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 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 reasons sated above, 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 lower court to expedite the hearing. [Ganesh Babu Gupta v. State of U.P., Application U/S 482No. 4656 of 2021, decided on 7-06-2021]

Case BriefsHigh Courts

Jammu and Kashmir High Court, Srinagar: Sanjeev Kumar, J., while addressing a matter in respect to Section 138 NI Act, stated that

“…issuance of process and putting a person to trial is a serious matter and the Magistrate, while exercising such power cannot afford to be mechanical or lackadaisical.”

Petitioner has sought quashment of the Order passed b Judicial Magistrate in the case file titled as Aijaz Ahmad Dar v. Zulfikar Ahmad Dar, whereby and where under trial court has while taking cognizance of complaint filed by the respondent under Section 138 of the Negotiable Instruments Act, has issued the process for appearance of the accused (petitioner).

Respondent instituted a complaint under Section 138 NI Act against the petitioner in trial court. It was alleged that respondent had lent more than two crores and seventy-five thousand to the petitioner through different modes.

Petitioner had paid part of the said amount and was reluctant t pay the balance amount. But the matter was settled in the month of October/November 2019. Petitioner discharged his liability by making payment of Rs 40 Lakhs in cash and issued 4 cheques for amount of Rs 32 Lakhs and amount of Rs 10 lakhs was to be paid in a short period of time.

Further, it was stated that before the respondent could present the cheques for encashment to the bank, he was requested by the petitioner not to present cheque dated 10-05-2020 for an amount of Rs.10 lacs for encashment with a promise that petitioner would make the payment of the entire amount once the lockdown imposed by the Government due to COVID-19 was lifted.

Petitioner did not keep his promise and respondent presented the remaining three cheques which were all dishonoured for the reason of insufficient balance. On informing the petitioner about the same, he was requested by the respondent to pay the amount of Rs 42 lakhs but he avoided the same.

In view of the above, respondent served a demand notice. Despite having received the same, petitioner failed to liquidate the amount and hence the respondent filed the complaint which is impugned in the present petition.

Analysis, Law and Decision 

Understanding of the term ‘Cognizance’

High Court explained the meaning of the word “Cognizance”. The said word means ‘knowledge’ or ‘notice’ and taking cognizance of offence means, ‘taking notice’ or ‘become aware of the alleged commission of offence’.

The term ‘cognizance of offence’ is nowhere defined in the Code of Criminal Procedure.

Further, the Bench stated that Sections 190 to 199 of the CrPC deal with method and the limitations, subject to which various criminal Courts ought to take cognizance of offences.

In the Supreme Court decision of R. R. Chari v. State of U.P, AIR 1962 SC 1573, held that:

 “Taking cognizance does not mean any formal action or accepted action of any kind but occurs as soon as a magistrate, as such involves his mind to the suspected commission of the offence.”

Court observed that generally the Magistrates, before whom the complaint of facts constituting offences are presented, mix up the ‘cognizance’ and the ‘issuance of process’.

The cognizance in matters like the present one is taken under Section 190 CrPC and it is only after the Magistrates takes cognizance under Section 190 CrPC, he proceeds to record the preliminary statement of the complainant and his witness, if any present, so as to find out whether the allegation in the complaint, which constitutes an offence, are substantiated.

Sometimes on not being satisfied after taking cognizance, the Magistrate postpones the issue of process and resorts to inquiry under Section 202 of CrPC.

Preliminary Statement and Section 138 NI Act

High Court made a very pertinent observation that, in the matter of complaint under Section 138 NI Act, in which the ingredients of offence are clearly pleaded and made out with the support of documentary evidence, the omission to discuss the preliminary statement of the complainant and his witness may be an irregularity, but that would not vitiate proceedings unless in the Court’s opinion a failure of justice has in fact been occasioned.

In view of the above-stated discussion, Court did not accept the plea of the petitioner that for not discussing and analysing preliminary statements of complainant and his witness the impugned order is vitiated.

Another observation laid down in view of the facts of the present matter was that, in a case involving the dispute purely of a civil nature, the criminal law cannot be set in motion but, it is equally well settled that certain offences like the offences of cheating, criminal breach of trust, criminal misappropriation and offence under section 138 of the NI Act do arise out of the civil transactions and if the ingredients of offence/offences are made out, criminal law too can be set in motion alongside the civil remedy for resolution of the dispute. 

Mens Rea and Dishonour of Cheque

Section 138 creates a statutory offence in the matter of dishonour of cheques on the grounds of insufficiency of funds in the account maintained by a person with the banker and that it exceeds the amount arranged to be paid. Generally, in the criminal law, mens rea is an essential component of crime but dishonour of cheque is a criminal offence where there is no need to prove a mens rea.

In the present matter, enough material was appended to put the petitioner on notice to face the trial.

Hence, complaint filed by the respondent and impugned summoning order issued by the trial court were fully in consonance with the law and required no interference.

In view of the above, petition was dismissed. [Zulfikar Hussain Dar v. Aijaz Ahmad Dar, 2021 SCC OnLine J&K 345, decided on 17-05-2021]

Case BriefsHigh Courts

Gujarat High Court: Vaibhavi D. Nanavati, J., compounded an offence under Section 138 of the Negotiable Instruments Act and set aside the conviction and sentence of the accused, while observing at the same time that generally powers under Section 482 CrPC are not to be exercised when a statutory remedy is available under law.

Brief Facts of the Matter

Applicant issued a cheque of amount Rs 9,00,000 in favour of the original complainant and on depositing the same, the cheque came to be dishonoured with the notings that ‘Account Closed’.

After issuance of notice, original complainant instituted the Criminal Complaint about the alleged offence punishable under Section 138 of the Negotiable Instruments Act, 1881.

Trial Court had convicted the applicant imposing 1-year imprisonment and also directed the applicant to pay compensation to the tune of Rs 13,50,000.

Original complainant thereafter instituted Criminal Appeal for enhancement of sentence. But later, both complainant and respondent 2 arrived at a settlement which was reduced in writing form.

Analysis, Law and Decision

While pronouncing its decision Court stated that it would be apposite to refer to the observation made and guidelines issued by the Supreme Court in the case of Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663.

Further, the High Court referred to a plethora of decisions with respect to the issue involved in the present matter.

Respondent 2 on 31-03-2021 stated that the parties have arrived at a settlement and the entire amount agreed between the parties was received by respondent 2 and that now he had no objection if the conviction of the applicant with respect to present offence was quashed.

Bench added that,

 Applying the ratio of various decisions by this Court and the Supreme Court as well as in view of the guidelines as laid down in the case of Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663 as also considering the object of Section 138 of the NI Act, which is mainly to inculcate faith in the efficacy of banking operations and credibility of transacting business through cheque as also taking into account the provisions of Section 147 which states that every offence punishable under this Act shall be compoundable.

High Court also noted that generally the powers available under Section 482 of the Code would not have been exercised when a statutory remedy under the law is available, however, considering the peculiar set of facts and circumstances it would not be in the interest of justice to relegate the parties to the appellate court. 

In Court’s opinion, taking into account the guidelines as laid down in the case of the above stated Supreme Court decision and the fact that the parties have settled the dispute amicably, the compounding of the offence was required to be permitted.

 Hence the present application was allowed. The decision passed by Additional Senior Civil Judge and Additional Chief Judicial Magistrate under Section 138 NI Act was set aside. [Khokhar iliyas Bismillah Khan v. State of Gujarat, 2021 SCC OnLine Guj 852, decided on 06-05-2021]

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

Kerala High Court: K. Haripal, J., addressed the instant complaint instituted by the appellant alleging offence punishable under Section 138 of the Negotiable Instruments Act, 1881. The Bench remarked,

“The degree of proof expected from the accused is not as rigorous as that of the complainant. He can discharge his onus by making dents in the case of the complainant.”

 The appellant alleged that, in consideration of a sum of Rs.1,75,000 lend by him to the respondent, a cheque for Rs.1,75,000 dated 25-06-2009 was drawn on Bayar Service Co-operative Bank by the respondent. When the cheque was represented for collection, it got dishonoured due to insufficiency of funds. Although the matter was duly intimated to the respondent, he neither paid the amount nor replied to the notice, aggrieved by the same, he moved the complaint u/s 138 of NI Act. The respondent denied the allegation that he had borrowed Rs.1,75,000 and issued the cheque in consideration of the same. However, he admitted to have borrowed Rs.30,000 from the complainant but denied the other handwritings on the cheque. According to him, he had given a signed blank cheque to the appellant, which had been misused by incorporating a huge amount as consideration; he argued that there was no legally enforceable liability to pay Rs.1,75,000. Considering the above mentioned, the Trial Court acquitted the respondent finding him not guilty.

Noticing that the respondent had disputed the financial capacity of the appellant to lend that much money, the Bench observed that the monthly income of the appellant was Rs.2,000. He had to take care of his family with two children for whom he had to earmark Rs.750/- from the monthly income. Even though he had 3 acres and 5 cents of land, there was no yield from the property. The Bench further expressed, “It is a  matter of common knowledge that, as far as rubber plant is concerned, initial years are very tough for the planter; he has to incur huge expenses for nourishing and nursing the plants. He will start to get earnings only when the trees are tapped after six or seven years.”

Further, the Bench stated that though the appellant had submitted that he had arranged the amount by availing a loan from a bank and also by pledging gold ornaments, unless the presumption was rebutted, it could not be taken that the cheque was issued in discharge of a legally enforceable liability. While relying on Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, the Bench said, it must be stated, “even if a signed blank cheque is issued towards a payment, the payee is entitled to fill up the amount and other particulars that will not invalidate the cheque.”

The question before the Bench was whether, the reason that the appellant did not respond the lawyer notice nor did enter the box, should an adverse inference be drawn against him. Relying on Basalingappa v. Mudibasappa, (2019) 5 SCC 418, the Bench quoted,

“(ii) 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.  

(iii) To rebut the presumption, it is open for the accused to rely on evidence led by him or 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. 

(iv) 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.”

Lastly, the Bench said once execution of the promissory note was admitted, or proved, the presumption under Section 118(a) of the Act would arise that it was supported by consideration. However,

Merely for the reason that the respondent did not adduce any evidence to prove a negative fact, no adverse inference could be drawn against him. The degree of proof expected from the accused was not as rigorous as that of the complainant. He could discharge his onus by making dents in the case of the complainant.

Consequently, the Bench held that the appellant had not taken care in adducing evidence to support his ability to pay that much money. The complainant was expected to prove his case to the hilt and he could not take advantage of the failure on the part of the accused respondent. Hence, the appeal was dismissed.[Ramakrishna B.K. v. Narayana Bhat, 2021 SCC OnLine Ker 1151, decided on 09-03-2021]


Appearance before the Court by:

For Appellant: Senior Adv. V.V.ASOKAN, Adv. P.P.Ramachandran and Adv. M. Ramanya Gayathri

For Respondents: Adv. M. Sasindran and Sr. Public Prosecutor M. S. Breez


Kamini Sharma, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Division Bench of Venugopal M (Judicial Member) and Alok Srivastava (Technical Member) held that a demand notice is a forerunner to the commencement of insolvency proceedings against a corporate debtor. Unpaid demand notice is good enough to exhibit the debtor’s inability to pay its debts for bankruptcy proceedings. If a bonafide dispute is established then an ‘Insolvency’ petition is not the appropriate proceeding to determine the validity of a disputed debt.

On being aggrieved with the decision of National Company Law Tribunal, Mumbai, the present Company Appeal was preferred by the appellant.

Appellant submitted that no ‘Demand Notice’ was ever served on the Corporate Debtor/Second Respondent as per Section 8 of the Insolvency and Bankruptcy Code.

Tribunal’s Assessment

Tribunal noted that the appellant’s plea stated that the alleged Demand Notice of the respondent 1 was sent to an address and the same was not registered address of the ‘Corporate Debtor’ as per the master data of the ‘Corporate Debtor’ on MCA website.

Further, it was submitted by the appellant that the Demand Notice was knowingly addressed to the wrong address of the ‘Corporate Debtor’ by respondent 1.

Tribunal expressed that:

As per Section 8 of the I&B Code an Operational Creditor is required to deliver a demand notice on the occurrence of the default within ten days from the receipt of the demand notice, the Corporate Debtor shall bring to the notice of the Operational Creditor ‘the existence of the dispute’, if any, and the record of the pendency of the suit or arbitration proceedings before the receipt of such notice or invoice in relation to such dispute.

While proceeding with discussion in the above matter, Bench also stated that a change in address of the registered office of the ‘Corporate Debtor’ cannot be a ruse for the failure of the party concerned to send/issue a ‘Demand Notice’ as per Section 8 of the I&B Code. In fact, serving the demand notice to the corporate debtor is mandatory.

“If a demand notice payment under the code is issued, the ‘Corporate Debtor’ will appreciate in right earnest the consequences flowing on account of failure to pay the ‘operational debt’. Also, that . after transfer of the case form High Court to Tribunal (in respect of winding up petition) an Operational Creditor is required to submit all information including the details of the proposed Insolvency Professional.”

Tribunal opined that service of ‘Demand Notice’ to the second respondent is mandatory as per Section 8 of the Code.

Further the Bench while making observations in the present matter also added that it cannot be forgotten that the proceedings under Section 138 NI Act pertain to criminal liability for dishonour of cheques issued and do not bar an application under Section 9 of the Code. Likewise, the pendency of proceedings under Order 37 of the civil Procedure Code will not prohibit an application under Section 9 of the Code.

While concluding, the Tribunal held that:

Since the ‘Service of notice’ at the registered address of the ‘Corporate Debtor’ was not established to the subjective satisfaction of the Tribunal and the admitted fact being that the notice sent to the second respondent at its registered office got returned, the said admission of debt and the reference with regard to NI Act that a holder of cheque received the cheque for the discharge either in whole or in part of any debt or other liability will not in any way heighten or improve the case of appellant.

Since the notice as per Section 8 of I&B Code was not served upon the corporate debtor and the same got returned, NCLT’s decision is to be set aside.

Hence NCLT’s order is to be declared as illegal in appointing the ‘Interim Resolution Professional’ declaring moratorium and all other orders passed.  Corporate Debtor is therefore released from all the rigour of law and is allowed to function independently through its Board of Directors.

Before parting, Tribunal granted liberty to the Operational Creditor to issue a fresh notice under Section 8 of I&B Code and on receipt of such notice of service if there is ‘Debt and Default’ to file a fresh application under Section 9 IBC. [Shailendra Sharma v. Ercon Composites, 2021 SCC OnLine NCLAT 3, decided on 13-01-2021]

Op EdsOP. ED.

On 8-6-2020, the Ministry of Finance sought public comments with respect to a proposal to decriminalise several minor offences to decrease the burden of potential criminal liability on businesses, reduce the pendency of cases and enhance the ease of doing business in India[1]. One of the offences sought to be decriminalised was that of cheque dishonouring under Section 138 of the Negotiable Instruments Act, 1881 (“the Act”). The proposal immediately attracted widespread opposition from both within the legal fraternity, and without. We, however, believe that the decriminalisation of cheque dishonouring would not have the overwhelmingly adverse impact that most detractors of the proposal feel it will. Instead, we see the decriminalisation of the offence as leading to a simplification and consolidation of the law relating to debt recovery.

If a cheque, issued by a drawer pursuant to the discharge of a liability to the payee, is returned by the drawee bank due to the drawer not having sufficient credit/funds in his bank account, the drawer is deemed to have committed the offence of dishonouring a cheque. This imposition of criminal liability, as per Section 138 of the Act, on a person issuing bad cheques is not an age-old concept. In fact, prior to the introduction of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, the only remedy available to the payee of a dishonoured cheque lay in civil law. It is only after 1988 that the law of the land, seeking “to enhance the acceptability of cheques in settlement of liabilities.[2], brought drawers of bounced cheques under the purview of criminal law, while leaving the jurisdiction of civil courts, to also give remedy to the payees of such cheques, unaffected. Though an act is usually criminalised for the purpose of punishing the offender, rather than compensating the victim; in the case of cheque dishonouring, practical experience and the scheme of the Act shows us that the compensatory aspect of the crime takes precedence over the punitive. This predominantly compensatory object of the provisions of Chapter 17 of the Act is evidenced by the fine imposable by the court being linked to the cheque amount[3], the compoundability of the offence[4], cognizance of the offence only being taken on written complaint by the payee[5], and the summary trial procedure applicable to Section 138 proceedings[6].

The scheme of the law governing the offence of cheque dishonour seems to encourage the parties to settle the dispute by having the offender pay the cheque amount and avoid penal confinement. The Supreme Court has even devised a scheme for the graded increase in fines levied to encourage early compounding of the offence[7]. Even if the accused refuses to compromise, the Court can impose a fine up to double the cheque amount and apply it to compensate the payees of the bad cheque[8]. This primary objective of giving compensatory relief to the payee of the cheque is essentially civil in nature. Section 138 of the Act, thus, seeks to provide a civil remedy through the criminal justice apparatus. The Supreme Court has on several instances recognised that cheque dishonour cases “are really civil cases masquerading as criminal cases”.[9] The pre-eminent role of compensatory, rather than punitive considerations, while disposing of cases of cheque dishonour is evident from the Supreme Court’s decision in Meters and Instruments (P) Ltd. v. Kanchan Mehta[10], wherein the Court allowed the discharging of the accused even if the cases were not compounded with the consent of both parties; so long as the criminal court found that the complainant was duly compensated[11]. In fact, the question of decriminalising cheque dishonouring was first hinted at by the Supreme Court in an order passed by it in March of 2020.[12] When we look at the basic end that the law relating to cheque dishonour aims to serve, as well as the operation of the law in practice, it is clear that the decriminalisation of the offence would not drastically alter the substantive rights of the payee of a dishonoured cheque.

Under present law, upon dishonour of a cheque, the payee of the cheque can approach both civil and criminal fora. The payee can move civil courts by means of a suit for recovery linked to the liability sought to be discharged by the cheque. He or she can also approach criminal courts writing a complaint to a Magistrate of an offence under Section 138 of the Act. Though the liberty accorded to the payee of a dishonoured cheque to move multiple fora for remedy would, prima facie, appear to best serve the ends of justice, it does pose some problems, namely—

(i) If the payee proceeds against the accused both in criminal and civil courts, the cost incurred by both parties in contesting such simultaneous proceedings tends to create an undue burden. This would be especially true for the defendant who would be forced to contest two separate proceedings in two different fora pertaining to the alleged dishonour of a single cheque. Moreover, this would lead to a multiplicity of proceedings in relation to essentially the same subject-matter, seeking essentially the same relief. The Law Commission in its 213th Report, noted that approximately 38 lakhs Section 138 cases were pending in criminal courts nationwide[13]; while a more recent Supreme Court order put the figure closer to 35 lakhs, constituting more than 15% of criminal cases pending in District Courts.[14] Decriminalising the offence of cheque dishonouring would, at the very least, remove from the national pending cases roster those criminal cases where a corresponding civil proceeding has also been instituted, leaving the civil court to adjudicate the dispute.

(ii) If the complainant chooses to move only the criminal courts via Section 138 of the Act, the proceedings may not be concluded as expeditiously as required by the Act[15], and the civil right of action may be lost in the meantime due to the limitation period expiring. This problem came to the fore in R. Vijayan v. Baby[16], where the criminal case against the accused resulted in the Magistrate levying an inadequate amount of fine, while the limitation period for the civil action expired during the pendency of the appeal from the Magistrate’s judgment. This left the complainant with no means of recovering the cheque amount. The following obiter dicta of the Supreme Court encapsulates the problem—

  1. 19. In same type of cheque dishonour cases, after convicting the accused, if some courts grant compensation and if some other courts do not grant compensation, the inconsistency, though perfectly acceptable in the eye of the law, will give rise to certain amount of uncertainty in the minds of litigants about the functioning of courts. Citizens will not be able to arrange or regulate their affairs in a proper manner as they will not know whether they should simultaneously file a civil suit or not. The problem is aggravated having regard to the fact that in spite of Section 143(3) of the Act requiring the complaints in regard to cheque dishonour cases under Section 138 of the Act to be concluded within six months from the date of the filing of the complaint, such cases seldom reach finality before three or four years let alone six months. These cases give rise to complications where civil suits have not been filed within three years on account of the pendency of the criminal cases.[17]

Decriminalisation of the offence would do away with such exigencies, leaving the payee of a dishonoured cheque with recourse solely in civil courts. It must also be noted here that, civil courts have one advantage over criminal courts when it comes to affording relief to the payee – claiming of interest. While the scheme of Chapter 17 of the Act allows the criminal court to levy fines up to double the cheque amount and the general provisions of the Code of Criminal Procedure, 1973 also allows the criminal courts to award compensation if no such fine is levied[18], the awarding of such fines/compensation equivalent to the cheque amount together with reasonable interest accrued thereon is discretionary. The need for uniformity in the fines levied, which should include the cheque amount with 9% per annum interest thereon, was noted by the Supreme Court[19]. Civil courts, on the other hand, have a well-developed jurisprudence surrounding Section 34 of the Code of Civil Procedure, 1908, which allows for interest pre-institution of the suit, pendente lite and post-decree.

Apart from resolving the issues associated with giving the payee of a dishonoured cheque rights of action in multiple fora, decriminalising the offence leaves intact the rights of the parties to seek redressal of their disputes pertaining to such cheques by means of alternative dispute resolution processes. Under the current law, cases with regard to compoundable offences, such as the offence of cheque dishonouring, are capable of being referred to alternative dispute resolution mechanisms like arbitration, mediation, conciliation and Lok Adalats[20] for settlement, akin to references permitted under Section 89 of the Code of Civil Procedure, 1908[21]. Moreover, such alternative dispute resolution processes are usually utilised by parties to settle disputes pre-litigation, hence the rights of the parties in relation to such processes would not be affected by decriminalisation of the offence. Indeed, even without decriminalisation, alternative dispute resolution has been generally acknowledged as the key to reducing the huge backlog of cases arising out of minor wrongs such as cheque dishonouring[22].

It must be noted here that, though the decriminalisation of cheque dishonouring can make the law relating to the same more consistent, uniform and just to all litigants, it does not, in and of itself, mean that the disputes will be adjudicated more expeditiously. In fact, most critics of the decriminalisation proposal have pointed out that under the present legal framework, the remedy available to the payee of a dishonoured cheque in civil courts is by means of a general suit for recovery of money. Unlike in criminal law, there are currently no special provisions in civil law in relation to dishonoured cheque actions. However, it must be mentioned that, despite special provisions being available to payees of dishonoured cheques in criminal courts, such matters are hardly ever disposed of expeditiously, let alone within the statutory time-limit of 6 months.[23] The root cause of this problem does not relate to nature of the wrong, rather, it stems from the large-scale judicial vacancy in lower courts generally. With cheque dishonouring cases being destined to be tried in lower courts, and the large number of such cases filed, the pendency statistics of cheque dishonouring cases will continue to be aggravated for want of a sufficient number of Judges to hear them – whether civil or criminal. It has been reported that every 10 lakh Indians have access to just 19 Judges.[24] This apart, the Supreme Court has noted that, as on 22-10-2018, there were 5133 judicial vacancies out of a total of 22,036 such posts.[25] Regardless of whether cheque dishonouring is decriminalised, if the problem of judicial vacancies in the lower courts is not addressed, a mechanism for more expeditious disposal of such cases will remain elusive.

Apart from increasing the number of Judges in the lower courts, in order to ensure truly efficacious remedy to payees of dishonoured cheques, procedural provisions equivalent to those contained in Chapter 17 of the Act must be incorporated into civil law. Resultantly, suits for recovery of money arising out of dishonoured cheques must be made compulsorily summarily triable under Order 37 of the Code of Civil Procedure, 1908, with statutory time-limits for disposal of such suit and appeals therefrom. Parties to such proceedings should also be made to undergo mandatory pre-institution mediation to encourage early settling of the matter without going into litigation. Special Courts or Tribunals may also be designated the fora of recourse for all civil proceedings in relation to cheque dishonouring. If such changes to the civil law governing cheque dishonouring are effected, decriminalising the wrong would reduce the number of pending cases in criminal courts, and create one consolidated and equitable legal framework for dishonoured cheque related disputes. These changes would have the effect of bringing essentially civil wrongs out of the jurisdiction of criminal courts and bring them into the fold of the civil law system which would provide equally, if not more efficacious relief to victims of cheque dishonouring.


* Principal Associate, Khaitan and Co., e-mail: anunoy.basu@khaitanco.com. [Views are personal only and not of the Firm.]

** 5th-year student, Department of Law, University of Calcutta, e-mail:shounakmukherjee96@gmail.com.

[1] Notice Seeking Public Comment dated 8-6-2020, Department of Financial Services, Ministry of Finance, Government of India, <https://financialservices.gov.in/sites/default/files/Decriminalization%20-%20Public%20Comments.pdf>.

[2] Statement of Objects and Reasons of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 <http://www.scconline.com/DocumentLink/It14gm48>.

[3] S. 138 of the Negotiable Instruments Act, 1881.

[4] S. 147 of the Negotiable Instruments Act, 1881.

[5] S. 142(1)(a) of the Negotiable Instruments Act, 1881.

[6] S. 143 of the Negotiable Instruments Act, 1881.

[7] Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663.

[8] S. 357(1)(b) of the Code of Criminal Procedure, 1973

[9] R. Vijayan v. Baby, (2012) 1 SCC 260, para 16; see also, Rangappa    v. Sri Mohan, (2010) 11 SCC 441, para 14; Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560, para 18.

[10] (2018) 1 SCC 560.

[11] Id., at para 18.

[12] Makwana Mangaldas Tulsidas v. State of Gujarat, (2020) 4 SCC 695, para 18.

[13] Law Commission of India, Report No. 213 on Fast Track Magisterial Courts for Dishonoured Cheque Cases, Para 2.18.

[14] Makwana Mangaldas Tulsidas v. State of Gujarat, (2020) 4 SCC 695, para 4.

[15] S. 143(3) of the Negotiable Instruments Act, 1881.

[16] (2012) 1 SCC 260.

[17] Id., at 268, para 19.

[18] S. 357(3) of the Code of Criminal Procedure, 1973.

[19] R. Vijayan v. Baby, (2012) 1 SCC 260, para 18.

[20] S. 20 of the Legal Services Authorities Act, 1987; see K.N. Govindan Kutty Menon v. C.D. Shaji, (2012) 2 SCC 51.

[21] Dayawati v. Yogesh Kumar Gosain, 2017 SCC OnLine Del 11032.

[22] Law Commission of India, Report No. 213 on Fast Track Magisterial Courts for Dishonoured Cheque Cases, Para 5.5.

[23] S. 143(3) of the Negotiable Instruments Act, 1881.

[24] <https://thewire.in/law/india-has-19-judges-per-10-lakh-people-law-ministry-data>.

[25] Filling up of Vacancies, In re, 2018 SCC OnLine SC 3648 para 2

Case BriefsHigh Courts

Allahabad High Court: Ravi Nath Tilhari, J., addressed a matter wherein a person being the director of the company signed a cheque on behalf of the company and since the said cheque got dishonoured, he was made liable, without the company being made liable under the offence of Section 138 of Negotiable Instruments Act, 1881.

The instant petition was filed under Section 482 of the Code of Criminal Procedure, 1973 for quashing of summoning order passed by Additional Chief Judicial Magistrate under Section 138 of the Negotiable Instruments Act.

Facts as stated by the applicant

Applicant has been stated to be the Director of a Company and complainant/OP 2, an employee in the railways, by giving assurance of contract of road construction from his superior officers in favour of applicant’s company obtained post-dated cheque of 5 lakh rupees in terms of security money.

Complainant had assured the applicant that once he starts earning profits from the said contract work he would return the post-dated cheques.

However, applicant without any prior notice to the company, complainant presented the cheque in the bank which was dishonoured due to non-availability of funds. One of the legal notice, though was not received by the applicant, but the second notice was served.

Points that arose for consideration:

High Court formulated the following points of consideration:

  • Whether criminal prosecution against the person in charge of, and responsible for conduct of the business of the company under Section 138 NI Act, can be maintained, in the absence of any prosecution of the Company for such offence and without making the company an accused, in view of Section 141 of the NI Act?
  • Whether the cheque in question was issued by the applicant in his personal capacity or in the capacity of director of the company?
  • Whether the orders under challenge and the criminal proceedings against the applicant deserve to be quashed in the exercise of jurisdiction under Section 482 CrPC?

Analysis of the above points:

In order to consider the first point, Court referred to Sections 138 and 141 of the Negotiable Instruments Act, 1881.

On perusal of the said provisions, the essential ingredients of offence under Section 138 NI Act as laid down by the Bench were:

  • The person drew a cheque on an account maintained by him with the banker
  • When such a cheque is presented to the bank is returned by the bank unpaid
  • such cheque was presented to the bank within a period of six months from the date it was drawn or within the period of its validity, whichever is earlier;
  • the payee demanded in writing from the drawer of the cheque the payment of the amount of money due under the cheque to the payee
  • Such a notice of payment is made within a period of 30 days from the date of the receipt of the information by the payee from the bank regarding return of the cheque, as unpaid and
  • Inspite of the demand notice the drawer of the cheque failed to make the payment within a period of 15 days from the date of receipt of the demand notice

For the offence to be constituted under Section 138 NI Act, all the above ingredients need to co-exist.

Supreme Court decision in Aneeta Hada v. Godfather Travels and Tours (P) Ltd., (2012) 5 SCC 661, held that Section 141 of NI Act is concerned with the offences by the company. It makes the other persons, vicariously liable for commission of an offence on the part of the company.

The vicarious liability gets attracted when the condition precedent laid down in Section 141 NI Act stands satisfied. There can be no vicarious liability unless there is a prosecution against the company. For maintaining a prosecution under Section 141 NI Act, arraying of the company as an accused is imperative.

 In Supreme Court’s decision of Standard Chartered Bank v. State of Maharashtra, (2016) 6 SCC 62, it was held that there cannot be any vicarious liability unless there was a prosecution against the Company.

In Harihara Krishnan v. J Thomas, (2018) 13 SCC 663, Supreme Court held that Section 141 stipulates the liability for the offence punishable under Section 138 NI Act when the person committing such an offence happens to be a company.

In Aneeta Hada v. Godfather Travels and Tours (P) Ltd., (2012) 5 SCC 661, it was settled that for maintaining a prosecution against the person in charge of and responsible for conduct of the business of the company under Section 138 NI Act, arraigning of the Company as an accused is imperative in view of Section 141 of the Act, as such a person can only be held vicariously liable.

With regard to point 1, hence Court held that such a person, cannot be prosecuted unless there was prosecution of the company.

Second Point

 Whether the cheque in question was issued by the applicant in his personal capacity or in the capacity of the Director of the Company?

The above-stated question can be determined from perusal of the cheque itself. It is one of the essential ingredients to constitute an offence under Section 138 NI Act, that the person drew a cheque on an account maintained with the Banker and the existence of this ingredient is to be proved from the document itself, i.e. the cheque, and for its proof no other evidence is required. Hence, Court could determine if the cheque was issued as authorized signatory or in personal capacity by the applicant by exercising its jurisdiction under Section 482 CrPC.

On perusal of the copy f the cheque it was found that the said was signed by Sanjay Singh, the applicant for Udit Infraheights Private Limited, as its authorized signatory.

Hence the cheque was not issued in the applicant’s personal capacity.

In the absence of the company, as accused, any offence was not made out, even prima facie, against the applicant for his summoning under Section 138 read with Section 141 of the NI Act.

While referring to the Supreme Court decision in Ashoke Bafna v. Upper India Steel Manufacturing and Engineering Company Ltd., (2018) 14 SCC 202, it was held that before summoning an accused under Section 138 NI Act, the Magistrate is expected to examine the nature of the allegations made in the complaint and the evidence, both oral and documentary, in support thereof, and then to proceed further with the proper application of mind to the legal principle of the issue.

Last Point

 With regard to the last point of consideration, Bench referred to the decision of Supreme Court in Rishipal Singh v. State of U.P., (2014) 7 SCC 215, Supreme Court, while considering the scope of Section 482 CrPC held that when a prosecution at the initial stage is asked to be quashed, the test to be applied is as to whether the uncontroverted allegations as made in the complaint prima facie establish the case.

In Pooja Ravinder Devidasani v. State of Maharshtra, (2015) 88 ACC 613, Supreme Court held that the Superior Court should maintain purity in the administration of justice and should not allow the abuse of process of the Court.

Therefore, Court opined that the complaint was not filed against the company, as the company was not made a party accused and no vicarious liability could be imposed upon the accused applicant.

Since, the cheque was not signed by the applicant in his personal capacity, the complaint could not have proceeded against him and no offence could be made out against the applicant.

Petition was allowed and the orders challenged were quashed. [Sanjay Singh v. State of U.P., 2021 SCC OnLine All 120, decided on 10-02-2021]

Case BriefsHigh Courts

Madras High Court: P.N. Prakash, J., decided a criminal original petition addressing an issue with regard to an offence under Section 138 of Negotiable Instruments Act, 1881.

Sree Gokulam Chits and Finance Corporation Private Limited initiated prosecution in the Court of Judicial Magistrate for the offence under Section 138 of the Negotiable Instruments Act, 1881 against Jaishankar (A1) and Nagalakshmi (A2).

Gokulam’s case was that Jaishankar (A1) joined some chit groups floated by them and became a subscriber. Jaishankar was given chit amounts towards which, he issued some cheques as security while so, Jaishankar defaulted on the repayment of the chits and when Jaishankar was informed that legal action would be taken against him, he and his wife came for settlement. His wife issued cheque, which on presentation at the bank was returned unpaid with endorsement “payment stopped by the drawer”.

Gokulam after the above incident issued a statutory demand notice and on non-completion of the said demand, Gokulam initiated a prosecution under Section 138 of the NI Act against them.

Decision

Bench noted that the impugned cheque in the present case was issued by the accused 2, i.e. Nagalakshmi from her personal bank account in discharge of the debt of her husband Jaishankar (A1).

Court added that the said cheque was not issued from the bank account of any juristic entity for invoking vicarious liability provisions viz. Section 141 of the NI Act.

If a cheque is issued by a person in discharge of the liability of another person and if the cheque is dishonored, the person, who issued the cheque can be prosecuted under Section 138 NI Act.

 High Court stated that just because Jaishankar (A1) was the beneficiary of the loan, he could not be prosecuted under Section 138 of the NI Act for the dishonour of the cheque issued by his wife Nagalakshmi (A2).

Hence, in view of the above discussion, Court while partly allowing the petition issued the following directions:

  • Prosecution against Jaishankar (A1) quashed.
  • Nagalakshmi was asked to appear before the Judicial Magistrate.
  • Nagalakshmi shall file a bail petition and cooperate in the expeditious disposal of the case without adopting any dilatory tactics.
  • If Nagalakshmi absconds, a fresh FIR can be registered under Section 229 A.

[M. Jaishankar v. Sree Gokulam Chits and Finance Corpn. (P) Ltd., 2020 SCC OnLine Mad 5550, decided n 04-12-2020]

Case BriefsHigh Courts

Delhi High Court: Suresh Kumar Kait, J., reversed the order of the lower court issuing summons against the accused in a case under Section 138 of the Negotiable Instruments Act, holding that the lower courts fell in error while computing the period of limitation.

Factual Matrix

Petitioner had borrowed a sum of Rs 10 Lacs from respondent 2 who had lent the same vide two cheques amounting to Rs 5 lacs each. Further, it was stated that after approximately 3 years, respondent 2 approached petitioner for repayment of the loan amount, petitioner assured that he will return the entire amount and in order to discharge his part liability he issued a cheque amounting to Rs 10 lacs, which was dishonored with remarks “funds insufficient”.

Complainant stated that when the above-said was informed to the petitioner, he paid no heed to his complaint and thereafter, a legal demand notice was served upon him, yet petitioner failed to make payment, therefore a complaint was filed under Section 138 NI Act.

In view of the above complaint, summons were directed to be issued against the petitioner.

The above Order was challenged and the revisional court dismissed the said petition which has been challenged.

Contentions

Petitioners Counsel submitted that the Metropolitan Magistrate had no jurisdiction to take cognizance under Section 138 NI Act without that being accompanied by application under Section 142 (1) (b) NI Act for condoning the delay in filing the complaint.

Further, while taking cognizance of the complaint, Metropolitan Magistrate did not take note of the fact that the complaint was filed beyond the limitation period and did not rightly calculate the days and therefore, directed to issue summons to the petitioner was illegal and without jurisdiction.

Analysis and Decision

Bench referred to the decision of Supreme Court in Econ Antri Ltd. v. Rom Industries Ltd., (2014) 11 SCC 769, while deciding the issue of calculation of limitation period with regard to proviso (c) to Sections 138 and 142(b) of the NI Act.

Further, the Court added that the ratio of the decision in Saketh India Ltd. v. India Securities Limited, (1999) 3 SCC 1 has to be applied to the case in hand.

Crux in the instant case was that the 15 days period with regard to legal demand notice lapsed. In terms of Supreme Court decision in Saketh India Ltd. v. India Securities Limited,  (1999) 3 SCC 1 one day has to be excluded for counting the one month limitation period and therefore, excluding the day of 19-06-2019, the limitation period started from 20-06-2019 and the limitation period expired with the day in the succeeding month immediately preceding the day corresponding to the date upon which the period started.

Consequently, the limitation period in this case, which commenced on 20-06-2019, expired in the succeeding month on a day preceding the date of commencement i.e. 19-07-2019. Admittedly, the complaint, in this case, was instituted on 20-07-2019 i.e. 01 day after the limitation period had expired.

Hence, Bench held that both the courts below have fallen in error while computing the period of limitation. Moreover, at the time of filing, the complaint was not even accompanied by an application under Section 142(1) (b) NI Act for condoning the delay.

Adding to the above, Court stated that the Revisional Court erroneously took into consideration two different dates for service of demand notice while computing the limitation period.

Therefore, the lower courts orders were set aside. [Simranpal Singh Suri v. State,  2021 SCC OnLine Del 236, decided on 01-02-2021]


Advocates for the parties:

Petitioner: M.S. Oberoi, Siddharth Khattar and Gaurav Rohilla, Advocates

Respondents: Izhar Ahmed, Additional Public Prosecutor for respondent 1

Anil Kumar Dhupar, Advocate for respondent 2

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

Punjab and Haryana High Court: Arun Kumar Tyagi, J., addressed a petition challenging the impugned order of Judicial Magistrate Ist Class of dismissing the complaint due to non-appearance of the appellant under Section 256 of the Code of Criminal Procedure, 1973.

The appellant had filed a complaint under Section 138 of the Negotiable Instruments Act, 1881 on the grounds that the accused issued a Cheque No.031411 dated 17-04-2013 for Rs 6,50,000 drawn on HDFC Bank, in discharge of subsisting liability under the friendly loan taken by him but the said cheque was dishonoured with remarks ‘Funds Insufficient’ and ‘Account Closed’. While the case was fixed for arguments on the above said application, the appellant absented himself on which the complaint was dismissed for non-prosecution.

The appellant argued that he had been regularly appearing in his complaint case and absented just on one date due to noting down of wrong date of hearing. Hence, dismissal of his complaint and acquittal of the accused was not proper and justified.

The Court observed that prosecution of a private complaint about an offence under section 138 of the N.I. Act differs from the prosecution of private complaint in respect of other offences under other enactments as in case of complaint for an offence under Section 138 of the N.I. Act there is no remedy available to the complainant to file a second complaint when the first complaint is dismissed in default in view of the limitations prescribed and the only remedy available to the complainant is to file a revision or appeal. The Court relied on Steel Strips Ltd. Chandigarh v. Jyoti Mechanical Movements, 2001 SCC OnLine P&H 202, whereby it had been held that “It is imperative upon Magistrate to form his opinion by taking care of the matter as to whether it is appropriate to dismiss the complaint. The real test in such like matters is always good faith.” It was held that for absence of complainant on one occasion, the complaint should not be dismissed unless, the Court is of the opinion that the complainant had been trying to protract the matter to harass the accused deliberately or with ulterior motive and the like.

Noticing that the case was fixed for arguments on application filed by the accused for examination of hand-writing on the cheque, the Court stated that presence of the complainant was not absolute essential for hearing of the arguments and passing of appropriate order on the above-said application. The Court, while setting aside the impugned order held that the order suffered from material illegality since the Magistrate had mechanically passed the order without recording any opinion as to whether personal attendance of the complainant was necessary or could be dispensed with and whether in his absence the case could be further proceeded with. [Vikram Singh v. Naveen Siwatch, 2019 SCC OnLine P&H 5702, decided on 03-12-2019]

Case BriefsHigh Courts

Gujarat High Court: R.P. Dholaria, J., allowed an appeal which was filed in order to decide whether a matter can be remanded in order to comply with the principles of natural justice.

The appellant-original complainant was involved in the business of finance/money lending in the name and style of “Pappu Finance” and he was holding a valid license for engaging in the said business. The respondent 2-original accused was known to the complainant since many years due to business relations with him and accused was doing business as Road Contractor and therefore, whenever he required money, the accused used to borrow money from the complainant. Once, the respondent 2-accused was in need of money for the purpose of his business and therefore, the complainant lent Rs 6 lakhs by cheque for a period of six to seven months and for the due discharge of legal liability, two different cheques were issued in favour of the complainant which came to be dishonoured therefore, the complaint came to be filed under Section 138 of the N.I. Act. The counsel for the appellant, S.M. Ahuja submitted that there were two different proceedings between the same parties and due to inadvertent mistake on the part of an advocate who was appearing for the appellant-original complainant before the Magistrate of intermingling statutory notice as well as cheques and therefore, it was not matching with the pleadings as well as without appreciating the evidence that though in the year 2017, the appellant had availed license for carrying out business of lending money, the Magistrate rendered the judgment of acquittal.

The issue before the Court was that whether when the two separate proceedings between the same parties were being conducted by the same Judge, in that event, due to intermingling of the statutory notices as well as cheques which were mismatching to the respective proceedings, but upon joint perusal of both the complaints, it could have been tallied which had not been done so far by the trial Court or the trial Court had not even afforded reasonable opportunity of interchanging the statutory notices as well as cheques, in that case, in order to comply with the principles of natural justice, the matter was required to be remanded or not.

The Court while allowing the appeal explained that since the proceedings before the same Judge and statutory notices as well as cheques and other documentary evidence alleged to have been intermingled due to which they were found to be mismatching with the pleadings, but the Magistrate could have afforded reasonable opportunity of interchanging the statutory notices as well as cheques in the complaint so as to match with the factual scenario that was merely a clerical mistake committed on behalf of advocate for the complainant which had rendered into grave prejudice as well as injustice to the complainant which deserved to be remanded with a liberty to the appellant original complainant to give an opportunity of interchanging statutory notices and cheques and correcting the records of respective cases.

[Dilipbhai Bhagwandas Aashwani Proprietor Pappu Finance v. State of Gujarat,2019 SCC OnLine Guj 6621, decided on 04-12-2019]


Suchita Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

Punjab and Haryana High Court: Gurvinder Singh Gill, J., observed that,

Right to appeal against conviction is an invaluable statutory right vested upon a convict by Criminal Procedure Code which cannot be allowed to be defeated by imposing any condition for availing such right.

“..depriving a convict of his right to appeal by imposing any pre-requisite for availing his statutory right to challenge conviction in a higher Court would amount to depriving his liberty without adhering to the established procedure of law.”

Petitioners were arrayed as accused in the complaint filed by the respondent under Section 138 of Negotiable Instruments Act, 1881.

It was alleged that the cheques drawn by the accused upon their presentation in the bank by the complainant for their encashment were dishonoured.

In light of the above background, accused were tried by the Judicial Magistrate and directed to pay compensation.

Accused, on being aggrieved by the above decision preferred appeals before the Sessions Court, wherein at the time of admission of appeals, impugned orders dated 28-2-2020 were passed, wherein following was stated:

“Criminal Appeal received by entrustment. As there are fairly arguable points involved in the adjudication of the present appeal, hence, the present appeal is admitted for hearing, subject to just exceptions and to deposit of 20% of the compensation amount in view of latest amendment in Section 148 of Negotiable Instruments Act (applicable w.e.f. 01.09.2018), within one month from today. It is registered as Criminal Appeal. Now notice of this appeal be issued to the respondent through ordinary process as well as speed post on furnishing of speed post charges and copies of grounds of appeal within a week for 02-07-2020. Trial Court Record be also called for that date.”

Counsel representing the complainant argued that the lower Appellate Court having passed the orders in question in exercise of jurisdiction under statutory provisions of Section 148 of the Act, the same cannot be called to question.

Analysis, Law and Decision

The language of Section 148 of the NI Act would show that the amended provisions vest the Appellate Court with a discretion to direct deposit of an amount not less than 20% of the compensation amount as awarded by the trial Court. Although the word ‘may’ has been used in the Section but the Supreme Court in Surinder Singh Deswal v. Virender Gandhi, (2019) 11 SCC 341 has interpreted the said provisions to mean that issuance of such a direction is more in the nature of a mandate.

In view of the above-stated Supreme Court decision, power of Appellate Court, though discretionary is supposed to be a ‘rule’ and said discretion should be exercised in all the cases unless there are some exceptional circumstances

In the instant case, there were no exceptional circumstances before the lower Appellate Court so as to justify non-deposit of an amount as provided under Section 148 of the Act.

Section 148(2) of the Act would show that it is provided in unambiguous terms that the amount is required to be deposited within a period of 60 days which may further be extended by another 30 days.

In the instant case, lower Appellate Court having granted only 1 month’s period for depositing the amount, the same is contrary to the above-stated provisions.

Right of Appeal

Section 374 CrPC does not prescribe any condition for admission of an appeal.

Provisions of the statute which vests a convict with a valuable right to challenge his conviction are not circumscribed by any conditions.

Nor does any provision of the Negotiable Instruments Act, 1881 refer to any pre-condition for availing a valuable right of the first appeal.

Further, the Bench expressed that Section 148 of the Act just vests the Appellate Court with the power to direct the appellant to deposit an amount not less than 20% of the compensation amount but under no circumstances the same can be interpreted to be a condition pre-requisite for availing the right of appeal.

Imposition of any condition at the time of suspending of sentence may be a different matter and the trial Court may in its wisdom, impose such a condition failing which the order suspending sentence may be vacated.

Supreme Court in Babu Rajirao Shinde v. State of Maharashtra, (1971) 3 SCC 337, observed that a convicted person must be held to be at least entitled to one appeal as a substantial right.

High Court also made another significant observation:

Even though the Negotiable Instruments Act, 1881 is a special Act and could override provisions of Cr.P.C., but there is no such specific provision in the Act which could be interpreted to mean that availing of right to appeal by a person convicted for an offence under the Act, has been made subject to some conditions.

While parting with the decision, Court held that:

(i) The condition made in the impugned orders wherein the admission of appeal has been made subject to deposit of 20% of the compensation amount is set aside and it is ordered that the appeals shall stand admitted before the lower Appellate Court. The petitioners are, however, directed to deposit an amount equivalent to 20% of the amount of compensation awarded by the trial Court within 60 days from today.

(ii)  In case the aforesaid amount is deposited within 60 days from today, the bail already granted vide order dated 28.2.2020 by lower Appellate Court shall continue subject to any such fresh conditions as may be imposed by lower Appellate Court.

(iii)  In case bail of any of the petitioner has been cancelled on account of non-deposit of the amount or has already been taken into custody, he shall be released forthwith on bail subject to any such conditions as may be imposed by the lower Appellate Court. He shall, however, deposit the amount of 20% within 60 days from today.

(iv) In case of failure to deposit the amount in question within a period of 60 days from today, it shall be open to the lower Appellate Court to cancel bail and to hear the appeal on merits, provided, however, subject to any such general directions issued by the High Court in the matter of hearing of cases, having regard to the present circumstances of spread of pandemic COVID-19.[Sudarshan Kumar v. Manish Manchanda, 2020 SCC OnLine P&H 2321, decided on 15-12-2020]


Advocates who appeared before the matter:

Vaibhav Sehgal, Advocate, counsel for the petitioner(s).

Nitin Thatai, Advocate for the respondent (s)

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 BriefsHigh Courts

Karnataka High Court: John Michael Cunha J., allowed the appeal and sets aside the impugned order.

The case involves default under Section 138 Negotiable Instruments Act, 1881 for the discharge of hand loan of Rs 5,00,000 by the petitioner. The notice was issued by the appellant/ complainant demanding the payment of the cheque amount, which went unreplied by the respondent. In the course of the trial, evidence was produced like the original cheque, the dishonour memo and the refused postal cover in proof of service of the demand notice on the respondent. Trial Court found respondent guilty of the offence under Section 138 of NI Act, 1881 and sentenced him to pay fine. The Respondent filed an appeal being aggrieved by the said order which was reversed observing that no opportunity was provided to the respondent to present his case and hence the matter was remanded back top the Trial Court. The accused yet not produce about defence evidence nor did he controvert the evidence produced by the complainant. The Trial Court, this time acquitted the respondent on the ground that the complainant has not examined the concerned bank manager in proof of the endorsement given by him regarding the “payment stopped by the drawer”.

Counsel for the appellants submitted that the reasoning assigned by the Trial Court is completely perverse and irrelevant.

The Court observed that the complainant had initiated action for the offence of dishonor of cheque the Trial Court was only required to consider the proof of the ingredients of the offence namely the issuance of cheque by the respondent towards the discharge of the legally enforceable debt and the consequent dishonour thereof. It was further observed that it is not in dispute that the evidence given by him regarding the transaction as well as the dishonour of the cheque has remained uncontroverted and under the said circumstance, the complainant was not required to examine the banker to prove the endorsement issued by him.

In view of the above, the appeal was allowed and the impugned order was set aside.[M. Narayanaswamy v. Nagaraj N.S., 2020 SCC OnLine Kar 2013, decided on 11-12-2020]


Arunima Bose, Editorial Assistant has put this story together

Case BriefsHigh Courts

Bombay High Court: Vibha Kankanwadi, J., reversed the acquittal of the respondent-accused holding him guilty of having committed an offence under Section 138 (dishonour of cheque) of the Negotiable Instruments Act, 1881.

Facts on record

The complainant had come with a case wherein he stated he had friendly relations with the accused. Since the accused was in need of money to purchase immovable property, therefore he requested the complainant to extend the amount of Rs 15,00,000 and Rs 6,00,00 which was extended by the complainant.

In regard to the above legal enforceable debt or liability, two cheques were issued.

On depositing the above cheques, both were dishonoured for the reason “refer to drawer”.

In light of the above circumstances, the complainant filed two separate complaints and Magistrate on taking into consideration the above said facts, acquitted the accused.

In view of the above, the present appeal has been filed.

Advocate for the complainant relied on the decision of Vijay v. Laxman, 2013 STPL (DC) 679 SC, wherein it was held that:

“The burden of proving the consideration for dishonour of cheque is on the complainant, but the burden of proving that a cheque had not been issued for discharge of a legally enforceable debt or liability is on the accused. If he fails to discharge the said burden he is liable to be convicted.”

In view of the above decision, Complainant’s Counsel submitted that trial judge committed illegality and the decision was in view of the legal position and therefore the appeal deserved to be allowed.

Analysis, Law and Decision

Whether the complainant has discharged the initial burden to prove that he had advanced loan to the accused?

With regard to the amount of Rs 15,00,000, it was held that as regards the said amount, the complainant discharged the initial burden of proof that he has advanced loan to the accused.

In his statement under Section 313 of the CrPC, accused did not state that he was holding such account, on which the cheque was issued by the complainant and he did not specifically state that he had not received the amount through the said account.

Bench stated that the complainant had proved that it was legally enforceable debt or liability, which was to the extent of Rs 15,00,000 as against the accused.

As regards the other disputed cheque i.e. amount of Rs 6,00,000, complainant stated he had given the said amount by cash.

In this case, also it can be said that the complainant has discharged the initial burden of proof that he had advanced amount of Rs 6,00,000 as a loan to the accused.

In the instant case, the accused did not deny his signature on the disputed cheques. Though he came with a defence, as to how those cheques went into the possession of the complainant, but as aforesaid that defence is unbelievable.

Bench stated that even if for the sake of arguments we admit that the disputed cheques were blank cheques; yet, when accused admits his/her signatures on the disputed cheques, then the legal position on this point is also clear that the complainant would get an authority under Section 20 of Negotiable Instruments Act to complete the incomplete cheque.

When now the position stands that the complainant has discharged the initial burden, accused admits his signature on the disputed cheques; then presumption under Section 139 of the Negotiable Instruments Act definitely gets attracted in favour of the complainant.

The complainant was the ‘holder of cheques’ and therefore, was entitled to present the same for encashment. Both the cheques were dishonoured.

Statutory notices issued by the complainant were complied with, and therefore, Court held that the accused is guilty of committing the offence punishable under Section 138 of the Negotiable Instruments Act.

Magistrate did not scan the evidence properly with sound legal principles and therefore, interference of this Court was required.

Bench relied on the Supreme Court’s decision in Govindaraju v. State, (2012) 4 SCC 722, with regard to the powers of the Appellate Court, wherein it was observed that:

“The law is well-settled that an appeal against an order of acquittal is also an appeal under the Code of Criminal Procedure, 1973 and an appellate Court has every power to re-appreciate, review and reconsider the evidence before it, as a whole. It is no doubt true that there is presumption of innocence in favour of the accused and that presumption is reinforced by an order of acquittal recorded by the trial Court. But that is the end of the matter. It is for the Appellate Court to keep in view the relevant principles of law to re-appreciate and reweigh the evidence as a whole and to come to its own conclusion on such evidence, in consonance with the principles of criminal jurisprudence”.

Honest drawers’ interest who issue cheques is safeguarded in the Act itself.

In Dalmia Cement (Bharat) Ltd v. Galaxy Traders & Agencies Ltd., (2001) 6 SCC 463, the Supreme Court has explained the scope of offence under Section 138 of the NI Act.

In R. Vijayan v. Baby, (2012) 1 SCC 260, Supreme Court held that while awarding compensation in matters under Section 138 NI Act, interest can be awarded @9% p.a.

Court stated that in view of the above decisions, awarding jail sentence to the respondent/accused may not be in the interest of justice.

Bench also added to its decision that the appellant would also be interested in getting his amount back. Therefore, payment of compensation under Section 357 of the Code of Criminal Procedure to the complainant would be in the interest of justice.

The punishment that can be awarded for an offence under Section 138 of Negotiable Instruments Act is “ imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or both” (stress supplied by me).

Since the complaint was filed in 2013 after the statutory notice. The amount became due to complainant after the date of the notice.

Some amount needs to be given to complainant above the cheque amount towards interest.

Since the rate of interest in banks has gone down nowadays, and therefore, the said rate cannot be equal to the rate granted in R. Vijayan’s case.

After taking into consideration all the above pronouncements it would be in the interest of both the parties to impose fine of Rs 18,00,000 and Rs 8,00,000 in respective cases and to direct the amount of Rs 17,50,000 and Rs 7,50,000 to be paid to complainant as compensation under Section 357(1) of the Code of Criminal Procedure. Deposit time will not be extended. [Kiran Rameshlal Bhandari v. Narayan Purushottam Sarada, 2020 SCC OnLine Bom 3562, decided on 07-12-2020]


Advocates who appeared for the matter:

Shyam C. Arora, Advocate for the appellant
Amol Kakade, Advocate h/f C.D. Fernandes, Advocate for respondent

Case BriefsHigh Courts

Tripura High Court: S.G. Chattopadhyay, J., highlights the essence of the provisions of Negotiable Instruments Act, in light of the object of a statutory notice.

It has been stated that the Courts below have concurrently held that the respondent has already established his case under the provisions of Section 138 of Negotiable Instruments Act, 1981 against the accused, who is the present petitioner.

The present petitioner was convicted for committing an offence under Section 138 of the Negotiable Instruments Act and he/she was penalised for a sentence of 1 year along with a fine of Rs 7,00,000.

Session Judge had also affirmed the above decision of the Chief Judicial Magistrate while reducing the sentence to fine and directing the petitioner to pay only Rs 4,00,000.

Being aggrieved with the above, the present criminal revision petition was filed.

Facts

Since both the petitioner and respondent were on good terms and known to each other, the petitioner used to borrow money from the respondents and repay the same in time. On 15-01-2014, he took a loan of Rs 3,50,000 and promised to repay the money within 30-11-2014.

On being requested for the above-amount, past the said date, petitioner handed over a cheque to the respondent but the said cheque was returned with an endorsement “insufficient funds”.

Demand Notice was issued with 15 days of time given for the repayment of the said amount. Every time that the postman visited the house for the service of the demand notice, housemates of the petitioner refused to receive the said letter and said that the petitioner was out of station.

Hence, in view of the above circumstance, the notice was returned to the respondent.

Later the matter reached the trial and the petitioner was convicted under Section 138 NI Act.

Misutilization of the Cheque

Petitioner contended in regard to the cheque that the accused had never issued any cheque in discharge of any debt or liability, but only a blank cheque was issued as a security for the loan which was borrowed by him from the complainant and after the loan was repaid, the complainant, instead of returning the cheque, misutilized it against him.

Statutory Presumption

Respondent’s counsel submitted that the presumption under Section 139 read with the Rule of Evidence as provided under Section 118, NI Act with regard to the existence of debt or liability is not a discretionary presumption, it is a statutory presumption which is obligatory on the part of the Court. Hence, a heavy burden is cast on the accused to rebut such presumption.

Further, the counsel added that apart from making mere denial of the existence of debt or liability, the accused did not lead any evidence to prove that he had no legal liability to be discharged and as such the courts below had drawn the statutory presumptions against him.

Section 138 NI Act requires proof of the essential ingredients:

  • there is legally enforceable debt
  • a cheque is drawn on an account maintained by the accused with his banker for payment of any amount to another person from his account in the discharge in whole or in part of the debt or liability
  • the cheque is returned by the bank unpaid, either because of the insufficient fund in the account of the accused to honour the cheque or that the cheque amount exceeds the amount arranged to be paid from that account by an agreement made with the bank.

Bench noted that the petitioner in his defence merely offered an explanation throwing suggestion to the prosecution witnesses in their cross-examination that he gave a blank signed cheque as security and did not deny the fact that he borrowed loan from the complainant.

Question for consideration:

In the instant matter, whether such an explanation offered by the petitioner is enough to disprove the statutory presumptions under Sections 138 and 139, NI Act?

In the decision of Hiten P. Dalal v. Bratindranath Banerjee, (2001) 6 SCC 16, Supreme Court that the presumptions to be drawn by the court under Sections 138 and 139, NI Act are presumptions of law which cast the evidential burden on the accused to disprove the presumptions.

Further, in the case of Mallavarapu Kasivisweswara Rao v. Thavikonda Ramulu Firm, (2008) 7 SCC 655, it was held that it is a settled position that the initial burden lies if the accused to prove the non-existence of consideration.

Decision

Bench on perusal of the above held that the explanation offered by the accused petitioner is not founded on proof and it does not stand to reason.

The object of the statutory notice is to protect an honest drawer of the cheque by providing him with a chance to make the fund sufficient in his bank account and correct his mistake.

Accused had an opportunity to explain himself, he instead repeatedly avoided the service of demand notice and did not state that he already has the repayment of the loan.

Therefore, Court held that the prosecution successfully discharged its burden in proving the case against the petitioner with the help of the statutory presumptions under the NI Act, and the accused failed to rebut those presumptions and prove the contrary by offering provable explanation founded on the proof.

Adding to the above, Bench also observed that the overall conduct of the accused depicted that he wanted to avoid the service of the notice. Impugned judgment by the below courts does not require any interference and the conviction and sentence were upheld by the High Court.

Bench directed the fine of Rs 4,00,000 within a period of 2 months.[Nitai Majumder v. Tanmoy Krishna Das, 2020 SCC OnLine Tri 537, decided on 17-11-2020]

Case BriefsHigh Courts

Madras High Court: G.K. Ilathiraiyan, J., while addressing the instant matter, observed that, a person who is inducted as the Non-Executive Director of an accused company and not responsible for the day-to-day affairs of the company, he/she cannot be vicariously liable for the offence committed by the company.

Petitioners Counsel submitted that the petitioner was arrayed as Accused 3 on the complaint filed by the respondents for the offences punishable under Section 138 of Negotiable Instruments Act, 1881.

Magistrate took cognizance as against the petitioner when there was absolutely no specific allegation against the petitioner to attract the offences under Section 141 of NI Act and issued summon without application of mind.

Petitioner being merely Director of the company was not liable to be prosecuted for the offences under Section 141 of NI Act.

Further, it was stated that the respondent cannot presume every Director knows about the transaction while fastening criminal liability as against the Director of the Company.

To attract the offences under Section 141 of NI Act as against the petitioner, the complainant should have specifically averred in the complaint that at the time of offence the petitioner was in charge of and responsible for the conduct and the business of the company.

Adding to its contention, it was also stated that if a person who was in charge of the day to day management of the company or by stating that he / she was in charge of affairs of the company cannot be vicariously made liable under Section 141(1) of NI Act.

Counsel for the petitioner Nithyaesh Natraj and Counsel for the respondent R. Prasanna Vineeth Durai.

Dishonour of Cheque

On the Complaint lodged, in total there were 4 accused of the offences punishable under Sections 138 and 141 of NI Act. It was alleged that the accused persons had already availed term loan from the complainant to the tune of Rs 65 lakhs. Accused towards partial discharge of their liability issued eight cheques in favour of the respondent but the same were returned dishonoured on being presented for the reason “account closed”.

Respondent after serving statutory notice under Section 138 of NI Act, initiated proceedings for the offences punishable under Sections 138 and 141 of NI Act against the accused persons.

Respondent made allegation foisting liability on the petitioner in the complaint as follows:

“the second accused being the Managing Director and the third accused being one of the Director who are respectively in charge of the managing all such business activities of the first accused company and also running the day to day affairs naturally aware about their liability”.

Analysis and Decision

Bench stated that Section 141 of the NI Act does not make all the Directors liable for the offence. The person sought to be made liable should be in charge and responsible for the conduct of the business of the company at the relevant time.

Therefore, it was stated that there is no deemed liability of the Director in such case.

Several Supreme Court decisions have held that the complaint has to specifically say as to how and in what manner Director was responsible for the conduct of the business of the company.

Court held that unfortunately, in the impugned complaint, the allegation did not satisfy the requirements of Section 141 of the NI Act.

Further, on perusal of the complaint, Court observed that the petitioner was inducted as the Non-Executive Director of the first accused company, therefore the petitioner was not responsible for the day to day affairs of the company and hence cannot be made liable vicariously for the offence committed by the company.

Therefore, the Court, in order to secure ends of justice, opined to necessarily interfere with the proceedings in exercise of its jurisdiction under Section 482 of CrPC.

Hence, the Criminal Original Petitions were allowed and the proceedings on the file of Metropolitan Magistrate were ordered to be quashed as far as the petitioner was concerned, whereas, for other accused, the trial court has been directed to complete the trial. [Vijaya Arun v. New Link Overseas Finance Ltd., Crl. OP Nos. 5, 8 & 11 of 2020, decided on 18-08-2020]