IMPORTANT POINT
Provisions of Section 138 of Negotiable Instruments Act are applicable where the complainant is payee and holder of the cheque in due course.

V.M. Jain, J.—This petition, for the grant of special leave to appeal, has been filed by the complainant, namely Punjab National Bank, challenging the Order dated 4.5.2002, passed by the Judicial Magistrate, dismissing the criminal complaint and acquitting the accused respondents of the charge under Section 138 of the Negotiable Instruments Act (hereinafter referred to as the Act).

2. The facts, which are relevant for the decision of the present petition, are the accused respondents had issued two cheques of Rs. 2,50,000 each, on 26.12.1998 and 28.12.1998 respectively in favour of M/s Guru Nanak Paper Mills. Said M/s Guru Nanak Paper Mills deposited those cheques with the complainant Bank and the complainant Bank purchased those cheques and gave minimum credit to M/s Guru Nanak Paper Mills. When those cheques were sent to the drawee Bank for encashment, those cheques were received back unpaid being dishonoured on 11.1.1999 with the remarks “stop payment”. Upon this, the complainant Bank issued notices to the accused respondents and since the accused respondents failed to make the payment of those cheques to the complainant Bank inspite of those notices, the complainant Bank filed criminal complaint under Section 138 of the Act against the accused respondents. In the said criminal complaint, it was alleged by the complainant Bank that it had sanctioned various credit facilities in favour of M/s Guru Nanak Paper Mills, including the facility, of bill discounting and that under this facility the complainant Bank used to give minimum credit of the amount of the said cheque to the said party and under those circumstances, the complainant Bank used to become holder of those cheques “in due course” and became legally entitled to the said cheques and as such, the complainant Bank was entitled to file the criminal complaint against the accused respondents.

3. After recording preliminary evidence, the learned Magistrate summoned the accused respondents for the offence under Section 138 of the Act. After the accused had appeared, the learned Magistrate served notice to accusation upon the accused respondents, to which the accused pleaded not guilty and claimed to be tried. Thereafter, the complainant Bank produced its evidence. In the statement under Section 313 Cr.P.C., the accused denied the allegations against them and stated that they had been falsely implicated in this case. The accused examined their defence evidence.

4. After hearing both the sides, the learned Judicial Magistrate acquitted the accused respondents of the charge under Section 138 of the Act. Aggrieved against the same, the complainant Bank filed the present petition for the grant of special leave to appeal.

5. We have heard learned counsel for the parties and have gone through the record carefully.

6. While dismissing the criminal complaint and acquitting the accused respondents, it was observed bythe learned Magistrate that as per Section 9 of the Act, if the cheque is payable to Order then the payee or endorse thereof is holder in due course. It was found that in the present case, the witnesses had admitted that the cheques in question were payable to Order and that there was no endorsement on the said cheques made by M/s Guru Nanak Paper Mills in favour of the complainant Bank.Thus, it was found that in view of

the provisions of Section 9 of the Act, when only the payee or endorsee can become a holder in due course, in the absence of any endorsement, it could not said that the complainant Bank had become holder in due course of the cheques in question and as such, the provisions of Section 138 of the Act would not apply to the present case, inasmuch as no notice under Section 138 of the Act was given by the payee i.e. M/s Guru Nanak Paper Mills to the accused respondents demanding the payment of the amount of those cheques and that the complainant Bank had not become the holder in due course and as such, the notice, given by the complainant Bank, would be of n