Negotiable Instruments Act Archives

Case Briefs Tribunals/Commissions/Regulatory Bodies

Can post-dated cheque issued for repayment of principal amount be taken as unqualified admission of debt? NCLT Allahabad decides

National Company Law Tribunal, Allahabad (NCLT): The bench of Rajasekhar V.K., Judicial Member and Virendra Kumar Gupta, Technical Member decided that for the purpose of repayment of principal amount, issuance of post-dated cheques by corporate debtor cannot be taken as unqualified admission of debt because the presumptions drawn under Sections 118 and 139 of the Negotiable Instruments Act, 1881 (NI Act), are rebuttable presumptions.

Factual Background

An application was filed by financial creditors, Maya Goel and N. C. Goel seeking to initiate the Corporate Insolvency Resolution Process (CIRP) by invoking the provisions of Section 7 Insolvency and Bankruptcy Code, 2016 (IBC) against corporate debtor, Piyush Infrastructure India Pvt. Ltd. for a default of repayment of Rs 12,00,000/- (excluding interest).

The financial creditor submitted that they had given an amount of loan of Rs 12, 00,000/- (in total) to the respondent between 2011- 16 with payable interest @18% p.a. The interest paid by the respondents till 04.06.2016 was Rs 18000/- and post-dated cheques were also given for repayment of principal amount starting from 15.01.2018.

The financial debtor, on the other hand, submitted that no interests were being paid and the transactions made during 2012-14 are default in nature. Therefore, it was claimed that the present application was barred by limitation. Further it was being submitted that since no interest was payable, the said transaction could not be considered as being in the nature of a financial debt within the meaning of section 5(8) of IBC.

In the rejoinder the financial creditor submitted that they preferred an application under Section 138 of NI Act which is pending for adjudication before the appropriate legal authority. In respect of limitation, the application was maintainable as it is being claimed that the cheques were given from January 2018 till December 2018 which were dishonoured.

Analysis and Decision

Firstly, the Bench noted that the question of limitation cannot be addressed as the absence of documentation cannot help in establishing the date of default. The date of default can only be calculated when the tenure of the loan is established, or when there is a demand for repayment. Hence the same cannot be determined. The Bench stated that

“The time value of money is an important factor to be considered in order to establish whether this is a financial debt.”

Further, it was observed that it is not possible to establish the tenure for which the loan was granted, and whether there was any notice demanding payment of the loan in question. As regards the interest, except for two letters of corporate debtor, no other evidence showing receipt of such interest was brought on record. Therefore, the claims made regarding receipt of interest remained unsubstantiated.

Holding that the post-dated cheques issued by the corporate debtor for repayment of principal amount cannot be taken to be unqualified admission of debt, the bench explained that,

“In summary jurisdiction, without adequate documentation, it is difficult to establish the purpose for which the money was lent and accepted. It is also not possible to establish whether there was any interest required to be paid. The time value of money is an important factor to be considered in order to establish whether this is a financial debt.”

The bench was hence of the opinion that ex facie, the case at hand appeared to be a petition filed for recovery of money and not for resolution of the corporate debtor. It observed that,

“The Insolvency & Bankruptcy Code, 2016, should not be allowed to be used as an easy way of recovery of money.”

[N.C. Goel & Maya Goel v. Piyush Infrastructure India Pvt. Ltd.; 2022 SCC OnLine NCLT 159; decided on 13-06-2022]

Counsels

For Financial Creditor- Advocates Atul Kumar Singh and Sahil Garg

For Financial Debtor – Advocate Sanchit Garga,

Case Briefs High Courts

Presumption against signatory of a Cheque, Plea of lost cheque to be proved at trial: Del HC refuse quashing of summoning order for S. 138 NI Act offence

Delhi High Court: Asha Menon, J. refused to allow a petition filed under Section 482 CrPC seeking quashing of summoning order passed by the Metropolitan Magistrate, Patiala House Courts in complaint filed by the respondents 1 and 2 against the petitioner under Section 138 read with Section 142 of the Negotiable Instruments Act, 1881.

A complaint was filed when the cheque issued by the petitioner for a sum of Rs 24 lakhs was dishonoured.

After the Trial Court had summoned the accused to face the trial for the offence under Section 138 of the NI Act, a petition under Section 482 CrPC was filed challenging the summoning order, which was disposed of vide orders by a Co-ordinate Bench of this Court, permitting the petitioner to raise all issues before the Trial Court before the Notice under Section 251 CrPC was served on the petitioner.

Thereafter, the petitioner moved an application “for recall of the summoning order/discharge of the accused”.

Analysis and Decision

High Court on perusal of the impugned order noted that it was a well-reasoned one and in respect of the contention that there was no averment in the complaint against the petitioner, the Trial Court noted that the ‘post-dated cheque’ was issued towards consultancy fees and was duly signed by accused 2 who was the petitioner before this Court.

The Supreme Court decision in SMS Pharmaceuticals v. Neeta Bhalla, (2007) 4 SCC 70, had made the signatory of the cheque responsible under Section 141(2) of the NI Act.

Plea that the cheque had been reported ‘lost’, it was for the petitioner to prove the same. He would have also gotten an opportunity to cross-examine the Bank Officials to establish that they had an obligation to have refused honouring the cheque on the ground that the cheque had been reported ‘lost’ by the drawer, to get the benefit of the decision in Raj Kumar Khurana v. State of (NCT of Delhi), (2009) 6 SCC 72. Hence, the trial Court was right in holding that the loss of cheque could be ascertained only during trial.

Therefore, since there was no error or perversity in the impugned order, no interference was called for by this Court in exercise of its inherent powers under Section 482 CrPC. [Rajeev Ranjan Sinha v. Sushil Kumar Saxena, 2022 SCC OnLine Del 1577, decided on 26-5-2022]

Advocates before the Court:

For the Petitioner:

Mr Siddharth Dutta and Ms Gunjan Malhotra, Advocates

For the Respondents:

Ms Manjeet Arya, APP for respondent No.3/State

Legal RoundUp Supreme Court Roundups

Supreme Court May 2022 Roundup: Sedition Law; Forcible vaccination; Shivling in Gyanvapi Mosque; Navjot Singh Sidhu’s imprisonment; Shared Household and more

Unmissable Stories

Sedition Law under scanner| All pending cases to be kept in abeyance; Centre/States urged not to register fresh cases till Section 124A is reviewed

“…we expect that, till the re-examination of the provision is complete, it will be appropriate not to continue the usage of the aforesaid provision of law by the Governments.”

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COVID-19| No individual can be forced to be vaccinated; holds Supreme Court. Restrictions on unvaccinated persons to be revised for now

“This judgment is not to be construed as impeding, in any manner, the lawful exercise of power by the executive to take suitable measures for prevention of infection and transmission of the virus in public interest, which may also take the form of restrictions on unvaccinated people in the future, if the situation so warrants.”

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Rajiv Gandhi assassination: Supreme Court sets AG Perarivalan free after 32 years of incarceration

Perarivalan’s petition under Article 161 remained pending for two and a half years following the recommendation of the State Cabinet for remission of his sentence and continued to remain pending for over a year since the reference by the Governor.

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Navjot Singh Sidhu to undergo one-year rigorous imprisonment in 1988 road rage case

“A disproportionately light punishment humiliates and frustrates a victim of crime when the offender goes unpunished or is let off with a relatively minor punishment as the system pays no attention to the injured’s feelings.”

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Aadhaar Card for Sex Workers| Supreme Court bats for sex workers’ right to dignity; directs UIDAI to issue Aadhaar Card without insisting on address proof

“…basic protection of human decency and dignity extends to sex workers and their children, who, bearing the brunt of social stigma attached to their work, are removed to the fringes of the society, deprived of their right to live with dignity and opportunities to provide the same to their children.”

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‘Shivling’ in Gyanvapi Mosque a complex

‘Protect ‘Shivling’ but don’t stop Namaz’

Also read: SC transfers the matter to a senior and experienced District Judge

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Hindu widow’s pre-existing right to maintenance automatically ripens into full ownership when she is in settled legal possession of the property

“There remains no shadow of doubt that a Hindu woman’s right to maintenance was not and is not an empty formality or an illusory claim being conceded as a matter of grace and generosity. It is a tangible right against the property, which flows from the spiritual relationship between the husband and the wife.”

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Right to residence under DV Act not restricted to actual residence; Domestic relationship not necessary to be subsisting at the time of filing of application

The expression ‘right to reside in the shared household’ would include not only actual residence but also constructive residence in the shared household.

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No universal rule to fill vacancies on the basis of the law which existed on the date when they arose; Supreme Court overrules 1983’s YV Rangaiah ruling

Noticing that a number of decisions have followed the decision in Rangaiah but far more decisions have distinguished it, the Supreme Court decided to examine the issue afresh and came to the conclusion that the broad proposition formulated in Rangaiah did not reflect the correct constitutional position.

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IGST on Ocean Freight for imports unconstitutional

“If Indian shipping lines continue to be taxed and not their competitors, namely, the foreign shipping lines, the margins arising out of taxation from GST would not create a level playing field and drive the Indian shipping lines out of business.”

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Sheena Bora murder| Indrani Mukerjea gets bail after being in custody for 6.5 years

Indrani is charged of kidnapping her daughter with intention to murder and committing murder after entering into a criminal conspiracy.

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Supreme Court grants interim bail to SP Leader Azam Khan; Directs him to seek regular bail within two weeks

Taking into consideration the delay in implication of Azam Khan and the nature of the allegations made therein, the Court was of the view that it will not be in the interest of justice to deprive him of his personal liberty, particularly when in respect of 87 criminal cases/FIRs, he has already been released on bail.

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Case load on NGT low, No need to set up Benches in every State; High Court’s jurisdiction unaffected: Supreme Court upholds constitutionality of NGT Act

The seat of the NGT benches can be located as per exigencies and it is not necessary to locate them in every State.

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Over 90, 000 Reassessment Notices issued after April 1, 2021 saved as Supreme Court directs them to be treated as notices under Section 148A of Income Tax Act

The bench of MR Shah* and BV Nagarathna, JJ has modified the order passed by the Allahabad High Court wherein it had quashed several reassessment notices issued by the Revenue, issued under section 148 of the Income Tax Act, 1961, on the ground that the same are bad in law in view of the amendment by the Finance Act, 2021 which has amended Income Tax Act by introducing new provisions i.e. sections 147to151 w.e.f. 1st April, 2021.

Most Read Story of the Month

Cheque issued as a security and not in discharge of legally recoverable debt; Is the contention sufficient to quash proceedings under N.I. Act at pre-trial stage? SC examines

“The quashing proceedings must not become an expedition into the merits of factual dispute, so as to conclusively vindicate either the complainant or the defence.”

Explainers

Insurance companies refusing claims on flimsy/technical grounds must stop! Don’t ask for documents that insured can’t produce

In a case where an Insurance Company had refused to settle an insurance claim on non-submission of the duplicate certified copy of certificate of registration of the stolen vehicle, the bench of MR Shah* and BV Nagarathna, JJ has held that while settling the claims, the insurance company should not be too technical and ask for the documents, which the insured is not in a position to produce due to circumstances beyond his control.

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Change of venue does not result in change of the seat of arbitration

The Court held that holding otherwise would create a recipe for litigation and (what is worse) confusion which was not intended by the Act.

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Land Acquisition| Compensation under 2013 Act cannot be claimed if award under 1894 Act couldn’t be passed due to pendency of proceedings or interim stay

“The intention of the Parliament while enacting Section 24(1) of the Act, 2013 cannot be to give benefit to a litigant, who has obtained a stay order and because of that the award could not be declared and thereafter the litigant may be awarded the compensation as per Act, 2013.”

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Showing undue favour to a party under the guise of passing judicial orders is the worst kind of judicial dishonesty

“A judge must decide the case on the basis of the facts on record and the law applicable to the case. If he decides a case for extraneous reasons, then he is not performing his duties in accordance with law. As often quoted, a judge, like Caesar’s wife, must be above suspicion.”

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Minority Status of Hindus in some States: SC directs Centre to have detailed deliberation with States and other stakeholders

The Court has directed the Central Government to undertake the necessary exercise and file a status report at least 3 days before the next date of hearing i.e. August 30, 2022.

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Pawnee recording self as “beneficial owner” is a necessary condition to exercise right to sell pledged good; it does not amount to “actual sale”

“Every transfer or sale is not ‘actual sale’ for the purpose of Section 177 of the Contract Act. To equate ‘sale’ with ‘actual sale’ would negate the legislative intent.”

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COVID-19 affecting education| No registration of Doctors without practical training. Foreign Institute MBBS students must first undergo training in India

“No doubt, the pandemic has thrown new challenges to the entire world including the students but granting provisional registration to complete internship to a student who has not undergone clinical training would be compromising with the health of the citizens of any country and the health infrastructure at large.”

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Non-execution of Arbitration Award even after 30 years-long delay: SC slams Allahabad High Court; U.P. Government to consider constituting four Additional Commercial Courts

“If, the commercial disputes are not decided/ disposed of at the earliest, it may ultimately affect the economy of the country and may spoil the business relations between the parties.”

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AIIMS to follow roster point-based reservation for preferential candidates

In a relief to students seeking admission in AIIMS Institutes, the bench of L. Nageswara Rao and AS Bopanna, JJ has directed that a roster point-based reservation for preferential candidates as followed by Jawaharlal Institute of Postgraduate Medical Education and Research (JIPMER) shall be implemented in all the AIIMS institutes.

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SC to decide if a non-member director barred from approaching NCLT alleging oppression/mismanagement under Section 430 of Companies Act

The question of law before the Court was whether a non-member/non-shareholder director is barred from raising a dispute regarding oppression/mismanagement and the illegal appointments of directors before the Civil Court u/s 430 of the Companies Act, 2013?

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Whether there should be any “Cooling off Period” for civil servants to contest elections post resignation/retirement? Best left to the Legislature concerned, says Supreme Court

“The allegations of bureaucrats deviating from strict norms of political neutrality with a view to obtaining party tickets to contest elections, is vague, devoid of particulars and unsupported by any materials which could justify intervention of this Court.”

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The Election cannot brook any delay! SC directs Maharashtra Election Commission to conduct local elections on the basis of pre-amendment delimitation

The Bench comprising of A.M. Khanwilkar, Abhay S. Oka and C.T. Ravikumar, JJ., directed Maharashtra State Election Commission to expeditiously conduct elections of local bodies (around 2486), which were pending for over 2 years (in some cases) due to disputed constitutional validity of State Amendments seeking to introduce delimitation in the State.

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SC finds Kerala Govt’s failure to compensate 3700 Endosulfan victims for 5 years appalling; says “without health, the faculties of living have little meaning”

“The failure to redress the infringement of their fundamental rights becomes more egregious with each passing day.”

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It isn’t the purpose of grace marks to allow reserved category candidate to switch over to general category

The Division Bench of M.R. Shah* and B.V. Nagarathna, JJ., reversed the impugned order of the Rajasthan High Court whereby the High Court had directed Income Tax Department to grant grace marks to the applicant and treat him as a person belonging to general category.

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Person languishes in jail for 2 years despite being granted bail by Supreme Court; Supreme Court criticizes Trial Judge for misinterpreting bail order

“… where the custody of a person for 9 years was found to be sufficient to entitle him to be released on bail, is now turned into custody for 11 years. This is nothing but reincarnation of Hussainara Khatoon [1] & Motil Ram [2].”

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Male Head Constable enters Mahila Barrack at 00:15 hours; is punishment of removal from service too harsh? SC tells what makes the punishment disproportionate

“…merely because one of the employees was inflicted with a lesser punishment cannot be a ground to hold the punishment imposed on another employee as disproportionate, if in case of another employee higher punishment is warranted and inflicted by the disciplinary authority after due application of mind.”

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Maternal uncle rapes his 14-year-old niece; will subsequent act of him marrying prosecutrix extinguish all criminal liabilities?

“This Court cannot shut its eyes to the ground reality and disturb the happy family life of the appellant and the prosecutrix”.

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Mere suppression of criminal antecedent regardless of whether there is a conviction or acquittal should not axiomatically lead to termination of service just by a stroke of pen

The Division Bench of Ajay Rastogi* and Sanjiv Khanna, JJ., reversed the impugned order of Delhi High Court whereby the High Court had upheld the dismissal order of appellant owing to suppression of information/false declaration in the verification form regarding criminal antecedent.

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Double Insurance–Overlapping policies: Grant of actual loss from one insurer will forfeit right to claim from other insurer; SC rejects Levi’s’ insurance claim

“What is in issue in this present case has been characterized as “double insurance”, i.e., where an entity seeks to cover risks for the same or similar incidents through two different – overlapping policies.”

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Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998 encroaches upon the judicial power of the State; held unconstitutional

The bench of L. Nageswara Rao* and BR Gavai, JJ has held that the Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998 encroaches upon the judicial power of the State and hence, is liable to be declared unconstitutional.

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Dilapidated structure on Bhilwara’s Tiranga Hill cannot be conferred a status of a Mosque in absence of any proof; Jindal Saw to go ahead with mining

In the absence of any proof of dedication or user, a dilapidated wall or a platform cannot be conferred a status of a religious place for the purpose of offering prayers/Namaaz.

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“An opinion accompanied by inadequate reasoning would not satisfy the requirements of Section 432 (2), CrPC”, SC directs presiding officer to reconsider remission application

“Section 432 (2) of the CrPC would stand defeated if the opinion of the presiding judge becomes just another factor that may be taken into consideration by the government while deciding the application for remission.”

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Great Indian Bustard and Lesser Florican Conservation: Supreme Court directs installation of bird divertors in priority areas within three months

The petitioners were environmentalists who had approached the Court to seek directions for protecting the rare birds which are dwindling in number; particularly direction to prohibit use of overhead power lines which have become a hazard as the said species of birds are getting killed on collision with the power lines.

Cases Reported in SCC

2022 SCC Vol. 3 Part 4

In Part 4 of 2022 SCC Volume 3, read some very pertinent Supreme Court decisions, involving aspects regarding reservation, accountability of social media platforms, service law and more.

2022 SCC Vol. 3 Part 5

Read four articles and nine significant decisions of Supreme Court in Part 5 of 2022 SCC Volume 3.

2022 SCC Vol. 4 Part 1

In 2022 SCC Volume 4 Part 1, read a very interesting case, wherein the grievance of the builder was that out of total of 1134 apartments constructed and sold by them, the owners of merely 51 apartments have joined together and invoked the jurisdiction of the National Consumer Commission and that such a miniscule percentage of consumers cannot seek to file the complaint in a representative capacity. To know what happened in this case, read the Supreme Court decision in Brigade Enterprises Ltd. v. Anil Kumar Virmani, (2022) 4 SCC 138

Case Briefs High Courts

Obligation of Thumb Impression and Signature, both, for a Pro-Note under Negotiable Instruments Act: Mandatory or Not? Read Madras HC’s verdict

Madras High Court: Teekaa Raman, J., observed that there is no mandatory provision under the Negotiable Instruments Act that both the signature and thumb impression has to be obtained for a pro-note and the lower Appellate Judge has totally misguided and misused the provision of the Negotiable Instruments Act, regarding the burden of proof and not even followed basic rudimentary of Section 20 of the Negotiable instruments Act.

Plaintiff filed a suit against the respondent for recovery of money of Rs 1,00,000 each, borrowed by him and executed promissory notes in favour of the plaintiff for consideration.

Resisting the suit, the defendant filed a written statement admitting the execution of the suit promissory notes. However, the defendant raised the plea that the promissory notes had been executed towards security for the loan borrowed and that the loan due was settled by way of execution of a sale deed in the name of the plaintiff’s wife.

Further, it was alleged that the suit promissory notes were not supported by consideration and the blank promissory notes were filled up for the purpose of filing the suit.

Trial Court considered the statutory presumption under Section 118 of the Negotiable Instruments Act and the authority of the holder in due course to fill up the promissory notes under Section 20 of the Act, decreed the suit by the judgment and decree.

First Appellate Authority had erroneously allowed the appeal and observed that the thumb impression of the defendant was not obtained and that the signature in each promissory note was different from each other on comparison by a naked eye. Accordingly, the trial Court’s decision was reversed.

On being aggrieved with the above, the plaintiff approached this, Court.

Analysis, Law and Decision

Questions for Consideration:

Whether the first Appellate Court erred in law in not considering the scope of Section 118 of the NI Act and the legal presumptions arising under it before dismissing the suit by reversing the well-considered reasonings of the trial Court?
Whether the first Appellate Court erred in law in rejecting the plaintiff’s right to fill up the suit promissory notes under Section 20 of the Negotiable Instruments Act whereupon the holder is authorized to fill up the blanks and to negotiate the instrument for a certain amount?
Whether the first Appellate Court is correct in dismissing the suit on the basis of a comparison by naked eye particularly when the defendant has categorically admitted the “execution” and “issuance” in his written statement and in evidence before the Court?

High Court observed that the trial Court had rightly invoked the presumption under the Negotiable Instruments Act and called upon the defendant to rebut the presumption. However, in Court’s opinion, the Appellate Court had not even considered the presumption under the NI Act and not followed even the burden of proof or onus of proof as stated in the Indian Evidence Act.

The Bench stated that once the signature found in the suit documents has been admitted, there is no need or necessity for the plaintiff to give an explanation for not obtaining the thumb impression in the suit promissory note.

Additionally, the High Court noted that it is trite law that in the case of mandatory presumption, the burden of proof on the defendant in such a case would not be as light.

When there is a statutory presumption in favour of the plaintiff, it has to be rebutted by proof and not by a bare explanation. Unless the explanation is supported by proof, the presumption created by the provision cannot be said to be rebutted.

Once statutory presumption is raised, onus of proving absence of consideration is on the executant.

The Bench added that the lower Appellate Court could not understand the facts of the case and had applied wrong preposition of the burden of the proof forgetting the presumption under NI Act and it was the onus of the proof by the defendant to discharge the burden.

Therefore, lower Appellate Court erred in law on rejecting the plaintiff’s right to fill up the suit promissory notes under Section 20 of the NI Act, whereupon the holder is authorized to fill up the blanks and to negotiate the instrument for a certain amount and the “execution” of cheque and “issuance” of cheque in his written statement and in his evidence before the Court, the lower Appellate Court is not right in raising suspicion with regard to the execution merely on the ground that the thumb impression was not obtained.

In view of the above discussion, the second appeal was allowed. [R. Barathbran v. R. Nallathambi, SA Nos. 142 of 2012, decided on 2-3-2022]

Advocates before the Court:

For Appellants: Mr. N. Manokaran

For Respondent: Mr. C. Prakasam

Case Briefs High Courts

[NI Act] Kar HC decides contours of law in a classic case where cash of Rs 2 crore was borrowed as hand loan and a cheque obtained for the repayment of the same got dishonoured

Karnataka High Court: M. Nagaprasanna, J. allowed the petition and quashed the impugned order regarding attachment of property and auction notification.

The facts of the case is such that the complainant claims to have lent to the accused a sum of rupees two crores by cash in two thousand rupees denomination and the cheque alleged to have issued by the accused is dishonoured. In respect of rupees two crores transaction in cash, the trial Court invoking Section 143-A of the Negotiable Instruments Act, 1881 (‘the Act’ for short) grants interim compensation of Rupees forty lakhs to be paid by the accused to the complainant. In the meantime the complainant exercising the liberty that was granted by the order impugned, initiated process in which order of attachment of the property of the petitioner was passed and a notice of public auction was also issued to auction the property on 25-01-2022. Aggrieved, an instant petition was filed challenging the said order.

Counsel for petitioner Mr. V M Sheelavant and Mr. Mrutyunjaya Halliker submitted that the petitioner is yet to be held guilty and the trial is yet to commence. As an interim measure, 20% of the claim amount is directed to be paid which amounts to Rs.40 lakhs and it is highly improbable that the complainant has dispersed the loan of rupees two crores that too in cash. It is a subject matter of trial.

Counsel for respondents Mr. B V Somapur and Mr. R K Kulkarni submitted that that presumption is operating against the petitioner in terms of provisions of the Act. Since the petitioner has issued the cheque, the liability is admitted and, therefore, the order directing 20% is in tune with law and would seek dismissal of the criminal petition.

The Court observed that the Act was amended by the Amendment Act of 2018 and Section 143A came to be inserted. The purport of the amendment is that the Court may in certain circumstances award interim compensation which shall not exceed 20% of the amount of the cheque and such interim compensation can be permitted to be withdrawn in terms of the said amendment.

The Court further observed that the impugned order does not bear reason as to why 20% of the amount is awarded as interim compensation. There is no application of mind as to why the said compensation has to be awarded. Section 143A is completely misread that once the accused does not plead guilty, the complainant becomes automatically entitled to 20% of the cheque amount as interim compensation.

The Court remarked that, the Legislature has cautiously worded sub-section (1) of Section 143A not to make it mandatory in all cases. It is the discretion conferred, as the word used is “may”. Application of mind in exercise of discretion is discernible only in an order that contains reasons, and reasons can be found only if they are recorded in writing, and if reasons are recorded in writing, it is only then the order will be within the counters of law.

The Court further stated that the impugned action now alleged is that in terms of the order passed by the competent Court, the proceedings for attachment of the property are initiated by the complainant and the property of the petitioner is put to auction. Therefore, the consequences of such order are grave where the petitioner whose liability is yet to be determined will have to face grave hardship in the event of non-payment. It is therefore imperative for the learned Magistrates to pass appropriate orders which bear application of mind and record reasons as to why interim compensation is to be awarded in a given case.

The Court thus in the case at hand observed that there is not even a semblance of application of mind on the part of the Magistrate of Trial Court as the provision was misconstrued that in the event the accused does not plead guilty he becomes liable to pay 20% as interim compensation. This is not the purport of the Act. What is the necessary is only application of mind and recording detailed reasons as to why such compensation is to be awarded in a given case.

The Court thus held “the order dated 10.01.2022 of attachment of property in Criminal Miscellaneous No.313 of 2021 stands quashed. Public auction notification dated 25.01.2022 in furtherance of the order dated 10.01.2022 also stands quashed.”

[Vijaya v. Shekharappa, 2022 SCC OnLine Kar 515, decided on 17-02-2022]

Arunima Bose, Editorial Assistant has reported this brief.

Case Briefs High Courts

Dishonour of Cheque | If a cheque is not honoured by issuer and even after a legal notice he doesn’t pay, he is bound to face criminal trial: Del HC

Delhi High Court: Rajnish Bhatnagar, J., dismissed a matter revolving around the dishonour of cheque under Section 138 of the Negotiable Instruments Act.

Background

Respondent 2 had filed a complaint under Section 138 of the Negotiable instruments Act, 1881 against the revisionist stating that he had taken a friendly loan of Rs 4,80,000 from the respondent for a period of one month.

The revisionist had issued a cheque for the above-said amount, but the said cheque was returned with the remark “fund insufficient”. Thereafter, the respondent issued a legal notice, but the revisionist could not make the payment within a stipulated period, hence case under Section 138 NI Act was filed.

Analysis, Law and Decision

High Court expressed that, taking into consideration the various provisions of Cr.P.C. which have been discussed in various judgments time and again demonstrate that the Negotiable Instruments Act, provides sufficient opportunity to a person who issues the cheque.

Further, the Court observed that,

Once a cheque is issued by a person, it must be honored and if it is not honored, the person is given an opportunity to pay the cheque amount by issuance of a notice and if he still does not pay, he is bound to face the criminal trial and consequences.

Trite Law

Once the issuance of a cheque and signature are admitted, the presumption of a legally enforceable debt in favour of the holder of the cheque arises.

Bench stated that while imposing sentence on the accused after his conviction, it is to be kept in mind that sentence for offence under Section 138 NI Act should be of such nature as to give proper effect to the object of the legislation and no drawer of the cheque can be allowed to take dishonour of cheque issued by him light-heartedly.

In the present matter, the revisionist submitted that the cheque was lost and he had filed a complaint of the same as well, but the original complaint was not placed on record.

Bench noted his malafides when it was found that he neither informed the bank concerned about the cheque nor requested the bank to get the payment stopped against the said cheque.

Lastly, while stating that mere statement by revisionist would not be sufficient to raise suspicion with the prosecution’s case, High Court found no infirmity in the decision of the trial court and upheld the same.[Sanjay Gupta v. State, 2022 SCC OnLine Del 822, decided on 24-3-2022]

Advocates before the Court:

For the Revisionist: Mr. Sudhanshu Palo and Mr. Surendra Kr. Roy, Advs.

For the Respondents: Ms. Manjeet Arya, APP for the State. Ms. Seema Sharma, Adv. for complainant.

Hot Off The Press News

Appellate Courts where appeals are pending against judgments in complaint under S. 138 NI Act to make an effort to settle dispute through mediation: Bom HC issues Practice Directions

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 Briefs District Court

Dishonour of Cheque occurring when parties entered in an illegal and void agreement: Can Court still take cognizance in S. 138 NI Act complaint? Dwarka Court decides

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 Briefs High Courts

[S. 138 NI] Telangana HC | A joint account holder cannot be prosecuted unless and until he/she is a signatory to subject cheque

Telangana High Court: Shameem Akhter J. allowed criminal petition and quashed the proceedings against the petitioner/A.2 on the ground that it is only the drawer of the cheque who can be proceeded.

The instant Criminal under Section 482 of the Code of Criminal Procedure, 1973 i.e. ‘Cr.P.C.’ was filed by the petitioner seeking to quash the proceedings against her on the file of VII Special Metropolitan Magistrate, Ranga Reddy District, at Hastinapur and on the file of XiI Special Metropolitan Magistrate, Ranga Reddy District, at Hastinapur, respectively.

Counsel for petitioner submitted that the petitioner, who is arrayed as A.2 in the subject C.Cs, is not a signatory to the subject cheques and she is falsely implicated in the subject C.Cs. No ingredients constituting the offence under Section 138 of Negotiable Instruments Act, 1881 (i.e. “N.I.Act”) are made out against the petitioner/A.2 and therefore, continuation of proceedings against the petitioner/A.2 is nothing but abuse of process of law

Counsel for respondent submitted that petitioner is not a signatory to the subject cheques but is aware of the money transactions and handing over of the subject cheques’. It was further submitted that the petitioneris maintaining joint account with her husband i.e, A1 and the subject cheques relate to the said joint account only. The petitioner has knowledge of the subject transactions and most of the amounts were paid to her account only. Thus, the Courts rightly took cognizance of the offence under Section 138 of Negotiable Instruments Act i.e. N.I. Act against the petitioner/A2 along with A1.

The Court observed that as per the mandate given under Section 138 of N.I Act, 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.

The Court observed that in the instant case, it is evident from the entire material placed on record, particularly, the complaints filed by the respondent 2/complainant under Section 138 of N.I. Act r/w Sec.200 Cr.P.C, the petitioneris merely a jolnt account holder and she is not the signatory to the subject cheques.

It was further observed that though the account relating to the disputed cheques is a joint account, only one signature, which appears to be of A1, are seen on those disputed cheques. Penal provisions should be construed strictly, but not in a routine/casual manner. The words used in Section 138 of N.I.Act that “such person sha, be deemed to have committed an offence,, refers to a person who has drawn the cheque, but not any other person, except the contingencies mentioned under Section 141 of the N.I.Act. Hence, petitioner/A2, who is a mere joint account holder but not a signatory to the subject cheque, cannot be proceeded under Section 138 of N.I.Act, merits consideration, inasmuch as a joint account holder cannot be prosecuted, unless and until he/she is a signatory to the subject cheque.

The Court held “when no ingredients under section 138 of N.I.Act are made out against the petitioner/A.2, continuation of the subject proceedings against the petitioner/A.2 is abuse ot process of law. Therefore, the proceedings in the subject C.Cs against the petitioner/A.2, are liable to be quashed.”

[Kodam Danalakshmi v. State of Telangana, 2021 SCC OnLine TS 1431, decided on 29-10-2021]

Arunima Bose, Editorial Assistant has reported this brief.

Banking and Negotiable Instruments Op Eds OP. ED.

Territorial Jurisdictional Constraints of Cheque Bounce Cases

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 21^st 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:

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.

[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.

Cases Reported Supreme Court Cases

SCC Snippets| Dishonour of Cheque: Principles relating to presumption under Section 139 NI Act

The bench of Ashok Bhushan* and KM Joseph, JJ, in Basalingappa v. Mudibasappa (2019) 5 SCC 418, lucidly summarized the following principles relating to the presumption arising in law when a cheque is issue:

“25.1. Once the execution of cheque is admitted Section 139 of the Act mandates a presumption that the cheque was for the discharge of any debt or other liability.

25.2. The presumption under Section 139 is a rebuttable presumption and the onus is on the accused to raise the probable defence. The standard of proof for rebutting the presumption is that of preponderance of probabilities.

25.3. To rebut the presumption, it is open for the accused to rely on evidence led by him or the accused can also rely on the materials submitted by the complainant in order to raise a probable defence. Inference of preponderance of probabilities can be drawn not only from the materials brought on record by the parties but also by reference to the circumstances upon which they rely.

25.4. That it is not necessary for the accused to come in the witness box in support of his defence, Section 139 imposed an evidentiary burden and not a persuasive burden.

25.5. It is not necessary for the accused to come in the witness box to support his defence.”

*Judgment by: Justice Ashok Bhushan

Case Briefs High Courts

For summoning accused under S. 138 NI Act, recording of statements under Ss. 200 and 202 is required? All HC decides

Allahabad High Court: Sameer Jain, J., decided that whether for summoning an accused under Section 138 of Negotiable Instruments Act, 1881, recording of statements under Section 200 and 202 of CrPC is required or not.

Instant application was filed under Section 482 CrPC to quash the proceedings of complaint case under Section 138 of the Negotiable Instruments Act pending before the IInd Chief Judicial Magistrate, Varanasi.

Applicant was summoned under Section 138 of the Negotiable Instruments Act.

A perusal of the summoning order showed that cheque issued by the applicant in favour of the Firm of OP 2 was dishonoured and thereafter, notices on behalf of OP. were given to the applicant for payment of the cheque amount but inspite of that, no payment was made. Ultimately OP 2 filed a complaint under Section 138 NI Act against the applicant.

As per Section 145(1) of the Negotiable Instruments Act, the evidence of the complainant may be given by him on affidavit, and for the summoning of accused under Section 138 NI Act, recording of statements under Sections 200 and 202 CrPC was not required.

It was noted in the present matter that, from the perusal of the summoning order, it was apparent that while passing the order, Magistrate perused the complaint as well as an affidavit in support of the complaint filed by OP 2 and other documents including cheque, etc. and therefore, in view of provisions of Section 145 (i) NI Act, it could not be said that trial court committed an error while summoning the applicant as there was no need to record the statements either under Sections 200 CrPC or 202 CrPC.

High Court relied on the Supreme Court decision of Expeditious Trial of Cases under Section 138 NI Act, 1881, In Re., AIR 2021 SC 1957, and stated that even on the basis of affidavit filed on behalf of the complainant, an accused can be summoned under Section 138 NI Act and there was no need to record statements under Sections 200 and 202 CrPC.

Therefore, no illegality was committed by the trial court while passing the summoning order against the applicant. [Virender Kumar Sharma v. State of U.P., 2021 SCC OnLine All 874, decided on 8-12-2021]

Advocates before the Court:

Applicant’s Counsel: Manoj Kumar Rai, K.C. Tripathi

OP’s Counsel: Govt. Advocate

Case Briefs High Courts

All HC | Can complaint under S. 138 NI Act be quashed for failure to disclose date of service of notice? Court says it is a matter of evidence

Allahabad High Court: Vivek Varma, J., refused to quash a complaint case filed under Section 138 NI Act and directed the trial court to expedite the hearing.

Instant application was filed to quash the proceedings of a Complaint Case under Section 138 of Negotiable Instruments Act, 1881pending in the Court of Metropolitan Magistrate.

Applicant’s Counsel submitted that the cheque in question was not issued against any existing debt or liability and the date of service of notice was not disclosed in the complaint. It was added that until the date of service of notice is not disclosed, the cause of action to initiate the prosecution under Section 138 NI Act will not arise.

Though the AGA appearing for the State submitted that the disclosure of the date of service of notice is not mandatory. The said is a matter of evidence and can be seen during the trial.

Analysis, Law and Decision

Bench first referred to Section 138 of NI Act and further, the decision of Supreme Court in C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555 wherein presumption under Section 144 of the Evidence Act and Section 27 of the General Clauses Act was enunciated.

The above case was followed in the Supreme Court decision of Ajeet Seeds Limited v. K. Gopala Krishnaiah, (2014) 12 SCC 685, wherein it was held that the absence of averments in the complaint about service of notice upon the accused is the matter of evidence.

High Court in view of the above settled legal position stated that the complaint cannot be thrown at the threshold even if it does not make a specific averment with regard to the service of notice on the drawer on a given date.

Though the Bench added that the complaint must contain basic facts regarding the mode and manner of issuance of notice to the drawer of the cheque.

“…factum of disputed service of notice requires adjudication on the basis of evidence. The same can only be done and appreciated by the trial court and not by this Court under the jurisdiction conferred by Section 482 Cr.P.C.”

Burden of proving that the cheque was issued for debt or liability will also be upon the applicant and can be gone into by the Trial Court.

Pre-trial cannot be held before the actual trial begins. At the stage of summoning, the Magistrate has only to see whether a prime facie case is made out or not.

Therefore, in view of the Supreme court decision and the reasons stated above, the present application was dismissed.

The complaint case had been pending since 2007 and the as per Negotiable Instruments Act the proceedings under Section 138 NI Act ought to be concluded within 6 months, hence Court directed the lower court to expedite the hearing. [Ganesh Babu Gupta v. State of U.P., 2021 SCC OnLine All 420, decided on 7-06-2021]

Case Briefs Supreme Court (Constitution Benches)

No more “mechanical” conversion of complaints under Section 138 NI Act from summary to summons trial; Magistrates “must” record reasons: Supreme Court

Supreme Court: Noticing that the summary trials of complaints filed under Section 138 of the Negotiable Instruments Act, 1881 are being routinely converted to summons trials in a “mechanical manner”, the Constitution bench of SA Bobde, CJ and L. Nageswara Rao, BR Gavai, AS Bopanna and S. Ravindra Bhat, JJ has directed the High Courts to issue practice directions to the Magistrates for recording cogent and sufficient reasons while doing so.

The Court explained that in a case tried summarily in which the accused does not plead guilty, it is sufficient for the Magistrate to record the substance of the evidence and deliver a judgment, containing a brief statement of reasons for his findings. There is a restriction that the procedure for summary trials is not to be applied for any sentence of imprisonment exceeding three months. However, Sections 262 to 265 of the Code were made applicable “as far as may be” for trial of an offence under Chapter XVII of the Act, notwithstanding anything contained in the Code.

“It is only in a case where the Magistrate is of the opinion that it may be necessary to sentence the accused for a term exceeding one year that the complaint shall be tried as a summons trial.”

However, considering the the responses of various High Courts, the Court noticed that the conversion by the Trial Courts of complaints under Section 138 from summary trial to summons trial is being done mechanically without reasons being recorded.

“The result of such conversion of complaints under Section 138 from summary trial to summons trial has been contributing to the delay in disposal of the cases.”

Further, the second proviso to Section 143 mandates that the Magistrate has to record an order spelling out the reasons for such conversion. The object of Section 143 of the Act is quick disposal of the complaints under Section 138 by following the procedure prescribed for summary trial under the Code, to the extent possible.

“The discretion conferred on the Magistrate by the second proviso to Section 143 is to be exercised with due care and caution, after recording reasons for converting the of the complaint from summary trial to summons trial. Otherwise, the purpose for which Section 143 of the Act has been introduced would be defeated.”

Listing the matter for further consideration after 8 weeks, the Court concluded:

1) The High Courts to issue practice directions to the Magistrates to record reasons before converting trial of complaints under Section 138 of the Act from summary trial to summons trial.

2) Inquiry shall be conducted on receipt of complaints under Section 138 of the Act to arrive at sufficient grounds to proceed against the accused, when such accused resides beyond the territorial jurisdiction of the court.

3) For the conduct of inquiry under Section 202 of the Code, evidence of witnesses on behalf of the complainant shall be permitted to be taken on affidavit. In suitable cases, the Magistrate can restrict the inquiry to examination of documents without insisting for examination of witnesses.

4) Suitable amendments be made to the Act for provision of one trial against a person for multiple offences under Section 138 of the Act committed within a period of 12 months, notwithstanding the restriction in Section 219 of the Code.

5) The High Courts to issue practice directions to the Trial Courts to treat service of summons in one complaint under Section 138 forming part of a transaction, as deemed service in respect of all the complaints filed before the same court relating to dishonour of cheques issued as part of the said transaction.

6) Trial Courts have no inherent power to review or recall the issue of summons. However, this does not affect the power of the Trial Court under Section 322 of the Code 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.

7) Section 258 of the Code is not applicable to complaints under Section 138 of the Act. To conclusively deal with this aspect, amendment to the Act empowering the Trial Courts to reconsider/recall summons in respect of complaints under Section 138 shall be considered by the Committee constituted by an order of this Court dated 10.03.2021.

On 10.03.2021, a Committee with Hon’ble Mr. Justice R.C. Chavan, former Judge of the Bombay High Court, as the Chairman was formed to consider various suggestions that are made for arresting the explosion of the judicial docket.

8) All other points, which have been raised by the Amici Curiae in their preliminary report and written submissions and not considered herein, shall be the subject matter of deliberation by the aforementioned Committee. Any other issue relating to expeditious disposal of complaints under Section 138 of the Act shall also be considered by the Committee.

The aforementioned directions came in the case relating to “Expeditious Trial of Cases under Section 138 of N.I. Act 1881” in the light of the humongous pendency of complaints under the said provision.

The preliminary report submitted by the Amici Curiae showed that as on 31.12.2019, the total number of criminal cases pending was 2.31 crores, out of which 35.16 lakh pertained to Section 138 of the Act. The reasons for the backlog of cases, according to the Amici Curiae, is that while there is a steady increase in the institution of complaints every year, the rate of disposal does not match the rate of institution of complaints.

[In Re: EXPEDITIOUS TRIAL OF CASES UNDER SECTION 138 OF N.I. ACT 1881, 2021 SCC OnLine SC 325, decided on 16.04.2021]

Appearances before the Court by:

Amici Curiae: Senior Advocate Siddharth Luthra and advocate K. Parameshwar

Tushar Mehta, Solicitor General of India and Vikramjit Banerjee, Additional Solicitor General of India,

Advocate Ramesh Babu for the Reserve Bank of India

Advocate Dr. Lalit Bhasin for the Indian Banks’ Association.

Case Briefs High Courts

Del HC | Vicarious liability under S. 138 NI Act. What is proper stage of raising defence of absence of knowledge by the accused being held vicariously liable for offence committed by company? Explained

Delhi High Court: Rajnish Bhatnagar, J., held that:

“Once a cheque is issued by a person, it must be honored and if it is not honoured, the person is given an opportunity to pay the cheque amount by issuance of a notice and if he still does not pay, he is bound to face the criminal trial and consequences.”

Accused 2, 3 and 4 had approached Respondent 2 in January 2009 and allured him into investing Rs 50 lacs in their company with the assurance that the same would be doubled in 5 years and relying on such assurances, he invested his lifetime savings with them.

Accused persons failed to return the principal amount with interest being total of Rs 1 Crore but then he was further inducted to invest Rs 20 lacs more with the promise to return Rs 2 crores on or before March 2019 and that MoU dated 26-07-2018 was executed, whereby accused persons undertook to pay the complainant a sum of Rs 47,53,519 and a cheque was also issued; and that later MoU dated 05-05-2019 was executed and it was promised that the complainant would be made a partner in the business and receipt of Rs 50 lacs as principal amount was retained with the promise that it would be safe and secure with them and it would become Rs 2 crores in 2019.

On 18-02-2019 another Promissory Note was issued by accused 2 in favour of the complainant and his wife acknowledging liability to pay an amount of Rs 2,47,53,000/- payable to the complainant and his wife on or before 30-06-2019.

Later, in July 2019 nine cheques were issued and the said cheques were dishonored and while cheque at Sr No. 1 was dishonored for the reasons “account closed”, the bank returning memos in respect of other cheques from Sr Nos. 2 to 9 came with the remarks “kindly contact drawer”.

Respondent 2 served a legal notice upon the accused persons, which were duly served upon but since no payment was made under the cheque, the complaint was filed by respondent 2.

Accused 4/ Petitioner was summoned by the MM for offences under Section 138 of the Negotiable Instruments Act.

Petitioner sought quashing of the present proceedings on the grounds that neither she was a Director nor she had signed the cheques in question nor she ever participated in any of the meeting or negotiations with the complainant with regard to the transactions in question nor she ever executed any document, hence she had no role in the offence.

Analysis, Law and Decision

“…Negotiable Instruments Act, provides sufficient opportunity to a person who issues the cheque.”

Bench stated that the High Court cannot usurp the powers of the Metropolitan Magistrate and entertain a plea of an accused, as to why he should not be tried under Section 138 of the N.I. Act.

The plea regarding why he should not be tried under Section 138 NI Act is to be raised by the accused before the Court of Metropolitan Magistrate.

Further, the High Court expressed that an offence under Section 138 of the N.I. Act is technical in nature and defences, which an accused can take, are inbuilt; for instance, the cheque was given without consideration, the accused was not a Director at that time, accused was a sleeping partner or a sleeping Director, cheque was given as a security etc., etc., the onus of proving these defences is on the accused alone, in view of Section 106 of the Indian Evidence Act, 1872

Burden of Proving

Offence under Section 138 NI Act is an offence in the personal nature of the complainant and since it is within the special knowledge of the accused as to why he is not to face trial under Section 138 NI Act, he alone had to take the plea of defense and the burden cannot be shifted to complainant.

“…no presumption that even if an accused fails to bring out his defense, he is still to be considered innocent.”

If an accused has a defense against dishonour of the cheque in question, it is he alone who knows the defense and responsibility of spelling out this defense to the Court and then proving this on the accused.

In the instant case, respondent 2/complainant stated that under Section 138 of N.I. Act has made specific averments that while Accused’s 2 and 3 were directors of the company, accused 4 had been handling finance and accounts of the accused 1 company and responsible for its day to day operations alongwith other accused persons.

Court stated that the plea raised for the petitioner that Summy Bhasin never participated in any negotiations with the complainant cannot be considered at this preliminary stage since such defense can only be considered during the trial stage.

Prosecution under Section 138 of the Act can be launched for vicarious liability against any person, who at the time of commission of offence was in charge and responsible for the conduct of the business of the accused company.

Petitioners plea that the offences were committed without his knowledge cannot be considered at this stage considering the fact that the Complainant specifically averred that negotiations had taken place with him along with other co-accused persons and they were prima facie aware about the whole series of transaction.

Lastly, Bench expressed that the deal with the complainant was not a trivial or a routine case of marketing, sale or purchase of goods or services.

When such a huge investment was being sought from the complainant and applied for the running of the affairs of the company, it is not fathomable that the accused persons were unaware of the financial implications for themselves and for the accused company.

In exercise of jurisdiction under Section 482 CrPC, Court cannot go into the truth or otherwise of the allegations made in the complaint or delve into the disputed questions of facts.

Therefore, it can be concluded from the above discussion that, Section 138 of the NI Act spells out the ingredients of the offence and the said ingredients are to be satisfied mainly on the basis of documentary evidence, keeping in mind the presumptions under Sections 118 and 139 of NI Act and Section 27 of the General Clauses Act as well as the provisions of Section 146 of the Act.

“…trial that alone can bring out the truth so as to arrive at a just and fair decision for the parties concerned.”[Summy Bhasin v. State of NCT of Delhi, 2021 SCC OnLine Del 1189, decided 10-03-2021]

Case Briefs High Courts

Del HC | Onus to prove that there is non-existence of debt is on whom under NI Act? Read the purpose of S. 118 NI Act

Delhi High Court: Subramonium Prasad, J., addressed a matter wherein it was reiterated that the initial burden of proving the burden of the non-existence of debt is on the accused under Section 118 of Negotiable Instruments Act, 1881.

The instant revision petition was filed against the order passed dismissing the appeal and affirming the Metropolitan Magistrate’s order convicting the petitioner for offences punishable under Section 138 of Negotiable Instruments Act, 1881.

Petitioner has also challenged the order wherein the petitioner has been sentenced to undergo imprisonment for a period of two months and also directed the petitioner to pay an amount of Rs 13 lakhs as fine payable as compensation to the respondent as per the provision of Section 143 (1) of NI Act read with Section 357 (1)(3) of CrPC.

Facts that lead to the case

Respondent financed a bus for the petitioner by giving a loan and in discharge of the liability, petitioner handed over the cheques in favour of the respondent. When the said cheques were deposited they were returned as unpaid/dishonored for the reason ‘Funds Insufficient’.

Petitioner submitted that the vehicle was handed over to the respondent company for getting the vehicle converted to CNG but the said vehicle was never returned to the petitioner nor the accounts related to the hire purchase were settled. In fact, the blank cheques given to the respondent earlier were misused.

Though Metropolitan magistrate found the petitioner’s deposition to be inconsistent and found that the bus was already sold by the petitioner.

Metropolitan Magistrate, therefore, held that the accused/petitioner was not been able to rebut the presumption that the cheques had been paid for the discharge of any liability and hence convicted under Section 138 NI Act.

Analysis, Law and Decision

Section 118 of the NI Act raises a presumption that a cheque is issued for consideration until the contrary is proved. It is well settled that the initial burden in this regard lies on the accused to prove the non-existence of debt by bringing on record such facts and circumstances which would lead the Court to believe the non-existence of debt either by direct evidence or by preponderance of probabilities.

In the instant matter, other than mere ipsi dixit of the petitioner there was no debt due and payable nothing was on record to show that the cheques were not issued for discharge of liability for the bus.

Bench stated that the purpose of introducing Section 138 of the NI Act was to bring sanctity in commercial transactions.

Further, the Court noted that the lower courts on perusal of records came to the conclusion that the cheques were given in discharge of the debt.

While expressing that the scope of revision petition under Sections 397/401 CrPC read with Section 482 CrPC is extremely narrow Court referred the following Supreme Court decisions:

State v. Manimaran, (2019) 13 670

State of Haryana v. Rajmal, (2011) 14 SCC 326

In view of the above discussion, Bench did not find any that required the interference in the lower court’s judgment.

Further, the Court added that the respondent did not file the books of accounts was not fatal to the case of the respondent. It was open to the petitioner to produce his books of accounts to rebut the presumption and bring out a prima facie case that there was no debt due and payable on the date the cheques were dishonoured.

Petitioner failed to show as to how there was no subsisting debt on the date when the cheques were dishonoured due to insufficiency of funds.

In view of the above discussion, the revision petition was dismissed. [G.D. Kataria v. AVL Leasing & Financing Ltd., 2020 SCC OnLine Del 1056, decided on 03-02-2021]

Advocates for the parties:

Petitioner: Medhanshu Tripathi, Advocate

Respondent: Anuj Soni, Advocate

High Court Round Up Legal RoundUp

2020 Wrap-Up — 22 Notable rulings by High Courts on Negotiable Instruments Act

And, that’s a wrap!

Here’s the list of our coverage on Negotiable Instruments Act in the year 2020.

[Allahabad High Court]

All HC | Can a complaint filed in light of S. 138 NI Act be dismissed on ground of one day delay? Read Court’s reasoned order

[Pankaj Sharma v. State of U.P., 2020 SCC OnLine All 1339, decided on 22-09-2020]

All HC | Principle contained in S. 141 of NI Act is not applicable to a sole-proprietary concern, firm need not be arraigned as an accused while making a claim for recovery under S. 138 of the NI Act

[Dhirendra Singh v. State of U.P., 2020 SCC OnLine All 1130, decided on 13-10-2020]

All HC | Once the intention of the party is clear that he does not wish to make payment, should complainant wait for 15 days to file a complaint for dishonour of cheque? HC answers

[Ravi Dixit v. State of U.P., 2020 SCC OnLine All 1056, decided on 23-09-2020]

[Bombay High Court]

Bom HC | Does NI Act authorises a complainant to fill an incomplete cheque? Court discusses while reversing acquittal of accused under S. 138 NI Act

[Kiran Rameshlal Bhandari v. Narayan Purushottam Sarada, 2020 SCC OnLine Bom 3562, decided on 07-12-2020]

Bom HC | Appeal filed against conviction under S. 138 NI Act cannot be dismissed for non-payment of fine without going into merits of appeal

[Adesh Prakashchand Jain v. Harish Punamchand Une, 2020 SCC OnLine Bom 96, decided on 08-01-2020]

Bom HC | S. 139 NI Act imposes evidentiary burden and not a persuasive burden; acquittal upheld where complainant failed to prove capacity to give loan

[Tasneem Murshedkar Mazhar v. Ramesh, 2020 SCC OnLine Bom 20, decided on 02-01-2020]

[Delhi High Court]

Del HC | Can a director who has resigned from company be held liable for cheques subsequently issued and dishonoured? HC explains in light of S. 141 NI Act

[Alibaba Nabibasha v. Small Farmers Agri-Business Consortium, 2020 SCC OnLine Del 1250, decided on 23-09-2020]

Del HC | Proceedings under S. 138 NI Act quashed against Independent Non-executive Directors not involved in day-to-day affairs of Company

[Sunita Palta v. Kit Marketing (P) Ltd., Crl. MC No. 1410 of 2018, decided on 03-03-2020]

Del HC | Ss. 143-147 NI Act lay down Special Code for trial, recourse to S. 482 CrPC as a substitute for initiating second revision petition denied

[Tathagat Exports (P) Ltd. v. PEC Ltd., 2020 SCC OnLine Del 405, decided on 20-01-2020]

[Himachal Pradesh High Court]

HP HC | Legislative intent of NI Act, 1881 is not to send the people to suffer incarceration but to execute recovery of cheque amount by showing teeth of penalty loss; conviction set aside

[Gaurav Sharma v. Ishwari Nand, 2020 SCC OnLine HP 2464, decided on 13-11-2020]

HP HC | Whether the trial court can exercise any discretion while entertaining an application under S.145 of the NI Act; HC elucidates upon procedural nuances

[Vikas Sharma v. Vishant Bali, 2020 SCC OnLine HP 2876, decided on 08-12-2020]

HP HC | While exercising power under S. 147 of NI Act the Court can proceed to compound the offence even after recording of conviction

[Satish Kumar v. Rahul Kumar, 2020 SCC OnLine HP 338, decided by 03-03-2020]

[Jharkhand High Court]

Jhar HC | Object of NI Act is primarily compensatory; Court can discharge accused on full payment and amicable settlement

[Alok Kumar v. State of Jharkhand, Cr. Revision No. 694 of 2019, decided on 06-03 2020]

[Kerala High Court]

[Negotiable Instruments Act] Ker HC | What determines commencement of period of presentation is date of cheque and not the date of delivery of cheque

[Subanamma Ninan v. George Veeran, 2020 SCC OnLine Ker 4151, decided on 18-09-2020]

[Karnataka High Court]

Kar HC | In a case where both the complainant and the accused remained continuously absent, Court ought to have “dismissed the complaint for non-prosecution under S. 256 CrPC and not on merits”

[Karage Gowda v. S. Nagaraj, 2020 SCC OnLine Kar 2012, decided on 11-12-2020]

Kar HC | If the complainant produces evidence regarding the transaction as well as dishonour of cheque, is it still necessary to examine the banker to prove the endorsement issued by him? HC decides

[M. Narayanaswamy v. Nagaraj N.S., 2020 SCC OnLine Kar 2013, decided on 11-12-2020]

Kar HC | No legal basis for Family Courts insisting on personal presence of petitioners at the time of filing cases; Presence of complainant while filing S. 138 NI Act case not necessary

[High Court of Karnataka v. State of Karnataka, 2020 SCC OnLine Kar 543 , decided on 03-06-2020]

[Madras High Court]

Madras HC | Can a ‘Non-Executive Director’ who is not responsible for day-to-day affairs of company be made vicariously liable for offence committed by the company? Court’s interpretation in light of S. 141 NI Act

[Vijaya Arun v. New Link Overseas Finance Ltd., Crl. OP Nos. 5, 8 & 11 of 2020, decided on 18-08-2020]

[Malafide Litigation] Madras HC | Proceedings under S. 420 IPC quashed for being counterblast to complaint instituted under S. 138 NI Act

[M. Chandrasekar v. R. Rajamani, 2020 SCC OnLine Mad 4777, decided on 24-08-2020]

[Madhya Pradesh High Court]

[Dishonour of Cheque] MP HC | Director/MD/JD/other officers and employees of a company can not be prosecuted under S. 138 of NI Act unless the company is impleaded as an accused

[Bhupendra Suryawanshi v. Sai Traders, 2020 SCC OnLine MP 1277, decided on 09-06-2020]

[Punjab and Haryana High Court]

[S. 138 NI Act] P&H HC | Do sympathetic consideration have any role to play in the matter of sentencing? Court discusses

[Rakesh Kumar v. Jasbir Singh, 2020 SCC OnLine P&H 1197, decided on 11-08-2020]

[Tripura High Court]

Tri HC | What is the purpose of a serving a ‘Statutory Notice’ under Negotiable Instruments Act? Detailed analysis of significance of ‘Statutory Presumption’

[Nitai Majumder v. Tanmoy Krishna Das, 2020 SCC OnLine Tri 537, decided on 17-11-2020]

Also Read:

2020 Wrap Up — Flashback of Stories on Consumer Cases

2020 Wrap-Up — Family Law & Allied Provisions

Case Briefs Supreme Court

Notice issued to Centre, RBI and the likes over need for expeditious disposal of trials under Section 138 of Negotiable Instruments Act

Supreme Court: Taking suo motu cognizance of the issue relating to the expeditious trial of cases under Section 138 of Negotiable Instruments Act, 1881, the bench of SA Bobde, CJ and L. Nageswara Rao, J has issued notice to the Union of India through Law Secretary, Registrar General of all the High Courts, the Director General of Police of all the States and Union Territories, Member Secretary of the National Legal Services Authority, Reserve Bank of India and Indian Bank Association, Mumbai as the representatives of Banking institutions.

The said action of the Court came after noticing that despite many changes brought through legislative amendments and various Supreme Court decisions mandating speedy trial and disposal of these cases, the Trial Courts are filled with large number of pendency of these cases. A recent study of the pending cases, reflects pendency of more than 35 lakh, which constitutes more than 15 percent of the total criminal cases pending in the District Courts.

Here’s is what the Court suggested whule posting the matter on April 16, 2020 for further hearing:

there is a need to evolve a system of service/execution of process issued by the court and ensuring the presence of the accused, with the concerted efforts of all the stakeholders like Complainant, Police and Banks.
an information sharing mechanism may be developed where the banks share all the requisite details available of the accused, who is the account holder, with the complainant and the police for the purpose of execution of process. This may include a requirement to print relevant information, viz the email id, registered mobile number and permanent address of the account holder, on the cheque or dishonour memo informing the holder about the dishonour.
RBI, being the regulatory body may also evolve guidelines for banks to facilitate requisite information for the trial of these cases and such other matters as may be required.
a separate software-based mechanism may be developed to track and ensure the service of process on the accused in cases relating to an offence under Section 138 of N.I. Act.
RBI may consider developing a new proforma of cheques so as to include the purpose of payment, along with other informations mentioned above to facilitate adjudication of real issues.
a mechanism may be developed to ensure the presence of the accused even by way of coercive measure, if required, taking effect from Section 83 of Cr.P.C. which allows attachment of property, including movable property.
an effort may be evolved to recover interim compensation under Section 143A of the N.I. Act as well as fine or compensation to be recovered as per Section 421 of Cr.P.C.
National Legal Services Authority, being the responsible Authority in this regard, may evolve a scheme for settlement of dispute relating to cheque bounce at pre-litigation i.e. before filing of the private complaint. An Award passed at the pre-litigation stage or pre-cognizance stage shall have an effect of a civil decree.

“This measure of prelitigation ADR process can go a long way in settling the cases before they come to Court, thereby reducing docket burden.”

High Courts may also consider setting up of exclusive courts to deal with matters relating to Section 138, especially in establishments where the pendency is above a standard figure. Special norms for assessment of the work of exclusive courts may also be formulated giving additional weightage to disposal of case within the time-frame as per legal requirement.

The Court appointed Senior Advocate Siddharth Luthra as Amicus Curiae and Advocate K. Parameshwar to assist the amicus curiae in the matter.

[In Re: Expeditious trial of cases under Section 138 of N.I. Act, 1881, Suo Moto Writ Petition (Criminal), arising out of SPECIAL LEAVE PETITION (CRIMINAL) NO. 5464 OF 2016, order dated 05.03.2020]

Case Briefs High Courts

P&H HC | Accused facing trial under Negotiable Instrument Act not competent to file an affidavit for evidence

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]

Law made Easy

Dishonour of Cheque [S. 138 NI Act and allied sections]

[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.

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