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Andhra Pradesh High Court
Judges : M.N.RAO, S.V.MARUTHI
B.Mohan Krishna - Appellant
Versus
Union of India - Respondent
Decided On : 01-01-94
NEGOTIABLE INSTRUMENTS ACT - SECTIONS 138 TO 142 - PENALTIES IN CASES OF DISHONOUR OF CERTAIN CHEQUES FOR INSUFFICIENCY OF FUNDS - CONSTITUTIONALITY - STRICT LIABILITY - PRESUMPTION - INTERPRETATION - GUIDELINES.
Fact of the Case:
The petitioners, facing prosecutions for offences punishable under section 138 of the Negotiable Instruments Act, 1881, challenged the constitutional validity of the impugned provisions.
Finding of the Court:
The Court upheld the constitutional validity of the impugned provisions, holding that: 1. The impugned legislation is not ultra vires the powers of the Union Parliament. 2. Absence of mens rea in section 138 of the Act for fastening criminal liability is not arbitrary, violative of article 14 of the Constitution of India. 3. Treating individuals and companies differently, the impugned legislation has not made an invidious discrimination. 4. The failure contemplated in proviso (c) to section 138 implies failure without reasonable cause. 5. The presumption incorporated in section 139 is not violative of the fundamental right guaranteed under clause (3) of article 20 of the Constitution of India. 6. Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, does not prohibit launching of prosecution under section 138 of the Act.
Issues: 1. Whether the impugned legislation is ultra vires the powers of the Union Parliament? 2. Whether a legislation creating a penal offence by excluding mens rea as a necessary ingredient is arbitrary and, therefore, violative of article 14 of the Constitution? 3. Whether treating companies and individuals separately for fastening criminal liability is violative of article 14 of the Constitution? 4. Whether the words "fails to make payment" occurring in proviso (c) to section 138 imply "failure without reasonable cause"? 5. Whether the presumption in section 139 in favour of the holder of a cheque is violative of the guaranteed fundamental right of an accused person under clause (3) of article 20 of the Constitution of India? 6. Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, prohibits launching of prosecution under section 138 of the Act?
Ratio Decidendi: 1. The impugned legislation, which creates a statutory offence without incorporating mens rea as a necessary ingredient, is not arbitrary and violative of article 14 of the Constitution of India, as it was enacted in public interest to curb the rampant practice of issuing cheques without adequate funds in the accounts. 2. The classification between individuals and companies for fastening criminal liability is not irrational or unreasonable, as companies are different from their shareholders or members and their wrongful acts are attributed to their agents. 3. The failure contemplated in proviso (c) to section 138 implies failure without reasonable cause, as the principle of strict liability incorporated in the main enacting clause and the specific exclusion of any defence in respect of a prosecution under section 138 that "the drawer had no reason to believe when he issued the cheque, that the cheque may be dishonoured on presentment for the reasons stated in that section" preclude the interpretation that the failure implies failure without reasonable cause. 4. The presumption incorporated in section 139 is not violative of the fundamental right guaranteed under clause (3) of article 20 of the Constitution of India, as it is a rebuttable presumption and the accused is not compelled to be a witness against himself.
Final Decision: All the writ petitions were dismissed, subject to the guidelines indicated in regard to the interpretation of the impugned provisions.
( 1 ) THE provisions of Chapter XVII of the Negotiable Instruments Act, 1881 (for short "the Act"), comprising sections 138 to 142, concerning penalties in cases of dishonour of certain cheques for insufficiency of funds in the accounts, inserted by section 4 of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (Act 66 of 1988) are under challenge in this batch of writ petitions.
( 2 ) THE Statement of Objects and Reasons of Act 66 of 1988 says :". . . in the course of administering various laws relating to banks and public financial institutions, a need has arisen for some further amendments to the Act. . . ". Section 4 was enacted for achieving the following objective :"to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficiency of funds in the accounts or for the reason that it exceeds the arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers. "of the five sections comprising Chapter XVII of the Act (inserted by section 4 of Act 66 of 1988), section 138 creates a statutory offence in the matter of dishonour of cheques on the ground of insufficiency of funds in the account maintained by a person with a banker. The main enacting clause of section 138 lays down that where a person issues a cheque drawn by him on an account maintained by him with a bank 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, he shall be deemed to have committed an offence if the cheque is returned by the bank unpaid either because of insufficiency of funds standing to the credit of his account or the cheque exceeds the amount arranged to be paid from the account by an agreement made with the bank. The drawer of the cheque is liable to 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 both without prejudice to any other provisions of the Act. To constitute an offence incorporated in the main enacting clause, three conditions have to be satisfied; (i) the cheques 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 earlier - proviso (a); (ii) the payee or the holder in due course of the cheque makes a demand for payment of the amount by giving a notice in writing to the drawer within 15 days from receiving information from the bank regarding the dishonour of the cheque - proviso (b); and (iii) the drawer of the cheque fails to make payment within 15 days from the date of receipt of the notice proviso (c ). The Explanation to the section says that the expression "debt or other liability" occurring in the main enacting clause means "a legally enforceable debt or other liability".
( 3 ) SECTION 139 of the Act incorporates a rule of presumption to the effect that until the contrary is proved, the holder of a cheque received the cheque of the nature referred to in section 138 of the discharge in whole or in part of any debt or liability. Section 140 lays down that when a person is prosecuted for an offence under section 138, he is not entitled to plead in his defence that he had no reason to believe when he issued the cheque that it may be dishonoured on presentment for the reasons stated in section 138. Section 141 concerns offences by companies. Section 142 deals with cognizance of offences punishable under section 138. To take cognizance of an offence under section 138, the necessary pre-condition is a written complaint by the payee or the holder of the cheque in due course and the complaint must be within one month from the date of failure on the part of the drawer to make payment to the payee or the holder in due course from the date of receipt of the notice. No court
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