REPORTABLE

IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 1357  OF 2010 (@ SPECIAL LEAVE PETITION(CRL) No.1361 of 2007)

P.J. Agro Tech Limited & Ors.         … Appellants  Vs.

Water Base Limited    … Respondent

J U D G M E N T

ALTAMAS KABIR, J.

1. Leave granted.  

2. The  Appellant  No.1  herein  is  an  agro-based  

company having varied interests in providing feed  

supplements, vaccines etc.  The Appellant Nos.2 and

3 are the Managing Director and Chairperson of the  

Appellant No.1 Company, which is based in Hyderabad  

in  the  State  of  Andhra  Pradesh.   In  order  to  

utilize the dealer network of the Appellant No.1  

Company, the Respondent No.1 Company approached the  

Appellants  for  distribution  of  prawn  feed  

manufactured by it.  Inasmuch as, the said venture  

did  not  turn  out  to  be  very  successful,  the  

Appellant  No.1  Company  took  a  decision  to  

discontinue its dealings with the Respondent No.1  

Company. In furtherance of the above, the Appellant  

Company  settled  all  its  outstandings  with  the  

Respondent  No.1  Company  and  also  gave  an  

authorization letter to the Respondent No.1 Company  

to  collect  all  other  dues  directly  from  the  

customers of the Appellant No.1 Company, who had  

bought  the  feed  but  were  yet  to  pay  the  price  

therefor.   The  concerned  customers  were  also  

informed about the aforesaid decision. Thereafter,  

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on  4th October,  2001,  the  Appellant  Company  

requested the Respondent No.1 Company to coordinate  

with  one  K.  Balashankar  Reddy,  the  then  General  

Manager at Nellore, for collecting the dues which  

were still outstanding.  From the contents of the  

said letter it appears that the Respondent Company  

had accepted the said offer. However, in the course  

of making collections from the customers directly,  

it  was  found  that  some  of  its  employees  had  

conspired with the said K. Balashankar Reddy and  

had misappropriated some amounts of money and the  

same was intimated by the Respondent No.1 Company  

to the Appellant Company which asked the former to  

take action against the said Balashankar Reddy and  

its concerned employees.   

3.   Subsequently, however, the Appellant and the  

Proforma Respondents received a notice dated 13th  

December, 2002, from the Respondent No.1 Company  

purporting to be a notice under Section 138 of the  

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Negotiable  Instruments  Act,  1881,  hereinafter  

referred  to  as  “the  1881  Act”,  wherein  it  was  

stated that a cheque issued by K. Balashankar Reddy  

on 25th November, 2002, drawn on the State Bank of  

Hyderabad,  Nellore  Branch,  had  been  returned  

dishonoured with the endorsement “Account closed”.  

The notice also demanded repayment of the cheque  

amount from the Appellants.   

4. On receiving the said notice, the Appellants  

replied to the same on 26th December, 2002, stating  

that they never had any account with the State Bank  

of Hyderabad and the cheque in question had not  

been  issued  by  the  Appellant  No.1  Company.  

Apparently, there was no response to the reply sent  

on  behalf  of  the  Appellants  and  instead  the  

Appellants were served with summons from the Court  

of  XVIIIth Metropolitan  Magistrate,  Saidapet,  

Chennai, in Complaint Case No.1142 of 2003 based on  

the  complaint  which  had  been  filed  by  the  

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Respondent  No.1  on  23rd January,  2003.  The  

Appellants  entered  appearance  in  the  aforesaid  

complaint  case  and  upon  obtaining  copies  of  the  

complaint, they were surprised to learn that the  

same had been filed against the Appellants on the  

basis of a personal cheque issued by the Accused  

No.11,  K.  Balashankar  Reddy,  from  out  of  his  

personal savings bank account.  The said summons  

was challenged by the Appellants and the Proforma  

Respondents  before  the  High  Court  on  the  ground  

that the Company did not have any account with the  

State Bank of Hyderabad and that the cheque had  

been issued by K. Balashankar Reddy (Accused No.11)  

from out of his personal savings bank account and  

that  none  of  the  Directors  had  signed  the  said  

cheque.  It was contended that the complaint was an  

abuse of the process of Court and had been filed  

with the sole motive of extracting money from the  

Appellants.  On 14th September, 2006, the High Court  

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dismissed the said petition holding that the cheque  

which had been issued by K. Balashankar Reddy was  

to meet the liability of the Appellant No.1 Company  

and its Directors on their request and that as a  

result  they  had  rightly  been  prosecuted  under  

Section 138 of the 1881 Act.  The said order of the  

High Court dismissing the Appellants’ petition has  

been challenged in the instant Appeal essentially  

on the ground that the High Court had erred in  

allowing  the  complaint  proceedings  to  continue  

although the same were not maintainable against the  

Appellants and the Proforma Respondents who were  

not the drawers of the cheque, nor was the cheque  

issued from any of their banks.    

5. Appearing for the Appellants, Mr.  Siddharth  

Dave,  learned  Advocate,  submitted  that  both  the  

learned Magistrate as well as the High Court had  

failed to consider in their proper perspective the  

provisions  of  Section  138  of  the  Negotiable  

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Instruments Act, 1881.  It was pointed out by Mr.  

Dave that in order to attract the provisions of  

Section 138 of the 1881 Act, it was necessary that  

a cheque would have to be drawn by a person on an  

account maintained by him with his banker and if  

the said cheque was dishonoured, it would be deemed  

that  such  person  had  committed  an  offence  and  

would, without prejudice to any other provision of  

the Act, be punished with imprisonment for a term  

which may be extended to two years or with fine  

which may extend to twice the amount of the cheque  

or with both.  Mr. Dave urged that in order to  

maintain an action against a person under Section  

138 of the 1881 Act, it would be necessary to show  

that the cheque had been issued by such person on  

an account maintained by him, which fact was absent  

in the instant case as far as the Appellants are  

concerned.   It was reiterated that the cheque in  

question had been drawn by the Respondent No.11 in  

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his  personal  capacity  on  his  bank  and  upon  

dishonour  thereof,  only  he  could  be  prosecuted  

under Section 138 of the 1881 Act.  It was further  

submitted that the proceedings against the Company  

and  its  Directors  were  not  maintainable  and  the  

High Court had erred in law in not quashing the  

same.   

6. The stand taken on behalf of the Appellants was  

vehemently opposed on behalf of the Respondent No.1  

Company and a spirited attempt was made to involve  

the Appellant No.1 Company and its Directors for  

dishonour of the cheque which had been issued by  

the Respondent No.11 from his own bank, which did  

not attract the provisions of Section 138 of the  

1881 Act against the Appellant No.1 Company and its  

Directors.  It was urged that since the cheque had  

been issued by the Respondent No.11 to liquidate  

the  dues  of  the  Appellant  Company  and  its  

Directors,  the  High  Court  had  quite  justifiably  

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refused  to  quash  the  complaint  filed  by  the  

Respondent No.1 Company.   

7. From  the  submissions  made  on  behalf  of  the  

respective parties, it is quite apparent that the  

short point for decision in this Appeal is whether  

a complaint under Section 138 of the 1881 Act would  

be maintainable against a person who was not the  

drawer of the cheque from an account maintained by  

him,  which  ultimately  came  to  be  dishonoured  on  

presentation.  

8. Since the provisions of Section 138 of the 1881  

Act have fallen for consideration in this Appeal,  

the same are extracted hereinbelow :-

“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  

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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 provisions of this  Act, be punished with imprisonment for a  term which may be extended to two years,  or with fine which may extend to twice the  amount of the cheque, or with both:  

Provided  that  nothing  contained  in  this section shall apply unless-  

(a)  the cheque has 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;  

(b) the payee or the holder in due course  of  the  cheque,  as  the  case  may  be,  makes 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; and  

(c)  the  drawer  of  such  cheque  fails  to  make the 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.  

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Explanation.-For  the  purposes  of  this  section, "debt or other liability" means a  legally  enforceable  debt  or  other  liability.”

From a reading of the said Section, it is very  

clear  that  in  order  to  attract  the  provisions  

thereof a cheque which is dishonoured will have to  

be drawn by a person on an account maintained by  

him with the 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.  It is only such a cheque which  

is dishonoured which would attract the provisions  

of Section 138 of the above Act against the drawer  

of the cheque.   

9. In the instant case, the cheque which had been  

dishonoured may have been issued by the Respondent  

No.11  for  discharging  the  dues  of  the  Appellant  

No.1 Company and its Directors to the Respondent  

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No.1 Company and the Respondent Company may have a  

good case against the Appellant No.1 Company for  

recovery  of  its  dues  before  other  fora,  but  it  

would not be sufficient to attract the provisions  

of Section 138 of the 1881 Act.  The Appellant  

Company  and  its  Directors  cannot  be  made  liable  

under Section 138 of the 1881 Act for a default  

committed by the Respondent No.11.  An action in  

respect of a criminal or a quasi-criminal provision  

has to be strictly construed in keeping with the  

provisions  alleged  to  have  been  violated.  The  

proceedings  in  such  matters  are  in  personam  and  

cannot be used to foist an offence on some other  

person, who under the statute was not liable for  

the commission of such offence.

10. Having regard to the above, we allow the Appeal  

and set aside the order passed by the High Court  

and  quash  the  complaint  filed  by  the  Respondent  

No.1 Company as far as the Appellants and other  

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Proforma Respondents are concerned. In the event,  

any of the Appellants and/or Proforma Respondents  

have  been  released  on  bail,  they  shall  stand  

discharged from their bail bonds forthwith.  

11. The Appeal is allowed to the aforesaid extent.  

…………………………………………J. (ALTAMAS KABIR)

…………………………………………J. (DR.MUKUNDAKAM SHARMA)

New Delhi Dated: 28.7.2010

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