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CHEQUE BOUNS CASE

Allowing the appeals and remanding the matter to the concerned Judicial Magistrate for deciding the complaints on merits, the Court HELD: 1. Chapter XVII was introduced in Negotiable Instruments Act, 1881 by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (Act 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. Therefore, while considering the question of applicability of Section 138 of the Act to a situation presented by the facts of the present case, it is necessary to keep the objects of the legislation in mind. The faith, which the legislature has desired that such instruments should inspire in commercial transactions would be completely lost if parties are as a matter of routine allowed to interdict payment by issuing instruction to banks to stop payment of cheques. [715-C-G] 2. Sections 138 to 142 of the Act are intended to discourage people from not honouring their commitments by way of payment through cheques. It is desirable that the court should lean in favour of an interpretation which serves the subject of the statute. The penal provisions contained in Sections 138 to 142 of the Act are intended to ensure that obligations undertaken by issuing cheques as a mode of payment are honoured. A post- dated cheque will lose its credibility and acceptability if its payment can be stopped routinely. The purpose of a post-dated cheque is to provide some accommodation to the drawer of the cheque. Therefore, it is all the more necessary that the drawer of the cheque should not be allowed to abuse the accommodation given to him by a creditor by way of acceptance of post-dated cheque. If stoppage of payment of a post-dated cheque is permitted to take the case out of the purview of Section 138 of the Act, it will amount to allowing the party to take advantage of his own wrong. [715-H, 716-A-C] 3. In view of presumption under Section 139 coupled with the object of Chapter XVII of the Act which is to promote the efficacy of banking operations and to ensure credibility in business transactions through banks, 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. [718-C-E] Modi Cements Ltd. v. Kuchil Kumar Nandi, [1998] 3 SCC 249; Teshwant Badave v. Surendra Madhavrao Nighojakar and ANOTHER , [2001] 3 SCC 726 and NEPC Micon Ltd. and OTHERS v. Magma Leasing Ltd., [1999] 4 SCC 253, relied on. 4. 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. [720-D-E] CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 315 of 2003. From the Judgment and Order dated 16.3.2002 of the Mumbai High Court in Crl. A. No. 68 of 2000. WITH Crl. A. Nos. 316-321/2003. Act: Negotiable Instruments Act, 1881-Sections 138, 139 and Chapter XVII- Post dated cheques-Payment of-Countermanding payment of the same- Whether would attract the penal provision of Section 138-Held, once a cheque is issued a presumption under Section 139 must follow-In view of the presumption and the object of Chapter XVII, countermanding payment of post dated, cheques would not preclude an action under Section 138. Post dated cheques were issued and before the due date of payment, instructions were issued to the drawee bank to stop their payment by person issuing the cheque. Respondent filed complaint under Section 138 of Negotiable Instruments Act, 1881. The court below dismissed the complaint taking a view that Section 138 of the Act was not attracted in these facts. In appeal to this Court appellant contended that mere writing of letter to the bank to stop payment of post dated cheques does not take the case out of purview of the Act in view of the object behind the provision contained in Chapter XVII of the Act. Citation: 2003 AIR 2035,2003( 2 )SCR 712,2003( 3 )SCC 232,2003( 3 )SCALE117 ,2003( 3 )JT 42 Appears in Collections: SCI Judgement

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6

Parts of a cheque based on a UK example drawee...

Parts of a cheque based on a UK example drawee, the financial institution where the cheque can be presented for payment payee date of issue amount of currency drawer, the person or entity making the cheque signature of drawer Machine readable routing and account information (Photo credit: Wikipedia)

CASE NO.:
Appeal (crl.) 315 of 2003
PETITIONER:
Goaplast Pvt. Ltd.
RESPONDENT:
Shri Chico Ursula D’Souza & Anr.
DATE OF JUDGMENT: 07/03/2003
BENCH:
M.B. SHAH & ARUN KUMAR
JUDGMENT:
JUDGMENT
(Arising out of SLP (Crl.) 2742/02)
(Arising out of SLP(Crl.) No.3844/2002, SLP(Crl.) No.3907/2002,
SLP(Crl.) No.3937/2002, SLP(Crl.) 3940/2002, SLP(Crl.)
No.3944/2002 and SLP(Crl.)No.3950/2002)_________________
ARUN KUMAR, J.
Leave granted in all the appeals.
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._________/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 thehttp://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6
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.
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.
Therefore, while considering the question of applicability of
Section 138 of the Act to a situation presented by the facts of
the present case, it is necessary to keep the objects of the
legislation in mind. If a party is allowed to use a cheque as a
mode of deferred payment and the payee of the cheque on
the faith that he will get his payment on the due date accepts
such deferred payment by way of cheque, he should not
normally suffer on account of non payment. The faith, which
the legislature has desired that such instruments should
inspire in commercial transactions would be completely lost
if parties are as a matter of routine allowed to interdict
payment by issuing instruction to banks to stop payment of
cheques. In today’s world where use of cash in day to day
life is almost getting extinct and people are using negotiable
instruments in commercial transactions and plastic money
for their daily needs as consumers, it is all the more
necessary that people’s faith in such instruments should be
strengthened rather than weakened. Provisions contained in
Sections 138 to 142 of the Act are intended to discourage
people from not honouring their commitments by way of
payment through cheques. It is desirable that the court
should ban in favour of an interpretation which serves the
object of the statute. The penal provisions contained in
Sections 138 to 142 of the Act are intended to ensure that
obligations undertaken by issuing cheques as a mode of
payment are honoured. A post-dated cheque will lose its
credibility and accepatibility if its payment can be stopped
routinely. A cheque is a well recognized mode of payment
and post-dated cheques are often used in various
transactions in daily life. The purpose of a post-dated
cheque is to provide some accommodation to the drawer of
the cheque. Therefore, it is all the more necessary that thehttp://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6
drawer of the cheque should not be allowed to abuse the
accommodation given to him by a creditor by way of
acceptance of post-dated cheque. If stoppage of payment of
a post-dated cheque is permitted to take the case out of the
purview of Seciton 138 of the Act, it will amount to allowing
the party to take advantage of his own wrong.
The present case was decided by courts below mainly
on the basis of the judgment of this Court in Sawhney’s
case (supra). In that case this court noted that a cheque
under Section 6 of the Act is a bill of exchange drawn on a
banker and is payable on demand. From this it follows that a
bill of exchange though drawn on a banker, if not payable on
demand is not a cheque. A post-dated cheque is only a bill
of exchange when it is written or drawn. It becomes a
cheque when it is payble on demand. It is not payable till the
date which is shown on the face of the document. It will
become a cheque only on the date shown on it, prior to that
it remains a bill of exchange. In Sawhney’s case this Court
was concerned with the question of limitation as provided in
proviso (a) to Section 138 of the Act. This proviso requires
that a cheque should be 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. The
cheques in question in Sawhney’s case (supra) were dated
15.12.1991 and 15.5.1991 totalling an amount of
Rs.5,00,000/-. These cheques were returned by the Banker
with the endorsement “not arranged for no fund”. The
payee thereafter issued notice as contemplated under
Section 138 of the Act followed by complaint under Section
138 being filed in the Court of the Chief Judicial Magistrate
at Karnal. It appears from the judgment that these cheques
were handed over to the payee in a settlement arrived at in a
court case on 5th March, 1990. The question for
consideration was as to the date on which the cheques in
question could be taken as drawn, in other words, what is
the starting point of limitation of six months provided in
proviso (a) to Section 138 of the Act. According to the
drawer the cheques were drawn in March, 1990 when they
were written and handed over to the payee. The cheques
were post-dated and bore the dates mentioned hereinbefore.
Proviso (a) to Section 138 uses the words “the date on which
it is drawn”. The cheques were drawn in March, 1990 and
were presented for encashment in the year 1991 which was
beyond the period of six months provided in proviso (a) to
Section 138 and therefore, no offence was said to be made
out under Section 138. Keeping in view the object of Section
138 i.e. to enhance the acceptability of cheques by making
the drawer liable for penalty in case the cheque is
dishonoured, it was felt that drawer of a post-dated cheque
could defeat Section 138 of the Act by showing a date
beyond six months of its delivery. An interpretation which
supports the object of the provision had to be adopted.
Therefore, it was held that a post dated cheque for purpose
of clause (a) of the provision to section 138 has to be
considered to have been drawn on the date it bears. On the
basis of Sections 5 and 6 of the Act, it was observed that
“post-dated cheque is only a bill of exchange when it is
written or drawn, it becomes a cheque when it is payable on
demand. The post-dated cheque is not payable till the date
which is shown on the face of the document. It will only
become cheque on the date shown on it and prior to that it
remains a bill of exchange under Section 5 of the Act. As a
bill of exchange a post-dated cheque remains negotiable but
it will not become a cheque till the date when it becomes
payable on demand.” The ratio of the decision inhttp://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6
Sawhney’s case is found in the following words:
“One of the main ingredients of the
offence under Section 138 of the Act is,
the return of the cheque by the bank
unpaid. Till the time the cheque is
returned by the bank unpaid, no offence
under Section 138 is made out. A
postdated cheque cannot be presented
before the bank and as such the
question of its return would not arise. It
is only when the postdated cheque
becomes a “cheque”, with effect from
the date shown on the face of the said
cheque, the provisions of Section 138
come into play. The net result is that a
postdated cheque remains a bill of
exchange till the date written on it. With
effect from the date shown on the face
of the said cheque it becomes a
“cheque” under the Act and the
provisions of Section 138(a) would
squarely be attracted. In the present
case the postdated cheques were drwn
in March 1990 but they became
“cheques” in the year 1991 on the dates
shown therein. The period of six
months, therefore, has to be reckoned
from the dates mentioned on the face of
the cheques.”
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 postdated 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 willhttp://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6
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
agreement with the view taken in Modi’s case. The said
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.
NEPC Micon Ltd. & Ors. Vs. Magma Leasing Ltd.
[(1999) 4 SCC 253] was a case in which the drawer of the
cheque closed the account in the Bank before presentation
of the cheque and the cheque when presented was returned
by the Bank with the remark “account closed”. The question
arose whether in this situation Section 138 of the Act would
be attracted. It was contended on behalf of the appellant
that Section 138 being a penal provision it should be strictly
interpreted. Section 138 according to the appellant applied
only in two situations i.e. either because the money standing
to the credit of the account of the drawer is insufficient to
honour the cheque or it exceeds the amount arranged to be
paid from that account by an agreement made with the bank.
Rejecting the contentions raised on behalf of the accused
this Court held that return of a cheque on account of account
being closed would be similar to a situation where the
cheque is returned on account of insufficiency of funds in the
account of the drawer of the cheque. Before one closes his
account in the Bank he withdraws the entire amount
standing to credit in the account. Withdrawal of the entire
amount would therefore mean that there were no funds in
the account to honour the cheque which squarely brings the
case within Section 138 of the Act. On the question of strict
interpretation of penal provisions raised on behalf of the
accused it was observed: “If the interpretation, which is
sought for, were given, then it would only encourage,
dishonest persons to issue cheques and before presentation
of the cheques, close the account and thereby escape from
the penal consequences of Section 138.” Any interpretation
which withdraws the life and blood of the provision and
makes it ineffective and a dead letter, should be averted. It is
the duty of the court to interpret the provision consistent with
the legislative intent and purpose so as to suppress the
mischief and advance the remedy. The legislative purpose
is to permit the efficacy of banking and of ensuring that in
commercial or contractual transactions, cheques are not
dishonoured and credibility in transacting business through
banks is maintained. The Court relied upon its earlier
judgment in Modi Cement Ltd.(supra). We would like to
quote the following observations t contained in NEPC Micon
Ltd. & Ors. Vs. Magma Leasing Ltd. (supra).http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6
“15. ” In view of the aforesaid discussion we are of
the opinion that even though section 138 is a penal
statute, it is the duty of the court to interpret it
consistent with the legislative intent and purpose so
as to suppress the mischief and advance the
remedy. As stated above, Section 138 of the Act has
created a contractual breach as an offence and the
legislative purpose is to promote efficacy of banking
and of ensuring that in commercial or contractual
transactions cheques are not dishonoured and
credibility in transacting business through cheques is
maintained. The above interpretation would be in
accordance with the principle of interpretation quoted
above “brush away the cobweb varnish, and shew
the transactions in their true light” (Wilmot, C.J.) or,
(by Maxwell) “to carry out effectively the breach of
the statute, it must be so construed as to defeat all
attempts to do, or avoid doing, in an indirect or
circuitous manner that which it has prohibited.”
Hence, when the cheque is returned by a bank with
an endorsement “account closed”, it would amount to
returning the cheque unpaid because “the amount of
money standing to the credit of that account is
insufficient to honour the cheque” as envisaged in
Section 138 of the Act.”
We are unable to agree with the reasoning adopted by
the courts below. The impugned judgments of the High
Court and the Judicial Magistrate, Ist 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.

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