Closure of account leads to insufficient funds for dishonor of a cheque under Section 138, constituting an offense.

1 Leave granted.

2 NEPC Micon Limited, Appellant No.1 and its directors approached the High Court for quashing the proceedings in Case No. C-494 of 1997 pending on the file of the Metropolitan Magistrate, Calcutta, initiated by Magma Leasing Limited, Respondent Company under S.138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as "the Act"). It was alleged by the complainant that in discharge of its existing liability, the appellant Company had given five cheques dated 1st January, 1997 for various amounts totalling to Rs. 58,25,980/- drawn on Canara Bank, Broadway Branch, Madras, in favour of the Respondent Company. Those cheques were duly tendered to the bankers, Punjab National Bank, Calcutta for encashment, but were returned by the banker of the accused persons, that is, Canara Bank, Madras with the remark "account closed". Appellants have also challenged before the High Court the order dated 10.12.1997 passed by the Metropolitan Magistrate rejecting their application under S.258, Criminal Procedure Code for dropping the proceedings. In that application before the Metropolitan Magistrate, appellants have stated that before closing the account on behalf of appellant No. 1, a letter dated 3rd August 1996 was sent by the second accused to the Chief Manager, Canara Bank, Madras informing them to close their group company's accounts; in case, any of the cheque by mistake comes to the Canara Bank, Madras, then the same be sent back with the note "account closed - payment stopped". That Revision Application under S.482, Criminal Procedure Code was rejected by High Court by its judgment and order dated 15th June, 1998. Against that Order, the present appeal is filed by special leave in which this Court issued notice on 26th March, 1999 for final disposal.

3 At the time of hearing of this matter, learned Counsel for the appellants submitted that complaint, on the face of it, does not make out any offence punishable under S.138 of the Negotiable Instruments Act and, therefore, it deserves to be quashed. He submitted that cheques were returned by the bank with an endorsement "account closed" which is not covered by the section. He submitted that S.138 envisages only two situations, which would fall within its purview, namely,
(i) the amount of money standing to the credit of the account is insufficient to honour the cheque; or
(ii) that it exceeds the amount arranged to be paid from that account by an agreement made with the bank.

4 It is his contention that there are more than 40 kinds of eventualities where the bank may return the cheque but me legislature in its wisdom has specified only the aforesaid two situations and, therefore, return of the cheque on the ground that the account being closed would not fall within S.138. He has fairly pointed out the conflicting views expressed by the various High Courts on the aforesaid question. He referred to the decisions in the case of G.F. Hurasikattimath v. Sr. of Kant . 70 Company cases 278 (Karnataka), S. Prasanna v. R. Vijayalakshmi 1192 Criminal LJ 1233 (Madras) and Om Prakash Bharadwaj Maniyar v. Swati Girish Bhide and Others wherein the Courts have taken the view that S.138 would not be attracted in a case where cheque is dishonoured On the ground of closure of account by the drawer of the cheque in the particular bank on which he has drawn of the cheque as S.138 is a penal provision and should be construed strictly. He has also pointed out the decisions in Shivendra Samsguiri v. M/s Adrnio & Anr. [1996 CriLJ 1816 (Bengal)], Veeraraghavan v. Lalita Kr. [1995 CriLJ 1882 (Madras)], M/s. Dada Silk Mills v. Indian Overseas Bank Banking Co. [1994 Cr. L J 2874 (GUjarat)], M/s. G.M. Mittal Stainless Steel Ltd. v. M/s. Nagarjuna Investment Trust Ltd. [1995 (4) Crimes 379 (Andhra Pradesh)], Japahari v. Priya [1994 (1) Crimes 379 (Kerala)] and Rakesh Porwal v. Varayan Joglekar [ 1993 CriLJ 688] wherein a contrary view has been taken and the Courts have held that S.138 would