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CHEQUE BOUNS CASE

“Whether payee or holder of cheque can initiate proceeding of prosecution under Section 138 of Negotiable Instrument Act, 1881 for the second time if he has not initiated any action on earlier cause of action?” =After all, neither the courts nor the parties stand to gain by institution of proceedings which may become unnecessary if cheque amount is paid by the drawer. The magistracy in this country is over-burdened by an avalanche of cases under Section 138 of Negotiable Instruments Act. If the first default itself must in terms of the decision in Sadanandan Bhadran’s case (supra) result in filing of prosecution, avoidable litigation would become an inevitable bane of the legislation that was intended only to bring solemnity to cheques without forcing parties to resort to proceedings in the courts of law. While there is no empirical data to suggest that the problems of overburdened magistracy and judicial system at the district level is entirely because of the compulsions arising out of the decisions in Sadanandan Bhadran’s case (supra), it is difficult to say that the law declared in that decision has not added to court congestion. 33. In the result, we overrule the decision in Sadanandan Bhadran’s case (supra) and hold that prosecution based upon second or successive dishonour of the cheque is also permissible so long as the same satisfies the requirements stipulated in the proviso to Section 138 of the Negotiable Instruments Act. The reference is answered accordingly. The appeals shall now be listed before the regular Bench for hearing and disposal in light of the observations made above.

REPORTABLE

A cheque drawn on the Regent Street (Clifton) ...

A cheque drawn on the Regent Street (Clifton) Branch of Westminster Bank, dated 14 August 1956. (Photo credit: Wikipedia)

IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NOS.261-264 OF 2002

MSR Leathers …Appellant

Versus

S. Palaniappan & Anr. …Respondents

J U D G M E N T

T.S. THAKUR, J.

1. In Sadanandan Bhadran v. Madhavan Sunil Kumar (1998) 6 SCC 514, this
Court was dealing with a case under Section 138 of the Negotiable
Instrument Act, 1881 (hereinafter referred to as ‘the Act’) in which the
complainant had, after dishonour of a cheque issued in his favour, taken
steps to serve upon the accused-drawer of the cheque a notice under clause
(b) of proviso to Section 138 of the Act. No complaint was, however, filed
by the complainant despite failure of the accused to arrange the payment of
the amount covered by the cheque. Instead, the complainant-payee of the
cheque had presented the cheque for collection once again, which was
dishonoured a second time for want of sufficient funds. Another notice was
served on the drawer of the cheque to arrange payment within fifteen days
of receipt of said notice. Only after failure of drawer to do so did the
payee file a complaint against the former under Section 138 of the Act.

2. After entering appearance, the drawer filed an application seeking
discharge on the ground that the payee could not create more than one cause
of action in respect of a single cheque and the complaint in question
having been filed on the basis of the second presentation and resultant
second cause of action was not maintainable. The Magistrate accepted that
contention relying upon a Division Bench decision of Kerala High Court in
Kumaresan v. Ameerappa (1991) 1 Ker L.T. 893 and dismissed the complaint.
The order passed by the Magistrate was then questioned before the High
Court of Kerala who relying upon Kumaresan’s case (supra) upheld the order
passed by the Magistrate. The matter was eventually brought up to this
Court by special leave. This Court formulated the following question for
determination:

“Whether payee or holder of cheque can initiate proceeding of
prosecution under Section 138 of Negotiable Instrument Act, 1881
for the second time if he has not initiated any action on earlier
cause of action?”

3. Answering the question in the negative this Court held that a
combined reading of Sections 138 and 142 of the Act left no room for doubt
that cause of action under Section 142(b) can arise only once. The
conclusion observed by the court is supported not only by Sections 138 and
142 but also by the fact that the dishonour of cheque gives rise to the
commission of offence only on the failure to pay money when a notice is
served upon the drawer in accordance with clause (b) of the proviso to
Section 138. The Court further held that if the concept of successive
causes of action were to be accepted the same would make the limitation
under Section 142(b) otiose. The Court observed:

“7. Besides the language of Sections 138 and 142 which clearly
postulates only one cause of action, there are other formidable
impediments which negate the concept of successive causes of
action. One of them is that for dishonour of one cheque, there can
be only one offence and such offence is committed by the drawer
immediately on his failure to make the payment within fifteen days
of the receipt of the notice served in accordance with clause (b)
of the proviso to Section 138. That necessarily means that for
similar failure after service of fresh notice on subsequent
dishonour, the drawer cannot be liable for any offence nor can the
first offence be treated as non est so as to give the payee a right
to file a complaint treating the second offence as the first one.
At that stage, it will not be a question of waiver of the right of
the payee to prosecute the drawer but of absolution of the drawer
of an offence, which stands already committed by him and which
cannot be committed by him again.

8. The other impediment to the acceptance of the concept of
successive causes of action is that it will make the period of
limitation under clause (c) of Section 142 otiose, for, a payee who
failed to file his complaint within one month and thereby forfeited
his right to prosecute the drawer, can circumvent the above
limitative clause by filing a complaint on the basis of a fresh
presentation of the cheque and its dishonour. Since in the
interpretation of statutes, the court always presumes that the
legislature inserted every part thereof for a purpose and the
legislative intention is that every part should have effect, the
above conclusion cannot be drawn for that will make the provision
for limiting the period of making the complaint nugatory.”

4. The Court then tried to reconcile the apparently conflicting
provisions of the Act – one enabling the payee to present the cheque and
the other giving him opportunity to file a complaint within one month and
observed:

“…..Having given our anxious consideration to this question, we are
of the opinion that the above two provisions can be harmonised,
with the interpretation that on each presentation of the cheque and
its dishonour, a fresh right — and not cause of action — accrues in
his favour. He may, therefore, without taking pre-emptory action in
exercise of his such right under clause (b) of Section 138, go on
presenting the cheque so as to enable him to exercise such right at
any point of time during the validity of the cheque. But once he
gives a notice under clause (b) of Section 138, he forfeits such
right for in case of failure of the drawer to pay the money within
the stipulated time, he would be liable for offence and the cause
of action for filing the complaint will arise. Needless to say, the
period of one month for filing the complaint will be reckoned from
the day immediately following the day on which the period of
fifteen days from the date of the receipt of the notice by the
drawer expires.”

5. The Court accordingly dismissed the appeal while affirming the
decision of the Kerala High Court in Kumaresan’s case (supra), no matter
the same had been in the meantime overruled by a decision of the Full Bench
of that Court in S.K.D. Lakshmanan Fireworks Industries v. K.V. Sivarama
Krishnan (1995) Cri L J 1384 (Ker).

6. When the present appeal first came up for hearing before a bench
comprising Markandey Katju and B. Sudershan Reddy, JJ., reliance on behalf
of respondents was placed upon the decision of this Court in Sadanandan
Bhadran’s case (supra) to argue that the complaint in the instant case had
also been filed on the basis of the second dishonour of a cheque after the
payee of the cheque had issued a notice to the drawer under clause (b) of
the proviso to Section 138 of the Act based on an earlier dishonour. On the
ratio of Sadanandan Bhadran’s case (supra) such a complaint was not
maintainable, argued the respondents. The Court, however, expressed its
reservation about the correctness of the view taken in Sadanandan Bhadran’s
case (supra) especially in para 9 thereof and accordingly referred the
matter to a larger Bench. That is precisely how the present appeal has
come up for hearing before us. It is, therefore, evident that this Court
has repeatedly followed the view taken in Sadanandan Bhadran’s case
(supra). But a careful reading of these decisions reveals that in these
subsequent decisions there had been no addition to the ratio underlying the
conclusion in Sadanandan Bhadran’s case (supra).

7. Before adverting to the submissions that were urged at the Bar we may
briefly summarise the facts in the backdrop of which the issue arises for
our determination. Four cheques for a total sum of rupees ten lakhs were
issued by the respondent-company on 14th August, 1996 in favour of the
appellant which were presented to the bank for collection on 21st November,
1996. The cheques were dishonoured in terms of memo dated 22nd November,
1996 for insufficiency of funds. A notice under clause (b) of proviso to
Section 138 was then issued by the appellant to the respondent on 8th
January, 1997 demanding payment of the amount covered by the cheques.
Despite receipt of the notice by the respondent the payment was not
arranged. The appellant’s case is that the respondent assured the appellant
that the funds necessary for the encashment of the cheques shall be made
available by the respondent, for which purpose the cheques could be
presented again to the bank concerned. The cheques were accordingly
presented for the second time to the bank on 21st January, 1997 and were
dishonoured for a second time in terms of a memo dated 22nd January, 1997
once again on the ground of insufficiency of funds. A statutory notice
issued by the appellant under clause (b) of proviso to Section 138 of the
Act on 28th January, 1997 called upon the respondent-drawer of the cheques
to arrange payment of the amount within 15 days. Despite receipt of the
said notice on 3rd February, 1997, no payment was arranged which led to the
filing of Complaint Case No.1556-1557/1997 by the appellant before the II
Metropolitan Magistrate, Madras for the offence punishable under Section
138 read with Section 142 of the Act. The Magistrate took cognizance and
issued summons to the respondents in response whereto the respondents
entered appearance and sought discharge primarily on the ground that the
complaint had not been filed within 30 days of the expiry of the notice
based on the first dishonour of the cheque. It was also alleged that the
statutory notice which formed the basis of the complaint had not been
served upon the accused persons. The Magistrate upon consideration
dismissed the applications for discharge which order was then assailed by
the respondents before the High Court of Madras in Criminal Appeal Nos.
618, 624, 664, 665/2000.

8. The High Court has, by the order impugned in this appeal, allowed the
revision and quashed the orders passed by the Magistrate relying upon the
decision of this Court in Sadanandan Bhadran’s case (supra) according to
which a complaint based on a second or successive dishonour of the cheque
was not maintainable if no complaint based on an earlier dishonour,
followed by the statutory notice issued on the basis thereof, had been
filed.

9. Section 138 of the Negotiable Instruments Act, 1881, constituting
Chapter XVII of the Act which was introduced by Act 66 of 1988, inter alia,
provides:

“138. Dishonour of cheque for insufficiency, etc., of funds in the
account. Where any cheque drawn by a person on an account
maintained by him with a banker for payment of any amount of money
to another person from out of that account for the discharge, in
whole or in part, of any debt or other liability, is returned by
the bank unpaid, either because of the amount of money standing to
the credit of that account is insufficient to honour the cheque or
that it exceeds the amount arranged to be paid from that account by
an agreement made with that bank, such person shall be deemed to
have committed an offence and shall, without prejudice. to any
other provision of this Act, be punished with imprisonment for a
term which may extend to two year, or with fine which may extend to
twice the amount of the cheque, or with both”

10. Proviso to Section 138, however, is all important and stipulates
three distinct conditions precedent, which must be satisfied before the
dishonour of a cheque can constitute an offence and become punishable. The
first condition is that the cheque ought to have been 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 second condition is
that the payee or the holder in due course of the cheque, as the case may
be, ought to make a demand for the payment of the said amount of money by
giving a notice in writing, to the drawer of the cheque, within thirty days
of the receipt of information by him from the bank regarding the return of
the cheque as unpaid. The third condition is that the drawer of such a
cheque should have failed to make payment of the said amount of money to
the payee or as the case may be, to the holder in due course of the cheque
within fifteen days of the receipt of the said notice. It is only upon the
satisfaction of all the three conditions mentioned above and enumerated
under the proviso to Section 138 as clauses (a), (b) and (c) thereof that
an offence under Section 138 can be said to have been committed by the
person issuing the cheque.

11. Section 142 of the Negotiable Instruments Act governs taking of
cognizance of the offence and starts with a non-obstante clause. It
provides that no court shall take cognizance of any offence punishable
under Section 138 except upon a complaint, in writing, made by the payee
or, as the case may be, by the holder in due course and such complaint is
made within one month of the date on which the cause of action arises under
clause (c) of the proviso to Section 138. In terms of sub-section (c) to
Section 142, no court inferior to that of a Metropolitan Magistrate or a
Judicial Magistrate of the first class is competent to try any offence
punishable under Section 138.

12. A careful reading of the above provisions makes it manifest that a
complaint under Section 138 can be filed only after cause of action to do
so has accrued in terms of clause (c) of proviso to Section 138 which, as
noticed earlier, happens no sooner than when the drawer of the cheque fails
to make the payment of the cheque amount to the payee or the holder of the
cheque within 15 days of the receipt of the notice required to be sent in
terms of clause (b) of proviso to Section 138 of the Act.

13. What is important is that neither Section 138 nor Section 142 or any
other provision contained in the Act forbids the holder or payee of the
cheque from presenting the cheque for encashment on any number of occasions
within a period of six months of its issue or within the period of its
validity, whichever is earlier. That such presentation will be perfectly
legal and justified was not disputed before us even at the Bar by learned
counsel appearing for the parties and rightly so in light of the judicial
pronouncements on that question which are all unanimous. Even Sadanandan
Bhadran’s case (supra) the correctness whereof we are examining, recognized
that the holder or the payee of the cheque has the right to present the
same any number of times for encashment during the period of six months or
during the period of its validity, whichever is earlier.

14. Presentation of the cheque and dishonour thereof within the period of
its validity or a period of six months is just one of the three
requirements that constitutes ‘cause of action’ within the meaning of
Sections 138 and 142(b) of the Act, an expression that is more commonly
used in civil law than in penal statutes. For a dishonour to culminate
into the commission of an offence of which a court may take cognizance,
there are two other requirements, namely, (a) service of a notice upon the
drawer of the cheque to make payment of the amount covered by the cheque
and (b) failure of the drawer to make any such payment within the
stipulated period of 15 days of the receipt of such a notice. It is only
when the said two conditions are superadded to the dishonour of the cheque
that the holder/payee of the cheque acquires the right to institute
proceedings for prosecution under Section 138 of the Act, which right
remains legally enforceable for a period of 30 days counted from the date
on which the cause of action accrued to him. There is, however, nothing in
the proviso to Section 138 or Section 142 for that matter, to oblige the
holder/payee of a dishonoured cheque to necessarily file a complaint even
when he has acquired an indefeasible right to do so. The fact that an
offence is complete need not necessarily lead to launch of prosecution
especially when the offence is not a cognizable one. It follows that the
complainant may, even when he has the immediate right to institute criminal
proceedings against the drawer of the cheque, either at the request of the
holder/payee of the cheque or on his own volition, refrain from instituting
the proceedings based on the cause of action that has accrued to him. Such
a decision to defer prosecution may be impelled by several considerations
but more importantly it may be induced by an assurance which the drawer
extends to the holder of the cheque that given some time the payment
covered by the cheques would be arranged, in the process rendering a time
consuming and generally expensive legal recourse unnecessary. It may also
be induced by a belief that a fresh presentation of the cheque may result
in encashment for a variety of reasons including the vicissitudes of trade
and business dealings where financial accommodation given by the parties to
each other is not an unknown phenomenon. Suffice it to say that there is
nothing in the provisions of the Act that forbids the holder/payee of the
cheque to demand by service of a fresh notice under clause (b) of proviso
to Section 138 of the Act, the amount covered by the cheque, should there
be a second or a successive dishonour of the cheque on its presentation.

15. Sadanandan Bhadran’s case (supra) holds that while a second or
successive presentation of the cheque is legally permissible so long as
such presentation is within the period of six months or the validity of the
cheque whichever is earlier, the second or subsequent dishonour of the
cheque would not entitle the holder/payee to issue a statutory notice to
the drawer nor would it entitle him to institute legal proceedings against
the drawer in the event he fails to arrange the payment. The decision
gives three distinct reasons why that should be so. The first and the
foremost of these reasons is the use of the expression “cause of action” in
Section 142(b) of the Act which according to the Court has been used in a
restrictive sense and must therefore be understood to mean that cause of
action under Section 142(b) can arise but once. The second reason cited
for the view taken in the Sadanandan Bhadran’s case (supra) is that
dishonour of a cheque will lead to commission of only one offence and that
the offence is complete no sooner the drawer fails to make the payment of
the cheque amount within a period of 15 days of the receipt of the notice
served upon him. The Court has not pressed into service the doctrine of
“waiver of the right to prosecute” but held that the failure of the holder
to institute proceedings would tantamount to “absolution” of the drawer of
the offence committed by him. The third and the only other reason is that
successive causes of action will militate against the provisions of Section
142(b) and make the said provision otiose. The Court in Sadanandan
Bhadran’s case (supra) held that the failure of the drawer/payee to file a
complaint within one month resulted in forfeiture of the complainant’s
right to prosecute the drawer/payee which forfeiture cannot be circumvented
by him by presenting the cheque afresh and inviting a dishonour to be
followed by a fresh notice and a delayed complaint on the basis thereof.

16. With utmost respect to the Judges who decided Sadanandan Bhadran’s
case (supra) we regret our inability to fall in line with the above line of
reasoning to hold that while a cheque is presented afresh the right to
prosecute the drawer, if the cheque is dishonoured, is forfeited only
because the previous dishonour had not resulted in immediate prosecution of
the offender even when a notice under clause (b) of proviso to Section 138
had been served upon the drawer. We are conscious of the fact that
Sadanandan Bhadran’s case (supra) has been followed in several subsequent
decisions of this Court such as in Sil Import, USA v. Exim Aides Silk
Exporters, Bangalore, (1999) 4 SCC 567, Uniplas India Ltd. and Ors. v.
State (Govt. of NCT Delhi) and Anr., (2001) 6 SCC 8, Dalmia Cement
(Bharat) Ltd. v. Galaxy Traders & Agencies Ltd. and Anr., (2001) 6 SCC 463,
Prem Chand Vijay Kumar v. Yashpal Singh and Anr., (2005) 4 SCC 417, S.L.
Constructions and Anr. v. Alapati Srinivasa Rao and Anr., (2009) 1 SCC 500,
Tameshwar Vaishnav v. Ramvishal Gupta, (2010) 2 SCC 329.

17. All these decisions have without disturbing or making any addition to
the rationale behind the decision in Sadanandan Bhadran’s case (supra)
followed the conclusion drawn in the same. We, therefore, propose to deal
with the three dimensions that have been highlighted in that case while
holding that successive causes of action are not within the comprehension
of Sections 138 and 142 of the Act.

18. The expression ‘cause of action’ is more commonly and easily
understood in the realm of civil laws. The expression is not defined
anywhere in the Code of Civil Procedure to which it generally bears
relevance but has been universally understood to mean the bundle of facts
which the plaintiff must prove in order to entitle him to succeed in the
suit. (See State of Madras v. C.P. Agencies AIR 1960 SC 1309; Rajasthan
High Court Advocates Association v. U.O.I. & Ors. AIR 2001 SC 416 and
Mohamed Khaleel Khan v. Mahaboob Ali Mia AIR 1949 PC 78).

19. Section 142 of the Negotiable Instruments Act is perhaps the only
penal provision in a statute which uses the expression ‘cause of action’ in
relation to the commission of an offence or the institution of a complaint
for the prosecution of the offender. A careful reading of Sections 138 and
142, as noticed above, makes it abundantly clear that the cause of action
to institute a complaint comprises the three different factual
prerequisites for the institution of a complaint to which we have already
referred in the earlier part of this order. None of these prerequisites
is in itself sufficient to constitute a complete cause of action for an
offence under Section 138. For instance if a cheque is not presented
within a period of six months from the date on which it is drawn or within
the period of its validity, whichever is earlier, no cause of action would
accrue to the holder of the cheque even when the remaining two
requirements, namely service of a notice and failure of the drawer to make
the payment of the cheque amount are established on facts. So also
presentation of the cheque within the stipulated period without service of
a notice in terms of Section 138 proviso (b) would give no cause of action
to the holder to prosecute the drawer just as the failure of the drawer to
make the payment demanded on the basis of a notice that does not satisfy
the requirements of clause (b) of proviso to Section 138 would not
constitute a complete cause of action.

20. The expression ‘cause of action’ appearing in Section 142 (b) of the
Act cannot therefore be understood to be limited to any given requirement
out of the three requirements that are mandatory for launching a
prosecution on the basis of a dishonoured cheque. Having said that, every
time a cheque is presented in the manner and within the time stipulated
under the proviso to Section 138 followed by a notice within the meaning of
clause (b) of proviso to Section 138 and the drawer fails to make the
payment of the amount within the stipulated period of fifteen days after
the date of receipt of such notice, a cause of action accrues to the holder
of the cheque to institute proceedings for prosecution of the drawer.

21. There is, in our view, nothing either in Section 138 or Section 142
to curtail the said right of the payee, leave alone a forfeiture of the
said right for no better reason than the failure of the holder of the
cheque to institute prosecution against the drawer when the cause of action
to do so had first arisen. Simply because the prosecution for an offence
under Section 138 must on the language of Section 142 be instituted within
one month from the date of the failure of the drawer to make the payment
does not in our view militate against the accrual of multiple causes of
action to the holder of the cheque upon failure of the drawer to make the
payment of the cheque amount. In the absence of any juristic principle on
which such failure to prosecute on the basis of the first default in
payment should result in forfeiture, we find it difficult to hold that the
payee would lose his right to institute such proceedings on a subsequent
default that satisfies all the three requirements of Section 138.

22. That brings us to the question whether an offence punishable under
Section 138 can be committed only once as held by this Court in Sadanandan
Bhadran’s case (supra). The holder of a cheque as seen earlier can present
it before a bank any number of times within the period of six months or
during the period of its validity, whichever is earlier. This right of the
holder to present the cheque for encashment carries with it a corresponding
obligation on the part of the drawer to ensure that the cheque drawn by him
is honoured by the bank who stands in the capacity of an agent of the
drawer vis-à-vis the holder of the cheque. If the holder of the cheque has
a right, as indeed is in the unanimous opinion expressed in the decisions
on the subject, there is no reason why the corresponding obligation of the
drawer should also not continue every time the cheque is presented for
encashment if it satisfies the requirements stipulated in that clause (a)
to the proviso to Section 138. There is nothing in that proviso to even
remotely suggest that clause (a) would have no application to a cheque
presented for the second time if the same has already been dishonoured
once. Indeed if the legislative intent was to restrict prosecution only to
cases arising out of the first dishonour of a cheque nothing prevented it
from stipulating so in clause (a) itself. In the absence of any such
provision a dishonour whether based on a second or any successive
presentation of a cheque for encashment would be a dishonour within the
meaning of Section 138 and clause (a) to proviso thereof. We have,
therefore, no manner of doubt that so long as the cheque remains unpaid it
is the continuing obligation of the drawer to make good the same by either
arranging the funds in the account on which the cheque is drawn or
liquidating the liability otherwise. It is true that a dishonour of the
cheque can be made a basis for prosecution of the offender but once, but
that is far from saying that the holder of the cheque does not have the
discretion to choose out of several such defaults, one default, on which to
launch such a prosecution. The omission or the failure of the holder to
institute prosecution does not, therefore, give any immunity to the drawer
so long as the cheque is dishonoured within its validity period and the
conditions precedent for prosecution in terms of the proviso to Section 138
are satisfied.

23. Coming then to the question whether there is anything in Section
142(b) to suggest that prosecution based on subsequent or successive
dishonour is impermissible, we need only mention that the limitation which
Sadanandan Bhadran’s case (supra) reads into that provision does not appear
to us to arise. We say so because while a complaint based on a default and
notice to pay must be filed within a period of one month from the date the
cause of action accrues, which implies the date on which the period of 15
days granted to the drawer to arrange the payment expires, there is nothing
in Section 142 to suggest that expiry of any such limitation would absolve
him of his criminal liability should the cheque continue to get dishonoured
by the bank on subsequent presentations. So long as the cheque is valid and
so long as it is dishonoured upon presentation to the bank, the holder’s
right to prosecute the drawer for the default committed by him remains
valid and exercisable. The argument that the holder takes advantage by not
filing a prosecution against the drawer has not impressed us. By reason of
a fresh presentation of a cheque followed by a fresh notice in terms of
Section 138, proviso (b), the drawer gets an extended period to make the
payment and thereby benefits in terms of further opportunity to pay to
avoid prosecution. Such fresh opportunity cannot help the defaulter on any
juristic principle, to get a complete absolution from prosecution.

24. Absolution is, at any rate, a theological concept which implies an
act of forgiving the sinner of his sins upon confession. The expression has
no doubt been used in some judicial pronouncements, but the same stop short
of recognizing absolution as a juristic concept. It has always been used
or understood in common parlance to convey “setting free from guilt” or
“release from a penalty”. The use of the expression “absolution” in
Sadanandan Bhadran’s case (supra) at any rate came at a time when proviso
to Section 142(b) had not found a place on the statute book. That proviso
was added by the Negotiable Instruments (Amendment and Miscellaneous
Provisions) Act, 2002 which read as under:

“Provided that the cognizance of a complaint may be taken by the
Court after the prescribed period, if the complainant satisfies the
Court that he had sufficient cause for not making a complaint
within such period.”

25. The Statement of Objects and Reasons appended to the Amendment Bill,
2002 suggests that the introduction of this proviso was recommended by the
Standing Committee on Finance and other representatives so as to provide
discretion to the Court to waive the period of one month, which has been
prescribed for taking cognizance of a case under the Act. This was so
recognised judicially also by this Court in Subodh S. Salaskar v.
Jayprakash M. Shah & Anr. (2008) 13 SCC 689 where this Court observed:

“11. The [Negotiable Instruments] Act was amended in the year 2002
whereby additional powers have been conferred upon the court to
take cognizance even after expiry of the period of limitation by
conferring on it a discretion to waive the period of one month.

xx xx xx xx

24…The provisions of the Act being special in nature, in terms
thereof the jurisdiction of the court to take cognizance of an
offence under Section 138 of the Act was limited to the period of
thirty days in terms of the proviso appended thereto. The
Parliament only with a view to obviate the aforementioned
difficulties on the part of the complainant inserted proviso to
Clause (b) of Section 142 of the Act in 2002. It confers a
jurisdiction upon the court to condone the delay…”

26. The proviso referred to above now permits the payee to institute
prosecution proceedings against a defaulting drawer even after the expiry
of the period of one month. If a failure of the payee to file a complaint
within a period of one month from the date of expiry of the period of 15
days allowed for this purpose was to result in ‘absolution’, the proviso
would not have been added to negate that consequence. The statute as it
exists today, therefore, does not provide for ‘absolution’ simply because
the period of 30 days has expired or the payee has for some other reasons
deferred the filing of the complaint against the defaulter.

27. It is trite that the object underlying Section 138 of the Act is to
promote and inculcate faith in the efficacy of banking system and its
operations, giving credibility to Negotiable Instruments in business
transactions and to create an atmosphere of faith and reliance by
discouraging people from dishonouring their commitments which are implicit
when they pay their dues through cheques. The provision was intended to
punish those unscrupulous persons who issued cheques for discharging their
liabilities without really intending to honour the promise that goes with
the drawing up of such a negotiable instrument. It was intended to
enhance the acceptability of cheques in settlement of liabilities by making
the drawer liable for penalties in case the cheque was dishonoured and to
safeguard and prevent harassment of honest drawers. (See Mosaraf Hossain
Khan v. Bhagheeratha Engg. Ltd. (2006) 3 SCC 658, C.C. Alavi Haji v.
Palapetty Muhammed & Anr. (2007) 6 SCC 555 and Damodar S. Prabhu v. Sayed
Babulal H. (2010) 5 SCC 663). Having said that, we must add that one of
the salutary principles of interpretation of statutes is to adopt an
interpretation which promotes and advances the object sought to be achieved
by the legislation, in preference to an interpretation which defeats such
object. This Court has in a long line of decisions recognized purposive
interpretation as a sound principle for the Courts to adopt while
interpreting statutory provisions. We may only refer to the decisions of
this Court in New India Sugar Mills Ltd. v. Commissioner of Sales Tax,
Bihar (AIR 1963 SC 1207), where this Court observed:

“It is a recognised rule of interpretation of statutes that
expressions used therein should ordinarily be understood in a sense
in which they best harmonise with the object of the statute, and
which effectuate the object of the Legislature. If an expression is
susceptible of a narrow or technical meaning, as well as a popular
meaning, the Court would be justified in assuming that the
Legislature used the expression in the sense which would carry out
its object and reject that which renders the exercise of its power
invalid.”

28. Reference may also be made to the decision of this Court in Deputy
Custodian, Evacuee Property v. Official Receiver (AIR 1965 SC 951), where
this Court observed:

“The rules of grammar may suggest that when the section says that
the property is evacuee property, it prima facie indicates that the
property should bear that character at the time when the opinion is
formed. But Mr. Ganapathy Iyer for the appellants has strenuously
contended that the construction of s. 7(1) should not be based
solely or primarily on the mechanical application of the rules of
grammar. He urges that the construction for which Mr. Pathak
contents and which, in substance, has been accepted by the High
Court, would lead to very anomalous results; and his arguments is
that it is open to the Court to take into account the obvious aim
and object of the statutory provision when attempting the task of
construing its words. If it appears that the obvious aim and object
of the statutory provisions would be frustrated by accepting the
literal construction suggested by the respondent, then it may be
open to the Court to enquire whether an alternative construction
which would serve the purpose of achieving the aim and object of
the Act, is reasonably possible.”

29. The decision of this Court in Nathi Devi v. Radha Devi (2005) 2 SCC
271, reiterates the rule of purposive construction in the following words:

“Even if there exists some ambiguity in the language or the same is
capable of two interpretations, it is trite the interpretation
which serves the object and purport of the Act must be given effect
to. In such a case the doctrine of purposive construction should be
adopted.”

30. To the same effect is the decision of this Court in S.P. Jain v.
Krishan Mohan Gupta (1987) 1 SCC 191, where this Court observed:

“We are of the opinion that law should take a pragmatic view of the
matter and respond to the purpose for which it was made and also
take cognizance of the current capabilities of technology and life-
style of the community. It is well settled that the purpose of law
provides a good guide to the interpretation of the meaning of the
Act. We agree with the views of Justice Krishna Iyer in Busching
Schmitz Private Ltd’s case (supra) that legislative futility is to
be ruled out so long as interpretative possibility permits.”

31. Applying the above rule of interpretation and the provisions of
Section 138, we have no hesitation in holding that a prosecution based on a
second or successive default in payment of the cheque amount should not be
impermissible simply because no prosecution based on the first default
which was followed by a statutory notice and a failure to pay had not been
launched. If the entire purpose underlying Section 138 of the Negotiable
Instruments Act is to compel the drawers to honour their commitments made
in the course of their business or other affairs, there is no reason why a
person who has issued a cheque which is dishonoured and who fails to make
payment despite statutory notice served upon him should be immune to
prosecution simply because the holder of the cheque has not rushed to the
court with a complaint based on such default or simply because the drawer
has made the holder defer prosecution promising to make arrangements for
funds or for any other similar reason. There is in our opinion no real or
qualitative difference between a case where default is committed and
prosecution immediately launched and another where the prosecution is
deferred till the cheque presented again gets dishonoured for the second or
successive time.

32. The controversy, in our opinion, can be seen from another angle also.
If the decision in Sadanandan Bhadran’s case (supra) is correct, there is
no option for the holder to defer institution of judicial proceedings even
when he may like to do so for so simple and innocuous a reason as to
extend certain accommodation to the drawer to arrange the payment of the
amount. Apart from the fact that an interpretation which curtails the right
of the parties to negotiate a possible settlement without prejudice to the
right of holder to institute proceedings within the outer period of
limitation stipulated by law should be avoided we see no reason why parties
should, by a process of interpretation, be forced to launch complaints
where they can or may like to defer such action for good and valid reasons.
After all, neither the courts nor the parties stand to gain by institution
of proceedings which may become unnecessary if cheque amount is paid by the
drawer. The magistracy in this country is over-burdened by an avalanche of
cases under Section 138 of Negotiable Instruments Act. If the first
default itself must in terms of the decision in Sadanandan Bhadran’s case
(supra) result in filing of prosecution, avoidable litigation would become
an inevitable bane of the legislation that was intended only to bring
solemnity to cheques without forcing parties to resort to proceedings in
the courts of law. While there is no empirical data to suggest that the
problems of overburdened magistracy and judicial system at the district
level is entirely because of the compulsions arising out of the decisions
in Sadanandan Bhadran’s case (supra), it is difficult to say that the law
declared in that decision has not added to court congestion.

33. In the result, we overrule the decision in Sadanandan Bhadran’s case
(supra) and hold that prosecution based upon second or successive dishonour
of the cheque is also permissible so long as the same satisfies the
requirements stipulated in the proviso to Section 138 of the Negotiable
Instruments Act. The reference is answered accordingly. The appeals shall
now be listed before the regular Bench for hearing and disposal in light of
the observations made above.

………….………………….…..……….J.
(R.M. LODHA)

………….……………………..…….…J.
(T.S. THAKUR)

………….………………….…..……….J.
(ANIL R. DAVE)

New Delhi
September 26, 2012

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