Banking and Negotiable InstrumentsOp EdsOP. ED.

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

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

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

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

(1) drawing of cheque;

(2) presentation of cheque to the bank;

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

[4](1999) 7 SCC 510.

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

[6](1999) 7 SCC 510.

[7](2009) 1 SCC 720.

[8](1999) 7 SCC 510.

[9](2009) 1 SCC 720.

[10](2009) 1 SCC 720.

[11](2008) 13 SCC 77.

[12](1999) 7 SCC 510.

[13](2008) 13 SCC 77.

[14](2009) 1 SCC 720.

[15](2013) 10 SCC 72.

[16](2014) 2 SCC 255.

[17](2014) 2 SCC 266.

[18](1999) 7 SCC 510.

[19](1999) 7 SCC 510.

[20](2014) 9 SCC 129.

[21](1999) 7 SCC 510.

[22](2014) 9 SCC 129.

[23](2001) 3 SCC 609.

[24](2001) 3 SCC 609.

[25](2014) 9 SCC 129.

[26](2001) 3 SCC 609.

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

[28](2001) 3 SCC 609.

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

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

[31](2001) 3 SCC 609.

[32](2001) 3 SCC 609.

[33](2001) 3 SCC 609.

[34](2014) 9 SCC 129.

[35](2001) 3 SCC 609.

[36](1999) 7 SCC 510.

[37](2001) 3 SCC 609.

[38](1999) 7 SCC 510.

[39](2001) 3 SCC 609.

[40](2001) 3 SCC 609.

[41](2014) 9 SCC 129.

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

[43](2014) 9 SCC 129.

[44](2012) 1 SCC 260.

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

[46](2009) 1 SCC 720.

[47](1999) 7 SCC 510.

[48](2009) 1 SCC 720.

[49](1999) 7 SCC 510.

[50](2014) 9 SCC 129.

[51](2014) 9 SCC 129.

[52](1999) 7 SCC 510.

[53](2009) 1 SCC 720.

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

Case BriefsLegal RoundUpSupreme Court (Constitution Benches)Supreme Court Roundups

Unlike the year 2020, the Supreme Court Constitution Bench has functioned limitedly in the year 2021, with the number of judgments delivered by the Constitution Bench being three.

As we bid adieu to the year 2021, here is a brief recap of all the developments advanced by the Constitution Bench of Supreme Court:


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

5-Judge Bench:  SA Bobde, CJ and L. Nageswara Rao, BR Gavai, AS Bopanna and S. Ravindra Bhat, JJ

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 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.”

Read more…

[In Re: Expeditious Trial of Cases Under Section 138 of N.I. Act 1881, 2021 SCC OnLine SC 325]



Maratha Reservation unconstitutional | The timeline of the case and the 3 questions that received unanimous opinions of all 5 judges

5-judge Bench: Ashok Bhushan, S.A. Nazeer, L. Nageswara Rao, Hemant Gupta and S. Ravindra Bhat, JJ

In a big development, the 5-judge bench has quashed the much in debate Maratha Reservation and has held that the Maharashtra State Reservation (of seats for admission in educational institutions in the State and for appointments in the public services and posts under the State) for Socially and Educationally Backward Classes (SEBC) Act, 2018 [ 2018 Act] as amended in 2019 granting 12% and 13% reservation for Maratha community in addition to 50% social reservation is not covered by exceptional circumstances as contemplated by Constitution Bench in Indra Sawhney[1]’s case.

Read more…

[Jaishri Laxmanrao Patil v. Chief Minister, (2021) 8 SCC 1]


Adhaar | When 4:1 majority refused to review the Adhaar-5 Judges verdict but Justice Chandrachud dissented

5-judge Bench: A.M. Khanwilkar, D.Y. Chandrachud, Ashok Bhushan, S. Abdul Nazeer and B.R. Gavai, JJ

In spite of going through several rounds of litigation and long hours consideration, the Adhaar Controversy had once again popped up before the Supreme Court. The Constitution Bench addressed the review petition against the final verdict in K.S.  Puttaswamy (Aadhaar-5 Judges) v Union of India, (2019) 1 SCC 1. Among the issues which arose for decision, the Court had to answer two critical questions:

  • Whether the decision of the Speaker of the House of People under Article 110(3) of the Constitution, to certify a bill as a ‘Money Bill’ under Article 110(1) is final and binding, or can be subject to judicial review; and
  • If the decision is subject to judicial review, whether the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 had been correctly certified as a ‘Money Bill’ under Article 110(1) of the Constitution?

Read more…

[Beghar Foundation v. K.S. Puttaswamy, (2021) 3 SCC 1 ]


Kamini Sharma, Editorial Assistant has put this report together 

Case BriefsHigh Courts

Karnataka High Court: Rajendra Badamikar, J., reversed an order of the Magistrate which had directed the petitioner accused to deposit 20% of the cheque amount before the court. The High Court said that Section 143-A of the Negotiable Instruments Act, 1881 is not a mandatory provision.

Factual Matrix

The respondent herein had filed a private complaint before the Trial Court against the present petition for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881.

As per the Respondent-Complainant, the petitioner accused had taken a hand loan of Rs 9 lakhs from the complainant in order to purchase a plot. But the sale deed was not executed and when complainant requested the accused-petitioner for repayment of the amount or else to execute the sale deed he issued a cheque and when the said cheque was presented through the banker of the complainant it was returned for insufficient funds.

Further, it was alleged that the complainant issued a legal notice calling upon the petitioner for payment within 15 days, but he failed to make any payment as such he filed a private complaint under Section 138 of NI Act.

Magistrate passed the impugned order directing the accused-petitioner to deposit 20% of the cheque amount before the Court.

Analysis, Law and Decision

High Court noted that the complaint was filed under Section 138 of NI Act in respect of bouncing of cheque issued by present accused of a sum of Rs 9 lakhs. After recording the sworn statement, the Magistrate took cognizance and issued the process against the accused/petitioner who appeared and enlarged on bail.

Present petitioner appeared before the Trial Court and was enlarged on bail and the matter was adjourned to 28-11-2019 for recording the plea. On that date, the counsel for the complainant/respondent herein filed an application under Section 143A of NI Act.

Magistrate’s order disclosed that as per the mandatory provisions of Section 143A he passed the impugned order for deposit of 20% of the cheque amount. It was noted that he did not hear the counsel for the accused and no opportunity of being heard was given to him.

Bench expressed that,

Section 143A (1) is not a mandatory provision and it says that Court may order the drawer of the cheque to pay the interim compensation as per conditions stipulated there under.

It was evident that the power under Section 143A was vested with the magistrate to be exercised judiciously after recording the plea and it was not mandatory, but the Magistrate was required to exercise his judicious discretion under Section 143A of the Act.

But in the instant case, the impugned order disclosed that the Magistrate had not even applied his mind and in a mechanical way as per the mandatory provisions of Section 143A he has directed the accused to deposit 20% of the cheque amount. The provisions of Section 143A are not mandatory but the discretion was given to the magistrate to be exercised judiciously.

In Court’s opinion, the entire approach of the Magistrate was against the settled principles of natural justice and he did not even pass a summary speaking order giving reasons for passing such an order.

The order itself disclose that he carried on impression that Section 143(A) of the Act is a

mandatory provision of law but ignored the fact that the word used in the Section is ‘may’ and not ‘shall’ which gives a discretion to the Court to be exercised in a judicious way.

 Therefore, the entire approach of magistrate was against the settled principles and the impugned order called for interference. [Jahangir v. Farooq Ahmed Abdul Razak, Criminal Petition No. 201213 of 2020, decided on 6-7-2021]


Advocates before the Court:

For the Petitioner: Sanjay A. Patil, Advocate

For the Respondent: S.S. Mamadapur, Advocate

Case BriefsHigh Courts

Delhi High Court: Anu Malhotra, J., held that the provision of Section 143A of the NI Act, 1881 is directory in nature and not mandatory.

Petitioners were stated to be the directors as per the complaints i.e. CC NI Act 12-20 and CC NI Act 100-20 filed by the respondent before the trial court under Section 138 read with Section 142 of the NI Act, 1881 and were summoned as co-accused therein.

Both the above-said complaints were related to the dishonour of cheques.

Complainants filed an application under Section 143A of the Negotiable Instruments Act seeking grant of interim compensation pursuant to accused persons having pleaded not guilty to the notice under Section 251 CrPC. The trial court directed:

“16. In the event of acquittal of the accused persons in the present cases, the complainants shall be directed to repay the amount to the accused persons with interests at the prevailing bank rate, as provided in Section 143-A(4) of the NI Act

17. The present applications moved by the complainants seeking interim compensation stand disposed as allowed. The accused persons are jointly and severally directed to pay a consolidated amount of Rs. 26,06,400/- in the above- captioned matters. In the event of any default on the part of accused to pay the amount, the complainant is at liberty to initiate appropriate proceedings as provided u/S 143- A(5) of the Negotiable Instruments Act, 1881.”

 Trial Court observed to the effect that there is no authoritative pronouncement of the Supreme Court nor of this Court on the interpretation of Section 143A of the NI Act, 1881 and there are divergent views of the High Court of Madras and Chattisgarh High Court in relation to the nature of the provision.

Vide the present petition, petitioners contended that the impugned order was neither tenable in law nor on facts, that the trial court did not even consider that the accused i.e. the petitioners could have put forth their documents i.e. the admitted documents which could have been considered and dealt with by the MM which would have negated even the admitted documents such as bank statements, email, whatsapp chats and that the Trial Court did not even think it fit to arithmetically calculate the amounts in terms of the alleged loan agreement to make out whether on the alleged date of the agreement i.e. 30.09.2020, the amounts filled in in the cheque were actually due or outstanding from the petitioners to the respondent 2 nor did the Trial Court even consider that the respondent 2 had concealed the factum of having received substantial money from the petitioners 1 & 2.

Petitioners submitted that the Trial Court could have directed respondent 2 to file their bank statements and income tax returns to show the outstanding amount due against the petitioners and that the Trial Court acted as a mute spectator assuming that on an application under Section 143A of the NI Act, 1881, the Magistrate was only required to direct payment of 20% interim compensation and nothing else.

Analysis, Law and Decision

High Court observed that to consider whether a legislation is mandatory or directory in nature as laid down by the Supreme Court in Mohan Singh v. International Airport Authority of India, (1997) 9 SCC 132, regard must be had to the context of the said matter and the object of the provision and use of the word “shall” or “may” is not decisive. If a statutory remedy is provided for violation of the said provision, then it can be construed as a mandatory provision as laid down by the Supreme Court in State of U.P. v. Babu Ram Upadhya, AIR 1961 SC 751.

Difference between the provisions of Section 143A and 148 of the NI Act, 1881 had already been spelt out in the Bombay High Court decision of Ajay Vinodchandra Shah v. State of Maharashtra, 2019 (4) MHLJ 705.

“…it apparent that the intent of the legislature in using the word “may” in Section 143A(1) thereof for directing the drawer of the cheque to pay the interim compensation to the complainant at the stages as provided therein in Sub-Clauses (a) and (b) thereof which has mandatorily in terms of Section 143A(2) thereof been directed not to exceed 20% of the amount of the cheque, can only be termed to be directory in nature and cannot be held to be mandatory as sought to be interpreted by the learned Trial Court vide the impugned order.”

With regards the observations of the trial court to the effect that the Court at the stage of awarding the interim compensation, is not required to consider the strength of the defence of the accused and the same is immaterial at this stage and though, the arguments led on behalf of the accused may seem attractive at the first blush, the same cannot be gone into by the Court at the stage of consideration of directing payment of interim compensation in terms of Section 143A of the NI Act, 1881 as that would amount to a mini-trial, it is essential to observe that the provisions of Section 294 of the CrPC, 1973 apply to all proceedings before any Court where the Code of Criminal Procedure, 1973 is applicable

Lastly, the High Court held that the provision of Section 143A of the NI Act, 1881 has essentially to be held to be ‘directory’ and cannot be termed to be ‘mandatory’ to the effect that the trial court had mandatorily to award the interim compensation under Section 143A of the NI Act in all proceedings tried under Section 138 NI Act on the mere invocation thereof by a complainant and thereby order in terms of Section 143A(2) thereof, the interim compensation to the tune of 20% of the amount of the cheque invoked.

Applicability of Section 294 CrPC

The applicability of Section 294 of the CrPC, 1973 has been made essential in all proceedings in criminal trials and undoubtedly, the proceedings under Section 138 of the NI Act, 1881 are termed to be quasi-criminal in nature.

“…it is essential to observe that the award of interim compensation in terms of Section 143A of the NI Act, 1881 has to be after providing sufficient reasons and whilst taking the same into account, the determination of interim compensation directed to be paid by the petitioners herein to the extent of the maximum of 20% of the cheque amount to the complainants…”

In view of the above discussion, the impugned order of the Metropolitan Magistrate was set aside with the matter being remanded back to the Trial Court to dispose of the application under Section 143A of the NI Act, 1881 filed by the complainants of the said complaint cases seeking interim compensation from the faccused after the invocation of Section 294 CrPC and considering the submissions made by the petitioner in response to the applications under Section 143A of the NI Act, 1881 and taking into account that vide this verdict it is categorically held to the effect that the provision of Section 143A of the NI Act, 1881 is directory in nature and not mandatory. [JSB Cargo and Freight Forwarder (P) Ltd. v. State, 2021 SCC OnLine Del 5425, decided on 20-12-2021]


Advocates before the Court:

CRL.M.C.2663/2021

For the Petitioners: Mr. Bharat Gupta and Mr. Gunjan Arora, Advocates.

For the Respondents: Ms. Aashaa Tiwari, APP for State Mr. Ashok Mahipal, Advocate for R-2.

CRL. M.C. 2730 of 2021

For the Petitioners: Mr. Bharat Gupta and Mr. Gunjan Arora, Advocates.

For the Respondents: Mr.Mukesh Kumar, APP for State. Mr.Ashok Mahipal,Advocate for R-2.

Case BriefsHigh Courts

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

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

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

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

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

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

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

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


Advocates before the Court:

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

OP’s Counsel: Govt. Advocate

Case BriefsDistrict Court

Court of XX Addl. Chief Metropolitan Magistrate, Bengaluru City: Bhola Pandit, XX Addl. CMM, convicted a person who presented a cheque to repay a loan but the same was dishonored due to insufficient funds.

Instant complaint was filed under Section 200 of Code of Criminal procedure against the accused of the dishonour of cheque punishable under Section 138 of the Negotiable Instruments Act.

Background

It was alleged that the complainant and accused were very well known to each other for more than 10 years. The accused had availed a hand loan of Rs 15,00,000 from the complainant for business and family maintenance by way of cash and agreed to repay the same within one year.

Even after completion of the said period, the accused did not return the money as agreed upon. Accused had requested to wait another one year time for repayment of the said loan saying difficulty of business due to effect of demonetization of currency notes by the central government. After the lapse of agreeing another one time also, accused did not come forward to pay the said loan amount.

After several demands and requests, towards discharge of his liability, the accused had issued a post-dated cheque. The said cheque was returned by the bank due to “funds insufficient”.

The notice sent to the first address was duly served and the second-mentioned address was evaded by the accused, hence returned with an endorsement “Un Claimed”.

The complaint was filed within time and had sought to convict the accused by granting compensation under Section 357 of Code of Criminal Procedure double of the cheque amount.

Points for Consideration

  1. Whether the complainant proves that, accused has issued a postdated cheque for Rs 15,00,000 towards discharge of his liability, which was returned unpaid on presentation and also not complied with the notice issued by the complainant and thereby committed an offence punishable under Section 138 of NI Act?
  2. What Order?

Analysis, Law and Decision

Court noted that inspite of service of demand notice, accused had issued an untenable reply to the said statutory notice.

To bring home the guilt of the accused, as per the verdicts of the Supreme Court in the case of Indian Bank Assn. v. Union of India, the sworn statement of the complainant had been recorded by way of examination-in-chief as PW 1.

Further, to disprove the case of the complainant and also to rebut the statutory presumptions under Section 139 of NI Act, the accused neither had entered the witness box nor had produced documentary evidence.

As per Section 118(a) and 139 of NI Act, it was very clear that, when the issuance of cheque drawn from the account of the drawer and also a signature on the cheque was admitted or undisputed, the statutory presumptions shall be drawn in favour of the complainant stating that, the accused had issued the disputed cheque towards the discharge of his legal debt and that the complainant was the due holder of the said cheque.

In the Supreme court decision of Rangappa v. Mohan, (2010) 11 SCC 441, it was held that,

“Once the cheque relates to the account of the accused and he accepts the same and also admits his signature on the cheque, then the initial presumption under Section 139 of NI Act as well as under section 118 of NI Act has to be raised in favour of the complainant. It is a mandatory presumption. But the accused is entitle to rebut the same on preponderance of probabilities.” 

Whether the present complaint would meet the mandatory provisions of section 138 of NI Act or not?

On perusal of the material documents and presentation of the complaint, it appeared that the present complaint was filed by complying with the provisions of Section 138(a) to (c) of NI Act.

The Bench added that the accused had been admitting his issuance of cheque and the signature therein. Therefore, the statutory presumptions under Sections 118(a) and 139 of the NI Act were raised in favour of the complainant. Hence, now the burden was on the accused to rebut the statutory presumptions and also to establish his defense.

Accused ha utterly failed to bring on record any probable evidence to rebut the statutory presumptions under Sections 118(a) & 139 of NI Act.

Court opined that the accused had borrowed a hand loan of Rs 15,00,000 from him and towards the discharge of the said loan, the accused issued the cheque, and the said cheque was returned unpaid due to “Funds Insufficient” in the account of the accused.

Concluding the decision, it was held that the complainant had proved the guilt of the accused punishable under Section 138 of NI Act. [Ravi M.C. v. S.S Tools, CC No. 3906 of 2019, decided on 3-12-2021]


Advocates before the Court:

For the Complainant:

Sri. Ramesh C.H., Advocate

For the Accused:

Sro. N. Somashekar, Advocate

Case BriefsDistrict Court

South-West, Dwarka, Delhi: Mridul Gupta, Metropolitan Magistrate –09, on noting a very weak case of the complainant and not being able to produce sufficient evidence, dismissed his complaint filed for the dishonour of cheque under Section 138 of Negotiable Instruments Act, 1881.

Complainant alleged that the accused who had been purchasing iron plates/ sheets/ other forms of irons from the complainant was supplied the said material to the tune of Rs 8,00,000.

In the discharge of said liability, accused issued the cheques in question i.e. two postdated cheques. Complainant presented the said cheques but they were both returned with the remarks “Drawers Signature Differs”.

In view of the above, legal notice was issued but no response was received from the accused, hence the present complaint was filed.

Following issues for consideration arose:

  1. Whether the accused had any legal debt or liability towards complainant?
  2. Whether cheques in question were issued by accused?
  3. Whether the legal demand notice was duly served upon the accused?

Bench noted that the complainant could not produce any reliable document regarding the alleged business transactions with the accused. Not even a single date of the transaction with the accused was mentioned by the complainant.

In Vijay v. Laxman, (2013) 3 SCC 86, the Supreme Court observed that:

“the absence of any details of the date on which the loan was advanced as also the absence of any documentary or other evidence to show that any such loan transaction had indeed taken place between the parties is a significant circumstance.” 

As per the complainant his whole trading business was being carried out without any paper trail whatsoever, which appeared implausible. The said testimony of the complainant raised serious doubts on the credibility of the witness and suspicion was cast on the existence of any such business of complainant and supply of goods to accused.

Trite Position of Law

Dishonor of cheque due to signature of accused not matching with specimen signature could also constitute dishonour under Section 138 of the Act, and said fact, in itself, is not sufficient to escape prosecution under the said provision.

In the instant matter, it is pertinent to note that the accused denied his signatures on the cheques in question right from the stage of framing of notice and throughout the trial. Secondly, the said defence of accused was duly corroborated by the bank memos as per which both the cheques in question were each dishonored twice for the same reason i.e. ‘Drawers Signature Differs’.

Complainant could not explain the occasion for issuance of cheques in question in his favour by the accused.

Legal notice was sent to the correct address of the accused. Once the legal notice is proved to be sent by post to correct address of accused then the presumption under Section 27 of General Clauses Act, 1897 arose and it shall be presumed unless proved contrary, that legal notice sent to the address of accused was delivered to him.

Court held that,

The case of the complainant is inherently very weak as he has not been able to sufficiently prove in his evidence, the existence of any business of iron trading and the supply of such goods to accused. The lack of any business document whatsoever casts grave suspicion on case of complainant.

Concluding the matter, the bench stated that the complainant failed to prove beyond reasonable doubt the fundamental requirements of the offence that the cheque in question was issued by the accused and in discharge of legally enforceable debt or liability. [Rishi Pal v. Sunil Kumar Sharma, CC No. 32700 of 2019, decided on 23-11-2021]

Case BriefsDistrict Court

Dwarka Courts, New Delhi: Medha Arya, MM (NI Act-03), resolved the dispute pertaining to Section 138 of Negotiable Instruments Act, 1881 in light of the 4 conditions laid down under the said Section.

Complainant was friends with one Lata Bhola for a number of years and the accused, son of Lata Bhola alongwith his mother told the complainant that they want to purchase a house but they were facing paucity of funds and requested the complainant to advance to them a friendly loan of Rs 6,30,000. Both son and mother agreed to repay the loan of complainant within 15 days, however, they avoided the repayment of the loan even after the expiry of the 15 days period.

Later, the cheque in question was issued by the accused with the assurance that it shall be duly honoured upon presentation. However, to the utter shock and dismay of the complainant, the said cheque in question was dishonoured vide cheque returning memo with remarks ‘payment stopped by drawer’.

When the accused failed to repay the cheque amount even after expiry of the 15 days from the date of service of legal notice, the complaint was filed by the complainant seeking the summoning, trial and conviction of the accused of the offence punishable under Section 138 NI Act.

Complainant’s case was that the period of limitation as per Section 142 of the N.I. Act, and the territorial jurisdiction to try the present complaint vests with this Court.

By virtue of Section 146 of NI Act, this Court is bound to presume the fact that the cheque was dishonoured for the reason mentioned in the returning memo, and this presumption has also not been dislodged by the accused.

Analysis, Law and Decision

Section 138 NI Act:

Before finding of conviction with the offence punishable under Section 138 N.I. Act can be returned against the accused, it has to be established, cumulatively-

(i) that the cheque in question was issued by the accused in favour of the complainant for the discharge of legally enforceable liability.

(ii) presentation of the cheque to the bank within three months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(iii) a demand being made in writing by the payee or holder in due course by the issuance of a notice in writing to the drawer of the cheque within thirty days of the receipt of information from the bank of the return of the cheques; and

(iv) the failure of the drawer to make payment of the amount of money to the payee or the holder in due course within fifteen days of the receipt of the notice.

In the opinion of this Court, the complainant proved on record that the cheque in question was presented by the complainant with her bank for encashment within the period of its validity. Accordingly, condition no. (ii) of Section 138 NI Act was satisfied.

Accused did not dispute that the legal notice was served upon him within the statutory period of limitation, hence condition (iii) was satisfied.

Further, the accused axiomatically admitted that he did not pay the amount of cheque in question to the complainant even after the expiry of 15 days from the date of receipt of legal notice. Therefore condition no. (iv) was satisfied.

Whether the cheque in question was issued by the accused to the complainant in discharge of legally enforceable liability?

Section 139 of the NI Act, 1881 carves out a presumption in favour of the drawee that the cheque was issued to him in discharge of a debt or other liability of a legally enforceable nature. Also, the said provision must be read along with Section 118 of the same enactment which spells out another presumption in favour of the drawee that every negotiable instrument was drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration.

Whether presumption under Section 139 N.I. Act read with Section 118 N.I. Act can be raised against the accused?

Court opined that such presumption can be duly raised against the accused as he has admitted his signatures on the cheque in question and has also admitted that the particulars on the same were filled by him.

Whether the accused has been able to discharge the onus of proof placed upon him?

Court stated that the journey of trial qua a complaint under Section 138 NI Act commences after a determination is made that the presumption as per Sections 139/118 NI Act can be raised against the accused, from the point of the accused who is required to prove that the cheque in question was not given for consideration or for the discharge of any legally enforceable debt.

The accused took the stand all along that he had obtained a loan of Rs 2,50,000/- from the brother of the complainant, Sanjeev Nagpal, but he was not examined as a witness by the accused. The evaluation of the testimonies of the above witnesses as well as the aforementioned circumstance clearly establishes that the accused has not been successful in proving his defense in the affirmative.

Whether the accused has been able to dislodge the presumption against him under Section 139 of the NI Act, by perforating the case of the complainant?

Even if it is so conceded, the fact that the cheque in question was given to the complainant as a security cheque, in postdated condition or otherwise, does not dent the case of the complainant sufficiently.

Further, even if it is conceded that the loan was advanced by the complainant only to the mother of the accused and not to the accused and his mother together, the cheque issued by the accused can still be construed to be issued in discharge of “any other liability”, and the accused cannot avoid penal consequences of the dishonour of the cheque merely because the loan amount was not advanced to him by the complainant.

Elaborating further, the Court stated that the offence punishable under Section 138 NI Act is premised on theory of reverse onus of proof, and the complainant was not required, as she would have been required in a civil trial of recovery perhaps, to prove a loan transaction, as she had a valid cheque in question made in her favour by the accused. With the presumptions stacked against him, the first order of business required the accused to plug loopholes in the case of the complainant, and only thereafter would the requirement for the complainant to prove her case beyond reasonable doubt have arisen.

Concluding the matter, Court held that the accused failed to establish the version that he set forth in the affirmative, and in perforating the case of the complainant and dislodging the presumption of Sections 139/118 NI Act stacked against him.

Therefore, accused was convicted for the offence punishable under Section 138 NI Act. [Geetika Mehra v. Satyam Bhola, Ct. Case No. 28164 of 2018, decided on 18-11-2021]

Saket Court
Case BriefsDistrict Court

Saket Courts, New Delhi: Anuj Agrawal, Additional Sessions Judge-05, while addressing the present matter, expressed that,

A litigant who takes liberty with court procedure should anticipate the necessary consequences.

a stern message is required to be sent to the litigants who indulge in frivolous and vexatious litigation as such litigation not only clogs arteries of justice delivery system but also deprives genuine litigants of their fundamental right of speedy trial.

It was observed that no application was moved by revisionist under Section 5 of the Limitation Act seeking condonation of delay in filing present revision petition, challenging the orders passed by the trial court.

Factual Matrix

A complaint alleging commission of an offence under Section 138 of the Negotiable Instruments Act was filed by revisionist/complainant with the allegation that respondent had issued a cheque for an amount of Rs 5 lakhs in discharge of their legal liability. On presentation of the said cheque, it got dishonoured for reasons ‘insufficient funds’. Respondent did not make payment despite service of notice due to which the complaint under provisions of NI Act was filed.

Last order of the trial court was passed on 4-12-2017, whereas the instant revision petition came to be filed on 19-3-2018. The limitation period as per Article 131 of Schedule to Limitation Act, is 90 days from the date of impugned order (s).

Therefore, in view of the above, the instant revision was filed beyond the limitation period. There was no application for condonation of delay or a whisper about the instant petition being filed beyond period of limitation.

“…law aids the vigilant and not the indolent.”

Settled Law

On expiry o period of limitation, a valuable right accrues in favour of other side and same cannot be defeated in a routine manner and existence of discretion by court for condoning the delay. If the delay is not properly, satisfactorily and convincingly explained, court cannot condone delay merely on asking of aggrieved parties.

Analysis, Law and Decision

Court held that the present revision was hopelessly time-barred with regard to impugned orders.

Bench before parting with this Order, expressed its anguish and was appalled by the insidious and cavalier approach of the revisionist.

In Court’s view, liberal access to justice should not be construed by anyone as a mean to lead chaos and indiscipline and frivolous petitions should be penalized with heavy cost. The sanctity of the judicial process will be seriously eroded if such attempts are not dealt with firmly.

Further, Court stated that

It is only then the courts would be in a position to resolve genuine causes in a time bound manner and answer the concerns of those who are in need of justice. Imposition of real time costs is also necessary to ensure that access to courts is available to citizens with genuine grievances and not to frivolous petitions like the present one.

While dismissing the present revision, cost of Rs 1 lakhs were imposed for the mischievous approach. [Madhulika Tripathi v. Logix Corporate Solution (P) Ltd., Revision Petition No. 207 of 2018, decided on 22-11-2021]

Saket Court
Case BriefsDistrict Court

Saket Courts, Delhi: Swati Gupta, Metropolitan Magistrate (South) NI Act, convicted the accused for an offence under Section 138 (dishonour of cheque) of the Negotiable Instruments Act, 1881. While delivering the judgment, the Court reiterated the well-settled position of law and discarded various defence taken by the accused.

Factual Matrix

The accused approached the complainant since he needed funds to expand his business. The complainant granted a loan of Rs 76.24 lakhs to the accused and the parties executed a memorandum of understanding (MoU) in that respect. Later, in order to discharge his liability, the accused issued a cheque of Rs 5 lakhs. On presenting for encashment, the cheque was returned unpaid by the bank with the remark “funds insufficient”. Thereafter, the complainant sent a legal notice to the accused but he did not pay the amount of dishonoured cheque. Hence, the complainant moved the Court with a complaint under Section 138 of NI Act. The accused disputed his liability.

Law, Analysis and Decision

Ingredients of the offence

Before delving into the facts, the Court discussed the settled position of law applicable to the proceedings under Section 138 of NI Act. It was reiterated that to establish the offence under Section 138, the complainant must prove:

(i) the accused issued a cheque on an account maintained by him with a bank;

(ii) the said cheque has been issued in discharge, in whole or in part, of any legal debt or other liability, which is legally enforceable;

(iii) the said cheque has been presented to the bank within a period of three months from the date of cheque or within the period of its validity;

(iv) the aforesaid cheque, when presented for encashment, was returned unpaid/dishonoured;

(v) the payee of the cheque issued a legal notice of demand to the drawer within 30 days from the receipt of information by him from the bank regarding the return of the cheque;

(vi) the drawer of the cheque failed to make the payment within 15 days of the receipt of the aforesaid legal notice of demand.

The Court was of the opinion that the complainant discharged his initial burden and established the ingredients of the offence under Section 138 against the accused. In his statement under Section 313 CrPC, the accused admitted receiving the demand notice on his permanent address.

Not filling details in the cheque

The accused had admitted his signatures on the cheque but disputed filling any details of the cheque. The Court was of the opinion that such plea, even if true, had no bearing on the presumption against him. Reliance was placed on the Supreme Court decision in Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, wherein it was held that filling of persons by any person other than the accused would not invalidate the cheque and shall attract the presumption under Section 139 of NI Act.

Rebutting the presumption

On rebuttal of mandatory presumption, the Court noted that the presumption under Section 139 cannot be rebutted upon a mere denial. It can be rebutted by the accused only be leading cogent evidence. Reliance was placed on K.N. Beena v. Muniyappan, (2001) 8 SCC 458. It was observed:

“the presumptions may be rebutted by the accused either by leading direct evidence and in exceptional cases, from the case set out by the complainant himself i.e. from the averments in his complaint, in the statutory notice and even the evidence adduced by the complainant during the trial.”

The Court also noted that the burden of proof is to be discharged by the accused on preponderance of probabilities.

Cheque given as ‘security’

In his defence, the accused claimed that the cheque was given as security and whatever amount was invested by the complainant, he took away assets of the business of the accused against the same and as such there was no liability towards the complainant.

The Court observed it to be a settled law that:

“handing over of cheques by way of security per se does not extricate the accused from the discharge of liability arising from such cheques.”

Even otherwise, the Court found that the accused did not led any cogent evidence to prove such plea.

Contradictions in complainant’s testimony

The accused averred that the complainant’s case was not believable as there were contradictions in his testimony. He contended that during cross-examination, the complainant stated that the loan was given for the purpose of business while in his affidavit, he termed the loan as a friendly loan.

The Court found that the complainant consistently stated that the loan was given for the purpose of investment in business of the accused. It was considered opinion of the Court that mere terming of the loan as friendly in one sentence of his testimony was not a contradiction so material as to discredit the entire case of the complainant.

Loan amount disputed

The accused disputed the loan amount claiming that it was not Rs 76.24 lakhs but much less. The Court was of the opinion that the accused was not able to prove this plea. He admitted the execution of MoU which specified the loan amount as Rs 76.24 lakhs. Thus, there being a written document to that effect, the accused could not be allowed to verbally contradict or vary the terms of the same in light of Section 92 of the Evidence Act, 1872.

Non-filing of ITR by the complainant

The accused contended that the complainant did not file his Income Tax Return along with the complaint which rendered the fact of alleged loan transaction improbable.

The Court found that during complainant’s cross-examination, no suggestion was put to him on the aspect of non-filing of ITR or to question if the loan was disclosed in the ITR or not or to challenge the transaction of loan on the basis of the same. The complainant duly placed on record the MoU executed between the parties, which was admitted by the accused. Thus, the Court held that non-filing of ITR by the complainant was of no consequence.

Financial capacity of the complainant

The accused contended that the statement of account of complainant’s business during the relevant period when the loan was allegedly given, showed a balance of about Rs 6800, which showed that the complainant had no financial capacity to extend a loan of Rs 76.24 lakhs.

On this, the Court found that the complainant was running two businesses and the financial capacity of the complainant could not be held to be questionable only because balance in one of his business accounts was less. Further, during cross-examination of the complainant, the accused never questioned his source of funds or financial capacity. Thus, a mere allegation that financial capacity of the complainant was not adequate as one of his business accounts had low balance did not hold water.

The remaining defence taken by the accused was also discarded by the Court as either not proved or not relevant.

In such a view of the matter, the Court concluded that the accused miserably failed to rebut the mandatory presumptions under Section 118(a) and Section 139 of NI Act even on a preponderance of probabilities, while the complainant succeeded in proving his case beyond a reasonable doubt. Accordingly, the accused was held guilty and was convicted for the offence under Section 138 of the Negotiable Instruments Act. [Zikrur Rahman Khan v. Anwar Ahmad, Complaint Case No. 470901 of 2016, dated 11-11-2021]

Case BriefsSupreme Court

Supreme Court: In a case where it was argued before the Court that an offence under Section 138 of the Negotiable Instruments Act was not made out as the dishonourment alleged is of the cheques which were issued by way of ‘security’ and not towards discharge of any debt, the bench of MR Shah and AS Bopanna*, JJ has held that a cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance and that there cannot be a hard and fast rule that a cheque which is issued as security can never be presented by the drawee of the cheque.

The Court explained that ‘security’ in its true sense is the state of being safe and the security given for a loan is something given as a pledge of payment. It is given, deposited or pledged to make certain the fulfilment of an obligation to which the parties to the transaction are bound.

“If in a transaction, a loan is advanced and the borrower agrees to repay the amount in a specified timeframe and issues a cheque as security to secure such repayment; if the loan amount is not repaid in any other form before the due date or if there is no other understanding or agreement between the parties to defer the payment of amount, the cheque which   is   issued   as   security   would   mature   for presentation and the drawee of the cheque would be entitled to present the same. On such presentation, if the same is dishonoured, the consequences contemplated under Section 138 and the other provisions of N.I. Act would flow.”

When a cheque is issued and is treated as ‘security’ towards repayment of an amount with a time period being stipulated for repayment, all that it ensures is that such cheque which is issued as ‘security’ cannot be presented prior to the loan or the instalment maturing for repayment towards which such cheque is issued as security.

Further, the borrower would have the option of repaying the loan amount or such financial liability in any other form and in that manner if the amount of loan due and payable has been discharged within the agreed period, the cheque issued as security cannot thereafter be presented. Therefore, the prior discharge of the loan or there being an altered situation due to which there would be understanding between the parties is a sine qua non to not present the cheque which was issued as security. These are only the defences that would be available to the drawer of the cheque in a proceedings initiated under Section 138 of the N.I. Act. Therefore, there cannot be a hard and fast rule that a cheque which is issued as security can never be presented by the drawee of the cheque. If such is the understanding a cheque would also be reduced to an ‘on demand promissory note’ and in all circumstances, it would only be a civil litigation to recover the amount, which is not the intention of the statute.

“When a cheque is issued even though as ‘security’ the consequence flowing therefrom is also known to the drawer of the cheque and in the circumstance stated above if the cheque is presented and dishonoured, the holder of the cheque/drawee would have the option of initiating the civil proceedings for recovery or the criminal proceedings for punishment in the fact situation, but in any event, it is not for the drawer of the cheque to dictate terms with regard to the nature of litigation.”

[Sripati Singh v. State of Jharkhand, 2021 SCC OnLine SC 1002, decided on 28.10.2021]


Counsels

For appellant: Advocate M.C. Dhingra

For respondents: Advocate Raj Kishor Choudhary and Keshav Murthy


*Judgment by: Justice AS Bopanna

Know Thy Judge | Justice A. S. Bopanna

Case BriefsDistrict Court

Additional Chief Metropolitan Magistrate, Mayo Hall Unit, Bengaluru: Vani A. Shetty, XVII Additional Judge, Court of Small Causes & ACMM, addressed a matter with respect to the liability of the accused in a case of dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881.

In the present case, the accused was tried for the offence punishable under Section 138 of the Negotiable Instruments Act.

Factual Background

Complainant with an intention to have a South Africa trip paid Rs 24 lakhs to the accused to book the tickets. But the accused failed to book the tickets and repaid a sum of Rs 14.5 lakhs to the complainant and sought time for the payment of balance amount of Rs 9.5 lakhs. Towards the discharge of the said liability, the accused issued a cheque for Rs 4,50,000 assuring that the cheque would be honoured if presented for payment.

But the cheque came to be dishonoured on the grounds of ‘payment stopped by drawer’. Thereafter the complainant got issued a legal notice demanding repayment of the cheque amount within 15 days. Due to no response from the accused, an instant complaint was filed.

In view of sufficient ground to proceed further, a criminal case was registered against the accused, and she was summoned.

Question for Consideration:

Whether the complainant proved that the accused has committed an offence punishable under Section 138 of the NI Act, 1881?

Analysis, Law and Decision

While analyzing the matter, Bench stated that in order to constitute an offence under Section 138 NI Act, the cheque shall be presented to the bank within a period of 3 months from its date. On dishonour of cheque, the drawer or holder of the cheque may cause demand notice within 30 days from the date of dishonour, demanding to repay within 15 days from the date of service of the notice.

“If the drawer of the cheque fails to repay the amount within 15 days from the date of service of notice, the cause of action arises for filing the complaint.”

In the present matter, the complainant had complied with all the mandatory requirements of Section 138 and 142 of the NI Act.

Section 118 of the NI Act lays down that until the contrary Is proved, it shall be presumed that every Negotiable Instrument was made or drawn for consideration.

Section 139 NI Act contemplated that unless the contrary is proved, it shall be presumed that the holder of the cheque received the cheque of the nature referred to in Section 138 for the discharge, in whole of any debt or liability.

In a catena of decisions, it has been repeatedly observed that in the proceeding under Section 138 of NI Act, the complainant is not required to establish either the legality or the enforceability of the debt or liability since he can avail the benefit of presumption under Sections 118 and 139 of the NI Act in his favour.

Further, it was observed that by virtue of the presumptions, accused had to establish that the cheque in question was not issued towards any legally enforceable debt or liability.

Later in the year 2006, the Supreme Court in the decision of M.S. Narayan Menon v. State of Kerala, (2006 SAR Crl. 616), has held that the presumption available under Section 118 and 139 of N.I. Act can be rebutted by raising a probable defence and the onus cast upon the accused is not as heavy as that of the prosecution.

Further, in the Supreme Court decision of Krishna Janarshana Bhat v. Dattatreya G. Hegde, (2008 Vo.II SCC Crl.166), the Supreme Court held that the existence of legally recoverable debt was not a presumption under Section 138 NI Act and the accused has a constitutional right to maintain silence and therefore, the doctrine of reverse burden introduced by Section 139 of the NI Act should be delicately balanced.

Bench, in conclusion, observed that the presumption mandated by Section 139 of NI Act does indeed include the existence of legally enforceable debt or liability, it is a rebuttable presumption, open to the accused to raise defence wherein the existence of the legally enforceable debt or liability can be contested.

If the accused is able to raise a probable defence, which creates doubt about the existence of legally enforceable debt or liability, the onus shifts back to the complainant.

Court stated that if the accused was able to probabalise that the disputed cheque was issued due to the intervention and pressure of the police, it may not be justified to draw the presumption contemplated under Section 139 NI Act.

It was added that if the police would have really interfered, the accused could have produced some evidence to show the intervention of the police. But there was absolutely no evidence on record to show that cheque was issued either due to pressure of police or due to some other compulsion.

In Court’s opinion, the Court was required to draw the presumption under Section 139 NI Act in favour of the complainant.

Court noted that in the present matter, accused at no point in time asked the complainant to pay the balance amount. Instead, she had kept quiet by enjoying the huge amount of Rs 24 lakhs which clearly indicated that the non-purchase of the ticket was not on account of the non-payment of the remaining amount. Further, there was no forfeiture clause.

For the above, Bench stated that in the absence of the forfeiture clause, the accused could not have retained the amount of the complainant with her, the said was barred by the doctrine of unlawful enrichment under Section 70 of the Indian Contract Act, 1872.

Hence, even if it was held that the complainant was a defaulter in respect of the payment of the remaining amount, the accused was legally liable to repay the amount received by her from the complainant.

In view of the above reasons, guilt of the accused was proved under Section 138 NI Act. [Srinivas Builders and Developers v. Shyalaja, CC No. 57792 of 2018, decided on 13-10-201]


Advocates before the Court:

For the Complainant: V.N.R., Advocate

For the Accused: J.R., Advocate

Saket Court
Case BriefsDistrict Court

Saket Courts, New Delhi: Swati Gupta, Metropolitan Magistrate reiterated what is expected of an accused to rebut the statutory presumption against him in cases of cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881.

Brief facts

Complainant and accused had entered into an agreement to sell the property owned by the wife of accused for a total sale consideration of Rs 58 lakhs. The said property was to be purchased in the name of the wife of the complainant.

For the above said purchase complainant made an advance payment of Rs 24 lakhs to the accused. Later, the accused backed out of the deal and was liable to return the amount paid by the complainant as advance. Further, to discharge his liability, in part, the accused issued the cheque for a sum of Rs 5 lakhs in favour of the complainant.

When the complainant presented the cheque in question for encashment at his bank, the said cheque was returned unpaid with remarks “payment stopped by drawer”.

Thereafter, the complainant issued a legal demand notice to the accused, demanding payment of the dishonoured cheque amount. Despite the notice, the amount was not paid within 15 days mandatory payment.

In view of the above background, the present complaint under Section 138 of the Negotiable Instruments Act, 1881 was moved before the Court.

Settled Legal Position of Law

Under Section 138 of the NI Act against the accused, the complainant must prove the following:

(i) the accused issued a cheque on an account maintained by him with a bank.

(ii) the said cheque has been issued in discharge, in whole or in part, of any legal debt or other liability, which is legally enforceable.

(iii) the said cheque has been presented to the bank within a period of three months from the date of cheque or within the period of its validity.

(iv) the aforesaid cheque, when presented for encashment, was returned unpaid/dishonoured.

(v) the payee of the cheque issued a legal notice of demand to the drawer within 30 days from the receipt of information by him from the bank regarding the return of the cheque.

(vi) the drawer of the cheque failed to make the payment within 15 days of the receipt of aforesaid legal notice of demand.

The Court noted that the complainant discharged its initial burden and successfully established the above-stated ingredients of offence under Section 138 of the NI Act against the accused.

Rebuttal of the Mandatory Presumption

It is settled law that the presumptions may be rebutted by the accused either by leading direct evidence and in exceptional cases from the case set out by the complainant himself. The burden of proof was to be discharged by the accused on a preponderance of probabilities.

Further, the presumption under Section 139 of the NI Act cannot be rebutted upon a mere denial. The same can be rebutted by the accused only by leading cogent evidence.

The Court found that admittedly, Rs 24 lakhs were paid by the complainant to the accused towards advance payment for purchase of the subject property, The cancellation agreement specifying the details of the cheque in question was also admittedly, executed between the accused and the complainant.

The cheque in question was issued by the accused to the complainant in discharge of part liability in pursuance of the cancellation agreement.

In the Court’s opinion, the accused miserably failed to rebut the mandatory presumptions under Section 118(a) and 139 of the NI Act even on a preponderance of probabilities, while the complainant succeeded in proving his case beyond reasonable doubt.

Therefore, accused was held guilty and convicted of the offence under Section 138 of the NI Act. [Ramesh Kumar v. Balwant Singh, CT No. 466077 of 2016, decided on 12-10-2021]

Case BriefsSupreme Court

Supreme Court: Explaining the law relating to vicarious liability of the Directors of a company under Sections 138 and 141 of the Negotiable Instruments Act, 1881, the bench of Ajay Rastogi* and Abhay S. Oka, JJ has held that if, at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company and and if statutory compliance of Section 141 of the NI Act has been made, the High Court cannot quash the proceedings against the person accused under Section 482 CrPC.

It can, however, do so, if

“… it comes across some unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial would be abuse of process of Court. Despite the presence of basic averment, it may come to a conclusion that no case is made out against the particular Director for which there could be various reasons.”

In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89, while dealing with an offence under Section 138 of the NI Act, the Court explained the duty of a Magistrate while issuing process and his power to dismiss a complaint under Section 203 without even issuing process. It held,

“5. … a complaint must contain material to enable the Magistrate to make up his mind for issuing process. If this were not the requirement, consequences could be far-reaching. If a Magistrate had to issue process in every case, the burden of work before the Magistrate as well as the harassment caused to the respondents to whom process is issued would be tremendous. Even Section 204 of the Code starts with the words ‘if in the opinion of the Magistrate taking cognizance of an offence there is sufficient ground for proceeding’. The words ‘sufficient ground for proceeding’ again suggest that ground should be made out in the complaint for proceeding against the respondent. It is settled law that at the time of issuing of the process the Magistrate is required to see only the allegations in the complaint and where allegations in the complaint or the charge-sheet do not constitute an offence against a person, the complaint is liable to be dismissed.”

The same judgment then went on to explain the requirements under Section 141 of the NI Act:

(a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.

(b) Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases.

(c) The managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under subsection (2) of Section 141.

In the case at hand, the Court was concerned with Directors who were not signatories to the cheques. So far as Directors who are not the signatories to the cheques or who are not Managing Directors or Joint Managing Directors are concerned, it is necessary to aver in the complaint filed under Section 138 read with Section 141 of the NI Act that at the relevant time when the offence was committed, the Directors were in charge of and were responsible for the conduct of the business of the company. This averment assumes importance because it is the basic and essential averment which persuades the Magistrate to issue process against the Director.

In the present case, the Court noticed that the allegations in the complaint are that at the time at which the cheques were issued by the Company and dishonoured by the Bank, the appellants were the Directors of the Company and were responsible for its business and all the appellants were involved in the business of the Company and were responsible for all the affairs of the Company.

“It may not be proper to split while reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to fulfil the requirement of Section 141 of the NI Act.”

Since the complaint specifically refers to the point of time when the cheques were issued, their presentment, dishonour and failure to pay in spite of notice of dishonour, the High Court was right in not exercising its power under Section 482 of CrPC.

[Ashutosh Ashok Parasrampuriya v. Gharrkul Industries Pvt. Ltd., 2021 SCC OnLine SC 915, decided on 08.10.2021]


Counsels

For appellants: Senior Advocate Sidhartha Dave, Advocate Arundhati Katju

For respondents: Senior Advocate Pallav Shishodia


*Judgment by: Justice Ajay Rastogi

Know Thy Judge | Justice Ajay Rastogi

Patiala House Courts, Delhi
Case BriefsDistrict Court

Patiala House Courts, New Delhi: Prayank Nayak, MM-01 acquitted the accused of offence under Section 138 (dishonour of cheque) of the Negotiable Instruments Act, 1885, holding that the accused successfully dislodged the statutory presumption.

In the present matter, complaint was filed under Section 138 of the Negotiable Instruments Act, 1881 for the dishonour of cheque for an amount of Rs 6,82,000 and failure to pay the said amount despite legal demand notice.

Path Paving to this Matter

Complainant had given a loan of Rs 6,82,000 to the accused in cash and later the accused had issued a cheque for the repayment of the loan. Though the same was dishonored upon its presentation and no payment was made despite the receipt of legal demand notice.

Analysis, Law and Decision

Offence under Section 138 of the Negotiable Instruments Act consists of the following ingredients:

  1. The cheque was drawn by drawer on an account maintained by him with the banker for payment of any amount of money out of that account.
  2. The said payment was made for discharge of any debt for other liability in whole or in part.
  3. The said cheque was returned unpaid by the bank.
  4. The cheque was presented to the bank within a period of 3 months from the date on which it was drawn or within the period of its validity whichever is earlier.
  5. The payee or the Holder in due course of the cheque as the case may be makes a demand for the payment of the said amount of money by giving the notice in writing to the drawer of the cheque within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid.
  6. The drawer of the cheque fails to make the payment of the said amount of money to the payee or as the case may be the Holder in due course of the cheque within 15 days of the receipt of the said notice.
  7. The payee or the Holder in due course of the cheque shall make a complaint in writing within one month of the date on which the Cause of Action arises i.e., 15 days from the receipt of the notice by the drawer.

In the present matter, it was noted that the receipt of legal notice was accepted and the duly replied and the dishonour memo issued by the bank was also placed on record.

Court stated that by virtue of Section 146 of NI Act, the dishonour of cheque in question had to be presumed.

Onus to prove

As per Section 118 (g) of NI Act, the holder of the cheque is presumed to be holder in due course, hence the accused has to prove that the cheque was not issued to the complainant.

Accused had admitted the signature on the cheque, thus presumption under Section 118(a) of the NI Act and Section 139 of NI Act will be drawn.

Delhi High Court’s decision in Devender Kumar v. Khem Chand,2015 SCC OnLine Del 12578, it was held that:

“However, in Rangappa v. Sri Mohan, (2010) 11 SCC 441, a three judges’ bench of the Supreme Court held that Section 138 of the N.I. Act includes the presumption enforceable debt or liability and that the holder of the cheque is presumed to have received the same in discharge of such debt or liability……. without doubt, the initial presumption is in favour of the complainant.” (Para 20).

Whether the accused has been able to dislodge the presumption of liability as well as issuance on the basis of cross-examination of complainant and the evidence led by him?

In the instant matter, it is very pertinent to note that there is no written/documentary proof of loan and the complainant has also not mentioned any date of giving loan amount.

Due to the above-stated observation, Bench stated that as there was absence of documentary proof as well as the date of giving loan, the whole case seems to be doubtful.

What all makes this case doubtful?

Court noted that complainant despite having friendly relations and extending friendly loan of large amount to the accused is not even aware about the name of wife of the accused nor could tell whether accused is having kids or not. Though it has been claimed by him that he knows the accused of around 5 years, but he has never gone inside the house of the accused.

The above stated makes it doubtful for the Court to believe that the relations between the parties were such that the complainant would lend the stated sum to the accused that too without any documentary evidence.

Discrepancy in complainant’s oral testimony and bank statement was found along with discrepancy in photocopy of his Balance-Sheet and certified copy of the same.

The above-stated discrepancies strike the root of the complainant’s case.

Complainant in his cross-examination admitted that he had to pay loans to various persons and institutions, this fact leads the Bench to the question of why a person himself being liable to pay loan to various persons would advance loan of more than Rs 6 lakhs to some other person.

Therefore, accused dislodged the presumption in favour of the complainant by impeaching his credit during cross-examination and due to the absence of documentary proof.

Complainant did not examine any witnesses to prove the loan transaction and the above discussion cast doubt over the complainant’s version that he had given loan to the accused.

In Delhi High Court’s decision, Kulvinder Singh v. Kafeel Ahmad, 2014 (2) JCC (NI) 100 it was observed that,

“The basis principle in Criminal law is that the guilt of respondent/accused must be proved beyond reasonable doubt and if there is slightest doubt about commission of an offence then the benefit has to accrue to him”.

 “…Benefit of doubt has to accrue to the accused.”

 Court acquitted the accused for the offence under Section 138 NI Act. [Balwant Singh v. Angad Makol, R. No. 55576 of 2016, decided on 5-10-2021]

Tis-hazari
Case BriefsDistrict Court

Tis Hazari Courts, New Delhi: Devanshu Sajlan, MM NI Act-05, while noting the ingredients of Section 138 of the Negotiable Instruments Act, 1881 acquitted a person charged for offence punishable under Section 138 NI Act.

Factual Matrix

Present complaint was filed under Section 138 of the Negotiable Instruments Act, 1881.

Complainant had granted a friendly loan of Rs 21,00,000 to the accused for two months for some urgent need of the accused.

To discharge the legal liability, the accused issued two cheques in favour of the complainant firm, but the same were returned by the bank as no balance was available in the account. Thereafter, Complainant sent a legal notice but the accused allegedly failed to pay the cheque amount and hence, the complainant filed the present complaint.

Accused denied having taken a loan of Rs 21,00,000 from the complainant and instead stated that he took a loan of Rs 5,00,000 and had already paid the same. He added that he had given three blank signed cheques as security cheques which were misused by the complainant.

Discussion

In the present matter, the complainant proved the original cheques that the accused had not disputed as being drawn on the account of the accused.

Court stated that giving a blank signed cheque does not erase the liability under the NI Act. If a signed blank cheque is voluntarily presented to a payee, towards some payment, the payee may subsequently fill up the amount and other particulars (Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, ¶ 34).). The onus would still be on the accused to prove that the cheque was not in discharge of a debt or liability.

Legal Notice

It is settled law that an accused who claims that she/he did not receive the legal notice, can, within 15 days of receipt of summons from the court, make payment of the cheque amount, and an accused who does not make such payment cannot contend that there was no proper service of notice as required under Section 138, by ignoring statutory presumption to the contrary under Section 27 of the General Clauses Act and Section 114 of the Evidence Act [C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555).

Maintainability | Complainant is an unregistered partnership firm

It was contended that the present complaint was barred under Section 69(2) of the Indian Partnership Act. The firm was unregistered and hence the complaint was barred under the stated section.

A simpliciter reading of Section 69(2) would show that it is intended to apply to only suits, and that it would have no application to a criminal complaint.

Hence, the bar imposed on unregistered firms under Section 69(2) of the Indian Partnership Act does not apply to a criminal complaint under Section 138 NI Act.

Non-Existence of Debt

Complainant is required to prove that the cheque in question was drawn by the drawer for discharging a legally enforceable debt.

Court stated that as per the NI Act, once the accused admits signature in the cheque in question, certain presumptions are drawn, which result in shifting of onus on the accused and in the present matter, the issuance of cheques was not denied.

The combined effect of Section 118(a) NI Act and Section 139 of the NI Act is that a presumption exists that the cheque was drawn for consideration and given by the accused of the discharge of debt or other liability.

Rebuttal

  • Misuse of the security cheque

Bench stated that it is immaterial whether the cheque had been filled by the complainant once the cheque has been admitted being duly signed by the drawer-accused.

  • Complainant did not have the financial capacity to grant the alleged loan

It is a settled position of law that in case of cash transaction, showcasing that complainant did not have the adequate financial capacity to lend money to the accused amounts to a probable defense and can help in rebutting the presumption that is accrued to the benefit of the complainant in cheque dishonor cases.

In Basalingappa v. Mudibasappa, (2019) 5 SCC 418, the Supreme Court has observed as follows:

During his cross-examination, when financial capacity to pay Rs. 6 lakhs to the accused was questioned, there was no satisfactory reply given by the complainant. The evidence on record, thus, is a probable defence on behalf of the accused, which shifted the burden on the complainant to prove his financial capacity and other facts.

(emphasis added)

Hence, the Court stated that in cases in which the underlying debt transaction is a cash transaction, the accused can raise a probable defense by questioning the financial capacity of the complainant, and once the said question is raised, the onus shifts on the complainant to prove his financial capacity.

Bench on perusal of the record of the present case, agreed with the submission of the counsel of the accused, since the record created adequate doubts over the financial capacity of the complainant to advance the loan in question.

Conclusion

Hence, Court opined that the complainant failed to establish that it had the financial capacity to advance a loan of Rs 21,00,000 to the accused.

Therefore, accused successfully rebutted the presumption under Section 139 NI Act and the complainant failed to discharge the shifted onus.

“…even if the cheque presented by the complainant was returned unpaid by the bank, the complainant cannot prosecute the accused, as the requirement of the existence of legal liability has not been satisfied in the present case, since the accused has been able to establish a probable defence by creating a credible doubt over the existence of the alleged loan transaction.”

Concluding the matter, Bench held that complainant failed to prove the case beyond a reasonable doubt, hence the accused was acquitted from the charge of offence punishable under Section 138 of the NI Act. [S.S. Auto Gallery v. Vaneet Singh, 21636 of 2016, decided on 9-10-2021]


Advocates before the Court:

Manjeet Singh, counsel for the complainant.

D.K Ahuja, for the accused.

Saket Court
Case BriefsDistrict Court

South-East District, Saket Courts, New Delhi: Bhanu Pratap Singh, MM (N.I. Act) found the accused guilty of an offence under Section 138 of the Negotiable Instruments Act, where the accused had admitted signatures on the cheque and also failed to make the payment within 15 days of receipt of summons.

Background

Accused took a loan of Rs 2,50,000 from the complainant through cross payee cheque drawn on ICICI Bank in his favour for a period of 6 months and the accused executed acknowledgment and promissory note under his signatures and the said amount carried interest at the rate of 18% p.a. from the date of payment till realization.

Complainant time and again demanded the said loan amount together with interest however, accused showed her inability to repay the said loan amount and always insisted to extend the time for repayment of the said loan amount along with interest.

In the discharge of her part legal liability, the accused issued a cheque for the amount of Rs 2,50,000 under her signature in favour of the complainant leaving the interest part on the said loan amount apart.

As per the instructions of the accused, the complainant presented the above-mentioned cheque for encashment and the same was dishonoured vide bank memo dated 04.12.2014 with remarks ‘Funds Insufficient’.

Thereafter, complainant sent a legal notice under Section 138 NI Act, calling upon the accused to make the payment within 15 days of the receipt of the legal notice as prescribed under Section 138 of the NI Act. Even after the expiry of 15 days stipulated period, the accused did not make the payment, therefore, the accused committed offence under Section 138 of NI Act and the present case was filed by the complainant.

Analysis, Law and Decision

Accused admitted her signatures on the cheque on question in her statement under Sections 251 and 313 CrPC.

In Supreme Court’s decision of Kalamani Tex v. P. Balasubramanian, (2021) 5 SCC 283  , it was held that:

The Statute mandates that once the signature(s) of an accused on the cheque/negotiable instrument are established, then the ‘reverse onus’ clauses become operative. In such a situation, the obligation shifts upon the accused to discharge the presumption imposed upon him.

Court stated that once the accused had admitted her signatures on the cheque in question, presumption under Section 118 and 139 of the NI Act was drawn in favour of the complainant. Hence, it was upon the accused to rebut the presumption under Section 139 NI Act by raising a probable defence in his favour on a scale of preponderance of probabilities.

Accused took the defence in her statement under Section 251 CrPC that she does not know whether she received the legal notice.

The above plea of the accused was not tenable by virtue of the Supreme Court decision in CC Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555, wherein it was held that:

“Any drawer who claims that he did not receive the notice sent by post, can, within 15 days of receipt of summons from the court in respect of the complaint u/s. 138 of the Act, make payment of the cheque amount and submit to the court that he had made payment within 15 days of receipt of summons (by receiving a copy of complaint with the summons) and, therefore, the complaint is liable to be rejected. A person who does not pay within 15 days of receipt of the summons from the court along-with the copy of the complaint u/s. 138 of the Act, cannot obviously contend that there was no proper service of notice as required u/s. 138, by ignoring statutory presumption to the contrary u/s. 27 of the General Clauses Act and Section 114 of the Evidence Act”.

Therefore, the accused failed to raise a probable defence in his favour on a scale of preponderance of probabilities and consequently, the presumption under Section 118(a) and 139 of NI Act drawn in favour of complainant had not been rebutted and complainant proved the ingredients of Section 138 NI Act beyond reasonable doubt.

Hence, accused was found guilty for the offence punishable under Section 138 NI Act. [Om Avtar (HUF) v. Shashi Jindal, CC No. 631088 of 2016, decided on 5-10-2021]

Case BriefsSupreme Court

Supreme Court: In a bid to curb the worrying trend of parallel proceedings for complaints under Section 138 of the NI Act, the bench of Dr. DY Chandrachud*, Vikram Natha and BV Nagarathna, JJ has held that a complainant cannot pursue two parallel prosecutions for the same underlying transaction.

“Once a settlement agreement has been entered into by the parties, the proceedings in the original complaint cannot be sustained and a fresh cause of action accrues to the complainant under the terms of the settlement deed.”

What led to the decision?

In the case at hand, a set of cheques were dishonoured, leading to filing of the first complaint under Section 138 of the NI Act. The parties thereafter entered into a deed of compromise to settle the matter. While the first complaint was pending, the cheques issued pursuant to the compromise deed were dishonoured leading to the second complaint under Section 138 of the NI Act. Both proceedings were pending simultaneously and hence, the issue before the Supreme Court was to decide whether the complainant can be allowed to pursue both the cases or whether one of them must be quashed and the consequences resulting from such quashing.

Analysis

Ingredients of the offence under Section 138

(1) drawing of the cheque,

(2) presentation of the cheque to the bank,

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

(4) giving notice in writing to the drawer of the cheque demanding payment of the cheque amount,

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

Remedies under Section 138 of the NI Act

The effect of an offence under Section 138 of the NI Act is limited to two private parties involved in a commercial transaction. However, the intent of the legislature in providing a criminal sanction for dishonour of cheques is to ensure the credibility of transactions involving negotiable instruments.

Given that the primary purpose of Section 138 of the NI Act is to ensure compensation to the complainant, the NI Act also allows for parties to enter into a compromise, both during the pendency of the complaint and even after the conviction of the accused.

Worrying trend of parallel proceedings for complaints under Section 138 of the NI Act

“The pendency of court proceedings under Section 138 of the NI Act and the multiplicity of complaints in which a cause of action arising from one transaction is litigated has dampened the ease of doing business in India, impacted business sentiments and hindered investments from investors.”

The Court noticed that the introduction of a criminal remedy has given rise to a worrying trend where cases under Section 138 of the NI Act are disproportionately burdening the criminal justice system

Hence, under the shadow of Section 138 of the NI Act, parties are encouraged to settle the dispute resulting in ultimate closure of the case rather than continuing with a protracted litigation before the court. This is beneficial for the complainant as it results in early recovery of money; alteration of the terms of the contract for higher compensation and avoidance of litigation. Equally, the accused is benefitted as it leads to avoidance of a conviction and sentence or payment of a fine. It also leads to unburdening of the judicial system, which has a huge pendency of complaints filed under Section 138 of the NI Act.

Whether once the settlement has been entered into, the complainant can be allowed to pursue the original complaint under Section 138 of the NI Act?

Holding that a complainant cannot pursue two parallel prosecutions for the same underlying transaction, the Court said that allowing the complainant to pursue parallel proceedings, one resulting from the original complaint and the second emanating from the terms of the settlement would make the settlement and issuance of fresh cheques or any other partial payment made towards the original liability meaningless.

The Court explained that a contrary interpretation, which allows for the complainant to pursue both the original complaint and the consequences arising out of the settlement agreement, would lead to contradictory results.

First, it would allow for the accused to be prosecuted and undergo trial for two different complaints, which in its essence arise out of one underlying legal liability.

Second, the accused would then face criminal liability for not just the violation of the original agreement of the transaction which had resulted in issuance of the first set of cheques, but also the cheques issued pursuant to the compromise deed.

Third, instead of reducing litigation and ensuring faster recovery of money, it would increase the burden of the criminal justice system where judicial time is being spent on adjudicating an offence which is essentially in the nature of a civil wrong affecting private parties.

A complainant enters into a settlement with open eyes and undertakes the risk of the accused failing to honour the cheques issued pursuant to the settlement, based on certain benefits that the settlement agreement postulates. The benefits may include – higher compensation, faster recovery of money, uncertainty of trial and strength of the complaint, among others.

Hence,

“Once parties have voluntarily entered into such an agreement and agree to abide by the consequences of non-compliance of the settlement agreement, they cannot be allowed to reverse the effects of the agreement by pursuing both the original complaint and the subsequent complaint arising from such non-compliance. The settlement agreement subsumes the original complaint.”

The Court, hence, held that non-compliance of the terms of the settlement agreement or dishonour of cheques issued subsequent to it, would then give rise to a fresh cause of action attracting liability under Section 138 of the NI Act and other remedies under civil law and criminal law.

[Gimpex Private Limited v. Manoj Goel, 2021 SCC OnLine SC 925, decided on 08.10.2021]

__________________________________________________________________________________________________________________

Counsels:
For appellant: Senior Advocate V Giri and Advocate Liz Mathew

For respondent: Senior Advocate Jayant Bhushan


*Judgment by: Justice Dr. DY Chandrachud

Know Thy Judge| Justice Dr. DY Chandrachud

Case BriefsHigh Courts

Allahabad High Court: Chandra Dhari Singh, J., expressed that,

Merely because the litigation has reached a revisional stage or that even beyond that stage, the nature and character of the offence would not change automatically and it would be wrong to hold that a revisional stage, the nature of offence punishable under Section 138 NI Act should be treated as if the same is falling under table-II of Section 320 IPC.

Petitioner and OP 2 had a business relationship during the course of business and had issued two cheques in favour of OP 2 and when he had deposited, the cheques were bounced due to insufficient funds.

OP 2 had filed a complaint case under Section 138 Negotiable Instruments Act, 1881. Trial Court had convicted the petitioner and further on being aggrieved the petitioner had preferred a criminal appeal.

Question for consideration

Whether an order passed by the High Court in the criminal revision petition confirming the conviction can be nullified by the High Court in a petition filed under Section 482 CrPC noticing subsequent compromise of the case by the contesting parties?

Analysis, Law and Decision

High Court stated that it is well stated that inherent powers under Section 482 CrPC can be exercised only when no other remedy is available to the litigant and not where a specific remedy is provided by the statute.

Inherent powers under Section 482 of CrPC include powers to quash FIR, investigation or any criminal proceedings pending before the High Court or any Courts subordinate to it and are of wide magnitude and ramification. Such powers can be exercised to secure ends of justice, prevent abuse of the process of any court and make such orders as may be necessary to give effect to any order under this Code, depending upon the facts of a given case.

 In the Supreme Court decision of Krishan v. Krishnaveni, (1997) 4 SCC 241, the Court held that though the inherent power of the High Court is very wide, yet the same must be exercised sparingly and cautiously particularly in a case where the petitioner is shown to have already invoked the revisional jurisdiction under Section 397 of the Code. Only in cases where the High Court finds that there has been failure of justice or misuse of judicial mechanism or procedure, sentence or order was not correct, the High Court may in its discretion prevent the abuse of process or miscarriage of justice by exercising jurisdiction under Section 482 of the Code.

Bench opined that it is not in agreement that when the adjudication of a criminal offence has reached the state of revisional level, there cannot be any compromise without permission of the Court in all cases including the offence punishable under Negotiable Instruments Act, 1881.

Section 147 of NI Act begins with a non obstante clause and such clause is being used in a provision to communicate that the provision shall prevail despite anything to the contrary in any other or different legal provisions. So, in light of the compass provided, a dispute in the nature of complaint under section 138 of N.I. Act, can be settled by way of compromise irrespective of any other legislation including CrPC in general and Section 320 (1)(2) or (6) of the CrPC in particular. The scheme of Section 320 CrPC deals mainly with procedural aspects; but it simultaneously crystallizes certain enforceable rights and obligation.

Further, it is well settled that the operation or effect of a general Act may be curtailed by a special Act even if a general Act contains a non-obstante clause. But here is not a case where the language of Section 320 CrPC would come in the way of recording the compromise or in compounding the offence punishable under Section 138 of the N.I. Act.

In the present matter, the problem was with the tendency of litigants to belatedly choose compounding to resolve their dispute.

Section 147 NI Act does not carry any guidance on how to proceed with compounding of offences under the Act.

 Hence the Court held that offence under Section 138 NI Act read with Section 147 are at liberty to compound the matter at any stage.

“…when both the parties have invoked the jurisdiction of this Court and there is no bar on exercise of powers and the inherent powers of this court can always be invoked for imparting justice and bringing a quietus to the issue between the parties.”

Concluding the matter, High Court allowed the present petition under Section 482 CrPC is allowed in terms of the compromise arrived at between the parties to this litigation out of court. [Rishi Mohan Srivastava v. State of U.P., 2021 SCC OnLine All 532, decided on 13-08-2021]


Counsel for Applicant:- Naved Ali, Sandeep Yadav

Counsel for Opposite Party:- G.A., Pawan Bhaskar