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Introduction:

Cheque bouncing cases are once again in the news, after the pronouncement of land mark judgment, by Apex court in the case DasharathRoopsinghRathoreVs. State of Maharashtra. This judgment tilted the balance of convenience in favour of the drawer of the cheque or Accused. In some of the past judgments, Apex court took a view that any strict interpretation which helps dishonest drawer will defeat the objective of the Negotiable Instruments Act, 1881(in short NI, Act or Act).

This article highlights those judgments which initially set a trend to fill up the deficiencies in the Act and enlarged the scope for making out an offence and then suddenly the trend of subsequent judgments caused hardship to complainants/payee/holder of cheques.

Readers may find it useful, if their memory is refreshed with provisions relating to Cheque dishonor, procedure for filing of complaints etc. This will also help to appreciate the fine interpretations in the judgments referred below

Deemed offence under the NI Act

The main objective of Sections 138- 147 of the NI Act is to ensure credibility of cheques used in business transactions. Offence under Section 138 of the Negotiable Instruments Act, 1881 shall be deemed to have been committed, if the following ingredients are satisfied:

i. Cheque must have been drawn  by a person(the drawer) in favour of a payee on his bank account for making payment against a legally enforceable debt

ii. Cheque must have been  returned by the Banker to the payee or holder in due course due to insufficient funds  in the account of the drawer or due to the reason that it exceeds the arrangement drawer had with the bank,

Proviso to main section stipulates as follows:-

a. Cheque must have been presented within a period of 6 months from the date of cheque or within its validity period whichever is earlier.

b. the payee or holder in due course as the case may be, must make a demand, by notice in writing, for payment of the dishonored cheque amount within 30 days of receipt of intimation of dishonor Memo from bank.

c. the drawer of cheque fails to pay the demanded sum within 15 days from the date of receipt of said notice

It would be clear from the main section that on dishonor of cheque by the bank, it will be deemed that an offence has been committed and the Clause (c) of the proviso to Section 138 postpones the accrual of cause of action to file complaint till the expiry of 15 days’ notice period. In other words, if the drawer makes payment of dishonored cheque amount within 15 days from the date of the notice, offence u/s 138 cannot be made out and no prosecution shall lie against the drawer.

Time limit for filing of complaint:

Section 142 of NI, Act stipulates that for taking cognizance of an offence, a complaint has to be filed before the court, in writing, within 30 days from the date on which cause action arises. This section empowers the court to condone the delay in filing the complaint, provided the complainant satisfies the court with the reasons for delay.

Now focus can be shifted to some of the landmark judgments which over ruled earlier judgments or enlarged by interpretation the scope for making out an offence under the NI Act by interpretation.

Past judgments

The apex court in the following cases enlarged the scope for making out an offence under NI Act.

(Stop payment cases)

1. Modi Cements Ltd V Kuchil Kumar Nandi :AIR 1998 SC1057: (1998) 3 SCC 249:

In this case, 3 judge bench of the Apex court held that merely because the drawer issues a notice to the drawee or to the Bank for stoppage of the payment, it will not preclude an action u/s 138 by the drawee or the holder of a cheque in due course. It over ruled the observations of apex court in Electronics Trade and technology Development Corpn. Ltd that Section 138 does not get attracted, if stop payment instruction is given before presentation of the cheque. Thus defence under the strict interpretation of “insufficiency of funds” is diluted to this extent.

2. M.M.T.C. Ltd. and Anr. VsMedchl Chemicals and Pharma (P) Ltd. and Anr. ( AIR 2002 SC182) : (2002)1 SCC 234

Following the judgment in Modi Cement’s case, in this case Supreme Court (SC) held that section 138 gets attracted, even if the drawer has given instruction for “stop payment”. It further held that the court has to presume that the cheque has been issued for a debt or a liability (Sec 139) and onus lies on the drawer to rebut this presumption. Complaint cannot be quashed merely on the ground that complaint has not been signed by authorized person on behalf of the company. This technical defect can be cured later with the permission of the court

3. Goaplast(P) Ltd V Chico ursual D’Souza and Anr: AIR 2003SC 2035 : (2003) 3 SCC 232

In this case, a postdated cheque has been issued and drawer has issued stop payment instruction to bank before the date mentioned on the cheque. Lower courts have taken a view that postdated cheque becomes a cheque on the date mentioned on the cheque and therefore Section 138 does not apply to this case.SC set aside the judgment of lower court and expressed its view that the purpose of postdated cheques is to accommodate a drawer of cheque and he should not be allowed to abuse the accommodation given to him by the creditor. If allowed, it would render Section 138, a dead letter.

(Closure of Account cases)

4. NEPC Micon Ltd. v. Magma Leasing Ltd.  AIR 1999 SC 1952: (1999) 4 SCC 253:

In this case, the drawer of the cheque closed the account in the Bank before presentation of the cheque by the payee. When the cheque was presented, it was returned by the Bank with the remark "account closed". Two judge bench of SC observed that the expression "the amount of money standing to the credit of that account is insufficient to honour the cheque" is a genus of which the expression "that account being closed" is specie. SC took a view that return of a cheque on account of account being closed would be similar to a situation where the cheque is returned on account of insufficiency of funds in the account of the drawer of the cheque and an offence is committed.

In all the above cases, dishonest intention of the drawer has been taken into account, avoiding strict interpretation of the word “insufficiency of funds” to ensure that purpose of the NI Act is not defeated.

(Jurisdiction)

5. K BhaskaranVsSankaranVaidyanbalan:(1997)7 SCC 510

The Apex court examined the issue of territorial jurisdiction for filing complaint and held  that any one of the courts can exercise jurisdiction, in whose area any one of the five acts namely i)drawing of cheque, ii)presentation of cheque, iii) return of cheque unpaid, iv)place of issuance of notice and v)place of dishonour of cheque. This gave wider scope to the payee or holder of cheque to file complaint at any one of the 5 places mentioned above.

It further examined the issue whether the plea of non-receipt/non serving of notice, justifies acquittal. It held that once a notice demanding payment bears the correct address and is dispatched by post, it will be deemed as service of notice. The onus shifts to drawer to rebut the presumption. This judgment was however recently over ruled by Larger bench in the case of “DasharathRoopsinghRathore Vs. State of Maharashtra which is discussed in detail below.

(Dishonour for signature mismatch)

6. LaxmiDychemVs State of Gujarat &Ors 195 (2012) DLT 111 (SC)

Gujarat High court in this case has taken a view that dishonor of cheques for signature mismatch, would not attract prosecution u/s 138 of NI, Act and on that ground it quashed 40 different complaints. The division bench of SC set aside the judgment of Gujarat high court and held that it is not correct to hold a view that offence u/s 138 gets attracted only when the cheque is dishonoured for lack of sufficient funds in the bank account. SC in this particular case observed that the dishonest intention of the drawer of cheque is evident from its action in changing the mandate to bank after issuance of the cheques and not arranging payment despite receipt of demand notice.

(Successive presentation of cheque)

7. MSR Leathers Vs S Palaniappan&Ors (2013)10 SCC 568

The three judge bench of Apex court, on reference, had to examine, the issue whether payee or holder of cheque can initiate proceedings for prosecution u/s 138 for second and subsequent presentation of cheque and its dishonour, if he has not initiated action to file complaint on earlier cause of action i.e. within 30days from the date of expiry of first notice period. The bench over ruled its earlier decision in SadanandanBhadranVsMadhavan (1998) 6 SCC 514. In observed that  re-presentation of cheque  gives a fresh opportunity to drawer to settle payment and such fresh opportunity should not help a defaulter on any juristic principle to escape prosecution.There is no real or qualitative difference between where a default has been committed and prosecution is immediately launched and in  another situation  where prosecution is deferred till  the cheque presented again gets dishonoured. The bench thus took a broader view and felt that any narrow/strict interpretation would result in helping the accuse and  will defeat the objective of the Act.

SC at Para 23 recorded an observation that there is nothing in Section 142 which suggests that drawer of the cheque would be absolved of his criminal liability, if the cheques is dishonored on subsequent presentations..

Reversal of Trend in Recent judgments:

(Premature complaints)

YogendraPratap Singh VsSavitriPandey&Ors(Criminal appeal no.605 of 2012}

The issue that has come up consideration of the 3 judge bench, in this case, is whether cognizance of an offence u/s 138 of the Act be taken on the basis of complaint filed before expiry of 15 noticeperiod(cause of action has not arisen) and Whether complaint is maintainable, if cognizance is taken by the Magistrate after notice period expired but no payment has been made by the drawer.

While examining the above issue, SC observed that conflicting judgments were pronounced by various high courts as  some were following the decision of  SC in Narshingh Das TapadiaVsGovardan Das Partani&Anr {(2000) 7 SCC 183}  and some were following Sarav Investment &Fincaniclconsultancy(P) Ltd. In NarsinghTapadia’s case, complaint was filed before expiry of the 15 days notice period. But it was returned for removing the defect of unsigned verification. In the appeal, High court quashed the complaint as it held that complaint was premature. However Two judge bench of Apex court reversed the judgment of High court.

In Sarav investment &Financial Consultancy (P) Ltd &Anr.Vs Lloyds Register of shipping (2007) 14 SCC 753, two judge bench of SC held that Section 138 being penal in nature, strict interpretation should be followed and premature complaints are not maintainable.

In view of the above conflicting judgments of SC, the matter was referred to Larger bench of SC in Yogendrapratap’s case held that a complaint filed u/s 138 of the NI Act, before expiry of 15 days of service of notice, could not be treated as a complaint in the eye of law and criminal proceedings initiated against such complaint are liable to be quashed cognizance cannot be taken on such premature complaints.

As was done in the case of Darath Rup Singh Rathore,  the Apex court  permitted fresh filing  (within 30 days of judgment) in respect of pending caseseven though the limitation period of 30 days as stipulated under 142 (b) had expired. It relaxed by clarifying that the delay in such case will be deemed to have been condoned by virtue of its direction in the said case. Thus strict interpretation in this judgment has also favored the accused forcing the complainant to file fresh complaint within the allowed time limit.

(Jurisdiction issue)

DasrathRupsinghRathodVs State of Maharashtra (2014) 9 SCALE 97:(2014) 9 SCC 129

Three judge bench of Apex court analyzed the principles laid down for determining territorial jurisdiction in Bhaskaran’s case and closed the options available to Complainant/payee or holder of cheque to file complaint at any one of 5 places mentioned in the judgment. This recent judgment set a new rule on territorial jurisdiction for filing complaints u/s 138 mandating that now 138 cases have to be filed in a court which has territorial jurisdiction over the place where cheque is dishonoured by the bank on which it is drawn.

It held that only the courts having jurisdiction over the branch where cheque is dishonoured will have jurisdiction for entertaining complaints.The Apex court further expressed its view that if Bhasakaran’s judgment is followed, it will give an option to the payee or holder in due course of cheque to choose the place of trial at his will and this will cause hardship, harassment and inconvenience to the accused. By this judgment, the drawer of the cheque/accused is favouredmore unlike in the earlier judgments. It further went on to say that if 138 cases are allowed to be filed at any one of 5 places, the courts will be burdened with 138 cases and payee has an option to insist for Demand draft in place of cheque to secure his interest.

In order to remove hardship, it categorized pending cases as on the date of judgment  into two types i.e. i)cases in which  summons have not been issued ii)cases in which  trial has commenced. In the latter case, by virtue of direction of SC, those cases shall be deemed to have been transferred from the court which has territorial jurisdiction to the court where the trial has been continuing. The former type of cases shall be returned to the complainant for filing afresh in the proper court having territorial jurisdiction. Within 30 days of their return by the court, such cases shall be filed. On filing, they shall be deemed to have been filed within the time prescribed by law.

The controversial issue of territorial jurisdiction has again surfaced with the Bombay high court  in the case of RamanbhaiMaturbhai Patel Vs State of Maharashtra, taking a view that in the case of multicity  “payable at par cheques” the place of the bank at which multicity cheque is presented and dishonoured will also have territorial jurisdiction. The peculiarity of this judgment is that it referred to Dasarath’s case and yet its decision is not exactly in line with the decision in Dasrath’s case. Although this matter reached Supreme Court, it was not decided as the said SLP was withdrawn by the Appellant. This leaves a room for other high courts to follow Bombay high court’s interpretation with regard to dishonour of multicity cheques. After reading the harsh DasrathRupsings’ case, one would expect SC to affirm its same view again in the multicity cheques case also.

Conclusion:

The liberal interpretation and trend of favoring payee/holder in due course ended with DasrathRupsinghRathod’s case. Apex court surprisingly sympathized with Accused and restricted the jurisdiction to the place of dishonour of cheque.The larger interest of business community which relies on cheques in business transactions is ignored. Government on receiving representations from lendingbanks/institutions, from various otheraffected parties had to bring in amendments to NI Act.  An ordinance was promulgated by the President of India to nullify jurisdiction rule set inDarathRupsinghRathod’s case.The proposed amendment to Section 142 and insertion of 142-A,will now permit filing of 138 cases at the place where cheque is presented for clearance or encashment.  It is a huge relief to victims of dishonour of cheques.

G. S. RAO
Consultant
Tags: Cheque bouncing cases, Negotiable Instruments Act, Dishonour of cheques


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Category LAW, Other Articles by - G S Rao 



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