from the date of the order directing such compensation. Such compensation may be recovered as if it were a fine under Section 421 CrPC.

If the drawer of the cheque is acquitted, the complainant has to repay the amount of such compensation received within 60 days (extendable by 30 days) from the date of the acquittal order. The complainant has also to pay interest on such amount at the bank rate as published by RBI prevalent at the beginning of the relevant financial year.

Payment pending appeal against conviction

A drawer of cheque who is convicted under Section 138, may file an appeal against his conviction. In such a case, by the provision of Section 148, the Appellate Court can order him to deposit such sum which shall be at least 20% of the compensation or fine awarded by the trial court. Such amount is payable in addition to any interim compensation paid under Section 143-A. The Court can release such amount to the complainant at any time during pendency of the appeal.

In case of appellant’s acquittal, the complainant has to repay the amount to him in the same manner as mentioned above under “interim compensation to the complainant”.

Further Suggested  Reading

1. Avtar Singh –

2. Bimal N. Patel – Banking Law and Negotiable Instruments Act [Buy here]

3. Surendra Malik and Sudeep Malik – Supreme Court on Dishonour of Cheques And Negotiable Instruments (in 2 Volumes)[Buy Here]

4. Sumeet Malik – P.L. Malik’s NEGOTIABLE INSTRUMENTS ACT, 1881 with Exhaustive notes on Dishonour of Cheques [Buy Here]

Read also from SCC Online Archives

Del HC | No reason to stay proceedings under S. 138 NI Act where trial in another FIR involving the parties is pending

Kar HC | Presence of a legally recoverable debt at the time of issuing cheque is a necessity for an action under S. 138 NI Act

Madras HC | Presumption under S. 139 NI Act not available in case of principal-agent relationship between accused and complainant

NCLAT | Section 138 NI Act proceedings not covered within the period of moratorium under Section 14 IBC

P&H HC | Section 138 of NI Act and Section 420 IPC not exclusive to each other, a person can be charged with both offences simultaneously

† Assistant Editor (Legal), EBC Publishing Pvt. Ltd.

[1] Law Commission of India, 213th Report, Fast Track Magisterial Courts for Dishonoured Cheque Cases, November 2008.

[2] Modi Cements Ltd. v. Kuchil Kumar Nandi, (1998) 3 SCC 249.

[3] SMS Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89.

[4] C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555.

[5] William Rosario Fernandes v. Cabral & Co., 2006 SCC OnLine Bom 918.

[6] Laxmi Dyechem v. State of Gujarat, (2012) 13 SCC 375.

* The period of “six months” mentioned in S. 138 proviso (a) remains unchanged as there has been no amendment in this regard. However, RBI vide Circular RBI/2011-12/251 DBOD AML BC No. 47/14.01.001/2011-12, dated 4-11-2011, has changed the default period within which a cheque may be presented for payment, from a period of six months from the date of the instrument, to a period of only three months from such date, w.e.f. 01-04-2012.

Case BriefsHigh Courts

Delhi High Court: A Single Judge Bench comprising of Jayant Nath, J., admitted a petition filed for winding up of respondent company. The petition was filed under Section 433(e) and 434(a) of the Companies Act, 1956.

The petitioner company had business dealings with the respondent company. The respondent was indebted to pay outstanding dues to the petitioner which amounted to Rs 13,58,000. Proceedings under Section 138 of the Negotiable Instruments Act were also pending before the competent court. The respondent took a plea that the claim was time-barred.

The High Court, reading the provision of Section 19 of the Limitation Act into the facts of the present case, rejected the plea of the respondent. The said section provides that if there is a part payment on account of a debt before the expiry of the prescribed period of limitation, a fresh period is to be computed. In the present case, admittedly, there was a part payment by the respondent. Thus, the claim of the petitioner was well within time. The Court noted the fact that there was clearly an outstanding liability, and the respondent failed to raise any bona fide defence for non-payment of the said dues. In such circumstances, the High Court appointed the Official Liquidator attached to the Court as Provisional Liquidator for the respondent company. The petition filed by the petitioner under the Companies Act, 1956 was thus admitted. [Tigers Worldwide (P) Ltd. v. MAL Cargo (P) Ltd.,2018 SCC OnLine Del 10106, dated 17-07-2018]

Case BriefsHigh Courts

Allahabad High Court: A Single Judge Bench comprising of Karuna Nand Bajpayee, J. declined to quash the order passed by the Judicial Magistrate summoning the applicant in a case arising under Section 138 of the Negotiable Instruments Act.

The applicant prayed for quashing the summoning order passed by the Magistrate, and all his contentions related to disputed questions of facts. The veracity and credibility of the evidence furnished on behalf of the prosecution was questioned and false implication was alleged.

The Court referred to various decisions of the Supreme Court and observed that

“the law regarding sufficiency of evidence is well settled. The court has to eschew itself from embarking upon a roving enquiry into the last details of the case. It is also not advisable to adjudge whether the case shall ultimately end in conviction or not. Only a prima facie satisfaction of the court about the sufficient ground to proceed in the matter is required.”

The Court held that the submissions made by the appellant calls for adjudication on pure questions of facts, an exercise that has to be extensively undertaken by the trial court. The High Court could not be persuaded to have a pre-trial before the actual trial commences. Further, the material placed on record made out a prima facie case against the applicant. In such a case, the instant application filed under Section 482 of CrPC praying for quashing the summoning order passed by the Magistrate, was dismissed while allowing the applicant to file an application before the trial court for compounding of offence. [Manoj Kumar v. State of U.P., 2018 SCC OnLine All 559, order dated 05-03-2018]

Case BriefsHigh Courts

Himachal Pradesh High Court: A Single Judge Bench comprising of Tarlok Singh Chauhan, J., decided a criminal petition filed for quashing the judgment and order of conviction and sentence passed against the petitioner by the trial court for offence punishable under Section 138 of the Negotiable Instruments Act, wherein the said judgment and order was quashed in light of compromise between the parties.

The case of the petitioner was that subsequent to the passing of the above mentioned judgment, the petitioner had paid the entire amount in question to the complainant, and therefore he prayed that the impugned order should be quashed. The complainant was present before the Court and stated that he had received the entire amount in question and he had no objection if the said order passed against the petitioner is set aside.

The High Court held that it was not powerless in such situations and it had adequate powers not only under Section 397 read with 401 or Section 482 of CrPC, but also under Section 147 of the NI Act to accept the settlement entered into between the parties and quash the proceedings in the case against the accused. It was observed that such power have been conferred to subserve the ends of justice, however, it has to be exercised with circumspection. The Court further held that the present was not a case which could be stricto sensu said to be an offence against the State. Therefore, it was a case where the continuation of criminal case against the petitioner would put him to great oppression and prejudice and extreme injustice would be caused to him if the impugned judgment was not set aside. Accordingly, the Court ordered that the order of conviction and sentence passed against the petitioner by the trial court shall be quashed. [Inder Singh v. Sesu, 2018 SCC OnLine HP 272, decided on 23.3.2018]

Case BriefsHigh Courts

Karnataka High Court: A Single Judge Bench comprising of K. Somashekar, J., decided a criminal appeal, wherein order of acquittal of the accused passed by the trial court was upheld holding that the recovery of loan in the given case was hit by limitation.

The petitioner was prosecuted for offence punishable under Section 138 of Negotiable Instruments Act, 1881. The complainant alleged that the accused took a hand loan from him and issued cheques in lieu thereof. However, when the said cheques were presented in the bank, they were dishonoured and returned with a memo marked ‘insufficient funds’. The complainant issued a demand letter to the accused as required by the Act. However, the accused did not repay the loan even after the demand letter was issued to him. Consequently, the accused was prosecuted under the Act. The trial court, inter alia, found that the time gap between the giving of loan by the complainant to the accused and presenting of cheques for recovery thereof, was more than three years. Trial court held the case to be hit by limitation and acquitted the accused.

The High Court perused the record as well as provisions of the NI Act and the Limitation Act. The Court observed that the limitation period for recovery of a hand loan is three years from the date the loan is given. The Court found that, in the instant case, the loan was given in the year 2004 and the cheques were presented for its recovery only in the year 2008. The Court also held that there was no part repayment of the loan to the complainant by the accused, nor the accused acknowledged the presence of debt in this period to start a fresh period of limitation. The High Court, inter alia, held that the case of the complainant was barred by limitation of three years as provided in the Limitation Act.

Accordingly, the petition filed by the complainant against the order of acquittal of the accused passed by the trial court, was dismissed. [K.N. Raju v. Manjunath T.V., Crl. Appeal No. 302 of 2010, decided on 16.3.2018]

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Karnataka High Court: A Single Judge Bench comprising of K. Somashekar, J., decided a criminal appeal filed under Section 378(4) CrPC, wherein the order of acquittal under Section 138 of Negotiable Instruments Act, passed in favour of the respondent by the trial court was upheld.

The respondent took a loan from the complainant Bank and issued a blank cheque as a security for the said loan. The respondent defaulted in re-payment of the loan and when the bank presented the said cheque for collection, they were returned with the endorsement ‘insufficient funds in the account’. Subsequently, the bank initiated proceedings under Section 138 of NI Act. However, the respondent was acquitted by the trial court holding that there was no liability existing at the time of issuing the cheque. The appellant Bank assailed the order of the trial court.

After evaluating the material on record, the High Court was of the view that there was no illegality committed by the trial court. The Court observed that the said cheque was not issued by the respondent towards a legally recoverable debt; it was only issued as a security for the loan which he had borrowed from the complainant. The Court relied on the Supreme Court decision in Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd., (2016) 10 SCC 458 wherein it was held that “if on the date of the cheque, liability or debt exists or the amount has become legally enforceable, the section is attracted and not otherwise”. In the facts and circumstances of the instant case, the Court found that at the time of issuance of the blank cheque, there was no legal liability of the respondent to pay any amount to the complainant; it was a security for a loan, the re-payment of which was to arise in future.

Accordingly, the Court dismissed the appeal finding it sans merit. [PCA and RD Bank Ltd. v. Suresh Das,  2018 SCC OnLine Kar 492, dated 27.2.2018]

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Delhi High Court: A Single Judge Bench of the Delhi High Court comprising of Sanjeev Sachdeva, J., disposed of a petition seeking quashing of a conviction under Section 138 of the Negotiable Instruments Act, 1881 (NIA), the sentence being SI for one month and compensation of Rs 1.6 lakhs to the complainant.

The petitioner filed an application under Section 147 of the NIA, seeking compounding of the offence. The subject cheque was for a sum of Rs. 80,000. The petitioner handed over a pay order in the sum of Rs 1,60,000 to Respondent 2 in Court. Respondent 2 accepted the Pay Order and submitted that she did not wish to press the complaint and is willing to compound the offence. The petitioner also submitted that he is willing to deposit the cost, as directed by the Supreme Court in Damodar S. Prabhu v. Sayyad Babulal, (2010) 5 SCC 663 i.e 15% considering this was an appeal. The Court, noting the circumstances, compounded the offence, acquitting the petitioner. Consequently, the next date of hearing was cancelled and the petition as well as application, disposed of. [Surinder Kumar Mehra v. State, 2018 SCC OnLine Del 7233, decided on 12.02.2018]

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Orissa High Court: A petition under Section 482 of CrPC was decided by a Single Judge Bench comprising of S.K. Sahoo, J., wherein it was held that in order to provide a better opportunity to the accused to prove his case, it was necessary to send the documents concerned to handwriting expert for his opinion as prayed for by the petitioners-accused before the Trial Magistrate.

The matter related to Section 138 of Negotiable Instruments Act, 1881. The petitioners were prosecuted under the said section. They filed a petition before the Trial Magistrate to send the cheques in question to a hand writing expert. They denied the filling of details in the cheque although they did not deny their signatures on the same. Petitioners’ case was that they gave the blank cheques in question to the complainant to keep them in safe custody and use them as and when required and directed by the petitioners. However, the complainant misused the said cheques by filling up the blank entries in the cheques. In the said factual scenario as claimed by them, the petitioners prayed to send the cheques to a handwriting expert for comparison of the handwriting on the cheques with the one admitted by the petitioners. However, such prayer of the petitioners was rejected by the Trial Magistrate. Hence, the instant petition was filed.

The High Court perused the record and held that in view of the specific stand taken by the accused during trial, it was necessary in the interest of justice that there should have been a direction for examination of the entries other than the signatures appearing in the cheques with the admitted handwritings of the accused persons as well as the complainant in order to ascertain the truth. The Court also observed that the observation of the learned Magistrate that sending of the exhibits to the handwriting expert would in no way be helpful to the Court for proper adjudication of the dispute was a pre-determination of the issues involved.

Accordingly the order of the Trial Magistrate mentioned above was set aside and he was directed to send the cheques in question for opinion of handwriting expert and proceed with the case in accordance with law after receiving such report. [Survika Distributors (P) Ltd. v. S.R. Retail Zone (P) Ltd., 2018 SCC OnLine Ori 92, dated 05-02-2018]

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Punjab and Haryana High Court: The High Court in a recent matter concerning S. 138 of Negotiable Instruments Act held that when the signatures on the cheque are not disputed, there is a presumption that it was issued in discharge of a debt or other liability, unless contrary is proved. The petition was filed under S. 482 CrPC for quashing the order of Judicial Magistrate and Additional sessions Judge in a complaint filed by respondent-complainant under Sections 138 and 141 of NI Act.

Learned counsel for the petitioners has argued that filing of the complaint is just to harass the petitioner. The petitioner was actually forced to issue the cheque due to unlawful conduct on the part of the respondent-complainant. The counsel for the petitioner went on to contend that the Magistrate had failed to appreciate the law on the point that the primary responsibility is on the complainant to make specific averments to make the accused criminally liable and also said that the Magistrate failed to fulfil the ingredients under S. 138 read with S. 141. He went on to say that as the cheque was issued under threat and undue influence, therefore, it couldn’t be enforced against the petitioner.

On carefully scrutinising the allegations of the petitioner, Hari Pal Verma, J. observed that the question as to whether the complainant got issued the cheque from the petitioner by exercising undue influence or it relates to some previous transaction between the parties, was a matter of trial and upheld the decision of the lower courts that unless the contrary is proved, there is a presumption under S. 139 that the cheque was issued in discharge of a debt or other liability (if the signatures on it are not disputed as in the instant case itself). [M/s Enprocon Enterprise Ltd v. M/s Apollo Fiege Integrated Solutions Pvt. Ltd., 2017 SCC OnLine P&H 1808, decided on 19.07.2017]