Judicial Analysis Court Copy Headnote Facts Arguments Court observation

SUPREME COURT OF INDIA
K Ramaswamy and G.B. Pattanaik, JJ.
M/s. Electronics Trade and Technology Development
Corp. Ltd. Secunderabad - Appellant
versus
M/s. Indian Technologists and Engineers (Electronics)
P. Ltd. & Anr. - Respondents
Criminal Appeal No.124 of 1996
(with Cr. Appeal Nos. 128-132 of 1996)
Decided on 22-1-1996

Counsel for the Parties:
For the Appellant:Dr. V. Gourishankar, Sr. Advocate, G. Salkumar & S. Rajappa Advocates.
For the Respondents:L. Nageshwara Rao and S.U.K. Sagar, Advocates.

IMPORTANT POINT
If a cheque is returned with endorsement like refer to drawer, stop payment, stamp exceeds arrangement, it amounts to dishonour within the meaning of Section 138 of the Negotiable Instruments Act (as If dishonour is because 0/ Insufficient funds or exceeds the arrangement showing dishonest intention in issuance of cheque).

Headnote:Negotiable Instruments Act, 1881 -Section 138- offence of dishonour of cheque for insufficient funds etc. -Cheque returned with three remarks
       1. Refer to drawer
       2. Stop payment and
       3. Exceeds arrangements - Notice given-Amount not paid within 15 days of receipt-High Court held that ingredients of offence under Section 138 not made out in the complaint and quashed the complaint-Whether legal? (No) (Para 7)-Stoppage of payment showing dishonest intention covered by Section 138-Appeal lowed-Case remanded to Trial Magistrate, for trial on merits (Para 7)
       (Constitution of India-Art. 136 and Cr. P.C. 1973-Section 482).
       Held: The object of bringing Section 138 on statute appears to be to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. Despite civil remedy, Section 138 intended to prevent of 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 induces the payee or holder in due course to act upon it. Section 138 draws presumption that one commits the offence if he issues the cheque dishonestly. It is seen that once the cheque has 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 dishonour of cheque and it comes within the meaning of Section 138. 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. Under these circumstances, since the accused has not made the payment within 15 days from the date of the receipt of the notice issued by the payee or the holder in due. course, the dishonest intention is inferable from those facts. Accordingly, the ingredients as contained in Section 138 have been prima facie made out in the complaint. The High Court, therefore, was wholly incorrect in its conclusion that the ingredients have not been made out in the complaint. The order of the High Court quashing the complaints are illegal. The were accordingly set aside and the trial Court is directed to disposed of the matters as expeditiously as possible. It is made clear that we do not intend to express any opinion on merits. (Para 7)

ORDER

Leave granted.

2. We have heard the counsel on both ides.

3. The appellant laid the complaints under Section 138 of the Negotiable Instruments Act, 1881 (for short, 'the Act') for dishonour of cheque for insufficiency of the funds in the accounts of the accused. The complaints of he appellant read thus:

"The above cheque was .presented by the complainant on 28.1.1990, through their Bankers M/s. Hyderabad Bank, Sarojlni Devl Road, Secunderabad for realisation, with the promise by the accused, that the same will be honoured when presented. However, the said cheque was dishonoured with the Banker's endorsement dated 29.11.1990. "1. referred drawer. 2. instructions for stopping payment and 3. stamped exceeds arrangements". It is evident from the Banker's memo dated 29.11.1990 that the said cheque was dlshonoured by the Bank for want of funds only.

On receipt of the Intimation dated 29.11.1990 from the Bank, the complaint has issued a notice on 6.12.1990 to the accused by Registered Post Acknowledgement Due, informing him that the cheque dated 30.6.1990 was dishonoured by their bankers and demanded payment within 15 days from the date of receipt of the said notice he said notice was received and acknowledged by the accused. No payment has been made by the accused as required under Section 138(C) of the Negotiable Instruments Act. The accused 2 also stood as a guarantor to the payment of the complainant, as the proprietor of M/s. V.V. Rama Rao and Co., Saleemnagar Colony, Hyderabad. The accused 2 has issued the cheque knowing fully well that he has no Bank balance to their credit and he cannot honour the cheque for want of funds alone. He 'has not taken any steps to honour the cheque and arrange payment as required under Section 138(C) of the Negotiable Instruments Act. The accused has thereby committed the offence under Section 138 of the Negotiable Instruments Act. The dishonesty intention of the accused in instructing the Bank to stop payment in evident from the conduct of the accused. He has instructed their Bank to stop payment only with the mala fide intention of escaping from the liability under Section 138 of the Negotiable Instruments Act. He has so instructed their Bank so he has no funds to their credit. Hence the accused is liable for the offence Under Section 138 of the Negotiable Instruments Act."

4. Section 138 of the Act was brought on statute by Central Act 66 of 1988 w.e.f. April 1,1989 with a view to penalise the accused in cases of dishonour of certain cheques for insufficiency of funds in the accounts of the accused. It reads thus:

"138 Dishonour of cheque for insufficiency, etc., of funds in the accounts. -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 honour 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 or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless:

(a) the 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 earlier;

(b) the payee or the holder in due course of the cheque, as the case maybe 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 information by him from the bank regarding the return of the cheque as unpaid; and

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