Judicial Analysis Court Copy Headnote Facts Arguments Court observation

Supreme Court of India
(From Mumbai High Court)
M.B. Shah & Arun Kumar, JJ.
Goaplast Pvt. Ltd. —Appellant
versus
Shri Chico Ursula D’Souza & Anr. —Respondents
Criminal Appeal No. 315 of 2003
(Arising out of SLP (Crl.) No. 2742/2002
With
Criminal Appeal Nos. 316-321 of 2003
(Arising out of SLP (Crl.) No. 3844/2002, SLP (Crl.) No. 3907/2002, SLP (Crl.) No. 3937/2002, SLP (Crl.) No. 3940/2002, SLP (Crl.) No. 3944/2002 and SLP (Crl.) No. 3950/2002)
Decided on 7-3-2003

Counsel for the Parties :
For the Appellant :Dhruv Mehta, Mohit Choudhary, Ms. Shalini Gupta and Ms. Ruby Singh Ahuja, Advocates.
For the Respondent No. 2:Ms. A. Subhashini, Advocate.

Very Important Point
Section 138 of the Negotiable Instruments Act, 1881 will be attracted 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 and cheque is returned with the endorsement ‘‘present again.’’

Headnote:Negotiable Instruments Act, 1881 —Sections 5, 6, 138 and 139—Applicability of Section 138 to a case in which a person issuing 10 post dated cheques, stops payment of two, by issuing instructions to the drawee bank before the due date of payment and writing to the payee denying his liability to pay the amount under the aforesaid cheques—Cheques returned with the remarks ‘‘present again’’—Whether attracts Section 138? Courts below holding ‘‘No’’ relying on 1993(4) SCC 424—Appeals to Supreme Court—Whether Courts below were correct? (No)—Appeal allowed—Case remanded for trial on merits. (Para 8)
       Held : 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 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. (Paras 5 & 6)
       We are unable to agree with the reasoning adopted by the courts below. The impugned judgments of the High Court and the Judicial Magistrate, 1st 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. (Para 8)

Judgment

Arun Kumar, J.—Leave granted in all the appeals.

2. 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. 315/2003 (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.

3. 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. The

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Cases Referred (5)