CHAPTER- SIX

LIABILITIES AND LEGAL TRENDS

I. LIABILITY OF PARTIES OF NEGOTIABLE INSTRUMENTS

Section 32 which provides about the liability of the maker of a note or

the acceptor of a bill, is as follows:-

In the absence of a contract to the contrary, the maker of a promissory

note and the acceptor before maturity of a bill of exchange are bound to pay the

amount there of at maturity according to the apparent tenor of the note or

acceptance respectively, and the acceptor of a bill of exchange at or after

maturity is bound to pay the amount thereof to the holder on demand.

In default of such payment as aforesaid, such maker or acceptor is bound

to compensate any party to the note or bill for any loss or damage sustained by

him and caused by such default.

When the maker of a promissory note signs the same there is an

unconditional undertaking made by him to pay the amount of the note

according to its tenor. His engagement to pay is unconditional and his liability

to pay is absolute. His liability arises when he signs the promissory note and

delivers the same to the person in whose favour it has been made, the payee.

The drawee of a bill of exchange becomes liable on the bill when he

accepts the same. The liability of the acceptor of a bill of exchange is similar to

that of the maker of the promissory note. An acceptance by him, the acceptor

becomes primarily liable to pay the amount of the bill on its maturity. The

acceptor of a bill of exchange is liable there under as principal debtor and as

such, the suit filed merely against the acceptor of a bill of exchange is

maintainable in law even though a separate suit has been filed by the plaintiffs

against the drawers of that bill of exchange on the basis of the suit bill of

exchange along with other relief’s claimed there in.

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When a bill of exchange is payable to draw’s order and the drawer is a

fictitious person, the acceptor of the bill will still be liable to a holder in due

course provided the latter can show that he got the bill purporting to be

endorsed by the drawer and the signatures of the first endorsement and of the

drawer are in same handwriting. A forged endorsement cannot convey a good

title even to a holder in due course and therefore no person can be made liable

on a negotiable instrument towards one who derives his title through a forged

endorsement. To this general rule there is an exception. If the forged

endorsement is there before acceptance, negligently accepting such a bill will

make the acceptor liable. An acceptor is also not liable towards a holder

deriving title out of a forged endorsement which was made after the bill has

been accepted.

The nature of the liability of the endorser is similar to that of drawer, i.e.

it is conditional upon the non-performance of the duty by those whose liability

is primary and unconditional. Every endorser impliedly undertakes to be liable

to every subsequent holder if the maker, drawee or the acceptor dishonour the

same. It may be noted that if payee transfers an instrument by making an

endorsement, then only his liability can arise. In the absence of any

endorsement by the payee his liability cannot arise. In Gaddam Venkata Raju

V. Andhra Bank, Hyderabad,1 the payee delivered a cheque to the bank without

making endorsement and the bank discounted the same. The said cheque was

dishonoured by the drawee bank. The bank to whom the payee had delivered

the cheque brought an action against the payee for recovery of the amount of

the cheque. It was held that that payee could not be held liable because he had

not made any endorsement.

Such a liability of the endorser, as stated above, arises unless he, in such

endorsement, excludes his liability or makes the same conditional. Section 52,

permits an endorser to make the endorsement in such a way that he either

1 A.I.R. 2000 A.P. 379.

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excludes his own liability (by sans recourse endorsement), or, makes such

liability or the right of the endorsee to receive the amount due there on depend

upon the happening of a specified event.

II CIVIL LIABILITY

The impugned complaint was brought by M/s Kapoor brothers Roller Flour

Mills, Panchkula (respondent firm hereinafter) under Section 138 of the Act, read

with Section 406/420 I.P.C. The respondent firm pleaded therein that it was a

registered partnership-firm, carrying on business of running a flour mill. It supplies

flour mill products. In December 1988, petitioner No. 2 approached the respondent-

firm for the supply of the Maida as per the bill. Interest at the rate of 23% per annum

was to be charged if the payment was not made within the stipulated period of 10

days. The supplies were then made. The transactions were entered in the Daily Sales

Register and the Ledger Book maintained. A running account was opened and

payments were made though irregularly. As per the account books, a balance of Rs.

1,24,640/- stood due to the respondent firm from the petitioner firm. Some of the

cheques issued were dishonoured and ultimately, a registered notice was issued on

24.10.1989, but, in spite of the same, and the information being delivered of

dishonour of the cheques, the payment was not made. A meeting was then arranged.

B, petitioner No. 2 issued two cheques, one dated 02.11.1989 for Rs. 15,900/- and the

second dated 09.11.1989 for Rs. 11,000/- as part payment. These cheques were drawn

on Punjab National Bank, Sector 17B, Chandigarh with the assurance the same would

be encashed on presentation to the Bank. These cheques were then presented, but

were received back with the endorsement “refer to drawer. After receiving the

information of the dishonour of the cheques, a legal notice dated 25.11.1989 was

issued. Two of the notices were received back undelivered, while one was delivered

to petitioner No. 2. In spite of this service of notice, payment in question was not

made and as such, the offence under Section 138 of the Act was committed. From the

very beginning, the intentions of the petitioners were dishonest and as such, offences

under Sections 406/420 I.P.C. had also been committed.

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According to section 30, The drawer of a bill of exchange or cheque is

bound, in case of dishonour by the drawee of acceptor thereof, to compensate

the holder, provided due notice of dishonour has been given to, or received by,

the drawer as here in after provided.

The liability of the acceptor of a bill of exchange is the primary liability

and he is to be approached in the first instance by the holder if he wants to have

the payment of the bill. A cheques is also to be presented to the drawee bank to

obtain its payment. If the drawee or the acceptor of the cheque or the bill of

exchange does not pay then the liability of drawer arises. The drawer of a bill

of exchange or a cheque makes an implied promise to pay the sum if the

drawee or the acceptor there of makers default in payment.

Section 30 of the Negotiable Instruments Act, 1881 deals with civil liability in

case of dishonour of cheque, Bill of exchange and the same provides that the drawer

had to compensate the holder of the cheque and bill of exchange. The Legislature has

by means of Banking Public Financial Institutions and Negotiable Instruments Laws

(Amendment) Act, 1988 inserted Section 138 and 142 to make out the dishonour of

cheque for want of funds and after service of notice, the amount is not paid within

prescribed period. The offence is deemed presumed to have been committed under the

provisions Section 138, shall be a complete offence only if three conditions

mentioned specified in the proviso to the section also exist. The dishonour of the

cheque must be for the cause that the amount of money standing to the credit of the

drawer is not sufficient to honour the cheque or that it exceeds the financial

arrangement made with the Bank. In the complaint, the respondent-firm has given all

the facts on the basis of which it claims the commission of the offence under Section

138. The term “refer to drawer” is a courteous way adopted by a Bank to show its

inability to honour the cheque for want of funds. The petitioner-firm has not been able

to show that the term ‘refer to drawer’ to the present case conveyed a different

meaning. Section 142 provides the clincher. The cause of action will be complete only

when the drawer fails to make the payment of the amount of the cheque within 15

days of the receipt of notice, provided by the proviso (b) to Section 138. The offence

will, thus, be complete only when the period of notice expires and the payment is not

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made. In support of my above observations, this Court derives support from the

following observations made by their Lordships in Amar Jothi Spinning Mills Ltd.

v. B.R.B Garments,2 :

“When the main body of the section is read along with the proviso,

it is clear that the offence will be deemed to have been committed

only if the drawer of the cheque-failed to make payment, within

fifteen days of receipt of the notice. An “offence” as defined in

Section 2(n) of the Code includes not only the doing of a positive

act but by omitting to do something as well. Here the relevant

provision says that the offence is the omission to make payment

within fifteen days of receipt of notice. Drawing the cheque is not

the act by which the offence is deemed to have been committed.

When the drawer fails to make the payment within the payment

within the period specified in clause (c) of the proviso, the offence

is complete. This aspect is made further clear in Section 142(b) of

the Act. Under the said clause no Court shall take cognizance of

any offence punishable under Section 138 unless “ such complaint

is made within one month of the date on which the cause of action

arises under clause (c) of the proviso to Section 138.” Normally,

cause of action does not arise until the commission of the offence.

When Section 142(c) says that the cause of action is the one which

arises under clause (c) of the proviso, such cause of action is the

omission to make payment within fifteen days of the receipt of the

notice.”

It is not necessary to always stay proceeding in civil action and whether the

proceedings in action should be stayed or parallel proceeding both civil and criminal

may continue depend from fact and circumstances of each case. There is no legal bar

to the continuance of the civil and criminal proceedings simultaneously.3

2 (2003) 117 (Mad) 117. 3 Smt. Gayathri v. Smt. Clement Mary (2003) 114 Karn 261 .

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According to section 31, the drawee bank is bound to honour the customer’s

cheque if he has sufficient funds of the drawer applicable to the payment of such

cheque. If the drawee bank wrongfully dishonours the cheque. It can be made liable

for such default. The liability for such a default is not towards the payee or the holder

but towards the drawer. The basis of the banker’s liability is the relation between the

bank and its customer which implies an undertaking to honour the customer’s cheques

if there are sufficient funds to meet the same. There are some cases when a banker

may be either justified or bound to dishonour the cheques. Dishonour of the cheque in

such cases does not create any liability for the drawee bank.

When a cheque properly drawn is duly presented to a banker is must pay the

cheque, and on default of such payment it is bound to compensate the drawer for any

loss or damage caused by such default. In Jagjivan Mavji v. Ranchhoddas Megh

Ji,4 the Supreme Court observed. “There is no provision in the act that the drawee is

as such liable on the instrument, the only exception being under section 31 in the case

of a drawee of a cheque having sufficient funds of the customer in his hands, and even

then, the liability is only towards the drawer and not the payee.” There is no privity of

contract between the banker and the payee and therefore no liability towards the

holder or the payee arises even though he has sufficient funds of the drawer in his

hands to meet the cheque.5 Apart from an action for the breach of contract, the

customer may bring an action under the law of torts on the ground that due to the

negligence of the bank there has resulted some loss to the credit or the reputation of

the customer.

According to section 37, the maker of a promissory note or cheque, the drawer

of a bill of exchange until acceptance, and the acceptor are, in the absence of a

contract to the contrary, respectively, liable there in as principal debtors, and other

parties there to are liable there on as sureties for the maker, drawer or acceptor, as the

case may be In a contract of guarantee a person who undertakes to be primarily liable

is the principal debtor and the person who undertakes to be liable if the principal

debtor does not perform his duty is a surety. Four persons i.e. the maker of a

promissory note, the maker or drawer of a cheque, the drawer of a bill of exchange

4 A.I.R. 1954 SC 554. 5 Hopkinson v. Forster, (1894) L.R.19EQ74.

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until acceptances and the acceptor of a bill of exchange occupy the position of a

principal debtor.

It has been noted above that the maker, drawer and the acceptor are the

principal debtors and the other parties are sureties in respect of the agreement

contained in the negotiable instrument. That position is there unless there is a contract

to the contrary. There can be an agreement between the parties by which the above-

stated position may be varied. For example, in the case of an accommodation bill of

exchange the presumption of an agreement to the contrary is there.6 There, the drawee

accepting a bill for the accommodation of the drawer is not the principal debtor but

surety, and the drawer himself is the principal debtor. Therefore if the acceptor of

such a bill makes the payment he can recover the same from the drawer who is

deemed to be the principal debtor on the other hand, if the payment to the holder is

made by the drawer he cannot recover anything from that acceptor.

Where there are two or more sureties, the position inter-se them is stated in

section 38 which is as follows: “as between the parties so liable as sureties. Each prior

party is, in the absence of a contract to the contrary, also liable there on as a principal

debtor in respect of each subsequent party. “The above stated provision implies that

various persons liable on a negotiable instrument are not merely co-sureties, but as

between themselves, each prior party is a principal debtor as related to each

subsequent party, who is his surety. The relationship between the parties has been

explained by Byles as under “Suppose a bill to have been accepted and endorsed for

value. The acceptor is the principal debtor, and all the other parties are sureties for

him, liable only on his default. But though all the other parties are in respect of the

acceptor sureties only, they are not as between themselves merely co-sureties, but

each prior party is a principal in respect of each subsequent party. If a bill to have

been accepted by the drawee, and afterwards endorsed by the drawer and by two

subsequent endorsers to the holder. As between the holder and the acceptor is the

principal debtor, and the drawer and the endorsers are his sureties. But as between the

holder and the drawee, the drawer is the principal debtor, and the subsequent

endorsers are his sureties. As between the holder and the second endorser, the second

6 Nanda Ram v Sitla Prasad, 5 All 484.

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endorser is the principal debtor and the subsequent or the third endorser is his

surety.”7

A. Presumption Under Section 118 of the Negotiable Instruments Act, 1881-

It would be clear that when the suit is based on pronote, and promissory note

as proved to have been executed. Section 118(a) raise the presumption, until the

contrary proved, that the promissory note was made for consideration. That initial

presumption raised under Section 118 (a) becomes unavailable when the plaintiff

himself pleases in the plaint different considerations. If he pleases that the promissory

note is supported by a consideration as recited the negotiable instruction and the

evidence adduced in support thereof, the burden is on the defendant to disapprove that

the promissory note is not supported by consideration of different consideration other

than one recited in the promissory note did pass. If that consideration is not valid in

law nor enforceable in law, the Court would consider whether the suit pronote is

supported by valid consideration or legally enforceable consideration.

The Hon’ble Supreme Court of India has held that the burden of proof is of

academic interest where the evidence was adduced by the parties. The court is

required to examine the evidenced consider whether the suit as pleaded in the plaint

has been established and the suit requires to be declared as dismissed.8

The burden is, entirely on the drawer of the cheque, Bill of exchange to

establish that the payee had no authority in put the date and encash the cheque, Bill of

exchange. In other words, payee has got the implied authority to put the date. When

the date appears on the cheque, presumption under Section 118 (b) operates.

Therefore, the burden shifts to the drawer to establish that he did not authorised the

payee to put the date on the cheque or bill of exchange.

In this case, admittedly the cheque was complete in all respects, except the

date. It is the contention of the defendant that handwriting of the date on the cheque is

different and that the ink used for putting the date is also different. Assuming that if

there is difference in the handwriting with regard to the date as well as the ink used,

that is not enough to rebut the presumption under Section 118(b) of the Act, since the

payee has put the date on the basis of implied authority. Defendant has not discharged

7 Byles, Bills of Exchange, 21 St ed, p.284. 8 K.P.O. Moideenkutty Hajee v. Pappu Manjooran, (1997) (1) BC at p.361 (SC).

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the burden or rebutted the presumption under Section 118(b) of the Act.9 In order to

discharge the burden, defendant has to adduce acceptable evidence. Merely because

there were same transactions between the plaintiff and defendant, the same would not

lead to the conclusion that Negotiable instrument was not support by consideration.

Oral evidence of DW-1 would not lead to the conclusion that the cheque was not

supported by consideration. Those documents would show that there were some

transactions between the plaintiff and defendant. But defendant has to adduce reliable

evidence to rebut the presumption under Section 118 of the Act, which he has not

discharged.

If the promissory note is proved to have been signed and executed by the

defendant, than presumption under section 118 of the negotiable instruments act

would arise and it is for defendant to rebut by establishing that he did not receive the

consideration by direct evidence or by bringing on record preponderance of

probabilities also. 10

In the under mentioned case the defendants were able to rebut the

presumption of passing off consideration and so were not held liable for the suit

claim11

.

B. DUTY OF THE COURT TO EXERCISE JUDGEMENT POWER

There are two constraints which are imposed on the Court for exercising the

power. First is, if the Court thinks in a situation it is proper to adjourn the hearing then

the Magistrate shall not acquit the accused. Second is, when the Magistrate considers

that personal attendance of the complainant is not necessary on that day the

Magistrate has the power to dispense with his attendance and proceed with the case.

When the Court notices that the complainant is absent on a particular day the Court

must consider whether personal attendance of the complainant is essential on that day

for the progress of the case and also whether the situation does not justify the case

being adjourned to another date due to any other reason. If the situation does not

justify the case being adjourned the Court is free to dismiss the complaint and acquit

9 Bhaskaran Chandrasekharan v. Radhakrishnan, 1(1999)BC 301 Ker :(2000)101 Comp cas 15 (DB). 10 Harbans Singh v. Sunder Mal Satpal, 1(2000)BC 472(P&H) Rama Sami Moopar v. Ramaswami.

Moopanar, II (2003)BC 662 (Mad)DB. 11 S.Narayana Samy Reddiar v K.P.Sivaraman , II (2003) BC 420 (Mad).

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the accused. But if the presence of the complainant on that day was quite unnecessary

then resorting to the step of axing down the complaint may not be a proper exercise of

the power envisaged in the section. The discretion must, therefore, be exercise

judicially and fairly without impairing the case of administration of criminal justice.12

In the instant case the complaint has specifically stated that the cheque was

dishonoured as payment was stopped by the drawer. Nowhere did the complainant say

that the cheque was dishonoured due to want of sufficient amount in the account. It is

extremely difficult to deduce from the complaint in a case of dishonour of the cheque

due to want of amount in the account. Averments in the complaint are totally bereft of

such a case. This revision is dismissed in limine.13

It is a well settled that a clause beginning with ‘notwithstanding any thing

contained’ is appended to a section with a view to give the enacting part of the section

in case to conflict an overriding effect of the provision mentioned in the non obstarite

clause will not be an impediment for the operation of sub section(1). Under sub-

section (1) every person in charge of and responsible to the company for the conduct

of the business of the company shall be deemed to be guilty of the offence under

Section 138 of the Act. But sub-section (2) provides that besides the person

mentioned in sub-section (1) where any offence committed by a company is proved to

have been committed with the consent or connivance or is attributable to any neglect

on the part of any Director, Manager, Secretary or other Officer of the company then

said Director, Manager, Secretary or Officer shall also be deemed to be guilty of that

offence. It would mean that even if such Director, Manager, Secretary etc. was not

incharge and was not responsible to the company for the conduct of the business of

the company; he will still be liable if the offence was committed with his consent,

connivance or due to his negligence. No such averments are required to be made in

the complaint against the persons who were in-charge of the business of the company.

The allegations as contained to the complaint prima facie made out a case against the

petitioners and they were rightly summoned by the trial Court to stand trial.14

12 Associated Cement Co. Ltd. v. Keshwanand, I (1998) CCR 82 at pp 87. 13 Balakrishna Pillai v. V. Abdullakuty, 1994(2) Crimes 327. 14 Manju Podar v. Ashwani Kumar, 1 (1994) BC 557.

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It may be observed that the powers under Section 482 Cr. P.C. can be invoked

only when redress under any other provision was unavailable. The implication is that

non one should have recourse to short-cut which is often a wrong cut in life as well as

in law. The inherent power is certainly circumscribed and is intended to be used rather

sparingly.

It is a serious matter in that it entails nature of process by which the accused

persons are required to appear in the Court. The District Judge, Mandleshwar is,

therefore, directed to make an enquiry into all the aforesaid cases about this change to

the order sheet and submit his report to this court.15

The facts are that the cheque was returned with an endorsement ‘stop

payment’. The allegation in the complaint was that the accused have acted

diabolically and that on both the occasion when the cheque reached the accused’s

Bank for collection sufficient funds were not available, resulting in the dishonour of

the cheque and it was held by this court that in the face of positive allegations in the

complaint that only due to the insufficiency of funds the cheque was returned, only

during the course of trial it can be found out whether the cheque was returned due to

the insufficiency of funds or otherwise and that the complaint cannot be quashed at

the threshold.16

It has been held by the Supreme Court of India that the second revision

petition even though filed under Section 482 of the Criminal Procedure Code is not

maintainable.17

The petitioner admittedly was one of the partners on the date when the

cheques in question were issued by the firm. Whether he ceased to be a partner

thereafter is not the relevant question which can be gone into in the proceedings under

Section 482 of the Code. Regarding second contention of the petitioner that the firm

had issued a letter to the complainant that they had closed the Bank account because

of the petition of the firm, involves a question of fact which against cannot be gone

into in the proceedings under Section 482 of the Code.18

15 Bhupendra Shah v. Mahendra, (1993) Crimes 185. 16 Nagender Prasad Singh and others v. State of Bihar and Another (2007)1 0698 (Patna). 17 Deepti @ Arti Rai v. Akhil Rai, (1995) 7 JT (SC) 175. 18 Aji Narain Aggarwal v. Firm Mandan Lal Rajinder Prasad, 1996 Cri.LJ 2022.

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It is clear from a reading of Section 141 of the Act that if the offence under

Section 138 of Negotiable Instruments Act is committed by the company or a firm,

every person who was in charge and responsible for the affairs and conduct of the

business for the company or firm, as the case may be at the time when the alleged

offence was committed, is also liable for prosecution along with the company19

. It is

an admitted fact, in this case, that the cheque was issued by A-2 of the Managing

Partner of A-1 firm, and indisputably there is no allegation in the complaint that the

petitioner herein (A-3) was in charge and responsible for the conduct of the business

of the A-12 firm at the time of alleged commission of the offence. Therefore, in the

absence of any such allegation and when admittedly, the cheque was issued by A-2 ,

the Managing Partner of A-1 firm and in view of Section 138 and 141 of the

Negotiable Instruments Act. There is no hesitation in holding that the complainant is

not entitled to initiate prosecution against every partner of the firm.20

It is clear that Section 138 does not contemplate of issuing demand notice

mentioning fifteen days time for the drawer to pay the amount and the only obligation

is that the payee or holder in due course has to wait for fifteen days after receipt of the

notice by the drawer giving opportunity to pay the said amount to him payable on

account of the dishonour of the cheque. Therefore, on considering the provisions of

Section 138 to Section 142 of the Act. There is not hesitation in holding that there is

no obligation on the part of the payee or the holder in due to specifically mentioned

demanding to pay the said amount within fifteen days and there is no substance in the

contention of the learned Counsel for the petitioner. 21

The fact that the petitioner did not even appear before the Magistrate to show

cause but directly he moved the High Court for quashing issuance of process, the

petitioner is liable to be dismissed.22

It cannot be said that the payee demanding the drawer to pay the amount

within fifteen days by itself is not a ground to quash the proceedings particularly

19 Everest Advertising (P) Ltd. v. State Govt. of NCT of Delhi and others (2007) 3 Comp LJ 410 (SC). 20 N.K. Wahi v. Shekhar Singh and Others (2007) 2 comp LJ 10(SC). 21 Central Bank of India v. Saxons Farms.(2000)2 comp LJ 36 (SC). 22 Meena Ashok Vawani v. State of Maharashtra, II(1997) CCR 533.

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when the complaint was filed within one month after expiry of fifteen days from the

date of receipt of notice.23

The filing of the petitioner under Section 258 of the Criminal Procedure Code

would not be maintainable, since the said section relates to the power of the Court to

stop proceedings in summons case and it does not relate to the discharge of the

accused. Whatever it is, there is no material to show that the petitioners are liable to

be discharged at this stage.24

The questions of act viz. no liability or no debt, no notice of demand as

required by Section 138 of Negotiable instruments Act and the inconsistently in the

endorsements of the Bankers on the dishonoured cheques are all matters to be decided

by the trial Court after the appreciation of evidence from the oral and documentary

evidence that has been let in before the trial Court. In such circumstances this is not a

fit case to interfere under Section 482 of Cr. P.C. to quash the proceedings.25

There is not any scope for interference with the action adopted by the Chief

Judicial Magistrate making over the case to the file of Judicial Magistrate of the first

class in the same district.26

The criminal proceedings are seldom stayed till the decisions of a civil suit

over the self same matter but having regard to the facts and circumstances which in

this Court opinion is a compelling circumstances when for ends of justice there is no

way out but to stay the criminal proceeding till disposal of the civil suit.27

Pleases cannot be decided merely on the basis of the averments made in the

present petition and the affidavit sworn in respect thereof. It is now well settled by a

number of decisions of the Apex Court that for the purpose of exercising its powers

under Section 482 of the Code of Criminal Procedure or its extraordinary jurisdiction

under Articles 226/227 of the Constitution of India to quash a F.I.R. or a complaint,

the High Court would have to proceed entirely on the basis of the allegations made in

23 K.Muralidahr Rao v. State of Andhra Pradesh, 1998 Cri. LJ 748: 1998(1) CCR 171(AP) : 1998 (1)

CCR 80 (AP): 1998(2) Civil LJ 196. 24 Mehta Praful Chandra Kali Das v. Patel Cheljibhai Kali das and another 2006 (4) CC Cas 563

(Gujarat ). 25 K.N.Sadagopan v. T.C. Govindarajan, 1998 Cri. LJ 143 at p. 145. 26 Jaya Baby v. Vijayan, 1994(1) Crimes 291. 27 Anil Kumar Parlia v. Md. Shafique Khan , 1997 Cri. LJ 717.

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the complaint or documents accompanying the same per se. It has no jurisdiction to

examine the correctness or otherwise of the allegations. These powers cannot be

exercised to stifle a legitimate prosecution.28

A complaint not disclosing a prima facie offence for which cognizance has

been taken is an abuse of process of the Court and as such the inherent power need be

exercised to quash such a criminal proceeding.29

Without evidence having come on record, it will not be appropriate for the

petitioner to invoke the inherent powers of this Court and seek to halt the proceedings

pending before the trial Magistrate.30

So far as the offence under Section 420 I.PC. is concerned, in the complaint

allegations to that effect are made. Still it is a question of fact. The complainant

respondent has a right to adduce evidence to prove his allegations. If he is unable to

prove prima facie the offence under Section 420 I.PC. the petition would be

discharged by the trial Magistrate. 31

The offence under Section 138, Negotiable Instruments Act is to be proved by

a complaint by proving all the ingredients of the offence laid down in the section. All

the necessary factors have to be prayed at the trial. What will be effect of certain

payments after the accused has been summoned as an accused is a matter to be taken

into consideration by trial Court and cannot be a ground to quash the trial

proceedings. These revisions under Section 482 Cr. P.C. in both the cases have no

force.

Trial Court will be competent Court to record the findings on materials, that

may be placed before it by parties on questions of facts,. Powers under Article 226 of

the Constitution are not meant to be exercised for this purpose at this stage. Thus it

appears, there is no ground at present to quash the complaint as the case does not

come within the purview of those exceptional cases in which this Court can under

28 Raj Kumar Khurana v. State of (NCT of Delhi) and another (2009) 3 Comp LJ 11(SC): Criminal

Appeal no 913 (2009). 29 Kuchil Kumar Nandi v. M/s. Modi Cement Ltd. 1997 Cri. LJ 805. 30 M.Sreeramula Reddy v. N.C. Ramasamy, I (1993) BC 8. 31 Mrs. Anuradha alias Renu Syal v. Satpal Singh and others (2003) (P&H) 216.

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Article 226 quash the FIR or complaints in accordance with the law laid down in the

case State of Haryana v. Bhajan Lal.32

The relevant clause is ‘in the course of their business, the accused had issued a

cheque’. The requirement for an offence under Section 138 of the Act is the cheque

must be drawn ‘for the discharge in whole or in part of any debt or other liability’.

The allegation in the complaint does not satisfy the requirements, needed for making

out an offence under Section 138 of the Act. On this ground, the complaint is liable to

be quashed.33

The maintainability of the proceedings against a particular accused has to be

considered without adding or subtracting anything in the complaint. Now it is found

that without impleading the company, the present complaint against the petitioner is

not sustainable. Therefore, when the complaint has the initial defect in its

sustainability, the defect cannot be cured by amending the proceedings. Section 319,

Code of Criminal Procedure no doubt permits for impleading any other accused, who

was party to the commission of the offence. But impleading such co-accused under

Section 319 Code of Criminal Procedure will not have any bearing as to the

maintainability of the proceedings against other accused. Section 319, Code Criminal

Procedure is not intended for curing the infirmity in the proceedings but only to bring

all the culprits before Court when their role in the commission of the offence was

brought to light only after the evidence before Court. Such is not position in this case.

The respondent had deliberately omitted to implead the company in the complaint

though Section 141 of the Negotiable Instruments Act emphasizes that the company

also shall be an accused. When the proceedings has legal infirmity in its initiation

itself, the respondent is not entitled to invoke Section 319, Code of Criminal

Procedure because on the date of the complaint, it was not maintainable against the

petitioner.34

In the absence of any provision found available in Chapter 20, which deals

with the trial of summons cases, by the Magistrate; the Magistrate cannot invoke

32 1992(I) Supp. SCC 335: AIR 1992 SC 604; V.D. Agarwal v. Ist Additional Munsif Magistrate,

Lucknow, 1994(4) Civil LJ 370. 33 Southern Steel Ltd. Others v. Jindal Vijaya Nagar Steel Ltd. (2008) 4 Comp LJ300 (SC) Criminal

Appeal Nos : 845-46 of 2008. 34 Suryanarayanan v. M/s Anchor Marine Service, I (1995) BC 466.

197

inherent powers, which are not vested with him to discharge the accused/petitioners.

Time and again the Apex Court as well as this Court have held that the Courts have to

render justice only in accordance with the procedure contemplated under the statute

and not otherwise, and especially a Magistrate cannot discharge that under the garb of

‘securing the ends of justice’ by invoking inherent powers, which are vested only with

the High Court under Section 482 of the Code of Criminal Procedure. Therefore, the

order dated 3.5.1995, of the lower Court is, quite correct and in accordance with law

and the same is liable to be confirmed.35

It is settled principle of law that inherent powers under Section 482 Cr. P.C.

can be invoked to prevent abuse of the process of the Court or to secure ends of

justice. In this case, admittedly, no cause of action arose for filing the complaint

against the petitioner for an offence under Section 138 of the Act on 30.11.1993 and

in order to secure the ends of justice this Court can exercise powers under Section 482

Cr. P.C. to quash the impugned order as well as the proceedings in C.C. No. 408/1993

on the file of the V Additional Munsif Magistrate, Chittoor.36

It is the settled principle of law that the Court should be at loath in exercise of

powers under Section 482 of the Code, and such powers should be exercised in the

rarest of rare cases. The ground stand in the application involves disputed questions of

fact, which cannot be gone in to by this Court in the inherent exercise of its powers.37

Section 195 of the Code provides a bar on filing of complaint while Section

340 provides for removal of the bar by conferring jurisdiction on the Court to file

complaints. Since the cheque is produced in evidence in Court, 16 months prior to the

present complaint, the complaint, which is contained is not at all sufficient to attract

the offences charged with. The complaint is really an abuse of the process of Court.38

A complaint petition is maintainable and the disputed incidents can be gone

into after taking the evidence but at this stage. It is impossible to see any prima facie

case to quash the proceedings or to stay the proceedings under the powers under

35 Jameel Khan v. Thomas Cook India Ltd, II (1996) BC 596 at p. 600. 36 Chittoor District Co-operative Market Society Ltd. v. M/s Sri Jyothi Trading Co. I (1998) BC 27 at

p. 220. 37 Saroj Kumar Poddar v. State NCT of Delhi (2007) 1 comp LJ 302 (SC). 38 Narayana Sharma v. State of Kerala, 1998 (3) Crimes 256 at p. 257.

198

Section 482 Cr. P.C. Thus the complaint petitioner filed before the learned Magistrate

is definitely maintainable.39

Consensus of judicial opinion in the matter of quashing a criminal proceeding

in exercise of inherent power is that such power should be exercised very sparingly

and with circumspection and that too in rarest of rare cases and the Court will not be

justified in embarking upon an enquiry as to the reliability of the allegations made in

the first information report or complaint. It is not permissible for the Court to look

into the documents placed on record by the accused in support of his defence plea.

The impugned order taking cognizance of the offence cannot be quashed.40

It goes without saying that once an offence has been committed and is

complete offence, merely by marking the payment will not put an end to the same. It

may affect the gravity of the said offence. There is no ground, thus, to quash the

proceedings.41

C. Personal Appearance of the Accused –

Since the petitioner-accused does not dispute his identity in the present case

and also states that he would appear through the Counsel and that trial may proceed in

his absence there does not seem any legal objection in grating exemption from

personal appearance to the accused.

In view of the above, the order dated 30.08.1996 refusing exemption from

personal appearance to the accused is set aside and the accused shall appear before the

trial court through his Counsel. However, it is clarified that in case at any stage of the

case, personal appearance of the petitioner is required by the trial Court, then the

Court can direct the personal appearance of the accused.42

D. Conditional Leave –

The learned Additional District Judge has considered the various grounds

raised. The petitioners had pleaded that the respondent had left a packet containing the

jewels, which had not been inspected, and post-dated cheques were given on

05.02.1994. Further that the goods supplied were not even worth Rs. 1,00,000/-.

These pleas neither appear to be credible nor inspire any confidence. Respondent on

39 Kulbir Singh Uberoi and another v M/s Kumar Industries (2007)3 civil Case 0181 (P&H). 40 M/s Sharadha Foundation (P) Ltd. v. M/s Suryo Udyog Ltd. I (1998) BC 3 at pp 6,7. 41 M/s Compact Disc. India Ltd. v. Contour Adverting (P) Ltd. II(1997) BC 15 at pp 16,17. 42 Jayadev, Managing Director v. State, I (1998) BC at p. 229.

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the other hand, had denied the sale as sale by samples and submitted that the jewels

had been duly inspected and the petitioners after being fully satisfied as to their

quality issued the cheques. Further, that the transaction in which a cheque of Rs.

30,000/- was issued to the respondent’s brother was a separate one and not connected

with the present transaction. The cheques in favour of the respondent’s brother was

dated 18.12.1993 for Rs. 30,000/- and was encased on 22.12.1993, while the

negotiation for the present transaction itself, even as per the petitioner, had

commenced on 29.12.1993, the learned Additional District Judge has also right held

that there was no ground for stay of the civil suit during the pendency of the

proceedings under Section 138 of the Negotiable Instruments Act. 43

The order passed by the learned Additional District Judge granting conditional

leave to the petitioner was fully justified and it cannot be faulted with. The present

case, clearly falls in the category of cases where conditional leave should have been

granted subject to deposit of the amount as has been rightly done.

III. CRIMINAL LIABILITY UNDER PENAL CODE

It may be mentioned that the existence of a civil remedy would not necessarily

exclude a trial by a criminal court of an offence.44

Similarly there cannot be any

absolute proposition of law that whenever any civil proceeding is pending between

the parties, criminal proceeding can never be proceeded with. There are many

transactions, which result, civil as well as criminal liabilities. Cheating,

misappropriate and theft is undoubtedly the transactions of this type. Therefore,

simply because civil proceedings between the parties are pending, it cannot be said

that criminal proceedings cannot be go on.45

A. Cognizance of the offence under Section 138 of the Negotiable

Instruments Act.

Once a cheque has been drawn and issued to the payee and the payee has

presented the cheque for encashment but the Bank has not enacted it for insufficiency

of funds in drawer’s account an offence under Section 138 would stand committed.

43 Raju v. Jai Parkash (2006)4 Civil Case 0148 (Karnataka). 44 Lal Bahdur v. Emperor, AIR 1933 All 42 : 33 Cri L.J. 884. 45 D. Purushotama Reddy and another v. K. Sateesh (2008) 4 Civil Case (0287) (SC).

200

The provisions contained in Section 138 in clauses (a), (b) and (c) shall have

to be read in the larger interest of the trade practice prevailing in commercial activities

so as to promote and advance industry and commerce.

Where the complaint is in respect of the dishonour of the cheques the

applicants are entitled to be released on anticipatory bail. Normally, in such cases the

private complaints are filed. There is no question of making investigation by the

police as the facts are born out by documentary evidence like the dishonoured

cheques. Bank record and the correspondence between the parties.46

The cheques was returned on two grounds, viz., that is a stale cheque and the

funds in the account were insufficient. Though the petitioner has specifically alleged

that he presented his cheque even on 17.01.1997 the learned Magistrate has not

considered the allegation, but simply dismissed the complaint saying that the cheque

was dishonoured on the ground that it is a stale cheque. The learned Magistrate was

not justified in dismissing the complaint under Section 203, Cr. P.C. when there was

allegations prima facie on the complaint itself. In this Court’s view, the order of the

Judicial First Class Magistrate-I Muvattupuzha, has to be set aside and accordingly it

is set aside.47

R. Rajeshwari V. H.N. Jagadish48

- In this case the question before the court

involved the interpretation of the provisions of section 147 of the Negotiable

Instruments Act, 1881, vis-à-vis section 320 of the Code of Criminal Procedure, 1973.

The provisions of the Code of Criminal Procedure, 1973 would be applicable to the

proceedings pending before the courts for trial of offences under the said Act. Stricto

sensu, however, the table appended to section 320 of the Code of Criminal Procedure

is not attracted as the provisions mentioned there in refer only to provisions of Indian

Penal Code and none other.

In such a situation, a settlement could be arrived at by and between the

complainant and the accused. While a settlement is arrived at, it is not necessary

under the provisions of the Act and/or Code of Criminal Procedure to file any

affidavit affirmed by the complainant or the accused. By reason of the authority

46 Deepak N. Vora v. State of Maharashtra, I(1997) CCR 362. 47 Jogy David v. Babum, 1998(3) Civil LJ 425 at p. 426: 1998(2) Crimes 375. 48 (2008)2 Camp L.J.20 (SC): Criminal Appeal No. 442 (2008).

201

granted by a litigant in favour of his advocate which, inter alia, empowers the latter to

enter into a settlement, any settlement arrived at, on behalf of a party to a lis would be

binding on the parties thereto.

The High Court, while disposing of the criminal revision filed by the

respondents herein passed a Judgment merely modifying the order passed by the

learned trial court, while directing the accused to pay a further sum of Rs.30,000/-.

Apart from the sum of Rs. 75,000/- deposited by him, he was directed to pay a fine of

Rs.5,000/- to the State, the order of conviction was not set aside.

A judgment of conviction and sentence, therefore, was passed against the

respondent. Such a judgment of conviction and sentence could not have been

modified by the High Court in view of the express bar contained in section 362 of the

Code of Criminal Procedure.

In view of the aforementioned specific bar created in regard to exercise of the

jurisdiction of the High Court to review its own order, it is clear that ordinarily

exercise of jurisdiction under section 482 of the Code of Criminal Procedure would be

unwarranted. It is assumed that, in some rare cases, the High Court may do where a

judgment has been obtained from it by practicing fraud but it does not appear that

such a case has been made out. Appellant did not make any complaint against his

lawyer. She did not even implead her lawyer as a party.

No material has, therefore, been placed on record to show that the allegations

made in the said application are correct and/or on the basis thereof the court set the

law in motion and take suo motu action in the matter or direct initiation of any

proceeding against the lawyer concerned. Furthermore, even before the High Court,

the appellant contended that she was not satisfied with the payment of Rs.30,000/- as

she was entitled to the interest on the said sum.

The court cannot rule out the possibility of the appellant’s changing her mind

after agreeing to the terms of settlement.

No case has been made out for interference with the impugned judgment. The

appeal is dismissed accordingly. However, the appellant shall be at liberty to approach

the concerned Bar Council or file an appropriate action against the lawyer concerned.

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N. Rangachari V. Bharat Sanchar Nigam Limited49

- In this case it was

decided that a Director in a company cannot be deemed to be incharge of and

responsible to the company for the conduct of his business in the context of section

141 of the Act. What is to be looked into is whether in the complaint in addition to

asserting that the appellant and another are the directors of the company, it is further

alleged that they are incharge and responsible to the company for the conduct of the

business of the company.

S.M.S. Pharmaceuticals Ltd. V. Neeta Bhalla50

- relied on such an

allegation is clearly made in the complaint. But the complaint cannot be held to be

unsustainable only for the reason that there was no specific averment that at the time

of issuance of the cheque that was dishonoured, the persons named in the complaint

were in-charge of the affairs of the company. Indeed, too technical an approach on the

sufficiency of notice and the contents of the complaint is not warranted in the context

of the purpose sought to be achieved by the introduction of section 138 and 141 of the

Negotiable Instruments Act, 1881.

Though the figure has not been written by the accused, the cheque was signed

by the accused alone, and that the evidence of P.Ws 1 to 3 who speak about the same

could be relied upon. When there is challenge against cheque, the accused/petitioner

would have, as well, sent the cheque to handwriting expert for opinion which has not

been done in this case. The initial burden to prove the issuance of the cheque by the

accused has been satisfactorily discharged by the prosecution through P.Ws 1 to 3 in

that view of the matter, both the Court below have correctly come to the conclusion

that the offence under Section 138 of the Act has been committed by the petitioner.51

It is settled law that pendency of the criminal matter would not be an

impediment to proceed with the civil suits. The criminal Court would deal with the

offence punishable under the Act. On the other hand, the Courts rarely stay the

criminal cases and only when the compelling circumstances require the exercise of

their power. 52

49 (2008)1 Comp. L.J. 124 (SC): Crl. A.No. 592 (2007). 50 (2005)6 Comp. L.J. 144 (SC): (2005)8 SCC 89. 51 Naga Raja Upadhya v. M. Sanjeevan (2007) 4 Civil Case 338 (Karnataka). 52 Raju v. Jai Parkash (2006)4 Civil Case 148 (Karnataka): (2006 ) 4 Criminal Case 0166 (Karnataka).

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Courts have never come across stay of any civil suits by the Court so far. The

High Court of Rajasthan is only an exception to pass such orders. The High Court

proceeded on a wrong premise that the accused would be expected to disclose their

defence in the criminal case by asking them to proceed with the trial of the suit. It is

not a correct principle of law. Even otherwise, it no longer subsists, since many of

them have filed their defences in the civil suit. On principle of law, this Court holds

that the approach adopted by the High Court is not correct. But since the defence has

already been filed nothing survives to this matter. The appeal is accordingly

allowed.53

The accused gave the cheque has already the account was closed. But, the

respondent-accused has chosen to issue the cheque after the closure of the account

itself. From the very conduct of the respondent, it is seen that he acted with a

dishonest intention from the time of the transaction and even if the complaint is filed

two days later, he is not prepared to pay the amount within the time stipulated by the

Legislature to pay off the amount. The complaint need not be thrown out on the

ground of technicalities as the very intention of the respondent is not to pay the

amount itself from the time of transaction itself. The Magistrate lacks appreciation of

evidence and for the sake of dismissal of the cases, he dismissed the complaint.54

B. Provisions of Cr. P.C. do not Exclude Proceedings under Section 138 of

the Negotiable Instruments Act.

Just because in the particular case the Magistrate has not chosen to grant the

prayer made by the petitioner, it will not invalidate either Section 138 of the Act or

Section 243 of the Code of Criminal Procedure, if in a particular case, the Magistrate

has committed an error in not granting the prayer of the petitioner, several remedies

are available to the petitioner to challenge such an action on the part of the Magistrate.

That will not be a ground to declare Section 138 of the Act as unconstitutional. In

fact, Section 243 of the Code of Criminal Procedure does not exclude proceedings

under Section 138 of the Act. Nor does Section 138 of the Act exclude the

applicability of Section 243 of the Code of Criminal Procedure. It is open to the

53 State of Rajasthan v. Kalyan Sundaaram Cement Industries Ltd. (1997) 1 Crimes I CCR 80 : 1996(3)

Crimes 92(SC): 1996(2) Civil LJ 392. 54 Sri Koteshwari Lacc Industries v. Madasu Parasuram, 1997(3) Crimes 294 at pp. 296,297.

204

petitioner to take appropriate proceedings in order to set right the action of the

Magistrate, if according to petitioner, the Magistrate has acted erroneously.55

It is obvious that the provisions are erective and are meant for a fair trial to the

accused, who has every right to adduce evidence in defence, no doubt, subject to the

caveat engrafted in the provisions itself, that it is the Magistrate’s duty to abide by.

Failure to give full effect to Section 243 Cr. P.C. would be an illegality and would

vitiate the entire proceedings. If the accused desires expert’s opinion in defence he

can make it available and may, if necessary, examine the expert also. In this Court’s

view, even in the absence of a specific provision in Chapter XIX, Cr. P.C., he could

request the Court that the documents, whose genuineness he disputes may be sent to

the expert for his opinion. This is implicit in sub-section (2) of Section 243 Cr. P.C. It

is a valuable right not entirely in the realm of investigation and would admit no

restriction, save where the Magistrate is satisfied for reasons to be recorded, that the

intended exercise is manifestly for the purpose of vexation and delay or for defeating

the ends of justice. Whether he should go or not go by the expert opinion is a different

matter not affecting his right under the aforesaid provision.56

C. Criminal Liability u/s 138 of the Negotiable Instruments Act, 1881

The respondent had deposited Rs. 1 lakh under the pensioners fixed deposit

scheme in a company of which the petitioners were directors the company issued post

dated cheque for Rs. 1,02675 including interest in favour of the respondent to

discharge the liability. When the respondent presented the cheque for encashment, it

was dishonoured on December 6, 1999 with an endorsement “funds in Sufficient”

consequent there upon the respondent issued a statutory notice and since the demand

made there under was not met by the company the respondent lodged a complaint

under the provisions of the N.I. Act 1881 against the company and its directors. The

trial court issued summons to the petitioners. On a writ petition to quash the

proceedings contending that the company law boards had passed an order on January

12, 2000 Stating that all the cheques issued by the company to its depositors would be

deemed to have been cancelled and were to be returned so that the depositors could be

paid in terms of its order; that the petitioners were whole time directors of the

55 R. Sankaralingam v. Union of India, I (1997) BC 541 at pp. 544,545(Mad). 56 Kuruvilla v. Sivarama Pillai, IV (1996) CCR 629(FB): 1996(4) Crimes 522.

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company working for a salary and could not be proceeded against. Held, Dismissing

the petition, that order passed subsequently by the company law board could not

takeaway the rights already accrued in favour of the parties to the cause of action

which culminated in the pending criminal proceeding. More over at the relevant point

of time all the petitioners were very well available as directors of the company and

they could not get released from the proceedings instituted. 57

In the case of Krishna Texport industries Ltd. V. D.C.M. Ltd.58,

Power of

company court to stay suit or proceeding against company under section 391(6),

Companies Act – Section 391(6) does not envisage quashing or stay of criminal cases

against the company or its Directors. In the proceedings before the company judge,

interim orders were granted whereby in view of the pending scheme for restructuring

and arrangement, the proceedings against the respondent – company were stayed. The

order with which the appellant was aggrieved in the present case noted the contention

of counsel for the respondent that the scheme had been sanctioned and the same

provided for payment to creditors through the mechanism of an escrow account

subject to the condition that the creditors withdraw all the cases against the company

and its executive directors. It was pleaded that three persons, whose particulars were

given, had not with drawn the proceedings because of which payment could not be

made to them although the respondent was ready and willing to make the payment in

terms of the scheme subject to withdrawal of the criminal complaints. The company

judge stayed the proceedings of the cases filed by the three parties. Not only that, it

was noticed that some of the creditors had filed complaints before different consumer

forums which claim also the respondent was willing to settle in accordance with the

scheme. The grievance of the appellant was that the criminal proceedings in the form

of complaints filed under section 138 of the Negotiable Instruments Act by the

appellant could not have been stayed by the company judge.

The words ‘proceedings’ or other proceedings’ used in section 391(6), as also

in sections 442 and 446, of the Company Act, 1956, must be construed ejusdem

generis with expression ‘suit’ used before them clearly imply civil proceedings. It is

57 P.S.Venkatesan and others v. C.Vijay Lakshmi (2003) 117 (Mad)744. 58 (2008)4 Comp. LJ 177 (Del).

206

only such construction which is in conformity with the intent of the legislature

introducing these provisions in the said Act.

The legislature in its wisdom introduced section 138 of the Negotiable

Instruments Act, 1881, conscious of the existence of the other provisions under the

said act. Thus, section 138 of the Negotiable Instruments Act, a later enactment,

envisaged criminal prosecution for the offence of negotiable instruments being

dishonoured, including cheques. The object was to reinforce sanctity of commercial

transactions. Once the rigours of the provisions have been complied with, a

person/company cannot, as a matter of right, come to the court to deposit the amount

and claim that the prosecution should be brought to an end. It can, thus, hardly be

expected that the provisions of sections 442 and 446, or for that matter section 391 of

the said Act, can be interpreted in a manner so as to bring the proceedings under

section 138 of the Negotiable Instruments Act to a stand still. Thus even if in a

scheme which is approved and it was envisaged that certain amounts have to be paid,

the debtor company or its directors cannot insist that the proceedings under section

138 of the Negotiable Instruments Act be quashed.

The matter may also be looked into from another perspective. The company

court cannot call before itself the proceedings under section 138 of the Negotiable

Instruments Act and quash the proceedings. The power to quash those proceedings

rests only with the hierarchy of the criminal courts. Thus, what would be the intent to

put such proceedings in abeyance by an order of a company court when the company

court itself has no power at any stage to bring to an end these proceedings?

The object of section 391(6) of the said Act is to prevent action against the

officers of the company who may be involved in cheating, criminal breach of trust,

misappropriation forgery and for that matter dishonour of the cheque. Again, the

provision cannot be used to bring to an end a prosecution arising from income tax or

Foreign Exchange Control Act. The proceedings are clearly not of a pecuniary nature

involving recovery of money. Interestingly, even the scheme stated to be approved at

the behest of the respondent-company does not envisage bar to any criminal

proceedings or payment of any actual amount in the given facts of the case as

discussed at the inception of this judgment, but only seeks to extinguish the liability

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of the appellant on the ground that the respondent is liable to pay a lesser amount, the

interest not running and the claim is alleged to have been extinguished by payment to

a third party at the behest of the appellant for which there is no written document.

Thus, the unequivocal view is that section 391(6) of the Companies Act 1956, does

not envisage either quashing or stay of criminal cases against the company or its

directors and, thus the proceedings against the respondents under section 138 of the

Negotiable Instruments Act instituted by the appellant could not have been stayed.

While considering the prosecution of directors for violations of the provisions

of Provident Fund Act, the Supreme Court in Rabindra Chamaria V. Registrar of

Companies59

considered the scope of the expression ‘any proceedings’ in section 633

of the Act and held that it cannot save directors of the company from liability or

prosecution for violating these provisions. It was observed that such a relief can be

granted only in the case of proceedings arising under the Companies Act and not

under other acts.

Antony Kakkad V. Official liquidator, High Court of Kerala60

- The

observations made in paragraph 11 in the case are of direct relevance wherein it was

held that the provisions of the special statute namely, the Negotiable Instruments Act,

would have an overriding effect over the general principles of the Companies Act and

that criminal proceedings as in the case of section 138 of the Negotiable Instruments

Act which are not in respect of the assets of the company would end in the conviction

or acquittal of the accused, cannot be stayed under the Companies Act.

Harman Electronics (P) Ltd. And another V. National Panasonic India

Ltd.61

– In this case the parties had been carrying on business at Chandigarh. The

head office of the complainant – respondent may be at Delhi but it has a branch office

at Chandigarh. It is not in dispute that the transactions were carried on only from

Chandigarh. It is furthermore not in dispute that the cheque was issued and presented

at Chandigarh. The complaint petition is totally silent as to whether the said cheque

was presented at Delhi. There is therefore no option but to presume that the cheque

was presented at Chandigarh. Indisputably, the dishonour of the cheque also took

59 (1992)1 Comp. LJ 1(SC): 1992 (Supp) 2SCC 10. 60 (2008)3 Comp. LJ 502 (Ker): (2000) 100 Comp. Cas 811 (Ker). 61 (2009)1 Comp. LJ 29 (SC) Criminal appeal No. 2021 (2008).

208

place at Chandigarh. The only question, therefore, which arises for consideration is

that as to whether sending of notice from Delhi itself would give rise to a cause of

action for taking cognizance under the Negotiable Instrument Act, 1881.

It is one thing to say that sending of a notice is one of the ingredients for

maintaining the complaint but it is another thing to say that dishonour of a cheque by

itself constitutes an offence. For the purpose of proving its case that the accused had

committed an offence under section 138 of the Negotiable Instruments Act 1881, the

ingredients thereof are required to be proved. What would constitute an offence is

stated in the main provision. The proviso appended thereto, however, imposes certain

further conditions which are required to be fulfilled before cognizance of the offence

can be taken. If the ingredients for constitution of the offence laid down in the

provisos (a), (b) and (c) appended to section 138 of the Negotiable Instruments Act

intended to applied in favour of the accused, there cannot be any doubt that receipt of

a notice would ultimately give rise to the cause of action for filing a complaint. As it

is only on receipt of the notice the accused at his own peril may refuse to pay the

amount. Clauses (b) and (c) of the proviso to section 138 therefore must be read

together. Issuance of notice would not by itself give rise to a cause of action but

communication of the notice would.

For constitution of an offence under section 138 of the Negotiable Instruments

Act 1881, the notice must be received by the accused. It may be deemed to have been

received in certain situations. The word ‘communicate’, inter alia, means ‘to make

known, inform, convey, etc.’

Section 177 of the Code of Criminal Procedure determines the jurisdiction of a

court trying the matter. The court ordinarily will have the jurisdiction only where the

offence has been committed. The provisions of sections 178 and 179 of the Code of

Criminal Procedure are exceptions to section 177. These provisions presuppose that

all offences are local. Therefore, the place where an offence has been committed plays

an important role. It is one thing to say that a presumption is raised that notice is

served but it is another thing to say that service of notice may not be held to be of any

significance or may be held to be wholly unnecessary.

209

Presumption raised in support of service of notice would depend upon the

facts and circumstances of each case. Its application is on the question of law or the

fact obtaining. Presumption has to be raised not on the hypothesis or surmises but if

the foundational facts are laid down therefore. Only because presumption of service

of notice is possible to be raised at the trial, the same by itself may not be a ground to

hold that the distinction between giving of notice and service of notice ceases to exist.

Indisputably all statutes deserve their strict application, but while doing so the

cordinal principles therefore cannot be lost sight of. A court derives a jurisdiction only

when the cause of action arose within his jurisdiction. The same cannot be conferred

by any act of omission or commission on the part of the accused. A distinction must

also be borne in mind between the ingredient of an offence and commission of a part

of the offence. While issuance of a notice by the holder of a negotiable instrument is

necessary, service thereof is also imperative. Only on a service of such notice and

failure on the part of the accused to pay the demanded amount within a period of 15

days thereafter, commission of an (offence) completes. Giving of notice, therefore,

cannot have any precedent over the service.

The court cannot, as things stand today, be oblivious of the fact that a banking

institution holding several cheques signed by the same borrower cannot only present

the cheque for its encashment at four different places but also may serve notices from

four different places so as to enable it to file four complaint cases at four different

places. This only causes grave harassment to the accused. It is, therefore, necessary in

a case of this nature to strike a balance between the right of the complainant and the

right of an accused vis-à-vis the provisions of the Code of Criminal Procedure.

The submission that the principle that the debtor must seek the creditor should

be applied in a case of this nature cannot be applied in a criminal case. Jurisdiction of

the court to try a criminal case is governed by the provisions of the Criminal

Procedure Code and not on common law principle.

Clearly, the Delhi High Court has no jurisdiction to try the case. While

exercising the jurisdiction under Article 142 of the Constitution of India it is directed

that the present complaint case pending in the court of Additional Sessions Judge,

210

New Delhi, be transferred to the court of the District and Sessions Judge, Chandigarh,

who shall assign the same to a court of competent jurisdiction.

The transferee court shall fix a specific date of hearing and shall not grant any

adjournment on the date on which the complainant and its witnesses are present. The

transferee court is furthermore directed to dispose of the matter within a period of six

months from the date of receipt of the records of the case on assignment by the

District and Sessions Judge, Chandigarh.

The appeal is thus allowed with the aforementioned observations and

directions.

Subodh S. Salaskar v. Jayprakash M. Shah and another62

- In this case it

was held that section 138 of the Act provides a penal provision. The object of the

Parliament in bringing the same in the statute book is well-known, viz., to create an

atmosphere of faith and reliance in the banking system.

The Negotiable Instruments Act, 1881, was amended in the year 2002 by the

Negotiable Instruments (Amendment and Miscellaneous Provision) Act, 2002,

whereby additional powers have been conferred upon the court to take cognizance

even after expiry of the period of limitation by conferring on it discretion to waive the

period of one month.

Indisputably, therefore, unless the conditions precedent for taking cognizance

of an offence under section 138 of the Negotiable Instruments Act, 1881 are satisfied,

the court will have no jurisdiction to pass an order in that behalf.

A complaint petition in view of clause (b) of section 142 of the Act was

required to be failed within one month from the dated on which the cause of action

arose in terms of clause (c) of the proviso to section 138 of the Act which stipulated

that 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. The legal notice was issued. It was sent

by speed post. It was supposed to be served within a couple of days.

Thirty days time ordinarily must be held to be sufficient for service of notice.

Even under order V, rule 9(5), of the Code of Civil Procedure, 1908, summons is

62 (2008) 4 Comp. L.J. 278 (SC) Criminal Appeal No. 1190 (2008).

211

presumed to be served if it does not come back within thirty days. In a situation of this

nature, there was no occasion for the court to hold that service of notice could not be

effected within a period of thirty days. If the presumption of service of notice within a

reasonable time is raised, it should be deemed to have been served at best within a

period of thirty days from the date of issuance thereof.

Ex facie, it was barred by limitation. No application for condonation of delay

was filed. No application for condonation of delay was otherwise maintainable. The

provisions of the Act being special in nature, in terms thereof the Jurisdiction of the

court to take cognizance of an offence under section 138 of the Act was limited to the

period of thirty days in terms of the proviso appended thereto. The Parliament only

with a view to obviate the aforementioned difficulties on the part of the complainant

inserted proviso to clause (b) of section 142 of the Act in 2002. It confers a

jurisdiction upon the court to condone the delay. It is, therefore, a substantive

provision and not a procedural one. The matter might have been different if the

magistrate could have exercised its jurisdiction either under section 5 of the

Limitation Act, 1963 or section 473 of the Code of Criminal Procedure 1976. The

provisions of the said Acts are not applicable. In any event, no such application for

condonation of delay was filed. If the proviso appended to clause (b) of section 142 of

the Act contained a substantive provision and not a procedural one, it could not have

been given a retrospective effect. A substantive law, as it is well-settled, in absence of

an express provision, cannot be given a retrospective effect or retroactive operation.

Therefore, there cannot be any doubt whatsoever that the courts below

committed a manifest error in applying the proviso to the fact of the instant case. If

the complaint petition was barred by limitation, the magistrate had no jurisdiction to

take cognizance under section 138 of the Act. The direction to issue summons on the

appellant, therefore, being illegal and without jurisdiction was a nullity. Section 415

of IPC defines ‘Cheating’. The said provision requires: (i) deception of any person (ii)

whereby fraudulently or dishonestly inducing that person to deliver any property to

any person or to consent that any person shall retain any property, or (iii) intentionally

inducing that person to do or omit to do anything which he would not do or omit if he

were not so deceived and which act or omission causes or is likely to cause damage or

212

harm to that person in body, mind reputation or property. Deception of any person is

common to the second and third requirements of the provision.

The cheques here were post-dated ones. They were presented before the bank

on a much later date. When the cheques were issued the accounts were operative.

Even assuming that the account was closed subsequently the same would not mean

that the appellant had an intention to cheat when the post-dated cheques were issued.

Even otherwise the allegations made in the complaint petition, even if given face

value and taken to be correct in its entirely, do not disclose commission of an offence

under section 420 of the IPC. They do not satisfy the ingredients of the said provision.

Jindal Steel and Power Ltd. and another v. Ashoka Alloy Steel Ltd. and

others63

, in this case by the impugned order, the High Court has quashed the

prosecution under section 138 of the Negotiable Instrument Act 1881 and section 420

of the Penal Code, on the sole ground that the complaint was filed two days after the

expiry of limitation.

Saketh India Ltd. v. India Securities Ltd.64

– In this case taking into

consideration the provisions of section 12(1) of the Limitation Act, it was laid down

that the day on which cause of action had accrued has to be excluded for reckoning

the period of limitation for filing a complaint under section 138 of the Act. In the

present case, after excluding the day when cause of action accrued, the complaint was

filed well within time, as such the High Court was not justified in holding that there

was two days delay in filing the complaint. For the foregoing reasons, we are of the

view that the High Court was not justified in quashing prosecution of the respondents.

In the case of Malwa Cotton and Spinning Mills Ltd. v. Virsa Singh Sidhu

and others65

, challenge this appeal was to the order passed by the High Court

accepting the prayer of the first respondent for quashing the proceedings pending

before the trial court. The proceedings related to the complaint filed by the appellant

alleging commission of offence punishable under section 138 of the Negotiable

Instrument Act 1881. The High Court had quashed the proceedings primarily on the

ground that the first respondent had resigned from the directorship before the cheques

63 (2006) 9 SCC 340. 64 (1999)3 SCC1: AIR 1999 SC 1090. 65 (2008)4 Comp. LJ 252 (SC) Criminal Appeal No. 1265 (2008).

213

were issued. The question that arose for determination in this appeal was whether the

High Court was justified in its view that the first respondent had intimated the

company about his desire to resign and that, if company had delayed in submitting the

requisite form before the Registrar of Companies he could not be made to suffer.

In this case, factual disputes are involved. What was the effect of delayed

presentation before the Registrar of Companies is essentially a matter of trial.

Whether the first respondent had intimated the company and whether there was any

resolution accepting his resolution are matter in respect of which evidence has to be

led. Therefore, the High Court was not justified in its view. So far as allegations

against the directors are concerned about their position in the company the complaint

specifically contained the averments regarding the position of the accused directors in

the company. Therefore, the High Court was not justified in quashing the proceeding

so far as the first respondent is concerned. The appeal is allowed.

In the case of Raj Kumar Khurana v. State of (NCT of Delhi) and

another66

, the appellant had kept two blank cheques in his office along with some

stamp papers. They were said to have been stolen from his office. Information as

regards missing of the said cheques was also given to the bank. He lodged a FIR

regard thereto. The blank cheques were allegedly filled up on 24.6.2001. They were

presented before the bank but the same were returned dishonoured with the remarks

said cheque reported lost by the drawer. The second respondent thereafter upon

issuance of notice in terms of the proviso appended to section 138 of the N.I. Act,

1881, had filed a complaint petition in the court of Chief Metropolitan Magistrate,

Delhi. It was not in dispute that the concerned Superintendent of Police had issued a

Certificate showing that FIR No. 57 of 2003 arising out of the FIR filed by the

appellant before the S.H.O. had been closed. It was furthermore not in dispute that the

appellant in the mean while had filed a complaint petition under section 380 read with

sections 34, 467, 468, 471, 420 and 120-B of I.P.C. in the court of Judicial Magistrate,

First Class and the same was pending adjudication. Admittedly, the appellant had

lodged a F.I.R. under sections 369, 495, 498, 420 and 34 of the I.P.C. with police

station against the second respondent and his brother, wherein also a closer report had

66 (2009)3 Comp. LJ 11 (SC): Criminal Appeal No. 913 (2009).

214

been submitted. Appellant had filed another criminal complaint against the second

respondent under section 409 of the I.P.C. which had also been dismissed on the

ground that the dispute is of civil nature. Appellant had moreover filed a suit for

recovery of a sum against the second respondent and his brother several other

applications were filed by the appellant before the said court to which we need not

advert to. Appellant filed an application under section 482 of the Code of Civil

Procedure 1963, praying for quashing of the proceedings under section 138 of the N.I.

Act 1881, on or about 6.9.2007 on the premise that the same was not maintainable. By

reason of the impugned judgment, the said application was dismissed. The question

that arose for decision was whether return of a cheque by the bank on the ground that

it was reported lost by the drawer would attract the penal provisions contained in

section 138 of the N.I. Act, 1881.

A bare perusal of the provisions contained in section 138 of the Negotiable

Instruments Act 1881, would clearly go to show that by reason there of a legal fiction

has been created. A legal fiction, as is well known, although is required to be given

full effect, has its own limitations. It cannot be taken recourse to for any purpose other

than the one mentioned in the statute itself. Section 138 of the Negotiable Instruments

Act 1881, moreover provides for a penal provision. A penal provision created by

reason of a legal fiction must receive strict construction. Such a penal provision,

enacted in terms of the legal fiction drawn would be attracted when a cheque is

returned by the bank unpaid.

Before a proceeding thereunder is initiated, all the legal requirements therefore

must be complied with. The court must be satisfied that all the ingredients of

commission of an offence under the said provision have been complied with. The

parameters for invoking the provisions of section 138 of the Act, thus, being limited,

we are of the opinion that refusal on the part of the bank to honour the cheque would

not bring the matter within the mischief of the provisions of section 138 of the Act.

The court while exercising its jurisdiction for taking cognizance of an offence

under section 138 of the Act was required to consider only the allegations made in the

complaint petition and the evidence of the complainant and his witnesses, if any. It

could not have taken into consideration the result of the complaint petition filed by the

215

respondent No.2 or the closer report filed by the superintendent of police in the F.I.R.

lodged by the appellant against him. The complaint petition does not disclose an

offence punishable under section 138 of the Act.

IV. BANKER’S LIABILITY

A. Liability to Pay Damages –

In case all the conditions which are necessary for the payment of a cheque are

present and have been fulfilled then if the bank dishonours a cheque it will amount to

a breach of the contract for which the banker is liable to pay damages. In Hadley v.

Baxen Dale67

, it was held that the party in breach must pay the amount of damages

which flows directly and naturally from his failure. To keep his contract provided that

it was contemplated at the time of contract. If a party loses the benefit of

exceptionally high profits would the bank be liable for the same in case of a wrongful

dishonour of a cheque. Apart from general danger of this kind there is danger to the

customers’ reputatioin and business. It is difficult to assess damages in these cases. In

Rolin v. Steward,68

the plaintiff who banked with a company of which the defendant

was public officer (i.e. who was the proper party to be sued) had three cheques and a

domiciled bill dishonoured by them owing to the inadvertence of a clerk. They were

represented and paid next day. The plaintiff brought this action for damages, and gave

no evidence to show that he had actually suffered injury. A jury awarded £500. Held-

That the jury were entitled to give substantial damages, though £ 500 was in the

circumstances excessive £ 200 was actually agreed.

Damages to reputation follows almost as a matter of course when the customer

is in trade or business, unless, of course, it can be shown that owing to bankruptcy or

some other reason the customer’s credit is of no business value. In the case of other

persons, however, the loss to reputation may be problematical.

B. Nature of Damages

In Evans v. London and Provincial Bank69

, the plaintiff drew a cheque on

her husband’s behalf payable to the mess steward of a shop on which he was serving,

67 (1854) 9 EX 354. 68 (1854) 14 CB 595. The doctrine appears first in Marzetti v. Williams (1830) I B and AD 415. 69 (1917) Legal Decision Affecting Bankers, Vol. III, p. 152.

216

and owing to a mistake this was dishonoured. There was no suggestion of any actual

damage to the plaintiff herself and the jury awarded her one shilling.

It is accordingly contended by Paget that, except in the case of the customer in

business, actual damage to reputation must be proved before it can be recovered, and

this view was followed in Gibbons v. Westminister Bank Ltd.70

The damages are just in the nature of damages in an action for defamation. If it

is correct that only a trader can recover so called exemplary damages for wrongful

dishonour, it might be possible for a non trader to recover by framing his action in

liable only, as was done kin Davidson v. Barelays Bank Ltd.71

So long as bankers

continue the practice in question they must except occasional actions against them

framed in libel, especially in actions by non-traders.

In the case of Urquhart Lindsay v. Eastern Bank72

, the important question of

how much in damages a bank must pay if it wrongly dishonours drafts drawn under a

credit was discussed. It was argued for the bank that, since by English law failure to

pay a debt does not sound in damages, they could not be liable for more than the

amount of the drafts in question less an allowance for the value of the documents

which should have been taken up. While for the sellers it was contended that the

bank’s failure to take up the draft amounted to a repudiation of the contract as a whole

and that damages must be assessed on that basis. The latter was the view taken by the

court. It is clear, however, that each case must be considered on its merits, and if the

evidence shows that the breach of contract by the bank is confined to one particular

draft or otherwise indicates that there was no intention to repudiate, damages will not

be recoverable.

A reference should be made to a number of English cases. An important case is

Gibbons v. Westminister Bank Ltd.73

, upon the wrongful dishonour of his cheque a

customer who is a trader must prove special damage before he can be awarded

substantial damages. In this case the plaintiff was a woman customer of the defendant

bank, who, after paying in a sum of money to her account, drew a cheque which was

70 (1930) 2 KB 882: C & S 69. In this case it was held that in order to succeed a non trader must

prove actual damage. 71 164 LT 25 : C and S 71,where the words used were “not sufficient”. 72 (1922) 1KB 318,323: ante, p. 237, Contra see Steln v. Hambro’s Bank, (1921) 9 LILR 433. 73 (1939) 2 KB 882.

217

dishonoured as a result of the bank’s having put the credit to another account instead

of to hers. Upon the dishonour, she called on the manager of the branch at which the

account was kept, and he paid her £ 1.1s.- in full satisfaction, as the bank claimed, of

any claim she might have against them. The jury found, however, that she did not so

accept the payment.

The defendant bank contended that the plaintiff was entitled to nominal

damages only, as she had not pleaded any special or actual damages. The jury awarded

substantial damages, however, in the sum of £50, and after they had then been

discharged, the court heard further argument regarding damages. It was held that as

the plaintiff was a non-trader, who had not proved any special damages, she was

entitled to nominal damages only 40 shilling were awarded. In the course of his

judgement, Lawrence J. said:

“The authorities which have been cited in argument all lay down that a trader is

entitled to recover substantial damages for the wrongful dishonour of his cheque

without pleading and proving actual damage, but it has never been held that that

exception to the general rule as to the measure of damages for breach of contract

extends to any one who is not a trader. The cases cited in which this view has been

taken are Morzetti v. Willams74

, Rolin v. Steward75

, Bank of New South Wales v.

Milvain76

and Kinlan v. Ulster Bank Ltd.77

Coming to the Indian scene and Indian cases, we first refer to the case of

Gopesh Chandra Pal v. Nirmal Kumar Das Gupta78

in this case it was held by the

Calcutta High Court that where a person, who had opened a current account in a bank,

sought to prosecute the managing director, the chief accountant and the accountant of

the bank for the offences of criminal misappropriation and criminal breach of trust by

a banker for wrongfully dishonouring his cheque.

Held- (i) That they were not bankers and the essential ingredient of entrustment in the

offence of criminal breach of trust was not involved in a deposit of money on current

74 (1830) IB and Ad 415. 75 (1854) 14 CB 595; infra. 76 (1884) 10 VLR 3. 77 (1928) IR 171. 78 (1950) 20 Comp Cas.220.

218

account; (ii) That dishonouring a cheque did not connote misappropriation and that

therefore no case of a criminal nature was made out against them.

The remedy for a cheque being wrongfully dishonoured lies in the civil court.

Similarly the Madras High Court in New Central Hall v. United Commercial

Bank Ltd.79

, held that where a banker having sufficient funds of a customer in his

hands fails, even by mistake to honour cheque issued by the customer, the customer

has a right to claim damages. Further it was held that in an action for damages against

a bank by a non-trader customer for dishonour of cheques nominal damages should be

awarded where there is no proof of special loss or damage by the wrongful

dishonouring, and in the case of a trader, substantial damages should be awarded even

in the absence of proof of special loss or damages. Of course, if there is proof of

special loss or damages, that will be taken into consideration for arriving at the exact

quantum of damages. The Indian law on the subject is not at all different from the

English law on the point.

An interesting case regarding the liability of the bank to pay damages under

section 31 of the Negotiable Instruments Act, 1881 in Canara Bank Ltd, represented

by its Branch Manager, Madras v. I.V. Rajagopal80

. In this case it was held that

mere expression of regret is not the answer to the situation. It is expected of a bank to

honour its customer’s cheque if it has sufficient funds in his hands. If it fails to do so,

it will be liable to damages. The reason is obvious. It injuriously affects the reputation,

credit and integrity of its customer. Even section 31 of the Negotiable Instruments Act

provides that the drawee of a cheque having sufficient funds of the drawer in his hands

properly applicable to the payable of such cheque must pay the cheque when duly

required so to do, and in default of such payment, must compensate the drawer for any

loss or damage caused by such default. The bank aggravated the situation by its

inaction between 24th

April, 1964 and 6th

May, 1964. Even when the bank was put on

notice about the disconnection of the telephone, the attitude of the bank did not

change. The plaintiff in an agonising mood complained under Exhibit B-1 about the

gravity of the situation. The bank would reply in a very matter of fact fashion stating

that it took up the matter with the Telephone Department and has concluded by saying

79 AIR 1959 Mad 153. 80 1975(1) MLJ 420.

219

“Inspite of this we do not understand why this misunderstanding has been created”. Of

course, they followed it up by an expression of regret. As pointed out by a Division

Bench of this Court in New Central Hall v. United Commercial Bank81

, the fact that

such dishonouring took place due to a mistake of the bank is no excuse nor can the

offer of the Bank to write and apologise to the payees of such dishonoured cheques

affect the liability of the bank to pay damages for their “wrongful act”.

The court held that the Judges were satisfied that beyond reasonable doubt,

there is sufficient nexus between the dishonour of the cheque and the consequential

disconnection of the telephone with the final act of dismissal of the plaintiff from

services by his employers. It is not in dispute in the instant case that the group

companies in which the plaintiff was employed was a commercial group having a

recognised business status and mercantile integrity. It was not also urged before us that

the absence of a telephone with the liaison officer of such group companies at Madras

would not matter. On the other hand, the appellant insisted that he was not negligence

and that all possible efforts were made by him to ease the situation. As we said, the

methodology adopted by the bank in a serious situation like this is not a satisfactory

one and in a case like this we should characterise such a slow and haphazard

movement of a responsible bank as negligence on its part. The causa causans of the

dismissal of the plaintiff’s service is therefore attributable to the conduct of the bank

which we find is far from reasonable and indeed abounding in negligence.

As per Award of the damages the learned court held that the well understood

proposition in law is that damages are awardable if a sufficient nexus is established

between the wrongful Act and the resultant loss to the injured. This principle laid

down in section 73 of the Indian Contract Act, 1872 (9 of 1872), is a well known, one.

Under this section, the measure of compensation for any loss or damage caused in case

of breach of contract is fixed as that which naturally arose in the usual course

Of things from such breach or which the parties knew, when they made the

contract, to be likely to result from the breach of it and such compensation is not to be

given for any remote and indirect loss or damage sustained by reason of the breach.

The court further made a distinction between the damages which are to be paid to a

81 (1959 1 MLJ 26 : 29 Comp. Cas. 78: 72 LW 131: ILR (1959( Mad 198: AIR 1959 Mad 153.

220

trader and non-trader and referred to the following observations of McGregor on

Damages, Thirteenth Edition, at page 917:

“The important characteristic of such cases is that the plaintiff,

where a trader, can recover substantial damages for injury to his

credit without proof of actual damages.”

The following observations are also relevant :-

“The ratio decidendi in such cases is that the refusal to meet the

cheque, under such circumstances, is so obviously injurious to the

credit of a trader that the latter can recover, without allegation of

specific damage, reasonable compensation for the injury done to his

credit: but this rule does not apply where the customer is not a

trader: in such cases substantial damages cannot be awarded

without proof of actual injury to credit.”

In Jagendra Nath Chakrawarti v. New Bengal Bank Limited82

, it was held

that where the Banker, being bound to honour his customer’s cheque, has failed to do

so, he will be liable in damages. If special damage, naturally ensuing from the

dishonour, is proved, it will be properly taken into account in assessing the amount of

the damages. If the customer be a trader, the court may properly award substantial

damages, in the absence of proof of special damages. In other cases the customer will

be entitled to such damages as well reasonably compensate him for the injury which,

from the nature of the case, he has sustained. All loss flowing naturally from the

dishonour of a cheque may be taken into account in estimating the damages.”

In Mohamed Hussain v. Chartered Bank83

, it was held that negligent act

may be the effective cause of an injury though it may not be proximate in time, if it is

the particular incident, in a chain of events which has in fact led to the injury, that is,

if it is the real cause of subsequent accident. To determine responsibility the law will

consider the proximate and not the remote cause of an injury.

Tindal, C.J. in Davis v. Carret 84

, held-

82 AIR 1939 Cal 63. 83 ILR(1964) 1 Mad 1012: (1965) 2 Comp. LJ 37 : AIR 1965 Mad 266. 84 130 ER 1456.

221

“… no wrong doer can be allowed to apportion or qualify his own

wrong and that as a loss has actually happed whilst his wrongful

act was in operation and force, and which is attributable to his

wrongful act, he cannot set up as an answer to the action the bare

possibility of a loss, if his wrongful act had never been done.”

C. Compensation –

The principle of awarding compensation to the drawer of a cheque is

reparation for the injury sustained or likely to be sustained by reason of the

dishonour. In almost every case the drawer can recover substantial damages against

the drawee on the basis of injury to his credit, although he may not be able to prove

that he had suffered actual pecuniary loss through the dishonouring of the cheque.85

But there appear to be distinction between a trader and non-trader in this respect;

while a trader is always entitled to substantial damages for dishonouring of his

cheque, a non-trader will be entitled only to nominal damages in the absence of an

allegation and proof of substantial damages.86

This is the rule followed by the High Court of Andhra Pradesh in S.K. C.C.

Bank v. Subrahmanyam.87

It is a discredit to a person and therefore injurious in fact to have payment

refused of a draft for so small a sum, for it shows that the banker had very little

confidence in the customer, it is particularly injurious to a person in trade.88

D. Loss includes Damages to Reputation –

Loss or damage contemplated by the section mean not merely pecuniary loss,

but includes damage to reputation also, which is always considered as damage in law.

In measuring the compensation in these cases section 117 of the Act has no

application. The general principles which regulate the measure of damages have,

therefore, to be applied. According to English law where the drawer has not sustained

actual damage, he is at least entitled to a verdict for nominal damages.89

85 Sridhar v. Tyrwitt, (101) AWN 113; Rolin v. Steward, (1854) 4 CB 595. 86 Gibbons v. Westminster Bank, (1939) 3 All ER 577. 87 (1962) 2 All WR 324. 88 Marzetti v. Williams, (1830) IB and AD 415. 89 Ibid.

222

Thus, so far as the civil remedy is concerned a customer on account of a

wrongful dishonour can claim damages against the Bank. So far as the question of

civil remedy for the payee is concerned, it is a case for recovery of money under the

summary procedure which can be filed against the Drawer. As for criminal remedy

against the drawer the same are (1) Prosecution for cheating, and (2) Prosecution

under the newly added chapter XVII of the Negotiable Instrument Act, 1881

V. ROLE OF MENS REA

Section 138 was introduced with a laudable public policy behind it. It is

intended to prevent or curtail a mischief which is likely to affect financial

transactions, and thereby trade and business and ultimately, economy of the country.

Even though the normal rule is that an act or illegal omission in order to constitution

an offence, must be had with the requisite mental condition on the form of attention,

knowledge or reasonable belief, that pre-requisites could be authority dispensed

within appropriate cases by creating strict liability offences in the interest of nation,

just like offences under the Prevention of Food Adulteration Act. Further, there is no

point in contending that mens rea is not required for constituting an offence

punishable under Section 138. What is made an offence is not the drawing of cheque

alone. It must have been drawn in discharge, in whole or in part, of a legally

enforceable debt or other liability. It must have been duly presented in time and

dishonoured for the reasons specified. Then there must be a written demand for the

amount within a specified time, followed by failure to make payment within another

specified time. It becomes an offence only on such failure which is an illegal omission

made with requisite mens rea. This aspect is also answers to the contention of

petitioner that date of commission of the offence cannot be ascertained. Whether

cheque is post-dated or not is immaterial. It becomes an offence only after the expiry

of fifteen days from the date of written demand, if the amount is not paid on that date.

Date of commission of the offence could be ascertained with accuracy. Cause of

action for filing a complaint under Section 138 arises only on that date and complaint

will have to be filed within one month (now the period for issue of notice by the

payee to the drawer from 15 days to 30 days vide Amendment Bill No. 55 of 2002

)from the date on which cause of action arose, as provide in Section 142(b). It is duty

223

of the person, who draws the cheque in discharge of a legally enforceable debt or

other liability so provide funds in the account to honour the cheque. There is nothing

arbitrary or unconstitutional in Section 140 because a person, who drew the cheque

without reason to believe that it may be dishonoured on presentation, can avoid

liability by making payment on demand in writing. One, who is not having such a

capacity, should not issue a cheque. Possibility of a stolen cheque being made the

subject of complaint need not be considered, because that is only an imaginary

possibility and it is a matter of proof, depending upon facts.

Section 142 (c) invents certain Magistrates with power of trying of fences

punishable under Section 138. When power is given to try an offence, it includes the

power to convict or acquit and in case of conviction, to exercise the sentencing

discretion also to award an appropriate sentence, allowed by law. In order to convict

an accused, Court must find him guilty. For the purpose of entering conviction or

acquittal, Magistrate must get himself satisfied of the ingredients of the offence.

Power to try and convict includes the power to decide existence of the ingredients

necessary to constitute the offence. One of the ingredients to be found is whether the

cheque was drawn in discharge, in whole or in part, in any legally enforceable debt or

other liability. If that question arises in civil suit, it could be said that it could be

decided only by that Civil Court. In a criminal prosecution, that question will arise

only collaterally for the purpose of deciding criminal liability. Magistrate himself can

decide it for the purpose of the criminal trial and conviction. He is not deciding that

matter to decree a suit for money due under the cheque. His finding may not be

finding on a Civil Court. Still, for the purpose of conviction, he himself can decide

that matter. Without deciding that matter, he cannot enter conviction. Power to

convict includes the power to decide anything necessary for that purpose. As

apprehended by petitioner, after taking cognizance, he need not refer the question of

drawing of the cheque in discharge of a legally enforceable debt or other liability to a

competent Civil Court and await its decision to proceed with the trial. Such an absurd

contingency could never have been contemplated by the Legislature.90

90 K.S.Anto v. Union of India, 1992(1) BC 223 at pp. 225,226.

224

The mere drawing of a cheque and its dishonour even if it constitutes an

offence of cheating, as defined in Section 415 of the Penal Code, will not be an

offence under Section 138 unless the above conditions are satisfied. So far as Section

138 is concerned, mens rea is irrelevant. That is why it is specified in Section 140 that

it shall not be defence in a prosecution for an offence under Section 138. As Section

142(b) indicates, the cause of action for a prosecution under 138 will arise only under

Clause(c) of the proviso to Section 138 when the drawer fails to make the payment

within fifteen days of receipt of the notice under clause (b) of the proviso and there is

a prohibition against taking cognizance except on a complaint in writing by the payee

or holder in due course and that too except when the complaint is made within one

month of the date on which the cause of action arises.

Notice was issued only on February 9, 1990, which is long after fifteen days.

There, the question of compliance with Clause (c) of the proviso does not arise and it

cannot be said that the offence is made out. Even from the date of receipt of notice,

the complaint was filed more than one month afterwards.

The magistrate was well justified in dismissing the complaint as the offence is

not disclosed. The criminal revision petition dismissed.91

In the case of Rahul Builders v. Arihant Fertilizers and Chemical and

another92

, a cheque was issued by the first respondent in favour of the appellant. It

was not honoured on the ground that the first respondent had closed its account with

the bank. A notice was sent by appellant to the first respondent stating that the cheque

having been returned unpassed by the bank authorities with the plea that the account

had already been closed and that the appellant was free to takeup any legal step

against the first respondent to get the amount of pending bills. The respondent

requested to remit the payment of pending bills within 10 days from the date of

receipt of this letter otherwise suitable action as deemed fit would be taken against the

respondent. The High Court of Madhya Pradesh by reason of its impugned order, in

exercise of its jurisdiction under section 482 of the Code of Criminal procedure, 1908,

quashed the criminal proceedings pending against it holding: (i) 15 days notice having

not been served upon the respondent, the same was not valid in law (ii) the notice was

91 K.T.Kurtyan v. K.K.Sreedharan 1 (1994) BC 140. 92 (2008)2 Camp LJ83 (SC).

225

vague and did not serve the statutory requirements of provisos (b) and (c) of section

138 of the Negotiable Instrument Act 1881. The question that arose for determination

was whether, on the facts, failure on the part of the appellant to serve a proper notice

strictly in terms of proviso appended to section 138 of the Negotiable Instrument Act

1881, would lead to quashing of a criminal proceedings initiated on a complaint made

by the appellant herein.

Service of a notice, it is trite, is imperative in character for maintaining a

complaint. It creates a legal fiction. Operation of section 138 of the Negotiable

Instrument Act is limited by the proviso (b) there to. When the proviso applies, the

main section would not. Unless a notice is served in conformity with proviso (b)

appended to section 138 of the Act, the complaint petition would not be maintainable.

The Parliament while enacting the said provision consciously imposed certain

conditions. One of the conditions was service of a notice making demand of the

payment of the amount of cheque as is evident from the use of the phraseology

‘payment of the said amount of money’ such a notice has to be issued within a period

of 30 days from the date of receipt of information from the bank in regard to the

return of the cheque as unpaid. The statute envisages application of the penal

provisions. A penal provision should be construed strictly; the condition precedent

where for is service of notice. It is one thing to say that the demand may not only

represent the unpaid amount under cheque but also other incidental expenses like

costs and interests, but the same would not mean that the notice would be vague and

capable of two interpretations. An omnibus notice without specifying as to what was

the amount due under the dishonoured cheque would not sub serve the requirement of

law. Respondent was not called upon to pay the amount which was payable under the

cheque issued by it.

The amount which it was called upon to pay was the outstanding amounts of

bills. The notice was to respond to the said demand. Pursuant thereto, it was to offer

the entire sum. No demand was made upon it to pay the said sum of which was

tendered to the complainant by cheque. What was, therefore, demanded was the entire

sum and not a part of it. As in the case, no demand was made for payment of the

226

cheque amount the impugned judgment cannot be faulted. For the reasons

aforementioned, there is no merit in this appeal which is dismissed accordingly.

In the case of Jose Antony Kakkad v. Official Liquidator, High Court of

Kerala and another93

the applicant was being proceeded against before a criminal

court for dishonour of cheque signed by him as managing director of the company.

His application before the company court for stay of criminal proceedings against him

was dismissed on the ground that section 446 of the Companies Act cannot be

attracted in criminal proceedings where the assets of the company are not involved

and the proceedings pending against the accused were only in respect of the

commission of the offence and the punishment thereon. The applicant moved the

present appeal against the order of the court below. The question that arose for

determination was whether, on the facts, the proceedings pending before criminal

court under section 138 of Negotiable Instruments Act 1881, are liable to be stayed

under section 446 of the Companies Act, 1956. It is well settled that the expression

‘other legal proceedings’ in section 446 of the Companies Act does not take in all

proceedings and the proceedings under the special Act have an overriding effect over

the general provisions under the Companies Act. The object of winding up of a

company by the court was to facilitate the protection and realization of its assets with

a view to ensure an equitable distribution thereof among those entitled.

Once the court has taken the assets of a company under its control or has

passed an order for its being wound up, in the ordinary course, it will not be proper to

allow proceedings to be started or continued against the company. Section 446 is

intended to avoid multiplicity of proceedings and to safeguard the assets of a

company against wasteful or expensive litigation in regard to matters capable of being

determined expeditiously and effectively by the winding up court itself. Though the

words ‘legal proceedings’ in section 446 of the Companies Act is wide enough to take

in criminal proceedings also, such criminal proceedings must be in relation to the

assets of the company. Criminal proceedings which are not in respect of the assets of

the company but end in the conviction or acquittal of the accused, cannot be stayed

under section 446 of the Companies Act. The proceedings under section 138 of

93 (2008) 3 Comp. LJ 502 (Ker).

227

Negotiable Instruments Act can end only in the conviction or acquittal of the accused

in the case and no recovery of any amount covered by the dishonoured cheques can be

made in the criminal proceedings. As the criminal proceedings under section 138 of

the Negotiable Instruments Act are not in respect of the assets of the company, the

proceedings pending in the criminal courts cannot be stayed under section 446 of the

Companies Act. Hence the proceedings initiated against the appellant under section

138 of Negotiable Instruments Act before the criminal court cannot be stayed

invoking section 446 of Companies Act.

In the case of Central Bank of India v. Saxons Farms94

, the Court held that

the object of the notice is to give a chance to the drawer of the cheque to rectify his

omission. Though in the notice demand for compensation, interest, cost etc. is also

made the drawer will be absolved from his liability under section 138 if he makes the

payment of the amount covered by the cheque of which he was aware within 15 days

from the date of receipt of the notice or before the complaint is filed.

In the case of Paresh P. Rajda v. State of Maharashtra95

, the complainant

company, which had commercial dealings with the accused, filed a complaint under

section 138 of the Negotiable Instruments Act, 1881 alleging that the accused had

issued two cheques, each for rupees one lakh, which had been dishonoured, with the

remarks ‘exceeds arrangements’. Notice was issued to the company, the Chairman

and a Director of the company and they appeared reluctantly before the court after

bailable warrants had been issued. The accused Chairman thereupon moved an

application that as per the averments made in the complaint itself, no case for

summoning him had been made out as no overt act with regard to the issuance of the

dishonoured cheques had been attributed to him. The High Court, however, directed

that the application under section 395 of the Code of Criminal Procedure 1973 which

had already been made before the Metropolitan Magistrate be decided at the first

instance. The Magistrate, however, rejected the application, holding that he had no

jurisdiction in the matter, as process under section 395 of the Code had already been

issued. It was in this circumstance that the accused once again moved the High Court.

The High Court dismissed the appeal, holding that the argument that the accused had

94 (2000)2 Comp. LJ 36(SC): (1999)8 SCC 221. 95 (2008) 4 Comp. LJ 293 (SC) (Criminal appeal No. 921 of 2008).

228

been arrayed as such merely because he was a director of the company was wrong in

as much as an overall reading of the complaint showed that specific allegations had

been leveled against him as being a responsible officer of the accused company and

therefore equally liable, and that if it was ultimately found that the accused had, in

fact, no role to play, he would be entitled to acquittal. Hence, this appeal was filed by

special leave. It is well settled that the requirement of section 141 of the Negotiable

Instruments Act, 1881, 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. The entire matter thus would boils down to an examination of the nature of

averments made in the complaint.

In this case, the question of responsibility of the Chairman for the business of

the company has not been seriously challenged. Nonetheless, there are allegations

against both the accused/appellants to the effect that they were officers and

responsible for the affairs of the company. Therefore, at a stage where the trial has not

yet started, it would be in appropriate to quash the proceedings against them in the

light of well settled.

Legal position – Accordingly, there is no merit in the appeals and are

dismissed.

In the case of Southern Steel Ltd. and others v. Jindal Vijayanagar Steel,

Ltd.96

, the request of appellants, respondent company supplied goods to appellants.

The terms of payment under the purchase order granted 45 days interest free credit to

the appellants for the goods sold and delivered by the first respondent. The appellants

issued cheques in question in favour of respondent company. The said cheques were

dishonoured on presentation. The legal notice sent by the respondent company, the

appellants through two substantially identical replies, for the first time, contended that

the appellants had been declared a sick company under the provisions of the Sick

Industrial Companies (Special Provisions) Act, 1985, and, therefore, no legal

proceedings of recovery of the outstanding amount could be initiated against the

appellant company. The above purchases were made by the appellants from the

96 (2008)4 Comp LJ 300 (SC) Criminal Appeal Nos. 845-846 of 2008.

229

respondent company after the appellant company was declared sick under the

provisions of Sick Industrials Companies (Special Provisions) Act, 1985. The

appellants could not dispute the fact that the purchases were made after the appellant

company was declared sick under the SICA. The purchases were made holding out

clear representation that the goods will be paid for ultimately, on non-payment of the

outstanding amount, the respondent company initiated criminal proceedings against

the appellant company by filing a criminal complaint under section 138 of the

Negotiable Instruments Act, 1881. The appellant company, aggrieved by the said

proceedings filed criminal petitions under section 482, Criminal Procedure Court,

1973, for quashing the proceedings under section 138 of the Negotiable Instruments

Act, 1881. The High Court dismissed both these petitions holding that it was

premature to analyze the entire documentary evidence as put forth by both sides to

give a finding one way or the other. Appellants, subsequent to the directions given by

the High Court, approached the trial court and produced the documents including the

order passed by Board for Industrial Financial Reconstruction (BIFR) under section

22A of SICA. They sought discharge of the accused under section 258 of the code of

Criminal Procedure. The trial court dismissed those applications. Thereafter the

appellants again approached the high court by filing two criminal petitions for

quashing the criminal proceedings. The question that arose for determination in the

present appeal by special leave was whether, on the facts, the appellant were entitled

to any indulgence in the matter of the quashing of criminal proceedings initiated

against them under section 138 of the Negotiable Instruments Act, 1881.

In this case the directors had infact issued the cheques for discharging their

liability with the full knowledge, would not only clearly show that there was an

undisputed debt, but would also show that, right from the inception, the appellants

infact had no intention of paying the amount for the purchases made by them. The

intention of the appellants can be gathered by their subsequent acts, conduct and

behaviour of taking a shelter under the provisions of SICA. The appellants are not

entitled to any indulgence of this court under its extraordinary jurisdiction under

Article 136 of the Constitution. The appellants had lost their total credibility because

of their conduct. When the appellant was declared sick, then without disclosing this

230

fact the appellants ought not to have made huge purchases from the respondent

company. This clearly indicates that the appellants had no intention of making

payment of the purchases made by it.

The High Court, in the impugned order, has directed the trial court to dispose

of the cases of the appellants as early as possible, but not later than six months from

the date of its order. The appellants by approaching this court have caused avoidable

delay in disposal of these cases before the trial court. In the facts and circumstances of

the case, it is considered appropriate to request the trial court to conclude the trial of

these cases as expeditiously as possible and, in any event, within six months from the

date of this judgment.

In the case of D.C.M. Financial Services Ltd. v. J.N. Sareen and another97

,

the first respondent was a director of a company. The company purchased certain

agricultural equipments on hire purchase. As a part of the said transaction some post-

dated cheques were issued in favour of the appellant herein towards the payment of

monthly hire. The first respondent admittedly resigned from the directorship of the

company. It was accepted one of the said post-dated cheques, when presented to the

bank by appellant for encashment the cheque was dishonoured. Pursuant thereto a

notice for payment was issued. Amount having not been paid despite service of

notice, a complaint petition was filed under section 138 of the Negotiable Instruments

Act, 1881. No allegation was made in the complaint petition that the first respondent

was a signatory to the cheque or he was authorized therefore an application was filed

by the first respondent for his discharge. By reason of the order the same was allowed

by the trial court. The criminal revision application filed there against was dismissed.

The submission on behalf of the appellant was that although before the High Court no

material was placed to show that the first respondent was a signatory to the cheque in

question, in view of the fact that the entire records were available to the High Court, it

should have been held that the first respondent was primarily liable for payment of the

amount thereunder. The question that arose for decision in the present appeal by

special leave under Article 136 of the Constitution was as to what would be the effect

of a post-dated cheque vis-à-vis prosecution in terms of section 141 of the Negotiable

97 (2008)4 Comp. LJ 265 (SC) Crl. Appeal No. 875 (2008).

231

Instruments Act, 1881. In other words, the question that arose for decision was as to

whether an authorized signatory, in a situation of this nature, would be liable for

prosecution. The underlying purpose for which the Parliament enacted section 138 of

the Negotiable Instruments Act, 1881, is not in doubt or dispute. What, however, is

necessary to be borne in mind is the distinction between a civil proceeding and a

criminal proceeding. What is also necessary to be borne in mind is the standard of

proof in a civil suit and a criminal case.

Averments made in the complaint petition supported by the statements of the

complainant form the basis for taking cognizance of an offence by the Magistrate. The

complaint petition in this case did not disclose as to who had signed the cheque on

behalf of the company. Involvement of the first respondent in commission of the

offence as signatory was neither averred nor stated by authorized representative of the

complainant. Even the complaint petition proceeded on the basis that the averments

contained in the complaint petition were sufficient to enable the Magistrate to

summon the accused. Even before the High Court such a contention was not raised.

Such a contention was raised in the present proceedings for the first time. This itself

indicates the manner in which the complaint proceeded. Fairness on the part of the

complainant is also expected in such a matter.

It is now not in dispute that the first respondent had intimated the complainant

as regards his resignation from the company. The first respondent indisputably was a

director of the company. The liability attached to him was not a personal liability. It

was a constructive liability. The cheque was drawn on behalf of the company. He

might have been liable as a person-in-charge of the company within the meaning of

section 141 of the Negotiable Instruments Act, 1881. For the reasons above

mentioned no case has been made out for interference with the impugned judgment.

VI. CONVICTION AND QUESTION OF SENTENCE

The provisions regarding the punishment of 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 were firstly inserted in Section 138 by the Amendment Bill No.

66 of 1988 which has been increased by the Amendment Bill No. 55 of 2002 from

one year to two years.

232

It is established without any doubt that the cheque was dishonoured due to

insufficiency of funds. It is also clear from notice sent on behalf of the appellant and

reply sent by the respondent to the appellant that the appellant has complied with the

necessary requirements under Proviso (b) to Section 138 of the Act. Therefore, it is

clear from the evidence on record that the respondent has committed the offence

punishable under Section 138 of the Act and the lower Court was in manifest error in

holding otherwise.

Respondent was convicted and sentenced to undergo simple imprisonment for

three months and to pay a fine of Rs. 3,000/- and in default of payment to undergo

simple imprisonment for a period of one month for the offence punishable under

Section 138 of the Act.98

Power is conferred on the Magistrate notwithstanding anything contained in

the Code of Criminal Procedure. Section 138 of the Act makes the offence under that

section punishable with imprisonment for a term which may extend to one year or

with fine which extend to twice the amount of the cheque or with both. The

Legislature was, therefore, aware of the necessity of awarding fine in excess of

Rs. 5,000/- while conferring powers on a Judicial Magistrate of First Class to take

cognizance of an offence under Section 138 of the Act. Specific powers had,

therefore, been conferred on a Magistrate of the First Class under Section 142 to

impose fine exceeding Rs. 5,000/-99

It cannot be assumed that merely because under Section 138 of the Act, a

guideline is given regarding the quantum of fine to be imposed on the accused, there

are different offences. The main punishment prescribed is imprisonment which may

extend to a period of one year. As regards fine, it is stated that the quantum may

extend twice the amount of the cheque. It is important to note that the fine is not a

compulsory punishment and only the maximum amount is prescribed. There

guidelines do not alter the nature of the punishment. In the matter of sentence, the

Magistrate is given a discretionary power depending upon the amount for which the

cheque is drawn. This discretionary power in the matter of which the cheque is drawn.

This discretionary power in the matter of sentence does not alter the nature of the

98 Michael Kuruvilla v. Joseph K. Kondody, 1998( 3) Civil L.J. 379 at p. 380. 99 Sahadevan v. Sreedharan, I (1996) BC 512.

233

offence. So, even if the cheques had been issued for different amounts, if other

conditions laid down in Section 219(2) are satisfied, the cases in respect of three

cheques could be tried jointly. Moreover, this is a procedural law and the main

question to be considered is whether the accused is seriously prejudiced by that. If the

present procedure is adopted, the accused is not likely to be prejudiced and it will

avoid multiplicity of cases.100

The entire amount has been paid to proprietor of the respondent firm

complainant respondent is present in Court and admits this fact. He has been

identified by the petitioner’s learned counsel. There is nothing on the record to

indicate whereby it could be stated that petitioner is not entitled to the

benefit of Section 360 of the Code of Criminal Procedure.101

The madras High Court had occasion to consider the aspect in Prabhakar v.

Naresh Kumar N. Singh,102

interpreting Section 142 of the Negotiable Instruments

Act in the light of Section 29(2), Cr. P.C. It was held that Section 29(2), Cr. P.C. is

not applicable in view of the primary clause in procedure. Agreeing with the view of

the Madras High Court the Magistrate of the First Class is empowered to impose a

fine exceeding Rs. 5,000/- for offence under Section 138 of the Negotiable

Instruments Act.103

In the instant case, the appellate Court miserably failed in the proper exercise

of Section 389(1), Cr. P.C. by suspending the sentence of fine including the

compensation by merely saying that the Court has got power to do so. This is beyond

the jurisdiction.

Coming to the facts of this case, the cheque amount is Rs. 5,23,700/-. As per

Section 138 of the Negotiable Instruments Act, the trial court could impose fine to the

extent of twice the amount of the dishonoured cheque. In the instant case, the trial

court took a lenient view and imposed a fine of Rs. One lakh, out of which the

respondent was directed to pay Rs. 95,000/- to the complainant as compensation.

Therefore, though the appellate court has got powers to suspend the sentence of fine,

100 Swarniatha v. Chandramohan, 1996(3) Crimes 283 (Ker): 1996 (3) CCR 543(Ker): 1996 (2) Civil

LJ. 904. 101 Gian Chand v. M/s Malwa Traders, 1995 ( 4) Crimes 300. 102 1994 MLJ Cri 91. 103 K.P.Sachdevan v. T.K. Sreedharn , 1996 Cri L.J. 1223.

234

in the absence of any valid reason to suspend the fine imposed in the this case it is

impossible to thing that the impugned order would stand.104

VII. JUDICIAL TRENDS IN RESPECT OF NEGOTIABLE INSTRUMENTS

The Constitution has given the immense powers to the judiciary for the

protection of the Constitutional rights of citizens. There is no reason why the courts

should not adopt activist approach similar to Courts in America to set right the things

and in order to bring social changes. It is adopting right approach keeping in view the

intention of the legislature expressed through the Banking Public Financial

Institutions and Negotiable Instruments Laws ( Amendment) Act, 1888 ( 66 of 1988 )

and The Negotiable Instruments (Amendment and Miscellaneous Provisions Bill,

2002 ( Bill No. 55 of 2002) in order to meet the challenges of present day economy

and ensuring the credibility and acceptability of cheques to teach the lesson to the

offenders who make the mockery of the sections relating to the dishonour of cheques

in order to create loopholes and back doors from where a through exist can be made.

It is the larger public interest that commercial transaction maintain the speed

and tempo and that a swift sale or a prompt purpose, is not unduly impeded by

suspicions always hovering round that part of promise to be performed in future. The

issue of a cheque carries with it assumptions which could regulate the normal

functioning of a honest citizen. At a period of time when multitudinous persons and

institutions press into services, devices and facilities available under the Negotiable

Instruments Act, it may be necessary to ensure that those who issue such vital

documents, do not adopt a casual or careless attitude which could block the free flow

of trade. It is in the light of the experience which the State had, that the enactment has

been attempted. Court is unable to detect any legal infirmity or constitutional

incompetence. The courts have taken keen interest to prevent the fraud relating to the

dishonour of cheques as the Section 138 of the Negotiable Instruments was enacted to

ensure the preservation of that concept being the life blood of commerce and

economy.

104 Bay Leathers Exports Pvt. Ltd. v. Saileela II(1998) BC 38 at p. 42.

235

In order to provide adequate remedy to the victims of an illegal act or a

dishonest move, the Parliament could then make a provision with sufficient teeth, as

to strongly deal with the ruffians in the trading area, or the unscrupulous elements

who play foul with negotiable instrument.

Global exposure has led to an awakening in Indian on all points leaving no

segments of business or society untouched. India is a signatory of WTO and therefore

the international global banking games rules must also apply to us and to have good

credentials in the international market of open economy we must have a sound, stable

and creditable banking system of which cheques and bill of exchange are important

components. The Supreme Court in BALCO & Contract Labour amply reveals that

our judiciary is much alive to the economic reforms.

The Apex Court has time and again forwarded the erring and defaulting

drawers of fake cheques still many of us are not forearmed and the malaise of

dishonouring of cheques still persists. The Supreme Court whenever it gets an

opportunity to dole the hole in this branch of law, it does so unhesitatingly.

Thus, the legal machinery is to be geared in a new direction to prove a memo

cure to the dishonour of cheques as the battle is not to be fought on the legal field

alone. A change is also need in the moral and psychological approach to the subject to

establish a convention and it should be condemned unless warranted by serious

consideration to prevent some positive wrong. A change in the mental, moral and

psychological attitude of all having bank accounts and issuing cheques is also need to

makes them realise that a changes is a precious document and value lies in the its

being honoured and not in its being retuned for want of funds. As the intention of the

Parliament was only to bring home offenders so save the innocent individuals from

harassment and loss except to such persons who wanted to defraud the creditor by

providing penalty in case of dishonour of the cheque as the cheques are a backbone of

the monetary system not only in the national but in the international economy as a

whole and specially keeping in view the fact the instance of dishonour of cheques in

India is greater in comparison to the other countries.

236

VIII. THE NEGOTIABLE INSTRUMENTS (AMENDMENT &

MISCELLANEOUS PROVISIONS) BILL, 2002 (Bill No. 55 of 2002)

As the existing provisions in the Negotiable Instruments Act, 1881,

enumerated in sections 138 to 142 in Chapter XVII which were inserted by the

Banking, Public Financial Institutions and Negotiable Instruments Laws

(Amendment) Act, 1988 have been found deficient in dealing with dishonour of

cheques because neither the punishment provided in the Act has proved to be

adequate nor the procedure prescribed for the Courts to deal with such matter has

been found to be cumbersome. As such, the Courts are unable to dispose of such cases

expeditiously in a time bound manner in view of the procedure contained in the Act

which resulted a large number of cases pending in various courts under sections 138

to 142.

Further, in order to meet the challenges of present day economy and ensuring

the credibility of cheques, THE NEGOTIABLE INSTRUMENTS (AMENDMENT AND

MISCELLANEOUS PROVISIONS) BILL, 2002(Bill No. 55 of 2002) has been enacted

by the Parliament in the Fifty -third Year of the Republic of India to amend the

Negotiable Instruments Act, 1881, The Bankers’ Books Evidence Act, 1891 and the

Information and Technology Act, 2000. The detail of the statement of Objects and

reasons of this bill is given below :

Objects and Reasons

A) 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 matter has been found to be cumbersome. The Courts are

237

unable to dispose of such cases expeditiously in a time bound manner in view of the

procedure contained in the Act.

B) 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.

C) 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.

D) Keeping in view of 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

238

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

the 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 notification in the Official

Gazette; and

xi) to amend definitions of “bankers’ books’ and “certified copy” given in

the Bankers Evidence Act, 1891.

E) The Bill seeks to achieve the above objects.

The four new chapters have been inserted in the Negotiable Instruments Act,

1881 by this amendment and the detail of these chapters is given below :-

CHAPTER I

The first Chapter relates to Preliminary which simply says about its short title and

commencement as under :

1) This Act may be called ‘THE NEGOTIABLE INSTRUMENTS

(AMENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 2002.

2) It shall come into force on such date as the Central Government may, by

notification in the Official Gazette, appoint and different dates may be

appointed for different provisions of this Act.

CHAPTER II

The Second Chapter relates to Amendments to the Negotiable Instruments

Act, 1881 in which following sections have been amended or substituted :-

Substitution of new section for section 6 –

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For section 6 of the Negotiable Instruments Act, 1881 (26 of 1881)

(hereinafter referred to as the principal Act), the following section shall be substituted,

namely :-

‘6. “Cheque”- A “cheque” is a bill of exchange drawn on a specified banker and not

expressed to be payable otherwise than on demand and it includes the electronic

image of a truncated cheque and a cheque in the electronic form.

Explanation I – For the purposes of this section, the expression –

a) “a cheque in the electronic form” means a cheque which contains the exact

mirror image of a paper cheque, and is generated, written and signed in a

secure system ensuring the minimum safety standards with the use of digital

signature (with or without biometrics signatures) and asymmetric crypto

system;

b) “a truncated cheque” means a cheque which is truncated during the course of a

clearing cycle, either by the clearing house or by the bank whether paying or

receiving payment, immediately on generation of an electronic image for

transmission, substituting the further physical movement of the cheque in

writing.

Explanation II – For the purposes of this section, the expression, “clearing house”

means the clearing house managed by the Reserve Bank of India or a clearing house

recognised as such by the Reserve Bank of India.

Amendment of section 64 –

Section 64 of the principal Act shall be renumbered as sub-section (1) thereof,

and after sub-section (1) as so re-numbered, the following sub-section shall be

inserted, namely ;-

“(2) Notwithstanding anything contained in section 6, where an electronic

image of a truncated cheque is presented for payment, the drawee bank is entitled to

demand any further information regarding the truncated cheque from the bank holding

the truncated cheque in case of any reasonable suspicion about the genuineness of the

apparent tenor or instrument, and if the suspicion is that of any fraud, forgery,

tampering or destruction of the instrument, it is entitled to further demand the

presentment of the truncated cheque itself for verification.

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Provided that the truncated cheque so demanded by the drawee bank shall be

retained by it, if the payment is made accordingly.”

Amendment of Section 81 –

Section 81 of the principal Act shall be re-numbered as sub-section (1)

thereof, and after sub-section (1) as so re-numbered, the following sub-section shall

be inserted, namely :-

“(2) Where the cheque is an electronic image of a truncated cheque, even

after the payment the banker who received the payment shall be entitled to retain the

truncated cheque.

(3) A certificate issued on the foot of the printout of the electronic image of a

truncated cheque by the banker who paid the instrument, shall be prima facie proof of

such payment.”

Amendment of section 89 –

Section 89 of the principal Act shall be re-numbered as sub-section (1)

thereof, and after sub-section (1) as so re-numbered, the following sub-sections shall

be inserted, namely :-

“(2) Where the cheque is an electronic image of a truncated cheque, any

difference to apparent tenor of such electronic image and the truncated cheque shall

be a material alteration and it shall be the duty of the bank or the clearing house, as

the case may be, to ensure the exactness of the apparent tenor of electronic image of

the truncated cheque while truncating and transmitting the image.

(3) Any bank or a clearing house which receives a transmitted electronic

image of a truncated cheque, shall verify from the party who transmitted the image to

it, that the image so transmitted to it and received by it, is exactly the same.

Amendment of Section 131 –

In section 131 of the principal Act, Explanation shall be re-numbered as

Explanation I thereof, and after Explanation I as so re-numbered, the following

Explanation shall be inserted, namely :-

“Explanation II – It shall be the duty of the banker who receives payment

based on an electronic image of a truncated cheque held with him, to verify the prima

facie genuineness of the cheque to be truncated and any fraud, forgery or tampering

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apparent on the face of the instrument that can be verified with due diligence and

ordinary care.”

Amendment of section 138 –

In section 138 of the principal Act –

a) for the words “a term which may be extended to one year “, the words

“a term which may be extended to two years” shall be substituted;

b) in the proviso, in clause (b), for the words “within fifteen days”, the

words “within thirty days” shall be substituted.

Amendment of section 141 –

In section 141 of the principal Act, in sub-section (1) after the proviso, the

following proviso shall be inserted, namely:-

“Provided further that where a person is nominated as a Director of a

company by virtue of his Holding any office or employment in the Central

Government or State Government or a financial corporation owned or controlled by

the Central or State Government, as the case may be, he shall not be liable for

prosecution under this Chapter.”

Amendment of Section 142 –

In section 142 of the principal Act, after clause (b), the following proviso shall

be inserted, namely: –

“Provided that the cognizance of a complaint may be taken by the Court after

the prescribed period, if the complainant satisfies the Court that he had sufficient

cause for not making a complaint within such period.”

Insertion of new sections after section 142 –

Five more sections regarding power of court to try cases summarily, mode of

service of summons, evidence on affidavit, Bank’s slip prima facie evidence of

certain cases and compoundability of offences punishable under this Act have been

inserted. The detail of the same is given below :-

“143 Power of Court to try cases summarily – (1) Notwithstanding anything

contained in the Code of Criminal Procedure, 1973 (2 of 1974), all offences under this

Chapter shall be tried by a Judicial Magistrate of the first class or by a Metropolitan

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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.

144. Mode of service of summons – (1) Notwithstanding anything contained in the

Code of Criminal Procedure, 1973 (2 of 1974) and for the purposes of this Chapter, a

Magistrate issuing a summons to an accused or a witness may direct a copy of

summons to be served at the place where such accused or witness ordinarily resides or

carries on business or personally works for gain, by speed post or by such courier

services as are approved by a Court of Session.

(2) Where an acknowledgement purporting to be signed by the accused or the

witness or an endorsement purported to be made by any person authorised by the

postal department or the courier services that the accused or the witness refused to

take delivery of summons has been received the Court issuing the summons may

declare that the summons has been duly served.

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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 proceedings under the said Code.

(2) The Court may, if it thinks fit, and shall, on the application of the prosecution

or the accused, summons and examine any person giving evidence on affidavit as to

the facts contained therein.

146. Bank’s slip prima facie evidence of certain facts –

The Court shall, in respect of every proceeding under this Chapter, on

production of bank’s slip of memo having thereon the official mark denoting that the

cheque has been dishonoured, presume the fact of dishonour of such cheque, unless

and until such fact is disproved.

147.Offence to be compoundable –

Notwithstanding anything contained in the Code of Criminal Procedure, 1973

(2 of 1974), every offence punishable under this Act shall be compoundable.”

In addition to amendment made in the Negotiation Instruments Act, 1881,

amendments have also been made to the Banker’s Books Evidence Act, 1891 and to

the Information Technology Act, 2000 and two more chapters III and IV have been

inserted in order to amend the relevant sections. Chapter III tells about the amendment

to the Bankers’ Books Act, 1891. However, the detail is given below :-

Amendment of section 2

In section 2 of the Banker’s Books Evidence Act, 1891 (18 of 1891) –

(a) for clause (3), the following clause shall be substituted, namely :-

‘(3) “bankers’ books” include ledgers, day-books, cash-books, account- books

and all other records used in the ordinary business of the bank, whether these records

are kept in written form or stored in a micro film, magnetic, tape or in any other form

of mechanical or electronic date retrieval mechanism, either onsite or at any offsite

location including a back-up or disaster recovery site of both’.”

(b) in clause (8), after sub-clause(b), the following sub-clause shall be

inserted, namely :-

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“(c) a printout of any entry in the books of a bank stored in a micro film,

magnetic tape or in any other form of mechanical or electronic data retrieval

mechanism obtained by a mechanical or other process which in itself ensures the

accuracy of such printout as a copy of such entry and such printout contains the

certificate in accordance with the provisions of section 2-A.”

Further, the Chapter IV tells about the Amendments to the Information

Technology Act, 2000, the detail of which is given below:-

Amendment to section 1 of Information Technology Act, 2000

In the Information Technology Act, 2000 (21 of 2000) (hereinafter referred to

as the principal Act), in section 1, in sub- section (4) for clause (a), the following

clause shall be substituted, namely :

“(a) a negotiable instrument (other than a cheque) as defined in section 13 of

the Negotiable Instruments Act, 1881 (26 of 1881);

Insertion of a new section 81-A –

After section 81 of the principal Act, the following section shall be inserted,

namely:-

’81-A. Application of the Act to electronic cheque and truncated cheque –

(1) The provisions of this Act, for the time being in force, shall apply to, or in

relation to, electronic cheques and the truncated cheques subject to such modifications

and amendments as may be necessary for carrying out the purposes of the Negotiable

Instruments Act, 1881 (26 of 1881) by the Central Government, in consultation with

the Reserve Bank of India, by notification in the Official Gazette.

(2) Every notification made by the Central Government under sub-section (1)

shall be laid, as soon as may be after it is made, before each House of Parliament,

while it is in session, for a total period of thirty days which may be comprised in one

session or in two or more successive sessions, and if, before the expiry of the session

immediately following the session or the successive sessions aforesaid, both Houses

agree in making any modification in the notification or both Houses agree that the

notification should not be made, the notification shall thereafter however, that any

such modification or annulment shall be without prejudice to the validity of anything

previously done under that notification.

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Explanation – For the purposes of this Act, the expressions “electronic cheque” and

“truncated cheque” shall have the same meaning as assigned to them in section 6 of

the Negotiable Instruments Act, 1881 (26 of 1881).

It may be mentioned that the existence of a civil remedy would not necessarily

exclude a trial by a criminal court of an offence. Similarly there cannot be any

absolute proposition of law that whenever any civil proceeding is pending between

the parties, criminal proceeding can never be proceeded with. There are many

transactions, which result, civil as well as criminal liabilities. Cheating,

misappropriate and theft is undoubtedly the transactions of this type. Therefore,

simply because civil proceedings between the parties are pending, it cannot be said

that criminal proceedings cannot be go on.

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 which 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 matter has been found to be cumbersome which resulted delay in disposing

the cases. To deal with the problem effectively further amendment has been made

vide Bill N0 55 of 2002.

IX. CONCLUDING REMARKS

It is not necessary to always stay proceeding in civil action and whether the

proceedings in action should be stayed or parallel proceeding both civil and criminal

may continue depend from fact and circumstances of each case. There is no legal bar

to the continuance of the civil and criminal proceedings simultaneously. Where any

offence committed by a company is proved to have been committed with the consent

or connivance or is attributable to any neglect on the part of any Director, Manager,

Secretary or other Officer of the company then said Director, Manager, Secretary or

Officer shall also be deemed to be guilty of that offence. It would mean that even if

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such Director, Manager, Secretary etc. was not incharge and was not responsible to

the company for the conduct of the business of the company; he will still be liable if

the offence was committed with his consent, connivance or due to his negligence.

It may be observed that the powers under Section 482 Cr. P.C. can be invoked

only when redress under any other provision was unavailable. It has been held by the

Supreme Court of India that the second revision petition even though filed under

Section 482 of the Criminal Procedure Code is not maintainable. It is clear from a

reading of Section 141 of the Act that if the offence under Section 138 of Negotiable

Instruments Act is committed by the company or a firm, every person who was in

charge and responsible for the affairs and conduct of the business for the company or

firm, as the case may be at the time when the alleged offence was committed, is also

liable for prosecution along with the company

On considering the provisions of Section 138 to Section 142 of the Act. There

is not hesitation in holding that there is no obligation on the part of the payee or the

holder in due to specifically mentioned demanding to pay the said amount within

fifteen days and there is no substance in the contention of the learned Counsel for the

petitioner. The criminal proceedings are seldom stayed till the decisions of a civil suit

over the self same matter but having regard to the facts and circumstances which in

this Court opinion is a compelling circumstances when for ends of justice there is no

way out but to stay the criminal proceeding till disposal of the civil suit. The High

Court would have to proceed entirely on the basis of the allegations made in the

complaint or documents accompanying the same per se. It has no jurisdiction to

examine the correctness or otherwise of the allegations. These powers cannot be

exercised to stifle a legitimate prosecution.

Without evidence having come on record, it will not be appropriate for the

petitioner to invoke the inherent powers of this Court and seek to halt the proceedings

pending before the trial Magistrate. The offence under Section 138, Negotiable

Instruments Act is to be proved by a complaint by proving all the ingredients of the

offence laid down in the section. All the necessary factors have to be prayed at the

trial. Trial Court will be competent Court to record the findings on materials, that may

be placed before it by parties on questions of facts,. Powers under Article 226 of the

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Constitution are not meant to be exercised for this purpose at this stage. The

requirement for an offence under Section 138 of the Act is the cheque must be drawn

‘for the discharge in whole or in part of any debt or other liability’. It is settled

principle of law that inherent powers under Section 482 Cr. P.C. can be invoked to

prevent abuse of the process of the Court or to secure ends of justice. Section 195 of

the Code provides a bar on filing of complaint while Section 340 provides for removal

of the bar by conferring jurisdiction on the Court to file complaints. Once an offence

has been committed and is complete offence, merely by marking the payment will not

put an end to the same. It may affect the gravity of the said offence. There is no

ground, thus, to quash the proceedings. It may be mentioned that the existence of a

civil remedy would not necessarily exclude a trial by a criminal court of an offence.

Similarly there cannot be any absolute proposition of law that whenever any civil

proceeding is pending between the parties, criminal proceeding can never be

proceeded with. There are many transactions, which result, civil as well as criminal

liabilities. Cheating, misappropriate and theft is undoubtedly the transactions of this

type.

It is settled law that pendency of the criminal matter would not be an

impediment to proceed with the civil suits. The criminal Court would deal with the

offence punishable under the Act. On the other hand, the Courts rarely stay the

criminal cases and only when the compelling circumstances require the exercise of

their power. Section 243 of the Code of Criminal Procedure does not exclude

proceedings under Section 138 of the Act. Nor does Section 138 of the Act exclude

the applicability of Section 243 of the Code of Criminal Procedure. In case all the

conditions which are necessary for the payment of a cheque are present and have been

fulfilled then if the bank dishonours a cheque it will amount to a breach of the

contract for which the banker is liable to pay damages. The evidence shows that the

breach of contract by the bank is confined to one particular draft or otherwise

indicates that there was no intention to repudiate, damages will not be recoverable.

The defendant bank contended that the plaintiff was entitled to nominal

damages only. If there is proof of special loss or damages, that will be taken into

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consideration for arriving at the exact quantum of damages. The Indian law on the

subject is not at all different from the English law on the point. It is expected of a

bank to honour its customer’s cheque if it has sufficient funds in his hands. If it fails

to do so, it will be liable to damages. The reason is obvious. It injuriously affects the

reputation, credit and integrity of its customer. All loss flowing naturally from the

dishonour of a cheque may be taken into account in estimating the damages. To

determine responsibility the law will consider the proximate and not the remote cause

of an injury. So far as the civil remedy is concerned a customer on account of a

wrongful dishonour can claim damages against the Bank. So far as the question of

civil remedy for the payee is concerned, it is a case for recovery of money under the

summary procedure which can be filed against the Drawer.

Section 138 was introduced with a laudable public policy behind it. It is

intended to prevent or curtail a mischief which is likely to affect financial

transactions, and thereby trade and business and ultimately, economy of the country.

Even though the normal rule is that an act or illegal omission in order to constitution

an offence, must be had with the requisite mental condition on the form of attention,

knowledge or reasonable belief, that pre-requisites could be authority dispensed

within appropriate cases by creating strict liability offences in the interest of nation,

just like offences under the Prevention of Food Adulteration Act. Further, there is no

point in contending that mens rea is not required for constituting an offence

punishable under Section 138. As Section 142(b) indicates, the cause of action for a

prosecution under 138 will arise only under Clause(c) of the proviso to Section 138

when the drawer fails to make the payment within fifteen days of receipt of the notice

under clause (b) of the proviso and there is a prohibition against taking cognizance

except on a complaint in writing by the payee or holder in due course and that too

except when the complaint is made within one month of the date on which the cause

of action arises. The object of the notice is to give a chance to the drawer of the

cheque to rectify his omission. Though in the notice demand for compensation,

interest, cost etc. is also made the drawer will be absolved from his liability under

section 138 if he makes the payment of the amount covered by the cheque of which he

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was aware within 15 days from the date of receipt of the notice or before the

complaint is filed.

The main punishment prescribed is imprisonment which may extend to a

period of one year. As regards fine, it is stated that the quantum may extend twice the

amount of the cheque. It is important to note that the fine is not a compulsory

punishment and only the maximum amount is prescribed. There guidelines do not

alter the nature of the punishment. In the matter of sentence, the Magistrate is given a

discretionary power depending upon the amount for which the cheque is drawn. A

change is also need in the moral and psychological approach to the subject to establish

a convention and it should be condemned unless warranted by serious consideration to

prevent some positive wrong. A change in the mental, moral and psychological

attitude of all having bank accounts and issuing cheques is also need to makes them

realise that a changes is a precious document and value lies in the its being honoured

and not in its being retuned for want of funds.

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 which 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 matter has been found to be cumbersome which resulted delay in disposing

the cases. To deal with the problem effectively further amendment has been made

vide Bill N0 55 of 2002.