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SUPREME COURT OF INDIA
R. Banumathi, Indira Banerjee, JJ.
Sicagen India Ltd - Appellant
Versus
Mahindra Vadineni & Ors. - Respondents
Criminal Appeal No. 26 of 2019, 27 of 2019
Decided On : 08-01-2019
Negotiable Instruments Act - Prosecution based on second or successive default in payment of the cheque is permissible - Section 138 of the Act - Summary of Acts and Sections: Section 138 of the Negotiable Instruments Act - The court discussed the interpretation of Section 138 and its purpose to promote faith in the banking system, discourage dishonoring of commitments, and safeguard honest drawers. The court emphasized that prosecution based on a second or successive default in payment of the cheque should not be impermissible, even if no prosecution based on the first default had been launched. The judgment referred to the decision in MSR Leathers vs. S. Palaniappan and Another, (2013) 1 SCC 177, and highlighted the principles of interpretation of statutes to promote the object of the legislation.
Fact of the Case:
The appellant-complainant had business dealings with the respondents and filed a complaint under Section 138 of the Negotiable Instruments Act after the cheques issued by the respondents were dishonoured. The High Court quashed the complaint based on the second statutory notice, stating that the complaint was not maintainable.
Finding of the Court:
The court found that the prosecution based on the second statutory notice was not barred and set aside the High Court's judgment, allowing the appeals and restoring the complaint to the Trial Court for further proceedings.
Issues: The issues involved whether the prosecution based upon second or successive dishonour of the cheque is permissible or not, and the contentions raised by the respondent(s) regarding the issuance of cheques, enforceability of debt, and effective control of management.
Ratio Decidendi: The court held that prosecution based on a second or successive default in payment of the cheque should not be impermissible, emphasizing the purpose of Section 138 of the Negotiable Instruments Act to promote faith in the banking system and discourage dishonoring of commitments. The court also highlighted the principles of interpretation of statutes to promote the object of the legislation.
Final Decision: The impugned judgment of the High Court was set aside, and the appeals were allowed. The complaint was restored to the Trial Court for further proceedings, and both parties were given the opportunity to raise their contentions before the Trial Court.
Certainly. Based on the provided legal document, here are the key points:
The prosecution under Section 138 of the Negotiable Instruments Act can be initiated based on a second or successive default in the payment of a cheque, even if no prosecution has been launched for the initial default. The purpose of Section 138 is to promote faith in the banking system, discourage dishonoring commitments, and protect honest drawers (!) (!) .
The main objective of Section 138 is to ensure that dishonored cheques are treated as a serious matter to uphold trust in negotiable instruments used in business transactions. It aims to penalize those who issue cheques without the intention to honor them, thereby safeguarding the interests of honest drawers and maintaining the credibility of the banking system (!) (!) .
The interpretation of the statute should align with its legislative intent, which is to promote the efficacy of the banking system and discourage dishonesty. The expressions used in the statute should be understood in a manner that best fulfills its purpose (!) (!) .
A prosecution based on a second or subsequent dishonor of a cheque is permissible, provided the cheque was presented again within the validity period, and the dishonor occurs again. The fact that no prior prosecution was initiated after the first default does not bar subsequent proceedings after a second dishonor (!) .
The court emphasized that the procedural requirement of issuing statutory notices and the timing of presenting cheques are crucial. Multiple presentations and notices are permissible, and the subsequent dishonor provides grounds for initiating or continuing legal proceedings (!) .
The case involved a situation where cheques issued by respondents were dishonored due to insufficient funds. The appellant issued notices demanding payment, and after the second notice, filed a complaint under Section 138. The High Court quashed the complaint, but the Supreme Court found that the complaint based on the second notice was maintainable and remitted the matter for further proceedings (!) (!) (!) (!) .
The court clarified that the validity of the complaint does not depend on whether the first default was prosecuted; rather, the focus is on the subsequent dishonor and the issuance of proper notices. The complaint's validity is preserved if the
ORDER
R. Banumathi, J. - Leave granted.
2. These appeals arise out of the judgment and orders dated 14.11.2011 in Crl.O.P.No. 20401 of 2011 and 15.12.2014 in Crl.O.P.S.R.No. 55782 of 2014 passed by the High Court of Judicature at Madras in and by which the High Court has quashed the criminal complaints filed by the appellant - complainant under Section 138 of the Negotiable Instruments Act.
3. For convenience, the facts in C.C.No. 4029/2010 (Crl.O.P. No. 20401 of 2011) are referred to. Case of the appellant-complainant is that they had business dealings with the respondents and in the course of business dealings, the respondents had issued three cheques viz.
1. Cheque 316693 dated 20.07.2009 for Rs.1,44,362/-
2. Cheque 316663 dated 30.07.2009 for Rs.4,26,400/-
3. Cheque 316692 dated 10.08.2000 for Rs.4,48,656/-
The three cheques were presented for collection and the same were dishonoured and returned with the endorsement "insufficient funds". The appellant-complainant had issued first notice to the respondent(s) on 31.08.2009 demanding the repayment of the amount. The cheques were again presented and returned with the endorsement "insufficient funds". The appellant had issued a statutory notice on 25.01.2010 to the respondent(s). Since the cheque amount was not being paid, the appellant-complainant had filed the complaint under Section 138 of the Negotiable Instruments Act based on the second statutory notice dated 25.01.2010.
4. The respondent(s)-accused filed petition before the High Court under Section 482 Cr.P.C. seeking to quash the criminal complaint filed by the appellant-complainant on the ground that the complaint was not filed based on the first statutory notice dated 31.08.2009 and the complaint filed based on the second statutory notice dated 25.01.2010 is not maintainable. The High Court quashed the complaint by holding that "the amount has been specifically mentioned in the first notice and, thereafter, the complainant himself has postponed the matter and issued the second notice on 25.01.2010 and the complaint filed on the same cause of action was not maintainable .
5. We have heard Mr. K.K. Mani, learned counsel appearing on behalf of the appellant as well as Mr. B. Karunakaran, learned counsel appearing on behalf of the respondents.
6. The issue involved whether the prosecution based upon second or successive dishonour of the cheque is permissible or not, is no longer res integra. In Sadanandan's case it was held that while second and successive presentation of the cheque is legally permissible so long as such presentation is within the period of six months or the validity of the cheque whichever is earlier, the second or subsequent dishonour of the cheque would not entitle the holder/payee to issue a statutory notice to the drawer nor would it entitle him to institute legal proceedings against the drawer in the event he fails to arrange the payment. The correctness of the decision in Sadanandan's case was doubted and referred to the larger bench.
7. Three-Judge Bench of this Court in MSR Leathers vs. S. Palaniappan and Another , (2013) 1 SCC 177 held that there is nothing in the provisions of Section 138 of the Act that forbids the holder of the Cheque to make successive presentation of the cheque and institute the criminal complaint based on the second or successive dishonour of the cheque on its presentation. In paragraphs 29 and 33 this Court held as under:
29 It is trite that the object underlying Section 138 of the Act is to promote and inculcate faith in the efficacy of banking system and its operations giving creditability 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 t
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