Proceedings initiated for cheque dishonour are not maintainable when the cheque was previously reported lost with stop-payment instructions, or when the complaint is filed prior to the expiry of the 15-day statutory notice period, both violating the essential legal requirements for criminal liability.

Headnote:(A) Negotiable Instruments Act, 1881 - Section 138 - Dishonour of cheque - Criminal proceedings - Abuse of process of law - Where a cheque has been reported lost and stop-payment instructions were issued to the bank prior to its alleged date of issuance, there is no valid "issuance" in the eye of law - Such circumstances preclude the existence of a legally enforceable debt or liability, rendering the institution of criminal proceedings for dishonour of the cheque legally untenable.

(B) Criminal Procedure Code, 1973 - Section 482 - High Court’s inherent power - Quashing of proceedings - Mandatory for court to ensure essential ingredients of an offence exist - Where complaint for dishonour of cheque is filed prior to the expiry of the 15-day statutory notice period, such complaint is premature and not maintainable in law.

Facts of the case:
The applicant reported the loss of his cheques to his bank and requested a stop-payment. Months later, a complainant presented one of the lost cheques, alleging it was issued for a debt. Upon dishonour due to insufficient funds, the magistrate summoned the applicant. The applicant challenged the proceedings under the inherent powers of the High Court, asserting the cheque was invalid due to the stop-payment and the complaint was premature.

Findings of Court:
The court found that because stop-payment instructions were acted upon by the bank before the alleged date of issuance, the foundational requirements for an offence under the relevant Act were absent. Furthermore, the court determined that the complaint was filed before the statutory period for the notice to expire had passed, necessitating the dismissal of the proceedings.

Issues: Whether criminal liability under the Negotiable Instruments Act arises when a cheque presented for encashment had been previously reported lost with a stop-payment instruction, and whether a complaint filed before the expiry of the 15-day notice period is maintainable.

Ratio Decidendi: A cheque that has been rendered incapable of encashment via stop-payment instructions prior to its alleged issuance does not constitute an "issuance" establishing criminal liability. Additionally, judicial cognizance of a complaint for cheque dishonour is barred if the complaint is filed before the mandatory 15-day waiting period following the service of a statutory notice has fully elapsed.

Result: Application allowed; proceedings quashed.

Judgement Key Points

Certainly. Based on the provided legal document, here are the key points:

The applicant, Gaurav Agarwal, filed a criminal miscellaneous application under Section 482 Cr.P.C. to challenge the proceedings related to a complaint case under Section 138 of the Negotiable Instrument Act (!) (!) .
The core issue involves two cheques that were reported lost by the applicant, who subsequently issued stop-payment instructions before the alleged date of issuance (!) (!) .
The bank confirmed that stop-payment instructions were executed before the cheques could be encashed, rendering the cheques invalid for presentation (!) .
The complaint was filed prior to the expiry of the statutory 15-day period for making payment after the statutory notice was issued, making the complaint premature and not maintainable (!) .
The statutory notice was allegedly dispatched to the applicant, but there is no proof of service such as acknowledgment due or postal receipt, raising questions about proper service (!) (!) .
The court observed that since the cheques were rendered incapable of encashment before the alleged date of issuance, no offence under Section 138 of the Negotiable Instrument Act was made out (!) .
The proceedings against the applicant were considered an abuse of process of law due to lack of a valid cause of action, and the complaint was dismissed (!) .
The court emphasized that the continuation of proceedings would be unwarranted given the facts, including the prior stop-payment instructions and the absence of proof of proper service of statutory notice (!) (!) .
The application under Section 482 Cr.P.C. was allowed, and the proceedings were quashed (!) .

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By means of present C482 application, applicant has put to challenge the order dated 13.02.2017 as well as the entire proceedings of complaint case no. 26 of 2017, Sumit Kumar Vs. Gaurav Agarwal, pending in the court of learned Additional Chief Judicial Magistrate, Laksar, District Haridwar, under section 138 of the Negotiable Instrument Act, 1881 (for short “the Act,1881”).

The brief facts of the case are that the applicant was maintaining a bank account in the Indian Overseas Bank, Srinagar Garhwal. Two cheques, bearing numbers 724483 and 724484, were lost while the applicant was at Nainital. The applicant immediately approached the Indian Overseas Bank, Nainital Branch, and on 12.07.2016, submitted an application requesting stoppage of payment in respect of the said cheques. Subsequently, by report dated 15.07.2016, the bank confirmed that stop payment instructions had been carried out and the said cheques had been rendered incapable of encashment. The bank further debited the requisite charges for such stop-payment from the account of the applicant. It was alleged by the applicant that the said cheques, which had been reported lost, were in fact stolen and misused by the respondent no.2 after leaving employment. On the basis of such alleged misuse, the respondent no.2 instituted the complaint, alleging that on account of cordial relations between the parties, the applicant had issued a cheque bearing no. 724484 dated 05.12.2016 for a sum of ₹5,00,000/-in his favour. The cheque, when presented, was dishonoured on 15.12.2016 with the endorsement “insufficient funds.”On the complaint so filed, the learned Magistrate took cognizance and summoned the applicant to face trial by order dated 13.02.2017. Non-bailable warrants were thereafter issued, and the applicant was arrested on 14.06.2019. He was later released on bail. Hence, this C482 applicant.

The learned counsel for the applicant submits that the entire proceedings amount to a gross abuse of the process of law. The cheque in question had already been reported lost on 12.07.2016, and stop-payment instructions were duly issued by the bank on that very date. He submits that once payment had been stopped, the cheque could never have been validly presented in December 2016, nor could it have been dishonoured on the ground of “insufficient funds.” It is argued by the learned counsel for the applicant that the respondent no.2, in collusion with certain bank officials, misused the cheque which was already the subject of stop-payment instructions. The dishonour memo indicating “insufficient funds” is contrary to the contemporaneous record and casts serious doubt on the bona fides of the complaint.

The learned counsel for the applicant placed reliance upon the judgment of the Hon’ble Supreme Court in Raj Kumar Khurana v. State (NCT of Delhi), (2009) 6 SCC 72, wherein it was held that where a cheque has been reported lost and stop-payment instructions were given prior to its alleged issuance, there is no “issuance” in the eye of law and, therefore, no offence under Section 138 NI Act is made out. The learned counsel for the applicant contends that the present case is in alignment with the above judgment, as the cheque was rendered incapable of encashment much prior to the alleged date of presentation, and its subsequent misuse by the complainant cannot give rise to criminal liability.

The learned counsel for the applicant further submits that the summoning order dated 13.02.2017 itself is vitiated. The respondent no.2/complainant failed to comply with the mandatory requirement under Section 204(2) Cr.P.C., namely, to file a list of prosecution witnesses along with the complaint. In the absence of such compliance, issuance of process against the applicant was illegal. It is further contended that no offence under Section 138 NI Act is made out, as one of the essential ingredients — dishonour of the cheque on account of insufficiency of funds against a legally enforceable debt or liab

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Cases Referred (4)