Negotiable Instruments Act

Case BriefsHigh Courts

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 BriefsSupreme Court (Constitution Benches)

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 BriefsHigh Courts

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 BriefsHigh Courts

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

Case BriefsHigh Courts

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 BriefsSupreme Court

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 BriefsHigh Courts

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

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

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

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

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

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

Law made Easy

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

Introduction

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

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

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

Negotiable Instruments Act, 1881

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

Provided that nothing contained in this section shall apply unless —

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

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

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

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

Classification of Offence

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

Cases

Ingredients

The ingredients of the offence under Section 138 are:

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

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

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

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

 Conditions precedent for constituting an offence under S. 138

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

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

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

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

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

 Sentence

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

 Compounding of offence [recording of compromise between the parties]

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

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

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

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

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

Where to file a case for S. 138 offence?

If cheque delivered for collection through an account

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

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

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

Debt or other liability

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

Liability of a guarantor

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

Mens rea not required for offence under S. 138

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

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

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

“Stop payment” instructions by the drawer

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

Case of a post-dated cheque

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

“Account closed” by the drawer

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

“Signatures do not match”

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

Notice under S. 138

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

Presumption as to service of Notice

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

 What if addressee refuses to receive Notice

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

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

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

 Presumption under S. 139

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

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

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

Case of a blank cheque

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

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

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

 Rebutting the presumption

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

 Not necessary for accused to appear in witness box for rebuttal

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

Complainant to prove financial capacity if disputed by accused

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

Complaint by a company

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

Defect can be rectified later

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

Offence by companies and vicarious liability of officers of the Company

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

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

Case against the Directors

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

Impleading the Company as accused necessary

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

 Necessary averments in complaint to put vicarious liability

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

Case of a Managing Director and signatory of a cheque

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

Offence by a partnership firm and vicarious liability of partners

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

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

 Online proceedings

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

 Interim compensation to the complainant

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

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

Payment pending appeal against conviction

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

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

Further Suggested  Reading

1. Avtar Singh –

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

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

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

Read also from SCC Online Archives

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

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

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

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

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

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

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

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

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

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

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

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

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

Case BriefsHigh Courts

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

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

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

Case BriefsHigh Courts

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

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

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

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

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

Case BriefsHigh Courts

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

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

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

Case BriefsHigh Courts

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

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

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

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

Case BriefsHigh Courts

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

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

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

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

Case BriefsHigh Courts

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

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

Case BriefsHigh Courts

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

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

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

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

Case BriefsHigh Courts

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

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

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