Cements Ltd. Vs. Shri Kuchil Kumar Nandi  INSC 138 (2 March 1998)
Mukherjee, S.P. Kurdukar, K.T. Thomas S.P. Kurdukar. J.
2ND DAY OF MARCH, 1998 Present :
Mr. Justice M.K. Mukherjee Hon'ble Mr. Justice S.P. Kurdukar Hon'ble Mr.
Justice K.T. Thomas Ranjit Kumar, and Ms. Bina Tamta, Advs. for the appellant Ranjan
Mukherjee, Adv. for the Respondent.
following Judgment of the Court was delivered :
These three appeals are filed by the appellants/complainants challenging the
legality and correctness of the judgment and order dated 21.11.1996 passed by
the High Court in Crl. Revision Petition Nos.2303-04 of 1995.
The present proceedings arise out of a complaint filed by the appellant in the
Court of Chief Judicial Magistrate, Calcutta under Section 138 of the Negotiable Instruments Act, 1981 (for short the`Act')
against the respondent. The appellant company is a public limited company
manufacturing and selling cement under the brand name "Modi Cement"
The respondent/accused carries on business in the name and style of "Dubey
Construction, M/s Nandi Traders, M/s Nandi Concerns, M/s Nandi and Co., M/s Nandi
Enterprises, M/s S.K. Enterprises, M/s S.K. Trading and M/s Jupitor Art.
respondent/accused is sole proprietor of all these business concerns.
is alleged by the appellant in the complaint that the respondent purchased from
them non-levy Modi Cement on credit against the orders placed on behalf of his
orders were placed by the respondent with the Calcutta office of the appellant and it was agreed that the price of
the consignments was to be paid by the respondent at the said office. After
taking accounts it was found that on 23.2.1994 the respondent incurred a
liability/debt of Rs.1,10,53,520.30 payable to the appellant towards the
purchased price of the cement supplied by them to the respondent. In partial
discharge of the said liability/debt the respondent drew three cheques in favour
of the appellant on 23.2.94, 26.2.94 and 28.2.94 bearing cheque Nos. 1308340-
42 for a sum of Rs.2,00,000/- each.
The appellant presented these three cheques on 9.8.1994 for encashment through
their bankers. Bank of India, J.L.Nehru Road Branch, Calcutta. On
6.9.94 the Indian Bank Bankura, the Banker of the respondent returned the said cheques
as unpaid with an endorsements "payment stopped by the drawer". Lateron
it transpired that vide his letter dated 8.8.94 the respondent had given such
instruction. The appellant on 13.9.94 sent a legal notice in terms of Section
138 of the Act to the respondent demanding payment of the aforesaid amounts
under the cheques. The said notice was duly served on the respondent on
17.9.94. Since the respondent failed and neglected to make the payment of the
amount of the aforesaid three cheques within the stipulated period of 15 days
which expired on 2.10.94, the appellant filed three criminal complaints against
the respondent under Section 138 of the Act. After entering appearance in
obedience to the processes issued in connection with the above three cases the
respondent filed applications for staying the proceedings which were rejected.
The respondent then filed three petitions under Section 482 Cr.P.C. in the High
Court of Calcutta for quashing the complaints. The Learned Single Judge vide
his common Judgment and order dated 21.11.96 allowed the petitions of the
respondent and quashed the complaints.
against this order passed by the High Court the appellant has filed these
130 of the Act reads thus:- Dishonor of cheque for insufficiency, etc., of
funds in the account:- where any cheque drawn by a person on an account
maintained by him with a banker for payment of any amount of money to another
person from out of that account for the discharge, in whole or in part, of any
debt or other liability, is returned by the bank unpaid, either because of the
amount of money standing to the credit of that account is insufficient to honor
the cheque or that it exceeds the amount arranged to be paid from that account
by an agreement made with that bank, such person shall be deemed to have
committed an offence and shall, without prejudice to any other provision of
this Act, be punished with imprisonment for a term which may extend to one
year, or with fine which may extend to twice the amount of the cheque, or with
that nothing contained in this Section shall apply unless:-
cheque has been presented to the bank within a period of six months from the
date on which it is drawn or within the period of its validity, whichever is
the payee or the holder in due course of the cheque, as the case may be, makes
a demand for the payment of the said amount of money by giving a notice in
writing, to the drawer of the cheque, within fifteen days of the receipt of the
information by him from the bank regarding the return of the cheque as unpaid;
drawer of such cheque fails to make the payment of the said amount of money to
the payee or as the case may be, to the holder in due course of the cheque
within fifteen days of the receipt of the said notice.
Explanation - For the purpose of this Section,
"debt or other liability" means a legally enforceable debt or other
Briefly stated the reasons given by the High Court are as under:- (i) The
appellant has not pleaded in his complaint that the cheques were returned by
the Bank unpaid "either because of the amount of money standing to the
credit of that account is insufficient to honour the cheque or that it exceeds
the amount arranged to be paid from that account by an agreement mad with that
Bank. The necessary ingredients of Section 138 of the Act having not been
pleaded the Court could not have taken cognizance of the offence.
Mere endorsement of the Bank "payment stopped" was not sufficient to
entertain the complaint as that was not an ingredient of the offence under
Section 138 of the Act.
The High Court has laid much stress in its judgment to emphasize that a
petition under Section 482 Cr. P.C. is tenable when no offence even prima facie
was made out in the complaint. There can be no dispute regarding that legal
proposition but the application thereof will depend upon the averment made in
the complaint. But the second reasoning of the High Court is contrary to the
decision of this Court (rendered by a Bench of two Judges) in Electronics Trade
& Technology Development Corporation Ltd., Secunderabad vs.
Technologists & Engineers (Electronics) (P) Ltd., & & Anr. 1996 (2)
SCC 739. While interpreting Section 138 of the Act, it firstly observed as
would thus be clear that when a cheque is drawn by a person on an account
maintained by him with the banker for payment of any amount of money to another
person out of the account for the discharge of the debt in whole or in part or
other liability is returned by the bank with the endorsement like (1) in this
case, "refer to the drawer" (2) "instructions for stoppage of
payment" and stamped (3) " exceeds arrangement", it amounts to
dishonor within the meaning of Section 138 of the Act. On issuance of the
notice by the payee or the holder in due course after dishonor, to the drawer
demanding payment within 15 days from the date of the receipt of such a notice.
if he does to pay the same, the statutory presumption of dishonest intention,
subject to any other liability, stands satisfied".
It been took up for consideration a similar contention advanced before them by
the Learned Counsel for the drawer of the cheques that stoppage of payment due
to instructions does not amount to an offence under Section 138 of the Act and
repelling the same observed, "We find no force in the contention. The
object of bringing Section 138 on the Statute appears to be to inculcate faith
in the efficacy of banking operations and credibility in transacting business
on negotiable instruments........". The Court further
observed,".............. it is seen that once the cheque had been drawn
and issued to the payee and the payee has presented the cheque and thereafter,
if any instructions are issued to the bank for non-payment and the cheque is
returned to the payee with such an endorsement, it amounts to dishonor of cheque
and it comes within the meaning of Section 138".
Another two Judge Bench while dealing with the same question in K.K. Sidharthan
vs. T.P. Praveena Chandran & Anr.. (1996) 6 SCC 369 observed. "This
shows that Section 138 gets attracted in terms if cheque is dishonored because
of insufficient funds or where the amount exceeds the arrangement made with the
bank. It has, however, been held by a Bench of this Court in Electronics Trade
and Technology Development Corpn. Ltd., vs. Indian Technologists and Engineers
(Electronics) (P) Ltd.. that even if a cheque is dishonored because of `stop
payment' instruction to the bank, Section 138 would get attracted". We are
in complete agreement with the above legal proposition.
The Learned Counsel for the appellant vehemently urged that both these
decisions of this Court clearly support the case of the appellant and the trial
court had rightly issued the process and the High Court was totally wrong in
taking a contrary view.
It was, however contended on behalf of the respondent that the decision in
Electronics Trade & Technology Development Corporation Ltd., Secunderabad
(supra) does not support the appellant as far as the facts that emerged in the
present cases inasmuch as the drawer had intimated to the Bank on 8.8.1984 to
stop the payment whereas the cheques were presented for encashment on 9.8.94
although the same were drawn on 23.2.1994, 26.21994 and 28.2.1994. The Learned
counsel for the respondent strongly relied upon the following observations in
Electronics Trade and Technology Development Corporation Ltd., (supra):
after the cheque is issued to the payee or to the holder in due course and
before it is presented for encashment, notice is issued to him not to present
the same for encashment and yet the payee or holder in due course presents the cheque
to the bank for payment and when it is returned on instructions Section 138
does not get attracted".
supplied (14) The Learned Counsel for the appellant submitted that if the
attention of the Court was drawn to the provisions of Section 139 of the Act
which according to him. had an important bearing on the point in issue, the
Court would certainly not have made the above observations. The said Section
reads as under:
139 - Presumption in favour of holder :- it shall be presumed, unless the
contrary is proved, that the holder of a cheque received the cheque, of the
nature referred to in Section 138 for the discharge, in whole or in part, of
any debt or to her liability".
According to the learned counsel if the observations of this Court in
Electronics Trade & Technology Development Corporation Ltd. Secunderabad
(supra) to the effect, "Suppose after the cheque is issued to the payee or
to the holder in due course and before it is presented for encashment, notice
is issued to him not to present the same for encashment and yet the payee or
holder in due course presents the cheque to the Bank for payment and when it is
returned on instruction. Section 138 does not get attracted" is accepted
as good law, the very object of introducing Section 138 in the Act would be
We see grate force in the above submission because once the cheque is issued by
the drawer a presumption under Section 139 must follow and merely because the
drawer issues a notice to the drawer or to the Bank for stoppage of the payment
it will not preclude an action under Section 138 of the Act by the drawer or
the holder of a cheque in due course. The object of Chapter XVII, which is intituled
as "OF PENALTIES IN CASE OF DISHONOR OF CERTAIN CHEQUES FOR INSUFFICIENCY
OF FUNDS IN THE ACCOUNTS" and contains Sections 138 to 142, is to promote
the efficacy of banking operations and to ensure credibility in transacting
business through cheques. It is for this reason we are of the considered view
that the observations of this Court in Electronics Trade & Technology
Development Corporation Ltd., Secunderabad (supra) in paragraph 6 to the effect
"Suppose after the cheque is issued to the payee or to the holder in due
course and before it is presented for encashment, notice is issued to him not
to present the same for encashment and yet the payee or holder in due course
presents the cheque to the bank for payment and when it is returned on
instructions. Section 138 does not get attracted", does not fit in with
the object and purpose for which the above chapter has been brought on the
The above view had been referred to in K.K. Sidharthan (supra) as is clear from
Paras 5 and 6 of the Judgment.
5 and 6 read as under:- "5. The above apart, through in the aforesaid case
this Court held that even "stop payment" instruction would attract
the mischief of Section 138, it has been observed in para 6, that if
"after the cheque is issued to the payee or to the holder in due course
and before it is presented for encashment, notice is issued to him not to
present the same for encashment and yet the payee or holder in due course
present the cheque to the bank for payment and when it is returned on
instruction, Section 138 does not get attracted".
From the facts mentioned above.
satisfied that in the present case cheques were presented after the appellant
had directed its bank to "stop payment". We have said `so because
though it has been averred in the complaint that the cheque dated 10-10-1994
was presented for collection on that date itself through the bank of the
respondent which is Catholic Syrian Bank Ltd., from the aforesaid letter of the
Indian overseas Branch, we find that the cheque was presented on 15.10.1994 (in
clearing). The lawyer's notice to the respondent being of 4th October, which
had been replied on 12th from Cochi, which is the place of the respondent,
whereas the Advocate who issued notice on behalf of the appellant was at Thrissur,
it would seem to us that the first cheque had even been presented after the instruction
of "stop payment" issued by the appellant had become known to the
the above observations, the complaint under Section 138 of the Act was quashed.
The aforesaid propositions in both these reported judgments, in our considered
view, with great respect are contrary to the spirit and object of Sections 138
and 139 of the Act. If we are to accept this proposition it will make Section
138 a dead letter, for, by giving instructions to the Bank to stop payment
immediately after issuing a cheque against a debt or liability the drawer can
easily get rid of the penal consequences notwithstanding the fact that a deemed
offence was committed. Further the following observations in para 6 in
Electronics Trade & Technology Development Corporation Ltd., Secunderabad
Section 138 of the Act intended to prevent dishonesty on the part of the drawer
of negotiable instrument to draw a cheque without sufficient funds in his
account maintained by him in a bank and induce the payee or holder in due
course to act upon it. Section 138 dress presumption that one commits the
offence if he issues the cheque dishonestly" in our opinion, do not also
lay down the law correctly.
Section 138 of the Act is a penal provision wherein if a person draws a cheque
on an account maintained by him with the Banker for payment of any amount of
money to another person from out of that account for the discharge, in whole or
in part of any debt or other liability, is returned by the Bank unpaid, on the
ground either because of the amount of money standing to the credit of that
account is insufficient to honor the cheque or that it exceeds the amount
arranged to be paid from that account by an agreement made with that bank, such
person shall be deemed to have committed an offence. The distinction between
the deeming provision and the presumption is well discernible. To illustrate,
if a person, draws a cheque with no sufficient funds available to his credit on
the date of issue, but makes the arrangement or deposited the amount thereafter
before the cheque is out in the bank by the drawer, and the cheque is honored,
in such a situation drawing of presumption of dishonesty on the part of the
drawer under Section 138 would not be justified. Section 138 of the Act gets
attracted only when the cheque is dishonored.
On careful reading of Section 138 of the Act, we are unable to subscribe to the
view that Section 138 of the Act draws presumption of dishonesty against drawer
of the cheque if he without sufficient funds to his credit in his bank account
to honor the cheque issues the same and, therefore, amounts to an offence under
Section 138 of the Act. For the persons stated hereinabove, we are unable to
share the views expressed by this Court in the above two cases and we
respectfully differ with the same regarding interpretation of Section 138 of
the Act of the limited extent as indicated above.
It is needless to emphasize that the Court taking cognizance of the complaint
under Section 138 of the Act is required to be satisfied as to whether a prima
facie case is made out under the said provision. The drawer of the cheque
undoubtedly gets an opportunity under Section 139 of the Act to rebut the
presumption at the trial. It is for this reason we are of the considered
opinion that the complaints of the appellant could not have been dismissed by
the High Court at the threshold.
In the result the appeals succeed and the common order dated 21.11.96 passed by
the High Court in Criminal Revision Petition Nos. 2303-2304 of 1995 is quashed
and set aside and the order passed by the Metropolitan Magistrate 11th Court.
Calcutta on 6.4.95 is restored. It is made
clear that all contentions are kept open.