The Supreme Court of India in the matter of Aparna A Shah Vs. Sheth Developers (P) Ltd held that the joint account holder cannot be held liable unless he has also signed and issued the cheque in question. In other words, all persons to the joint account must sign and only in that event, all such persons shall be liable for dishonor of cheque under Section 138 of the Act. 

Judgment: 

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL No. 813 OF 2013

(Arising out of S.L.P. (Crl.) No. 9794 of 2010)

Mrs. Aparna A. Shah …. Appellant(s)

Versus

M/s Sheth Developers Pvt. Ltd. & Anr. …. Respondent(s)

J U D G M E N T

P.Sathasivam,J.

1) Leave granted.

2) This appeal is directed against the final judgment and order dated 24.09.2010 passed by the High Court of Judicature at Bombay in Criminal Writ Petition No. 1823 of 2010 whereby the High Court partly allowed the petition filed by the appellant herein.

3) Brief facts:

a) M/s Sheth Developers Private Ltd.-the respondent herein is a company incorporated under the provisions of the Companies Act, 1956 having its registered office at 11, Vora Palace, M.G. Road, Kandivali (West), Mumbai and is engaged in the business of land development and constructions. Aparna A. Shah (the appellant herein) and Ashish Shah, her husband, are the Land Aggregators and Developers who have been in the said business for the last 15 years and are the owners of certain lands in and around Panvel. b) According to the appellant, in January 2008, since the Company was interested in developing a Township Project and a Special Economic Zone (SEZ) project in and around Panvel, Dist. Raigad, Maharashtra, one Virender Gala of Mahavir Estate Agency – the Broker, introduced them to the appellant herein and her husband as the land owners holding huge land in Panvel. The appellant represented to the Company that the said land was ideal for the development of a Township Project and a Special Economic Zone (SEZ) and also that they have no financial means and capacity to develop the same single handedly. It was further represented that they were also looking for a suitable person, interested in developing the said land jointly with them.

(c) On believing the above said representations, the respondent-Company agreed for the development of the said land jointly with the appellant herein and her husband. When the respondent-Company requested for inspection of the title documents in respect of the said land, the appellant and her husband agreed for the same upon the entrustment of a token amount of Rs. 25 crores with an understanding between the parties that the said amount would be returned if the project is not materialize. Agreeing the same, the respondent-Company issued a cheque of Rs. 25 crores in favour of the appellant herein and her husband. However, for various reasons, the proposed joint venture did not materialize and it was claimed by the appellant herein that the whole amount of Rs. 25 crores was spent in order to meet the requirements of the initial joint venture in the manner as requested by the respondent-Company.

(d) According to the appellant, again the respondent-Company expressed interest to start a new project and to take financial facilities from their bank in order to submit a tender for the purchase of a mill land. With regard to the same, the respondent-Company approached the appellant herein and her husband and informed that they are not having sufficient securities to enable the bank to grant the facility and the bank is to show receivables in writing. Therefore, on an understanding between the respondent and the appellant, a cheque of Rs. 25 crores was issued by the husband of the appellant from their joint account. It is the case of the appellant that in breach of the aforementioned understanding, on 05.02.2009, the respondent deposited the cheque with IDBI Bank at Cuffe Parade, Mumbai and the said cheque was dishonoured due to “insufficient funds.

e) On 18.02.2009, a statutory notice under Section 138 of the Negotiable Instruments Act, 1881 (in short ‘the N.I. Act) was issued to the appellant and her husband asking them to repay the sum of Rs. 25 crores. On 06.03.2009, the appellant and her husband jointly replied mentioning the circumstances in which the said cheque was issued with the supporting letters.

f) On 04.04.2009, a complaint was filed against the appellant and her husband in the Court of the Metropolitan Magistrate, Dadar, Mumbai and the same was registered as Case No. 1171-SS of 2009. By order dated 20.04.2009, process was issued against them.

g) On 12.01.2010, the appellant and her husband filed an application objecting the exhibition of documents and the same was registered as Exh.

28. By order dated 11.05.2010, the said application was dismissed. h) Against the issuance of process dated 20.04.2009 and order dated 11.05.2010 dismissing the application by the Magistrate, the appellant filed Writ Petition No. 1823 of 2010 before the High Court. The High Court, by impugned order dated 24.09.2010, partly allowed the petition and quashed the order dated 11.05.2010 and directed the Magistrate to decide the objections raised by the counsel for the accused after hearing both the sides, but refused to quash the proceedings.

i) Aggrieved by the said order, the appellant has filed the above appeal by way of special leave.

4) Heard Mr. K.V. Vishwanathan, learned senior counsel for the appellant and Mr. Mukul Rohtagi, learned senior counsel for respondent No.1. Contentions:

5) Mr. K.V. Vishwanathan, learned senior counsel for the appellant, by drawing our attention to Section 138 of the N.I. Act as well as various decisions of this Court relating to interpretation of the expression drawer, submitted that the issuance of process by learned Magistrate cannot be sustained. On the other hand, Mr. Mukul Rohtagi, learned senior counsel for respondent No.1/the complainant submitted that inasmuch as the instant case is squarely covered by Section 141 of the N.I. Act and that the accused persons, namely, Ashish Shah and Aparna Shah (appellant No.1) are an association of individuals as envisaged under Section 141, learned Magistrate was fully justified in issuing process. He also submitted that the transaction with respondent No.1 herein was negotiated by both the accused, the cheque which had been issued by respondent No.1 was deposited in the joint account maintained by both the accused, the cheque bears the name and stamp of both the accused and by suppressing all the materials, the appellant has approached the High Court and this Court, hence her claim has to be rejected on the ground of concealing/suppressing material facts. He finally pointed out that inasmuch as the trial has commenced and the appellant will have her remedy during trial, the High Court was right in dismissing her petition filed under Section 482 of the Code of Criminal Procedure, 1973 (in short the ‘Code’).

6) We have carefully considered the rival submissions and perused all the relevant materials.

Discussion:

7) In order to understand the rival contentions, it is useful to refer Section 138 of the N.I. Act which reads as under:

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

Provided that nothing contained in this section shall apply unless (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

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

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

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

8) In order to constitute an offence under Section 138 of the N.I. Act, this Court, in Jugesh Sehgal vs. Shamsher Singh Gogi, (2009) 14 SCC 683, noted the following ingredients which are required to be fulfilled: “(i) a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account;

(ii) the cheque should have been issued for the discharge, in whole or in part, of any debt or other liability;

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

(iv) that cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of the account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;

(v) the payee or the holder in due course of the cheque makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;

(vi) the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice.

Being cumulative, it is only when all the aforementioned ingredients are satisfied that the person who had drawn the cheque can be deemed to have committed an offence under Section 138 of the Act.

Considering the language used in Section 138 and taking note of background agreement pursuant to which a cheque is issued by more than one person, we are of the view that it is only the drawer of the cheque who can be made liable for the penal action under the provisions of the N.I. Act. It is settled law that strict interpretation is required to be given to penal statutes.

9) In Jugesh Sehgal (supra), after noting the ingredients for attracting Section 138 on the facts of the case, this Court concluded that there is no case to proceed under Section 138 of the Act. In that case, on 20.01.2001, the complainant filed an FIR against all the accused for the offence under Sections 420, 467, 468, 471 and 406 of the Indian Penal Code, 1860 (hereinafter referred to as “IPC) and there was hardly any dispute that the cheque, subject-matter of the complaint under Section 138 of the N.I. Act, had not been drawn by the appellant on an account maintained by him in Indian Bank, Sonepat Branch. In the light of the ingredients required to be fulfilled to attract the provisions of Section 138, this Court, after finding that there is little doubt that the very first ingredient of Section 138 of the N.I. Act enumerated above is not satisfied and concluded that the case against the appellant for having committed an offence under Section 138 cannot be proved.

10) In S.K. Alagh vs. State of Uttar Pradesh and Others, (2008) 5 SCC 662, this Court held:

19. If and when a statute contemplates creation of such a legal fiction, it provides specifically therefor. In absence of any provision laid down under the statute, a Director of a Company or an employee cannot be held to be vicariously liable for any offence committed by the Company itself. (See Sabitha Ramamurthy v. R.B.S. Channabasavaradhya, (2006) 10 SCC 581)

11) In Sham Sunder and Others vs. State of Haryana, (1989) 4 SCC 630, this Court held as under:

“9. The penal provision must be strictly construed in the first place. Secondly, there is no vicarious liability in criminal law unless the statute takes that also within its fold. Section 10 does not provide for such liability. It does not make all the partners liable for the offence whether they do business or not.

12) As rightly pointed out by learned senior counsel for the appellant, the interpretation sought to be advanced by the respondents would add words to Section 141 and extend the principle of vicarious liability to persons who are not named in it.

13) In the case on hand, we are concerned with criminal liability on account of dishonour of a cheque. It primarily falls on the drawer, if it is a Company, then Drawer Company and is extended to the officers of the company. The normal rule in the cases involving criminal liability is against vicarious liability. To put it clear, no one is to be held criminally liable for an act of another. This normal rule is, however, subject to exception on account of specific provision being made in statutes extending liability to others. For example, Section 141 of the N.I. Act is an instance of specific provision that in case an offence under Section 138 is committed by a company, the criminal liability for dishonour of a cheque will extend to the officers of the company. As a matter of fact, Section 141 contains conditions which have to be satisfied before the liability can be extended. Inasmuch as the provision creates a criminal liability, the conditions have to be strictly complied with. In other words, the persons who had nothing to do with the matter, need not be roped in. A company being a juristic person, all its deeds and functions are the result of acts of others. Therefore, the officers of the company, who are responsible for the acts done in the name of the company, are sought to be made personally liable for the acts which result in criminal action being taken against the company. In other words, it makes every person who, at the time the offence was committed, was in-charge of, and was responsible to the company for the conduct of business of the company, as well as the company, liable for the offence. It is true that the proviso to sub- section enables certain persons to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence. The liability under Section 141 of the N.I. Act is sought to be fastened vicariously on a person connected with the company, the principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. 14) It is not in dispute that the first respondent has not filed any complaint under any other provisions of the penal code and, therefore, the argument pertaining to the intention of the parties is completely misconceived. We were taken through the notice issued under the provisions of Section 138, reply given thereto, copy of the complaint and the order issuing process. In this regard, Mr.Mukul Rohatgi, learned senior counsel for the respondent after narrating the involvement of the appellant herein and her husband contended that they cannot be permitted to raise any objection on the ground of concealing/suppressing material facts within her knowledge. For the said purpose, he relied on Oswal Fats and Oils Limited vs. Additional Commissioner (Administration), Bareilly Division, Bareilly and Others, (2010) 4 SCC 728, Balwantrai Chimanlal Trivedi vs. M.N. Nagrashna & Ors., AIR 1960 SC 1292, J.P. Builders & Anr. vs. A. Ramadas Rao & Anr., (2011) 1 SCC 429. Inasmuch as the appellant had annexed the relevant materials, namely, copy of notice, copy of reply, copy of the complaint and the order issuing process which alone is relevant for consideration in respect of complaint under Section 138 of the N.I. Act, the argument of learned senior counsel for Respondent No.1 that the stand of the appellant has to be rejected for suppressing of material facts or relevant facts, cannot stand. In such circumstances, we are of the view that the case law relied upon by the contesting respondent No.1 is inapplicable to the facts of the present case.

15) Mr. Mukul Rohtagi, learned senior counsel for respondent No.1, by drawing our attention to the definition of person in Section 3(42) of the General Clauses Act, 1897 submitted that in view of various circumstances mentioned, the appellant herein being wife, is liable for criminal prosecution. He also submitted that in view of the explanation in Section 141(2) of the N.I. Act, the appellant wife is being prosecuted as an association of individual. In our view, all the above contentions are unacceptable since it was never the case of respondent No.1 in the complaint filed before learned Magistrate that the appellant wife is being prosecuted as an association of individuals and, therefore, on this ground alone, the above submission is liable to be rejected. Since, this expression has not been defined, the same has to be interpreted ejusdem generis having regard to the purpose of the principle of vicarious liability incorporated in Section 141. The terms ‘complaint’, ‘persons’, ‘association of persons’, ‘company’ and ‘directors’ have been explained by this Court in Raghu Lakshminarayanan vs. Fine Tubes, (2007) 5 SCC 103. 16) The above discussion with reference to Section 138 and the materials culled out from the statutory notice, reply, copy of the complaint, order, issuance of process etc., clearly show that only the drawer of the cheque being responsible for the same.

17) In addition to our conclusion, it is useful to refer some of the decisions rendered by various High Courts on this issue. 18) Learned Single Judge of the Madras High Court in Devendra Pundir vs. Rajendra Prasad Maurya, Proprietor, Satyamev Exports S/o. Sri Rama Shankar Maurya, 2008 Criminal Law Journal 777, following decisions of this Court, has concluded thus:

7. This Court is of the considered view that the above proposition of law laid down by the Hon’ble Apex Court in the decision cited supra is squarely applicable to the facts of the instant case. Even in this case, as already pointed out, the first accused is admittedly the sole proprietrix of the concern namely, Kamakshi Enterprises and as such, the question of the second accused to be vicariously held liable for the offence said to have been committed by the first accused under Section 138 of the Negotiable Instruments Act not at all arise.

After saying so, learned Single Judge, quashed the proceedings initiated against the petitioner therein and permitted the Judicial Magistrate to proceed and expedite the trial in respect of others.

19) In Gita Berry vs. Genesis Educational Foundation, 151 (2008) DLT 155, the petitioner therein was wife and she filed a petition under Section 482 of the Code seeking quashing of the complaint filed under Section 138 of the N.I. Act. The case of the petitioner therein was that the offence under Section 138 of the Act cannot be said to have been made out against her only on the ground that she was a joint account holder along with her husband. It was pointed out that she has neither drawn nor issued the cheque in question and, therefore, according to her, the complaint against her was not maintainable. Learned Single Judge of the High Court of Delhi, after noting that the complaint was only under Section 138 of the Act and not under Section 420 IPC and pointing out that nothing was elicited from the complainant to the effect that the petitioner was responsible for the cheque in question, quashed the proceedings insofar as the petitioner therein.

20) In Smt. Bandeep Kaur vs. S. Avneet Singh, (2008) 2 PLR 796, in a similar situation, learned Single Judge of the Punjab and Haryana High Court held that in case the drawer of a cheque fails to make the payment on receipt of a notice, then the provisions of Section 138 of the Act could be attracted against him only. Learned Single Judge further held that though the cheque was drawn to a joint bank account which is to be operated by anyone, i.e., the petitioner or by her husband, but the controversial document is the cheque, the liability regarding dishonouring of which can be fastened on the drawer of it. After saying so, learned Single Judge accepted the plea of the petitioner and quashed the proceedings insofar as it relates to her and permitted the complainant to proceed further insofar as against others.

21) In the light of the principles as discussed in the earlier paras, we fully endorse the view expressed by the learned Judges of the Madras, Delhi and Punjab & Haryana High Courts.

22) In the light of the above discussion, we hold that under Section 138 of the Act, it is only the drawer of the cheque who can be prosecuted. In the case on hand, admittedly, the appellant is not a drawer of the cheque and she has not signed the same. A copy of the cheque was brought to our notice, though it contains name of the appellant and her husband, the fact remains that her husband alone put his signature. In addition to the same, a bare reading of the complaint as also the affidavit of examination-in- chief of the complainant and a bare look at the cheque would show that the appellant has not signed the cheque.

23) We also hold that under Section 138 of the N.I. Act, in case of issuance of cheque from joint accounts, a joint account holder cannot be prosecuted unless the cheque has been signed by each and every person who is a joint account holder. The said principle is an exception to Section 141 of the N.I. Act which would have no application in the case on hand. The proceedings filed under Section 138 cannot be used as an arm twisting tactics to recover the amount allegedly due from the appellant. It cannot be said that the complainant has no remedy against the appellant but certainly not under Section 138. The culpability attached to dishonour of a cheque can, in no case “except in case of Section 141 of the N.I. Act be extended to those on whose behalf the cheque is issued. This Court reiterates that it is only the drawer of the cheque who can be made an accused in any proceeding under Section 138 of the Act. Even the High Court has specifically recorded the stand of the appellant that she was not the signatory of the cheque but rejected the contention that the amount was not due and payable by her solely on the ground that the trial is in progress. It is to be noted that only after issuance of process, a person can approach the High Court seeking quashing of the same on various grounds available to him. Accordingly, the High Court was clearly wrong in holding that the prayer of the appellant cannot even be considered. Further, the High Court itself has directed the Magistrate to carry out the process of admission/denial of documents. In such circumstances, it cannot be concluded that the trial is in advanced stage.

24) Under these circumstances, the appeal deserves to be allowed and process in Criminal Case No. 1171/SS/2009 pending before the Court of learned Metropolitan Magistrate 13th Court, Dadar, Mumbai deserves to be quashed, accordingly, quashed against the appellant herein. The appeal is allowed.

J. (P. SATHASIVAM)

J. (JAGDISH SINGH KHEHAR)

NEW DELHI;

JULY 01, 2013.

---

 

Summarized Version from RMGCS.com: 

The Supreme Court of India in the matter of Aparna A Shah Vs. Sheth Developers (P) Ltd held that the joint account holder cannot be held liable unless he has also signed and issued the cheque in question. In other words, all persons to the joint account must sign and only in that event, all such persons shall be liable for dishonor of cheque under Section 138 of the Act. 

Facts of the Case

1. M/s. Sheth Developers Private Ltd. (the respondent) is a company incorporated under the provisions of the Companies Act 1956 and is engaged in the Business of Land Development and Construction. Aparna A. Shah (the appellant) and Ashish Shah, her husband, are the Land Aggregators and Developers who have been in the said business for the last 15 years and are the owners of certain lands in and around Panvel.

2. According to the appellant, the respondent Company expressed interest to start in developing a Township Project and a Special Economic Zone (SEZ) project in Panvel. One of the broker introduced the respondent company with the appellant and Ashish Shah, who were also looking for a suitable person, in developing the said land On believing the said representations, the respondent-Company requested for inspection of the title documents in respect of the said land, the appellant and her husband agreed for the same upon the entrustment of a token amount of Rs. 25 crores with an understanding between the parties that the said amount would be returned if the project is not materialize. Agreeing the same, the respondent-Company issued a cheque of Rs. 25 crores in favour of the appellant herein and her husband. However, for various reasons, the proposed joint venture did not materialize and it was claimed by the appellant herein that the whole amount of Rs. 25 crores was spent in order to meet the requirements of the initial joint venture in the manner as requested by the respondent-Company. According to the appellant, again the respondent Company expressed interest to start a new project and to take financial facilities from their bank in order to submit a tender for the purchase of a mill land and to take financial facilities from their bank.

3. On an understanding between the respondent and the appellant, a cheque of Rs. 25 crores was issued by the husband of the appellant from their joint account. It is the case of the appellant that in breach of the aforementioned understanding, on 05.02.2009, the respondent deposited the cheque with IDBI Bank at Cuffe Parade, Mumbai and the said cheque was dishonoured due to “insufficient funds”. On 18.02.2009, a statutory notice under Section 138 of the Act, was issued to the appellant and her husband asking them to repay the sum of Rs. 25 crores. Aggrieved by the orders of the competent authority, the appellant has filed the appeal by way of special leave.

Judgement

1. Supreme Court holds that under Section 138 of the Act, it is only the drawer of the cheque who can be prosecuted. In the case on hand, admittedly, the appellant is not a drawer of the cheque and she has not signed the same. Though cheque contains name of the appellant and her husband, the fact remains that her husband alone put his signature. In addition to the same, a bare reading of the complaint was also the affidavit of examination-in-chief of the complainant and a bare look at the cheque would show that the appellant has not signed the cheque.

2. Also holds that under Section 138 of the Act, in case of issuance of cheque from joint accounts, a joint account holder cannot be prosecuted unless the cheque has been signed by each and every person who is a joint account holder.

3. The said principle is an exception to Section 141 of the Act which would have no application in the case on hand. The proceedings filed under Section 138 cannot be used as an arm twisting tactics to recover the amount allegedly due from the appellant.

4. It cannot be said that the complainant has no remedy against the appellant but certainly not under Section 138. The culpability attached to dishonor of a cheque can, in no case “except in case of Section 141 of the Act” be extended to those on whose behalf the cheque is issued. This Court reiterates that it is only the drawer of the cheque who can be made an accused in any proceeding under Section 138 of the Act.

Conclusion
In case of issuance of cheque from joint accounts, it is only the drawer of the cheque who can be prosecuted and other joint account holder cannot be prosecuted unless the cheque has been signed by each and every person who is a joint account holder u/s 138 of Act. To put it clear, no one is to be held criminally liable for an act of another.

REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
WRIT PETITION (CIVIL) NO.18 OF 2013

Indian Bank Association and others … Petitioners
Versus
Union of India and others … Respondents

J U D G M E N T

K.S. Radhakrishnan, J.

1. This Writ Petition, under Article 32 of the Constitution of India, has been preferred by the Indian Banks’ Association (IBA) along with Punjab National Bank and another, seeking the following reliefs :-

a. Laying down appropriate guidelines/directions to be followed by all Courts within the territory of India competent to try a complaint under Section 138 of the Negotiable Instruments Act, 1881 (the Act) to follow and comply with the mandate of Section 143 of the said Act read with Sections 261 to 265 of Criminal Procedure Code, 1973 (Cr.P.C.) for summary trial of such complaints filed or pending before the said Courts.

b. Issue a writ of mandamus for compliance with the guidelines of this Hon’ble Court indicating various steps to be followed for summary
trial of complaints under Section 138 of the said Act and report to this Hon’ble Court.

c. Issue a writ of mandamus, directing the respondents, to adopt necessary policy and legislative changes to deal with cases relating to dishonor of cheqeus so that the same are expeditiously disposed off in accordance with the intent of the Act and the guidelines to be laid down by this Hon’ble Court.

2. The first petitioner, which is an Association of Persons with 174
banks/financial institutions as its members, is a voluntary association of
banks and functions as think tank for banks in the matters of concern for
the whole banking industry. The Petitioners submit that the issue raised
in this case is of considerable national importance owing to the reason
that in the era of globalization and rapid technological developments,
financial trust and commercial interest have to be restored.

3. The Petitioners submit that the banking industry has been put to a
considerable disadvantage due to the delay in disposing of the cases
relating to Negotiable Instruments Act. The Petitioner banks being
custodian of public funds find it difficult to expeditiously recover huge
amount of public fund which are blocked in cases pending under Section 138
of the Negotiable Instruments Act, 1881. Petitioners submit that, in
spite of the fact, Chapter XIV has been introduced in the Negotiable
Instruments Act by Section 4 of the Banking, Public Financial Institutions
and Negotiable Instruments Laws (Amendment) Act, 1988, to enhance the
acceptability of cheques in settlement of liability by making the drawer
liable for penalties in case of bouncing of cheques due to insufficiency of
funds, the desired object of the Amendment Act has not achieved.

4. Legislature has noticed that the introduction of Sections 138 to 142
of the Act has not achieved desired result for dealing with dishonoured
cheques, hence, it inserted new Sections 143 to 147 in the Negotiable
Instruments Act vide Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 for speedy disposal of cases relating to dishonour of cheques through summary trial as well as making the offence compoundable.

But, no uniform practice is seen followed by the various Magistrate Courts
in the country, as a result of which, the object and purpose for which the
amendments were incorporated, have not been achieved.

5. Cheque, though acknowledged as a bill of exchange under the Negotiable Instruments Act and readily accepted in lieu of payment of money and is negotiable, the fact remains that the cheque as a negotiable instrument started losing its credibility by not being honoured on presentation. Chapter XVII was introduced, as already indicated, so as to enhance the acceptability of cheques in settlement of liabilities. The Statement of Objects and Reasons appended with the Bill explaining the provisions of the new Chapter reads as follows :-

“This clause [Clause (4) of the Bill] inserts a new Chapter XVII in the Negotiable Instruments Act, 1881. The provisions contained in the
new Chapter provide that where any cheque drawn by a person for the
discharge of any liability is returned by the bank unpaid for the reason of the insufficiency of the amount of money standing to the credit of the account on which the cheque was drawn or for the reason that it exceeds the arrangements made by the drawer of the cheque with the bankers for that account, the drawer of such cheque shall be deemed to have committed an offence. In that case, the drawer, without prejudice to the other provisions of the said Act, shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both.

The provisions have also been made that to constitute the said
offence:
(a) such cheque should have been presented to the bank within a period
of six months of the date of its drawal or within the period of its
validity, whichever is earlier; and
(b) the payee or holder in due course of such cheque should have made
a demand for the payment of the said amount of money by giving a
notice, in writing, to the drawer of the cheque within fifteen days of
the receipt of the information by him from the bank regarding the
return of the cheque unpaid; and
(c) the drawer of such cheque should have failed to make the payment
of the said amount of money to the payee or the holder in due course
of the cheque within fifteen days of the receipt of the said notice.
It has also been provided that it shall be presumed, unless the
contrary is proved, that the holder of such cheque received the cheque
in the discharge of a liability. Defences which may or may not be
allowed in any prosecution for such offence have also been provided to
make the provisions effective. Usual provision relating to offences by
companies has also been included in the said new Chapter. In order to
ensure that genuine and honest bank customers are not harassed or put
to inconvenience, sufficient safeguards have also been provided in the
proposed new Chapter. Such safeguards are:
(a) that no court shall take cognizance of such offence except on a
complaint, in writing, made by the payee or the holder in due course
of the cheque;
(b) that such complaint is made within one month of the date on which
the cause of action arises; and
(c) that no court inferior to that of a Metropolitan Magistrate or a
Judicial Magistrate or a Judicial Magistrate of the First Class shall
try any such offence.”
6. The objectives of the proceedings of Section 138 of the Act are that
the cheques should not be used by persons as a tool of dishonesty and when
cheque is issued by a person, it must be honoured and if it is not honoured, the person is given an opportunity to pay the cheque amount by issuance of a notice and if he still does not pay, he must face the criminal trial and consequences. Section 138 of the Negotiable Instruments Act, 1881, is given below for easy reference :-

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

Provided that nothing contained in this section shall apply unless-
(a) the cheque has been presented to the bank within a period of six
months from the date on which it is drawn or within the period of its
validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case
may be, makes a demand for the payment of the said amount of money by
giving a notice, in writing, to the drawer of the cheque, within
fifteen days of the receipt of information by him from the bank
regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said
amount of money to the payee or, as the case may be, to the holder in
due course of the cheque, within fifteen days of the receipt of the
said notice.
Explanation.- For the purposes of this section, “debt or other
liability” means a legally enforceable debt or other liability.”
7. This Court in Electronics Trade & Technology Development Corporation
Ltd., Secunderabad v. Indian Technologists & Engineers (Electronics) (P)
Ltd. and Another (1996) 2 SCC 739, held as follows:
“6.…..The object of bringing Section 138 on statute appears to be to
inculcate faith in the efficacy of banking operations and credibility
in transacting business on negotiable instruments. Despite civil
remedy, Section 138 intended to prevent dishonesty on the part of the
drawer of negotiable instrument to draw a cheque without sufficient
funds in his account maintained by him in a book and induce the payee
or holder in due course to act upon it. Section 138 draws presumption
that one commits the offence if he issues the cheque dishonestly. It
is seen that once the cueque has been drawn and issued to the payee
and the payee has presented the cheque and thereafter, if any
instructions are issued to the bank for non-payment and the cheque is
returned to the payee with such an endorsement, it amounts to
dishonour of cheque and it comes within the meaning of Section 138….”

8. In Goa Plast (P) Ltd. v. Chico Ursula D’Souza (2004) 2 SCC 235, this
Court, while dealing with the objects and ingredients of Sections 138 and
139 of the Act, observed as follows :-

“The object and the ingredients under the provisions, in particular,
Sections 138 and 139 of the Act cannot be ignored. Proper and smooth
functioning of all business transactions, particularly, of cheques as
instruments, primarily depends upon the integrity and honesty of the
parties. In our country, in a large number of commercial transactions,
it was noted that the cheques were issued even merely as a device not
only to stall but even to defraud the creditors. The sanctity and
credibility of issuance of cheques in commercial transactions was
eroded to a large extent. Undoubtedly, dishonour of a cheque by the
bank causes incalculable loss, injury and inconvenience to the payee
and the entire credibility of the business transactions within and
outside the country suffers a serious setback. Parliament, in order to
restore the credibility of cheques as a trustworthy substitute for
cash payment enacted the aforesaid provisions. The remedy available in
a civil court is a long-drawn matter and an unscrupulous drawer
normally takes various pleas to defeat the genuine claim of the
payee.”

9. We have indicated, Sections 138 to 142 of the Act were found to be
deficient in dealing with the dishonoured cheques. In the said
circumstances, the legislature inserted new Sections 143 to 147 by the
Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, which is brought into force w.e.f. 6th February, 2003. The object and reasons for the said Amendment Act are of some importance and are given below :-

“1. The Negotiable Instruments Act, 1881 was amended by the Banking,
Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 wherein a new Chapter XVII was incorporated for penalties in case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque. These provisions were incorporated with a view to encourage the culture of use of
cheques and enhancing the credibility of the instrument. The existing provisions in the Negotiable Instruments Act,1881, namely, sections 138 to 142 in Chapter XVII have been found deficient in dealing with dishonour of cheques. Not only the punishment provided in the Act has proved to be inadequate, the procedure prescribed for the Courts to
deal with such matters has been found to be cumbersome. The Courts are
unable to dispose of such cases expeditiously in a time bound manner
in view of the procedure contained in the Act.

2. A large number of cases are reported to be pending under sections 138 to 142 of the Negotiable Instruments Act in various courts in the country. Keeping in view the large number of complaints under the said Act pending in various courts, a Working Group was constituted to review section 138 of the Negotiable Instruments Act, 1881 and make recommendations as to what changes were needed to effectively achieve the purpose of that section.

3. The recommendations of the Working Group along with other representations from various institutions and organisations were
examined by the Government in consultation with the Reserve Bank of
India and other legal experts, and a Bill, namely, the Negotiable Instruments (Amendment) Bill, 2001 was introduced in the Lok Sabha on 24th July, 2001. The Bill was referred to Standing Committee on
Finance which made certain recommendations in its report submitted to
Lok Sabha in November, 2001.

4. Keeping in view the recommendations of the Standing Committee on
Finance and other representations, it has been decided to bring out,
inter alia, the following amendments in the Negotiable Instruments
Act,1881, namely:—

(i) to increase the punishment as prescribed under the Act from one
year to two years;

(ii) to increase the period for issue of notice by the payee to the
drawer from 15 days to 30 days;

(iii) to provide discretion to the Court to waive the period of one
month, which has been prescribed for taking cognizance of the case
under the Act;

(iv) to prescribe procedure for dispensing with preliminary evidence
of the complainant;

(v) to prescribe procedure for servicing of summons to the accused or
witness by the Court through speed post or empanelled private
couriers;

(vi) to provide for summary trial of the cases under the Act with a
view to speeding up disposal of cases;

(vii) to make the offences under the Act compoundable;

(viii) to exempt those directors from prosecution under section 141 of
the Act who are nominated as directors of a company by virtue of their
holding any office or employment in the Central Government or State
Government or a financial corporation owned or controlled by the
Central Government, or the State Government, as the case may be;

(ix) to provide that the Magistrate trying an offence shall have power
to pass sentence of imprisonment for a term exceeding one year and
amount of fine exceeding five thousand rupees;

(x) to make the Information Technology Act, 2000 applicable to the
Negotiable Instruments Act,1881 in relation to electronic cheques and
truncated cheques subject to such modifications and amendments as the
Central Government, in consultation with the Reserve Bank of India,
considers necessary for carrying out the purposes of the Act, by
notification in the Official Gazette; and

(xi) to amend definitions of “bankers’ books” and “certified copy”
given in the Bankers’ Books Evidence Act,1891.

5. The proposed amendments in the Act are aimed at early disposal of
cases relating to dishonour of cheques, enhancing punishment for
offenders, introducing electronic image of a truncated cheque and a
cheque in the electronic form as well as exempting an official nominee
director from prosecution under the Negotiable Instruments Act,1881.

6. The Bill seeks to achieve the above objects.”
10. Section 143 of the Act introduced by 2002 Amendment reads as follows
:-

“143. Power of Court to try cases summarily.-

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences under this Chapter shall be tried by a Judicial Magistrate of the first class or by a Metropolitan Magistrate and the provisions of  Sections 262 to 265 (both inclusive) of the said Code shall, as far as may be, apply to such trials:

Provided that in the case of any conviction in a summary trial under this section, it shall be lawful for the Magistrate to pass a sentence of  imprisonment for a term not exceeding one year and an amount of fine exceeding five thousand rupees:

Provided further that when at the commencement of, or in the course of, a summary trial under this section, it appears to the Magistrate that the nature of the case is such that a sentence of imprisonment for a term exceeding one year may have to be passed or that it is, for any other reason, undesirable to try the case summarily, the Magistrate shall after hearing the parties, record an order to that effect and thereafter recall any witness who may have been examined and proceed to hear or rehear the case in the manner provided by the said Code.

(2) The trial of a case under this section shall, so far as practicable, consistently with the interests of justice, be continued from day to day until its conclusion, unless the Court finds the adjournment of the trial beyond the following day to be necessary for reasons to be recorded in writing.

(3) Every trial under this section shall be conducted as expeditiously as possible and an endeavour shall be made to conclude the trial within six months from the date of filing of the complaint.”

11. Section 145 of the Act deals with the evidence on affidavit and reads
as follows :

“145. Evidence on affidavit.
(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, (2 of 1974.) the evidence of the complainant may be given by him on affidavit and may, subject to all just exceptions, be read in evidence in any enquiry, trial or other proceeding under the said Code.

(2) The Court may, if it thinks fit, and shall, on the application of the prosecution or the accused, summon and examine any person giving
evidence on affidavit as to the facts contained therein.”

12. The scope of Section 145 came up for consideration before this Court
in Mandvi Cooperative Bank Limited v. Nimesh B. Thakore (2010) 3 SCC 83,
and the same was explained in that judgment stating that the legislature
provided for the complainant to give his evidence on affidavit, but did not
provide the same for the accused. The Court held that even though the
legislature in their wisdom did not deem it proper to incorporate a word
“accused” with the word “complainant” in Section 145(1), it does not mean
that the Magistrate could not allow the complainant to give his evidence on
affidavit, unless there was just and reasonable ground to refuse such
permission.

13. This Court while examining the scope of Section 145 in Radhey Shyam
Garg v. Naresh Kumar Gupta (2009) 13 SCC 201, held as follows :-

“If an affidavit in terms of the provisions of Section 145 of the Act is to be considered to be an evidence, it is difficult to comprehend as to why the court will ask the deponent of the said affidavit to examine himself with regard to the contents thereof once over again.

He may be cross-examined and upon completion of his evidence, he may
be re-examined. Thus, the words “examine any person giving evidence on
affidavit as to the facts contained therein, in the event, the deponent is summoned by the court in terms of sub-section (2) of Section 145 of the Act”, in our opinion, would mean for the purpose of cross-examination. The provision seeks to attend a salutary purpose.”

14. Considerable time is usually spent for recording the statement of the
complainant. The question is whether the Court can dispense with the
appearance of the complainant, instead, to take steps to accept the
affidavit of the complainant and treat the same as examination-in-chief.
Section 145(1) gives complete freedom to the complainant either to give his
evidence by way of affidavit or by way of oral evidence. The Court has to
accept the same even if it is given by way of an affidavit. Second part of
Section 145(1) provides that the complainant’s statement on affidavit may,
subject to all just exceptions, be read in evidence in any inquiry, trial
or other proceedings. Section 145 is a rule of procedure which lays down
the manner in which the evidence of the complainant may be recorded and
once the Court issues summons and the presence of the accused is secured,
an option be given to the accused whether, at that stage, he would be
willing to pay the amount due along with reasonable interest and if the
accused is not willing to pay, Court may fix up the case at an early date
and ensure day-to-day trial.

15. Section 143 empowers the Court to try cases for dishonour of cheques
summarily in accordance with the provisions of Section 262 to 265 of the
Code of Criminal Procedure, 1973. The relevant provisions being Sections
262 to 264 are extracted hereinbelow for easy reference :

“262. Procedure for summary trials.
(1) In trials under this Chapter, the procedure specified in this Code for the trial of summons- ease shall be followed except as hereinafter mentioned.
(2) No sentence of imprisonment for a term exceeding three months shall be passed in the case of any conviction under this Chapter.

263.Record in summary trials.-
In every case tried summarily, the Magistrate shall enter, in such form as the State Government may direct, the following particulars, namely:-
(a) the serial number of the case:
(b) the date of the commission of the offence;
(c) the date of the report or complaint;
(d) the name of the complainant (if any);
(e) the name, parentage and residence of the accused;
(f) the offence complained of and the offence (if any) proved, and in
cases coming under clause (ii), clause (iii) or clause (iv) of sub-
section (1) of section 260, the value of the property in respect of
which the offence has been committed;
(g) the plea of the accused and his examination (if any);
(h) the finding;
(i) the sentence or other final order
(j) the date on which proceedings terminated.

264. Judgment in cases tried summarily. –
In every case tried summarily in which the accused does not plead guilty, the Magistrate shall record the substance of the evidence and a judgment containing a brief statement of the reasons for the finding.”

16. We have indicated that under Section 145 of the Act, the complainant
can give his evidence by way of an affidavit and such affidavit shall be
read in evidence in any inquiry, trial or other proceedings in the Court,
which makes it clear that a complainant is not required to examine himself
twice i.e. one after filing the complaint and one after summoning of the
accused. Affidavit and the documents filed by the complainant along with
complaint for taking cognizance of the offence are good enough to be read
in evidence at both the stages i.e. pre-summoning stage and the post
summoning stage. In other words, there is no necessity to recall and re-
examine the complaint after summoning of accused, unless the Magistrate
passes a specific order as to why the complainant is to be recalled. Such
an order is to be passed on an application made by the accused or under
Section 145(2) of the Act suo moto by the Court. In summary trial, after
the accused is summoned, his plea is to be recorded under Section 263(g)
Cr.P.C. and his examination, if any, can be done by a Magistrate and a
finding can be given by the Court under Section 263(h) Cr.P.C. and the same
procedure can be followed by a Magistrate for offence of dishonour of
cheque since offence under Section 138 of the Act is a document based
offence. We make it clear that if the proviso (a), (b) & (c) to Section
138 of the Act are shown to have been complied with, technically the
commission of the offence stands completed and it is for the accused to
show that no offence could have been committed by him for specific reasons
and defences.

17. Procedure for summary case has itself been explained by this Court in
Nitinbhai Saevantilal Shah and another v. Manubhai Manjibhai Panchal and
another (2011) 9 SCC 638, wherein this Court held as under :
“12. Provision for summary trials is made in Chapter XXI of the Code.
Section 260 of the Code confers power upon any Chief Judicial
Magistrate or any Metropolitan Magistrate or any Magistrate of the
First Class specially empowered in this behalf by the High Court to
try in a summary way all or any of the offences enumerated therein.
Section 262 lays down the procedure for summary trial and sub-section
(1) thereof inter alia prescribes that in summary trials the procedure
specified in the Code for the trial of summons case shall be followed
subject to the condition that no sentence of imprisonment for a term
exceeding three months is passed in case of any conviction under the
chapter.
13. The manner in which the record in summary trials is to be
maintained is provided in Section 263 of the Code. Section 264
mentions that in every case tried summarily in which the accused does
not plead guilty, the Magistrate shall record the substance of the
evidence and a judgment containing a brief statement of the reasons
for the finding. Thus, the Magistrate is not expected to record full
evidence which he would have been, otherwise required to record in a
regular trial and his judgment should also contain a brief statement
of the reasons for the finding and not elaborate reasons which
otherwise he would have been required to record in regular trials.”

18. Amendment Act, 2002 has to be given effect to in its letter and
spirit. Section 143 of the Act, as already indicated, has been inserted by
the said Act stipulating that notwithstanding anything contained in the
Code of Criminal Procedure, all offences contained in Chapter XVII of the
Negotiable Instruments Act dealing with dishonour of cheques for
insufficiency of funds, etc. shall be tried by a Judicial Magistrate and
the provisions of Sections 262 to 265 Cr.P.C. prescribing procedure for
summary trials, shall apply to such trials and it shall be lawful for a
Magistrate to pass sentence of imprisonment for a term not exceeding one
year and an amount of fine exceeding Rs.5,000/- and it is further provided
that in the course of a summary trial, if it appears to the Magistrate that
the nature of the case requires passing of the sentence of imprisonment
exceeding one year, the Magistrate, after hearing the parties, record an
order to that effect and thereafter recall any witness and proceed to hear
or rehear the case in the manner provided in Criminal Procedure Code.

19. This Court in Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC
663, laid down certain guidelines while interpreting Sections 138 and 147
of the Negotiable Instruments Act to encourage litigants in cheque
dishonour cases to opt for compounding during early stages of litigation to
ease choking of criminal justice system for graded scheme of imposing costs
on parties who unduly delay compounding of offence, and for controlling of
filing of complaints in multiple jurisdictions relatable to same
transaction, which have also to be borne in mind by the Magistrate while
dealing with cases under Section 138 of the Negotiable Instruments Act.

20. We notice, considering all those aspects, few High Courts of the
country have laid down certain procedures for speedy disposal of cases
under Section 138 of the Negotiable Instruments Act. Reference, in this
connection, may be made to the judgments of the Bombay High Court in KSL
and Industries Ltd. v. Mannalal Khandelwal and The State of Maharashtra
through the Office of the Government Pleader (2005) CriLJ 1201, Indo
International Ltd. and another v. State of Maharashtra and another (2005)
44 Civil CC (Bombay) and Harischandra Biyani v. Stock Holding Corporation
of India Ltd. (2006) 4 MhLJ 381, the judgment of the Calcutta High Court in
Magma Leasing Ltd. v. State of West Bengal and others (2007) 3 CHN 574 and
the judgment of the Delhi High Court in Rajesh Agarwal v. State and another
(2010) ILR 6 Delhi 610.

21. Many of the directions given by the various High Courts, in our view,
are worthy of emulation by the Criminal Courts all over the country dealing
with cases under Section 138 of the Negotiable Instruments Act, for which
the following directions are being given :-

DIRECTIONS:
1) Metropolitan Magistrate/Judicial Magistrate (MM/JM), on the day
when the complaint under Section 138 of the Act is presented, shall
scrutinize the complaint and, if the complaint is accompanied by
the affidavit, and the affidavit and the documents, if any, are
found to be in order, take cognizance and direct issuance of
summons.
2) MM/JM should adopt a pragmatic and realistic approach while
issuing summons. Summons must be properly addressed and sent by
post as well as by e-mail address got from the complainant. Court,
in appropriate cases, may take the assistance of the police or the
nearby Court to serve notice to the accused. For notice of
appearance, a short date be fixed. If the summons is received back
un-served, immediate follow up action be taken.
3) Court may indicate in the summon that if the accused makes an
application for compounding of offences at the first hearing of the
case and, if such an application is made, Court may pass
appropriate orders at the earliest.
4) Court should direct the accused, when he appears to furnish a
bail bond, to ensure his appearance during trial and ask him to
take notice under Section 251Cr.P.C. to enable him to enter his
plea of defence and fix the case for defence evidence, unless an
application is made by the accused under Section 145(2) for re-
calling a witness for cross-examination.
(5) The Court concerned must ensure that examination-in-chief, cross-
examination and re-examination of the complainant must be conducted
within three months of assigning the case. The Court has option
of accepting affidavits of the witnesses, instead of examining them
in Court. Witnesses to the complaint and accused must be available
for cross-examination as and when there is direction to this effect
by the Court.

22. We, therefore, direct all the Criminal Courts in the country dealing
with Section 138 cases to follow the above-mentioned procedures for speedy
and expeditious disposal of cases falling under Section 138 of the
Negotiable Instruments Act.

23. Writ Petition is, accordingly, disposed of, as above.

 

…..………………………J.
(K.S. Radhakrishnan)

………………………….J.
(Vikramajit Sen)
New Delhi,
April 21, 2014.

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The Delhi High Court has held an accused in a cheque bounce/dishonour case can settle the issue with the complainant even outside the court at any stage prior to the execution of punishment. “There is no legal bar to the compounding of such an offence, either during or even after disposal of an appeal filed either by the accused or by the complainant,” Justice V K Jain said.

The court, which was to pronounce the quantum of sentence after finding a couple guilty under section 138 (cheque bounce case) of the Negotiable Instruments (NI) Act, had to deal with the legal issue as to whether a convict can be allowed to settle the case at the eleventh hour of the judicial proceedings just to avoid the imminent penalty.

Referring to the relevant legal provision, the court said, “It would, thus, be seen that in view of the non obstante clause contained in the Section, the restrictions and limitations prescribed under CrPC with respect to compounding of offences would not be applicable as far as compounding of an offence punishable under the provisions of the aforesaid Act is concerned.

“Consequently, such an offence can be compounded at any stage before the sentence, if any, awarded to an accused under the provisions of the aforesaid Act is fully executed.”

“Since, section 147 of the NI Act does not require permission of the court for compounding such an offence, no such permission is necessary and the parties therefore can enter into a compromise outside the court and then get the same recorded in the court at any point of time before the sentence is fully executed,” it said.

Source: PTI