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SUPREME COURT OF INDIA
R.M. LODHA, T.S. THAKUR & ANIL R. DAVE, JJ.
MSR LEATHERS - Appellant
VERSUS
S. PALANIAPPAN & ANR. - Respondents
Criminal Appeal Nos.261-264 of 2002
Decided on : 26-09-2012
Negotiable Instruments Act, 1881- Section 138 -Object of-Object underlying Section 138 of the Act is to promote and inculcate faith in the efficacy of banking system and its operations, giving credibility to Negotiable Instruments in business transactions and to create an atmosphere of faith and reliance by discouraging people from dishonouring their commitments which are implicit when they pay their dues through cheques- The provision was intended to punish those unscrupulous persons who issued cheques for discharging their liabilities without really intending to honour the promise that goes with the drawing up of such a negotiable instrument- It was intended to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case the cheque was dishonoured and to safeguard and prevent harassment of honest drawers (Para 27)
Facts of the Case :
A.Four cheques were issued by respondent-company herein in the instant case in favour of appellant . The cheques were dishonoured in terms of memo for insufficiency of funds. A notice was then issued by appellant to the respondent . Despite receipt of notice by respondent the payment was not arranged. The appellants case is that the respondent assured the appellant that the funds necessary for the encashment of the cheques shall be made available by the respondent, for which purpose the cheques could be presented again to the bank concerned. The cheques were accordingly presented for the second time to the bank and were dishonoured for a second time .
B.A statutory notice was issued by the appellant under clause (b) of proviso to Section 138 of the Act calling upon the respondent-drawer of the cheques to arrange payment of the amount within 15 days. Despite receipt of the said notice, no payment was arranged which led to the filing of Complaint.
C. The Magistrate took cognizance and issued summons to the respondents in response whereto the respondents entered appearance and sought discharge primarily on the ground that the complaint had not been filed within 30 days of the expiry of the notice based on the first dishonour of the cheque. The Magistrate upon consideration dismissed the applications for discharge .
D. High Court however by order impugned in this appeal, allowed the revision and quashed the orders passed by the Magistrate relying upon the decision of this Court in Sadanandan Bhadrans case according to which a complaint based on a second or successive dishonour of the cheque was not maintainable if no complaint based on an earlier dishonour, followed by the statutory notice issued on the basis thereof, had been filed.
E .Issue that arose for consideration in present case was whether a complaint based on a second or successive dishonour of cheque is maintainable if no complaint based on an earlier dishonour, followed by statutory notice issued on the basis thereof, had been filed.
Findings of the Court :
The Court held that a prosecution based on a second or successive default in payment of the cheque amount should not be impermissible simply because no prosecution based on the first default which was followed by a statutory notice and a failure to pay had not been launched.
B. If the entire purpose underlying Section 138 of the Negotiable Instruments Act is to compel the drawers to honour their commitments made in the course of their business or other affairs, there is no reason why a person who has issued a cheque which is dishonoured and who fails to make payment despite statutory notice served upon him should be immune to prosecution simply because the holder of the cheque has not rushed to the court with a complaint based on such default or simply because the drawer has made the holder defer prosecution promising to make arrangements for funds or for any other similar reason.
C. There is no real or qualitative difference between a case where default is committed and prosecution immediately launched and another where the prosecution is deferred till the cheque presented again gets dishonoured for the second or successive time.
D.Decision in Sadanandan Bhadrans case was overruled and it was held that prosecution based upon second or successive dishonour of the cheque is also permissible so long as the same satisfies the requirements stipulated in the proviso to Section 138 of the Negotiable Instruments Act.
Result : Ordered accordingly
Key Points: - A prosecution based on a second or successive default in payment of the cheque amount is permissible even if no prosecution was launched based on the first default, provided statutory notice and failure to pay conditions are met (!) (!) . - The decision in Sadanandan Bhadrans case is overruled, holding that a holder has the discretion to choose which default to prosecute without forfeiting rights for earlier defaults (!) (!) . - The cause of action for filing a complaint under Section 138 accrues separately for each dishonour followed by a notice and failure to pay, rather than arising only once (!) (!) . - Failure to institute prosecution after the first default does not grant immunity to the drawer as long as the cheque remains valid and is dishonoured upon subsequent presentation (!) (!) . - The object of Section 138 is to promote faith in the banking system and penalize unscrupulous drawers, which supports an interpretation allowing successive prosecutions (!) (!) . - The concept of "absolution" from a previous offence is rejected as the statute does not provide for it, especially in light of the 2002 amendment allowing courts to condone delay (!) (!) . - There is no real or qualitative difference between launching prosecution immediately after the first default and deferring it until a second dishonour occurs (!) . - The holder's right to prosecute remains valid and exercisable for every dishonour within the validity period of the cheque, subject to the proviso requirements of Section 138 (!) (!) .
JUDGMENT
T.S. Thakur, J.-
In Sadanandan Bhadran v. Madhavan Sunil Kumar (1998) 6 SCC 514, this Court was dealing with a case under Section 138 of the Negotiable Instrument Act, 1881 (hereinafter referred to as ‘the Act’) in which the complainant had, after dishonour of a cheque issued in his favour, taken steps to serve upon the accused-drawer of the cheque a notice under clause (b) of proviso to Section 138 of the Act. No complaint was, however, filed by the complainant despite failure of the accused to arrange the payment of the amount covered by the cheque. Instead, the complainant-payee of the cheque had presented the cheque for collection once again, which was dishonoured a second time for want of sufficient funds. Another notice was served on the drawer of the cheque to arrange payment within fifteen days of receipt of said notice. Only after failure of drawer to do so did the payee file a complaint against the former under Section 138 of the Act.
2. After entering appearance, the drawer filed an application seeking discharge on the ground that the payee could not create more than one cause of action in respect of a single cheque and the complaint in question having been filed on the basis of the second presentation and resultant second cause of action was not maintainable. The Magistrate accepted that contention relying upon a Division Bench decision of Kerala High Court in Kumaresan v. Ameerappa (1991) 1 Ker L.T. 893 and dismissed the complaint. The order passed by the Magistrate was then questioned before the High Court of Kerala who relying upon Kumaresan’s case (supra) upheld the order passed by the Magistrate. The matter was eventually brought up to this Court by special leave. This Court formulated the following question for determination: “Whether payee or holder of cheque can initiate proceeding of prosecution under Section 138 of Negotiable Instrument Act, 1881 for the second time if he has not initiated any action on earlier cause of action?”
3. Answering the question in the negative this Court held that a combined reading of Sections 138 and 142 of the Act left no room for doubt that cause of action under Section 142(b) can arise only once. The conclusion observed by the court is supported not only by Sections 138 and 142 but also by the fact that the dishonour of cheque gives rise to the commission of offence only on the failure to pay money when a notice is served upon the drawer in accordance with clause (b) of the proviso to Section 138. The Court further held that if the concept of successive causes of action were to be accepted the same would make the limitation under Section 142(b) otiose. The Court observed:
“7. Besides the language of Sections 138 and 142 which clearly postulates only one cause of action, there are other formidable impediments which negate the concept of successive causes of action. One of them is that for dishonour of one cheque, there can be only one offence and such offence is committed by the drawer immediately on his failure to make the payment within fifteen days of the receipt of the notice served in accordance with clause (b) of the proviso to Section 138. That necessarily means that for similar failure after service of fresh notice on subsequent dishonour, the drawer cannot be liable for any offence nor can the first offence be treated as non est so as to give the payee a right to file a complaint treating the second offence as the first one. At that stage, it will not be a question of waiver of the right of the payee to prosecute the drawer but of absolution of the drawer of an offence, which stands already committed by him and which cannot be committed by him again.
8. The other impediment to the acceptance of the concept of successive causes of action is that it will make the period of limitation under clause (c) of Section 142 otiose, for, a payee who failed to file his complaint within one month and thereby forfeited his right to prosecute the drawer, can circumvent the
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