Goaplast
Pvt. Ltd. Vs. Shri Chico Ursula D'souza & Anr [2003] Insc 149 (7 March 2003)
M.B.
Shah & Arun Kumar
(Arising
out of SLP (Crl.) 2742/02) With Criminal Appeals No. of 2003 (Arising out of
SLP (Crl.) No.3844/2002, SLP(Crl.) No.3907/2002, SLP(Crl.) No.3937/2002, SLP(Crl.)
3940/2002, SLP(Crl.) No.3944/2002 and SLP(Crl.)No.3950/2002)_________________
ARUN KUMAR, J.
Leave
granted in all the appeals.
These
appeals involve a pure question of law as to applicability of Section 138 of
the Negotiable Instruments Act, 1881 (hereinafter referred to as
"Act") to a case in which a person issuing a post dated cheque stops
its payment by issuing instructions to the drawee bank before the due date of
payment. The facts involved in all the appeals are almost similar except
variations in dates and amounts of cheques involved in each case. For purpose
of this judgment we have taken the facts in Criminal Appeal
No._________/2003(arising out of SLP(Crl.)2742/2002. The facts are in a very
narrow compass. Respondent No.1 addressed a letter to the appellant on 20th July, 1992 enclosing therewith ten post-dated cheques,
each for an amount of Rs.40,000/- by way of refund of amount due from him to
the appellant. The two cheques subject matter of the present appeal were dated
10.12.1994 and 10.4.1995. On 12th February, 1993 respondent No.1 again wrote to the appellant denying his liability to
pay the amount under the aforesaid cheques on the ground that they were issued
under a mistaken belief of liability and asked the appellant to treat the cheques
as invalid. Respondent No.1 also wrote to the drawee Bank on 15th March, 1993 to stop payment of the aforesaid
post-dated cheques issued by him. On 10th May, 1995, the appellant presented the two cheques
dated 10.12.1994 and 10.4.1995 for payment but the said cheques were returned
unpaid with the endorsement "present again" on 12.5.1995. On 24th May, 1995 the appellant issued notice under
Section 138B of the Act demanding payment of the amount of Rs.80,000/- i.e. the
total amount of the two cheques. On failure of the respondent No.1 to make the
payment in pursuance to the notice, the appellant filed a complaint under
Section 138 of the Act on 7th July, 1995.
The
concerned Magistrate dismissed the complaint vide order dated 18th October,
1999, taking the view that Section 138 of the Act was not attracted in these
facts. The appellant filed an appeal against the said order of the Magistrate.
The Goa Bench of the Bombay High Court dismissed the appeal on 16th March, 2002 upholding the view of the learned
Judicial Magistrate. Both the courts primarily based their decision on a
misreading of the judgment of this Court in Anil Kumar Sawhney vs. Gulshan Rai [
1993 (4) SCC 424]. They took the view that the accused had only countermanded a
bill of exchange on the date the accused wrote the letter about stopping
payment of the cheques. Before the due date the instruments were merely bills
of exchange and not cheques. Therefore, no offence could be said to have been
made out under Section 138 of the Act. According to the courts below the
payment had been stopped before the cheques became payable.
The
learned counsel for the appellant has submitted that mere writing of letter to
the Bank stopping payment of the post-dated cheques does not take the case out
of the purview of the Act. He has invited our attention to the object behind
the provision contained in Chapter XVII of the Act.
For
appreciating the issue involved in the present case, it is necessary to refer
to the object behind introduction of Chapter XVII containing Sections 138 to
142. This Chapter was introduced in the Act by the Banking, Public Financial
Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (Acts 66 of
1998) with the object of inculcating faith in the efficacy of banking
operations and giving credibility to negotiable instruments in business
transactions and in order to promote efficacy of banking operations. With the
policy of liberalisation adopted by the country which brought about increase in
international trade and commerce, it became necessary to inculcate faith in
banking. World trade is carried through banking operations rather than cash
transactions. The amendment was intended to create an atmosphere of faith and
reliance on banking system.
Therefore,
while considering the question of applicability of Section 138 of the Act to a
situation presented by the facts of the present case, it is necessary to keep
the objects of the legislation in mind. If a party is allowed to use a cheque
as a mode of deferred payment and the payee of the cheque on the faith that he
will get his payment on the due date accepts such deferred payment by way of cheque,
he should not normally suffer on account of non payment. The faith, which the
legislature has desired that such instruments should inspire in commercial transactions
would be completely lost if parties are as a matter of routine allowed to
interdict payment by issuing instruction to banks to stop payment of cheques.
In today's world where use of cash in day to day life is almost getting extinct
and people are using negotiable instruments in commercial transactions and
plastic money for their daily needs as consumers, it is all the more necessary
that people's faith in such instruments should be strengthened rather than
weakened. Provisions contained in Sections 138 to 142 of the Act are intended
to discourage people from not honouring their commitments by way of payment
through cheques. It is desirable that the court should ban in favour of an
interpretation which serves the object of the statute. The penal provisions
contained in Sections 138 to 142 of the Act are intended to ensure that
obligations undertaken by issuing cheques as a mode of payment are honoured. A
post-dated cheque will lose its credibility and accepatibility if its payment
can be stopped routinely. A cheque is a well recognized mode of payment and
post-dated cheques are often used in various transactions in daily life. The
purpose of a post-dated cheque is to provide some accommodation to the drawer
of the cheque. Therefore, it is all the more necessary that the drawer of the cheque
should not be allowed to abuse the accommodation given to him by a creditor by
way of acceptance of post-dated cheque. If stoppage of payment of a post-dated cheque
is permitted to take the case out of the purview of Seciton 138 of the Act, it
will amount to allowing the party to take advantage of his own wrong.
The
present case was decided by courts below mainly on the basis of the judgment of
this Court in Sawhney's case (supra). In that case this court noted that a cheque
under Section 6 of the Act is a bill of exchange drawn on a banker and is
payable on demand. From this it follows that a bill of exchange though drawn on
a banker, if not payable on demand is not a cheque. A post-dated cheque is only
a bill of exchange when it is written or drawn. It becomes a cheque when it is payble
on demand. It is not payable till the date which is shown on the face of the
document. It will become a cheque only on the date shown on it, prior to that
it remains a bill of exchange. In Sawhney's case this Court was concerned with
the question of limitation as provided in proviso (a) to Section 138 of the
Act. This proviso requires that a cheque should be presented to the Bank within
a period of six months from the date on which it is drawn or within the period
of its validity, whichever is earlier. The cheques in question in Sawhney's
case (supra) were dated 15.12.1991 and 15.5.1991 totalling an amount of Rs.5,00,000/-.
These cheques were returned by the Banker with the endorsement "not
arranged for no fund". The payee thereafter issued notice as contemplated
under Section 138 of the Act followed by complaint under Section 138 being
filed in the Court of the Chief Judicial Magistrate at Karnal. It appears from
the judgment that these cheques were handed over to the payee in a settlement
arrived at in a court case on 5th March, 1990.
The question for consideration was as to the date on which the cheques in
question could be taken as drawn, in other words, what is the starting point of
limitation of six months provided in proviso (a) to Section 138 of the Act.
According to the drawer the cheques were drawn in March, 1990 when they were
written and handed over to the payee. The cheques were post-dated and bore the
dates mentioned hereinbefore.
Proviso
(a) to Section 138 uses the words "the date on which it is drawn".
The cheques were drawn in March, 1990 and were presented for encashment in the
year 1991 which was beyond the period of six months provided in proviso (a) to
Section 138 and therefore, no offence was said to be made out under Section
138. Keeping in view the object of Section 138 i.e. to enhance the
acceptability of cheques by making the drawer liable for penalty in case the cheque
is dishonoured, it was felt that drawer of a post-dated cheque could defeat
Section 138 of the Act by showing a date beyond six months of its delivery. An
interpretation which supports the object of the provision had to be adopted.
Therefore,
it was held that a post dated cheque for purpose of clause (a) of the provision
to section 138 has to be considered to have been drawn on the date it bears. On
the basis of Sections 5 and 6 of the Act, it was observed that "post-dated
cheque is only a bill of exchange when it is written or drawn, it becomes a cheque
when it is payable on demand. The post-dated cheque is not payable till the
date which is shown on the face of the document. It will only become cheque on
the date shown on it and prior to that it remains a bill of exchange under
Section 5 of the Act. As a bill of exchange a post-dated cheque remains
negotiable but it will not become a cheque till the date when it becomes
payable on demand." The ratio of the decision in Sawhney's case is found
in the following words:
"One
of the main ingredients of the offence under Section 138 of the Act is, the
return of the cheque by the bank unpaid. Till the time the cheque is returned
by the bank unpaid, no offence under Section 138 is made out. A postdated cheque
cannot be presented before the bank and as such the question of its return
would not arise. It is only when the postdated cheque becomes a "cheque",
with effect from the date shown on the face of the said cheque, the provisions
of Section 138 come into play. The net result is that a postdated cheque
remains a bill of exchange till the date written on it. With effect from the
date shown on the face of the said cheque it becomes a "cheque" under
the Act and the provisions of Section 138(a) would squarely be attracted. In
the present case the postdated cheques were drwn in March 1990 but they became
"cheques" in the year 1991 on the dates shown therein. The period of
six months, therefore, has to be reckoned from the dates mentioned on the face
of the cheques." From the above it will be seen that in Sawhney's case the
point for consideration was the date from which the period of six months
provided in proviso (a) to Section 138 should be counted. The Court clearly
held that a post-dated cheque becomes a cheque only on the date it bears when
it becomes payable on demand, and therefore, limitation will start from that
date.
In the
present case the issue is very different. The issue is regarding payment of a
post-dated cheque being countermanded before the date mentioned on the face of
the cheque. For purpose of considering the issue, it is relevant to see Section
139 of the Act which creates a presumption in favour of the holder of a cheque.
The said Section provides that "it shall be presumed that, 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, or
any debt or other liability". Thus it has to be presumed that a cheque is
issued in discharge of any debt or other liability. The presumption can be
rebutted by adducing evidence and the burden of proof is on the person who
wants to rebut the presumption. This presumption coupled with the object of
Chapter XVII of the Act which is to promote the efficacy of banking operation
and to ensure credibility in business transactions through banks persuades us
to take a view that by countermanding payment of post- dated cheque, a party
should not be allowed to get away from the penal provision of Section 138 of
the Act. A contrary view would render Section 138 a dead letter and will
provide a handle to persons trying to avoid payment under legal obligations
undertaken by them through their own acts which in other words can be said to
be taking advantage of one's own wrong. If we hold otherwise, by giving
instructions to banks to stop payment of a cheque after issuing the same
against a debt or liability, a drawer will easily avoid penal consequences
under Section 138. Once a cheque is issued by a drawer, a presumption under
Section 139 must follow and merely because the drawer issued notice to the drawee
or to the bank for stoppage of payment it will not preclude an action under
Section 138 of the Act by the drawee or the holder of the cheque in due course.
This was the view taken by this Court in Modi Cements Ltd. vs. Kuchil Kumar Nandi
[1998 (3) SCC 249].
On
same facts is the decision of this Court in Ashok Yeshwant Badave vs. Surendra Madhavrao
Nighojakar and another [2001 (3) SCC 726]. The decision in Modi's case
overruled an earlier decision of this Court in Electronics Trade &
Technology Development Corpon. Ltd. vs. Indian Technologists & Engineers
[AIR 1996 SC 2339] which had taken a contrary view. We are in respectful
agreement with the view taken in Modi's case. The said view is in consonance
with the object of the legislation. On the faith of payment by way of a
post-dated cheque, the payee alters his position by accepting the cheque. If
stoppage of payment before the due date of the cheque is allowed to take the
transaction out of the purview of Section 138 of the Act, it will shake the
confidence which a cheque is otherwise intended to inspire regarding payment
being available on the due date.
[(1999)
4 SCC 253] was a case in which the drawer of the cheque closed the account in
the Bank before presentation of the cheque and the cheque when presented was
returned by the Bank with the remark "account closed". The question
arose whether in this situation Section 138 of the Act would be attracted. It
was contended on behalf of the appellant that Section 138 being a penal
provision it should be strictly interpreted. Section 138 according to the
appellant applied only in two situations i.e. either because the money standing
to the credit of the account of the drawer is insufficient to honour the cheque
or it exceeds the amount arranged to be paid from that account by an agreement
made with the bank.
Rejecting
the contentions raised on behalf of the accused this Court held 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. Before one closes his account in the Bank
he withdraws the entire amount standing to credit in the account. Withdrawal of
the entire amount would therefore mean that there were no funds in the account
to honour the cheque which squarely brings the case within Section 138 of the
Act. On the question of strict interpretation of penal provisions raised on
behalf of the accused it was observed: "If the interpretation, which is
sought for, were given, then it would only encourage, dishonest persons to
issue cheques and before presentation of the cheques, close the account and
thereby escape from the penal consequences of Section 138." Any
interpretation which withdraws the life and blood of the provision and makes it
ineffective and a dead letter, should be averted. It is the duty of the court
to interpret the provision consistent with the legislative intent and purpose
so as to suppress the mischief and advance the remedy. The legislative purpose
is to permit the efficacy of banking and of ensuring that in commercial or
contractual transactions, cheques are not dishonoured and credibility in
transacting business through banks is maintained. The Court relied upon its
earlier judgment in Modi Cement Ltd.(supra). We would like to quote the
following observations t contained in NEPC Micon "15. " In view of
the aforesaid discussion we are of the opinion that even though section 138 is
a penal statute, it is the duty of the court to interpret it consistent with
the legislative intent and purpose so as to suppress the mischief and advance
the remedy. As stated above, Section 138 of the Act has created a contractual
breach as an offence and the legislative purpose is to promote efficacy of
banking and of ensuring that in commercial or contractual transactions cheques
are not dishonoured and credibility in transacting business through cheques is
maintained. The above interpretation would be in accordance with the principle
of interpretation quoted above "brush away the cobweb varnish, and shew
the transactions in their true light" (Wilmot, C.J.) or, (by Maxwell)
"to carry out effectively the breach of the statute, it must be so
construed as to defeat all attempts to do, or avoid doing, in an indirect or
circuitous manner that which it has prohibited." Hence, when the cheque is
returned by a bank with an endorsement "account closed", it would
amount to returning the cheque unpaid because "the amount of money
standing to the credit of that account is insufficient to honour the cheque"
as envisaged in Section 138 of the Act." We are unable to agree with the
reasoning adopted by the courts below. The impugned judgments of the High Court
and the Judicial Magistrate, Ist Class, Panaji, Goa are set aside. We hold that
Section 138 of the Negotiable Instruments Act will be attracted in the facts of
the case.
However,
whether a case for punishment under that provision is made out, will depend on
outcome of the trial.
The
cases are remanded to the concerned Judicial Magistrate for deciding the
complaints filed by the appellant herein on merits in accordance with law. All
the appeals are allowed. Nothing contained in this judgment be taken as expression
of opinion on merits.
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