Section 138 of the Negotiable Instruments Act, 1881 (henceforth referred as the Act) provides for conception of criminal proceedings against a person, whose cheque has been dishonoured, deeming it to be an act alike cheating. There is a plethora of judgements on the subject delivered by Supreme Court and various High Courts and is a growing apace and is a source of considerable perplexity, and we often find ourselves in a quandary.
An attempt has been made here to consolidate the latest judgements on the subject for ready reference.
I. INGREDIENTS AND REQUIREMENTS OF THE PENAL PROVISIONS:
In 'Harman Electronics (P) Ltd., V. National Panasonic India Ltd., (2008) 16 SCALE 317, the Court opined that the offence under Section 138 of the Act can be completed only with the concatenation of a number of acts, namely:
1. Drawing of the cheque;
2. Presentation of the cheque to the bank;
3. Returning of the cheque unpaid by the drawee bank;
4. Giving of 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 cheque.
It is not necessary that all the above five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at five different localities. But a concatenation of all the above five is a sin qua non for the completion of the offence under Section 138 of the Code…….” (emphasis supplied)
In section 142 of the Act it has however, provided that such complaint is made within ONE MONTH (In 'Shivakumar V. Natarajan' - (2009) 27 CLA -BL Supp 62 (SC)) of the date on which the cause of action i.e., failure by the drawer of cheque in question to make payment of the said amount to the payee or as the case may be to the holder in due course of a cheque within 15 days of the receipt of the said notice
Where the Complaint lacks necessary ingredients of the offence under Section 138: Hon’ble Supreme Court in JugeshSehgal Vs. Shamsher Singh Gogi 2009(3) CC Cases (SC) 2004. The Hon’ble Supreme Court noted that the cheque alleged to have been issued by the petitioners to the complainant was issued from an account pertaining to some other person. The Hon’ble Court also noted that one of the essential ingredients of the offence punishable under Section 138 of Negotiable Instruments Act is that the cheque must have been drawn on an account maintained by the accused.Since the cheque in the case before the Hon’ble SupremeCourt was not issued from the account maintained by the petitioner, it was held that one essential ingredient of offence under Section 138 of Negotiable Instruments Act was not.
Consideration: Mallavarapu Kasivisweswara Rao v. Thadikonda Ramulu Firm & Ors., 2008 (8) SCALE 680, wherein it was observed:
"Under Section 118(a) of the Negotiable Instruments Act, the court is obliged to presume, until the contrary is proved, that the promissory note was made for consideration. It is also a settled position that the initial burden in this regard lies on the defendant to prove the non-existence of consideration by bringing on record such facts and circumstances which would lead the Court to believe the non-existence of the consideration either by direct evidence or by preponderance of probabilities showing that the existence of consideration was improbable, doubtful or illegal. ..."
This decision then proceeded to cite an extract from the earlier decision in Bharat Barrel & Drum Manufacturing Company v. Amin Chand Pyarelal, (1993) 3 SCC 35 (Para. 12):
"Upon consideration of various judgments as noted hereinabove, the position of law which emerges is that once execution of the promissory note is admitted, the presumption under Section 118(a) would arise that it is supported by a consideration. Such a presumption is rebuttable. The defendant can prove the non-existence of a consideration by raising a probable defence. If the defendant is proved to have discharged the initial onus of proof showing that the existence of consideration was 18 improbably or doubtful or the same was illegal, the onus would shift to the plaintiff who will be obliged to prove it as a matter of fact and upon its failure to prove would disentitle him to the grant of relief on the basis of the negotiable instrument. The burden upon the defendant of proving the non-existence of the consideration can be either direct or by bringing on record the preponderance of probabilities by reference to the circumstances upon which he relies. In such an event, the plaintiff is entitled under law to rely upon all the evidence led in the case including that of the plaintiff as well. In case, where the defendant fails to discharge the initial onus of proof by showing the non-existence of the consideration, the plaintiff would invariably be held entitled to the benefit of presumption arising under Section 118(a) in his favour.
The court may not insist upon the defendant to disprove the existence of consideration by leading direct evidence as the existence of negative evidence is neither possible nor contemplated and even if led, is to be seen with a doubt. The bare denial of the passing of the consideration apparently does not appear to be any defence. Something which is probable has to be brought on record for getting the benefit of shifting the onus of proving to the plaintiff.
To disprove the presumption, the defendant has to bring on record such facts and circumstances upon consideration of which the court may either believe that the consideration did not exist or its non-existence was so probable that a prudent man would, under the circumstances of the case, act upon the plea that it did not exist."
Applicability of Section 138 Negotiable Instruments Act to;
A. CAUSE OF ACTION: Presentation of Cheques any number of times:
A cheque may be presented any number of times during the period of validity. The cause of action, however, arises only once. The cause of action arises, after the issue of statutory notice and non-compliance with demand. (The Hon'ble Supreme Court in Sadanandan Bhadran vs. Madhavan Sunil Kumar, JT 1998 (6) SC 48), It was also held that while the payee was free to present the cheque repeatedly within its validity period, once notice had been issued and payments not received within 15 days of the receipt of the notice, the payee has to avail the very cause of action arising thereupon and file the complaint. Dishonour of the cheque on each re-presentation does not give rise to a fresh cause of action. This view was reiterated in Prem Chand Vijay Kumar vs. Yashpal Singh & Anr. [(2005) 4 SCC 417]. Also refer Central Bank of India and Anr. Vs. M/s. Saxons Farms & Ors, 1999 Crl.L.J. 4571.
Notice - returned unclaimed - again send to another address after 15 days – valid –complainant sent notice on 29-05-1999 – returned on 09-06-1999 as unclaimed - complainant on coming to know that accused was available elsewhere sent copy of same notice on 24-06-1999 – period of limitations start after 15 days from second Notice. 2002 (4) CTC 335.
Communication: Issuance of Notice would not by itself give rise to a cause of action but communication would (Para 14 of Harman Electronics Private Limited & Anr. Vs. National Panasonic India (P) Ltd., reported in (2009) 1 SCC (Cri) 610)-While issuance of a notice by the holder of a negotiable instrument is necessary, service therefof is alo imperative. Only on service of such notice and failure on the part of the acused to pay the demanded amount with in the period of 15days thereafter, commission of an offence completes.
Notice to the Company’s MD: The Supreme Court in Rajneesh Agarwal v Amit J Bhalla (2001 AIR SCW 124) has held that notice for payment under section 138 of the Negotiable Instruments Act (the Act) to the director who has signed the cheque is notice to the drawer company and that the notice cannot be construed in a narrow technical way.
Service of Notice: Supreme Court in the State of Madhya Pradesh vs. Hiralal & Ors., JT 1996 (1) S.C. 669, where, postal remarks to the effect "not available in the house," "House Locked" and "shop closed", were held to be service of notice upon the respondent. In Subodh S.Salaskar vs. Jayaprakash M. Shah, AIR 2008 SC 3086, the Hon'ble Supreme Court held that presumption of service under Section 114 of Evidence Act would also arise if the notice is received back with an endorsement that the party had refused to accept it. In the present case, this is petitioner's own case in paragraph 5 of the complaint that it had served registered notice upon the respondent vide postal receipt No.8288. Thus, the petitioner/complainant itself claims service upon the respondent on account of the endorsement of the postal department on the registered cover.
What are the requirements of service of a notice is no longer res-integra in view of the recent decision of this Court in C.C. Alavi Haji Vs. Palapetty Muhammed & Anr. [JT 2007(7) SC 498].
Notice - Cheque issued for part payment of outstanding bills - Cheque dishonoured - By issuing notice demand made of payment of pending bills and not cheque amount - Held, notice is not valid. (M/s.Rahul Builders Vs M/s.Arihant Fertilizers & Chemical & Anr.) 2007(3) Apex Court Judgments 554 (S.C.) : 2007(4) Criminal Court Cases 990 (S.C.)
C. REPRESENTATIVE/AUTHORISED REPRESENTATIVE
In AIR 2002 SC 182, the Honble Supreme Court made the following observations, “Section 142 of the Negotiable Instruments Act provides that a complaint under Section 138 can be made by the payee or the holder in due course of the said cheque. The two complaints, in question, are by the appellant company who is the payee of the two cheques. This Court has as far back as, in the case of Vishwa Mitter v. O.P.Poddar reported in (1983) 4 SCC 701, held that it is clear that anyone can set the criminal law in motion by filing a complaint of facts constituting an offence before a Magistrate entitled to take cognizance.
POWER OF ATTORNEY:
Supreme Court judgment passed in case of Janki Vashdeo Bhojwani and Anr. v. Indusind Bank Ltd. and Ors. I (2005) BC 399 (SC) : 2004 AIR SCW 7064, has submitted that a general or special power of attorney holder can appear, plead and act on behalf of the party but he cannot become a witness on behalf of the party.
In the case of ‘Shankar Finance Investments V. State of Andhra Pradesh and others’ (2008) 24 CLA-BL Supp 62 (SC) the appeal was filed against the order passed by the Andhra Pradesh High Court in a criminal petition holding that the complaint signed by a power of attorney holder was not maintainable. The payee of the cheque is ‘Shankar Finance & Investments, a proprietary concern of Shri Atmakumari Sankara Rao, represented by its power of attorney holder of Shri Thamada Satyanarayana. The Supreme Court observed the requirements of Sec. 142 of the Act are that the complaint should be in writing and the complaint should be made by the payee or holder in due course. The payee in this case is Shanker & Finance Investments. Once the complaint is in the name of the ‘payee’ and is in writing, the requirements of Sec. 142 are fulfilled.
In Jimmy Jahangir Madan v. Bolly Cariyappa Hindley – 2004(12) SCC 509 the Supreme Court ruled that the application under Sec. 302 Cr.P.C to continue the prosecution could not be filed by the power-of-attorney older of the heirs of the deceased complainant in a prosecution under Sec. 138 of the N.I. Act. It was held that the permission in that regard should be sought by the heirs of the deceased complainant.
DEATH OF THE COMPLAINANT: S. Reddappa v. M. Vijaya (High Court of Karnataka- 1996). It is held in Reddappa's case, supra, that in a proceeding under Section 138 of the Act, the death of the complainant does not ipso facto terminate the criminal proceedings.
Not necessary that legal heirs or legal representatives only can continue the proceedings - A fit and proper person can be permitted to prosecute the petition.
Ashwin Nanubhai Vyas v. State of Maharashtra and Anr. in which case the Court was dealing with a case under Section 495 of the Code of Criminal Procedure, 1898, which is corresponding to Section 302 of the Code. In that case, it was laid down that upon the death of the complainant, under the provisions of Section 495 of the said Code, mother of the complainant could be allowed to continue the prosecution. It was further laid down that she could make the application either herself or through a pleader.
DEATH OF THE ACCUSED: The legal heirs cannot be prosecuted under section 138 of N.I.Act. If at all any claim is against them by the complainant, he has proceed only under the civil law for recovery of the amount against the properties in the hands of the legal heirs.
COMPANY/ PARTNERSHIP FIRM:
Authorization afresh valid – authorization -need for substitution to represent company – filing of complaint - authorised resigning from company – company can be represented by person authorized afresh. 1997 (2) CTC 675.
Offences by company - Expression, 'in-charge of, and was responsible to the company for the business of the company' -K. K. Ahuja vs V. K. Vora and Another [SUPREME COURT OF INDIA, 06 Jul 2009] Whether DGM comes within the expression? - Held, No-Apart from the company two kinds of persons are deemed to be guilty of the offence and shall be liable to be proceeded against and punished, they are, one, who was in charge of and was responsible to the company for the conduct of the business of the company, two, any director, manager, secretary or other officer of the company with whose consent and connivance, the offence u/s. 138 has been committed, or whose negligence resulted in such offence being committed by the company - First category person is vicariously liable by reason only of his fulfilling the requirements of sub/s. (1) of s. 141 - Court observed that if the person responsible to the company for the conduct of business of the company, was not in charge of the conduct of the business of the company, then he can be made liable only if the offence was committed with his consent or connivance or as a result of his negligence - Second category persons as mentioned in sub/s. (2) of s. 141, are liable not on account of any legal fiction but on account of the specific part played i.e. consent and connivance or negligence - Court pointed that if a person is to be made liable u/sub-s. (2) of s. 141, then it is necessary to aver consent and connivance, or negligence on his part - (ii) Who are the persons who are responsible to the company for the conduct of the business of the company, and who could be said to be in charge and was responsible to the company for the conduct of the business of the company?- Settled position, a MD is prima facie in charge of and responsible for the company's business and affairs and can be prosecuted for offences by the company; but insofar as other directors are concerned, they can be prosecuted only if they were in charge of and responsible for the conduct of the company's business.
Proprietorship concern - An employee of a proprietorship concern cannot be proceeded against u/s 138 of the Act. (Raghu Lakshminarayanan Vs M/s Fine Tubes) 2007(2) Apex Court Judgments 001 (S.C.) : 2007(2) Civil Court Cases 641 (S.C.) : 2007(2) Criminal Court Cases 709 (S.C.)
DISMISSAL OF COMPLAINT for default and restoration : The order of dismissal of a complaint by a criminal court due to the absence of the complainant is a proper order (AIR 1986 SC 1440). A second complaint is permissible in law if it could be brought within the limitation imposed by the Supreme Court in the case reported in AIR 1962 SC 876.
Dismissal of complaint and appeal thereof : Dismissing complaint due to non-appearance of complainant resulting in acquittal of accused. Revison is not maintainable and only appeal lies to High Court u/s.378 (4) of Cr. P.C. ( II 2003 CCR 387 HP).
In the Associated Cement Co. Ltd vs Keshvanand (1998) 1 SCC 687. Justice K.T. Thomas (as he then was) speaking for the court has observed that the purpose of conferring power on the Magistrate under Section 256 of the Cr.P.C. is to deter dilatory tactics on the part of the complainant once he sets in motion criminal proceeding by instituting a complaint. The purpose being that accused is perforce required to attend court proceedings on dates fixed by the court and is thus, put to harassment if the complainant does not turn up in the court on dates when his presence is necessary. This provision affords protection to the accused against such tactics being adopted by the complainant. This, however, does not mean that if the complainant is absent the court is duty bound to acquit the accused. If the situation mandates the Magistrate has the power to adjourn the hearing. On the other hand, if the Magistrate considers that the personal appearance of the complainant is not necessary it has the power to dispense with his attendance and proceed with the case. It is for the court to consider whether the presence of the complainant is necessary for the progress of the case on the day when the complainant is absent or the situation is such that the case be adjourned to another date. If the situation mandates that there is no reason to adjourn the case, the Magistrate is free to dismiss the complaint and acquit the accused. The ratio of Associated Cement (supra) has been followed in a later judgment of the Supreme Court in the case entitled S. Anand Vs. Vasumathi Chandrasekar (2008) 4 SCC 67.
CIVIL & CRIMINAL LIABILITY:
JURISDICTION: Territorial jurisdiction: Musaraf Hossain Khan Vs. Bhagheeratha Engg. Ltd. & Ors. (SC) Smt. Shamshad Begum Vs. B. Mohammed, reported in AIR 2009 SC 1355,( Court followed the earlier view of the Hon'ble Supreme Court in the case of K. Bhaskaran Vs. Sankaran Vaidhyan Balan & Anr.). In the case of K. Bhaskaran Vs. Sankaran Vaidhyan Balan & Anr. (supra), a Division Bench of the Apex Court in paragraph 14 held the following of the Acts which are the components of the offence punishable under Section 138 of the Negotiable Instruments Act;
(a) Drawing of the cheque.
(b) Presentation of the cheque to the bank.
(c) Returning the cheque unpaid by the drawee bank.
(d) Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount.
(e) Failure of the drawer to make payment within 15 days of the receipt of the notice.
In Harman Electronics Private Limited & Anr. Vs. National Panasonic India (P) Ltd., reported in (2009) 1 SCC (Cri) 610 (State of Punjab vs. Amar singh Harika AIR (1996) SC 1313 followed) sending of notice from a particular place would not give rise to cause of action but communication of notice would. Therefore, no Court has the territorial jurisdiction to hold a trial of an offence punishable under Section 138 of the Negotiable Instruments Act merely because the notice was sent from a place situated within its territorial limit.
Belated Complaint: Nataraj @ T. Natarajan Vs. P. Venkatachalam (2008) 1 CTC 503- Practice and Procedure – Dishonour of Cheque case – Necessity to file condone delay Application with affidavit in case of belated Complaint – Proper procedure to be followed – If there is any delay in filing Complaint complainant should file condone delay Petition that on such filing Magistrate should issue notice to accused – After giving opportunity of hearing to accused, cause shown for delay to be considered – Magistrate should satisfy himself first and pass appropriate order by accepting or rejecting condone delay Petition – Failure to follow such procedure affects valuable right of accused.
APPEARANCE: Either admitted to bail on furnishing a personal bond and the surety of a like amount. Or file an application for exemption from personal appearance
COMPOUNDING OF OFFENCE: Damodar S. Prabhu Versus Sayed Babalal H. SC 2010 (Crl Appeal No. 963 OF 2010: Compounding of the offense is possible u/s 147 of the NI Act. In January 2010 the Supreme Court held that the offence of issuing cheque, which is dishonoured for want of funds can be compromised between the parties. The Supreme Court stated that under Section 147 of the Negotiable Instruments Act, the parties can compromise as the offence is listed as ‘compoundable’.
II. NEXT- CITATION IN RELATION TO THE NUMEROUS REASONS FOR DISHONOUR OF CHEQUES.
ACCOUNT CLOSED: When the cheque is returned by a bank with an endorsement 'account closed', it would amount to returning the cheque unpaid because "the amount of money standing to the credit of that account is insufficient to honour the cheque" as envisaged in Section 138 of the Act. (NEPC Micon Ltd. & Ors. Vs Magma Leasing Ltd.) 1999(2) CIVIL COURT CASES 471 (S.C.)
Cheque issued when account had already been closed - Provision of Section 138 will apply. (N.A.Issac Vs Jeemon P.Abraham & Anr.) 2005(1) CIVIL COURT CASES 690 (S.C.) : 2005(1) CRIMINAL COURT CASES 119 (S.C.)
STOP PAYMENT: Many a times the drawer, to escape his debt or liability has used it (stop Payment) as an instrument of deception. "the object of the provision cannot be allowed to be defeated by such ingenious action". Observed Kerala High Court in Calcutta Sanitary Wares v. C. T. Jacob
M.M.T.C. Ltd. and Anr. v. Medchl Chemicals & Pharma (P) Ltd., (2002) 1 SCC 234 (Para. 19):
"... The authority shows that even when the cheque is dishonoured by reason of stop payment instruction, by virtue of Section 139 the Court has to presume that the cheque was received by the holder for the discharge in whole or in part, of any debt or liability. Of course this is a rebuttable presumption. The accused can thus show that the `stop payment' instructions were not issued because of insufficiency or paucity of funds. If the accused shows that in his account there was sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then offence under Section 138 would not be made out. The important thing is that the burden of so proving would be on the accused. ..."
The Supreme Court observed in Modi cements case' .
``Even when the cheque is dishonoured by reason of `stop payment' instructions, by virtue of Section 139 of the Act, the court has to presume that the cheque was received by `the holder' for the discharge, in whole or in part, of any debt or liability,'' a Bench said.
Of course, this is a rebuttable presumption and the accused (the drawer) can thus show that the `stop payment' instructions were not issued because of insufficiency or paucity of funds,'' the Bench added.
``If the accused shows that there were sufficient funds in his account to clear the amount of the cheque at the time of its presentation for encashment and that the stop payment notice had been issued because of other valid causes, including that there was no existing debt or liability, then offence under Section 138 would not be made out,'' the Bench said citing an early apex court ruling in the `Modi cements case' (1998).
In M/s. Electronics Trade & Technology Development Corpn. Ltd., Secunderabad v. M/s. Indian Technologists & Engineers (Electronics) Pvt. Ltd. Hon’ble Supreme Court that:
“It would thus be clear that when a cheque is drawn by a person on an account maintained by him with the banker for payment of any amount of money to another person out of the amount for the discharge of the debt in whole or in part or other liability is returned by the bank with the endorsement like (1) in this case, "I refer to the drawer" (2) "instructions for stoppage of payment" and (3) "stamp exceeds arrangement", it amounts to dishonour within the meaning of Section 138 of the Act. On issuance of the notice by the payee or the holder in due course after dishonour, to the drawer demanding payment within 15 days from the date of the receipt of such a notice, if he does not pay the same, the statutory presumption of dishonest intention, subject to any other liability, stands satisfied".
Hon’ble Supreme Court in JugeshSehgal Vs. Shamsher Singh Gogi 2009(3) CC Cases (SC) 2004-The Hon’ble Supreme Court noted that the cheque alleged to have been issued by the petitioners to the complainant was issued from an account pertaining to some other person. The Hon’ble Court also noted that one of the essential ingredients of the offence punishable under Section 138 of Negotiable Instruments Act is that the cheque must have been drawn on an account maintained by the accused. Since the cheque in the case before the Hon’ble Supreme Court was not issued from the account maintained by the petitioner, it was held that one essential ingredient of offence under Section 138 of Negotiable Instruments Act was not satisfied
SECURITY CHEQUE: Hon’ble Bombay High Court in Ramkrishna Urban Cooperative Credit Society (RUCCS) v. Rajendra Varma (2000), held that banks cannot prosecute borrowers if the blank post dated cheque issued by them (Borrowers) as collateral security is dishonored’, sending a sense of disappointment across commercial and business circle.
Cheque was issued in terms of a compromise agreement : The Supreme Court has ruled that criminal proceedings for issuing a cheque without sufficient balance in the account would be valid only if it is drawn for discharging a debt or liability. If it is issued to satisfy the terms of a compromise or settlement, Section 138 of the Negotiable Instruments Act could not be used to proceed against the drawer of the cheque.
Loan - No instrument executed though a huge loan was advanced - Even no interest thereon charged - Earlier accused did not pay instalments in respect of the prized amount of chitties - Loan advanced inspite of the fact that three civil suits for recovery of money against accused were pending - Complainant not approaching Court with clean hands and his conduct not that of a prudent man - Held, accused has discharged his burden to rebut the presumption available u/s 139 of the Act - Order of acquittal, upheld. (John K.John Vs Tom Varghese & Anr.) 2007(3) Apex Court Judgments 655 (S.C.) : 2007(4) Civil Court Cases 690 (S.C.) : 2007(4) Criminal Court Cases 974 (S.C.)
EXPERTS OPINION: Disputed cheque, to be sent for comparison Ms. Kalyani Baskar, (2007) 1 MLJ (Crl) 1020 (SC),
FORGED CHEQUE: Negotiable Instruments Act, 1881 - Section 138 -Criminal Procedure Code, 1973 - Section 195 - Section 195(1)(b)(ii) - Dishonour of cheque - Cheque alleged to be forged before filing complaint - Held, if offence is committed pertaining to document prior to its production in Court and when it was not in custody of Court then bar u/s 195(1)(b)(ii) of Cr.P.C. does not arise and complainant is at liberty to file complaint and take action as per law.
Negotiable Instruments Act, 1881 - Section 138 - Dishonour of cheque - Complaint under section 138 of the Act - Cheque alleged to be forged before filing complaint - Accused lodged complaint under sections 464, 468, 389, 420 r/w section 511 IPC - Bar under Section 195(1)(b)(ii) is not applicable - In the interest of justice both matters ordered to be heard and disposed by same Court together and at the same time..........(Bombay HC Court Ramanand Vs. Kailasnath & Anr.)
**(This compliation was Last Updated in May, 2010.)