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PETITIONER: M/S. MODI CEMENTS LTD.

       Vs.

RESPONDENT: SHRI KUCHIL KUMAR NANDI

DATE OF JUDGMENT:       02/03/1998

BENCH: M.K. MUKHERJEE, S.P. KURDUKAR, K.T. THOMAS

ACT:

HEADNOTE:

JUDGMENT:                  THE 2ND DAY OF MARCH, 1998 Present :               Hon’ble Mr. Justice M.K. Mukherjee               Hon’ble Mr. Justice S.P. Kurdukar               Hon’ble Mr. Justice K.T. Thomas Ranjit Kumar, and Ms. Bina Tamta, Advs. for the appellant Ranjan Mukherjee, Adv. for the Respondent.                       J U D G M E N T      The following Judgment of the Court was delivered : S.P. KURDUKAR. J.      Leave granted. (2)   These    three    appeals    are    filed    by    the appellants/complainants   challenging   the   legality   and correctness of  the  judgment  and  order  dated  21.11.1996 passed by  the High  Court in  Crl. Revision  Petition  Nos. 2303-04 of 1995. (3)  The present  proceedings arise out of a complaint filed by the  appellant in the Court of Chief Judicial Magistrate, Calcutta under  Section 138  of the  Negotiable  Instruments Act, 1981  (for short  the‘Act’) against the respondent. The appellant company  is a public limited company manufacturing and selling  cement  under  the  brand  name  "Modi  Cement" throughout India. (4)  The respondent/accused  carries on business in the name and style  of "Dubey  Construction, M/s  Nandi Traders,  M/s Nandi Concerns,  M/s Nandi  and Co., M/s Nandi  Enterprises, M/s S.K.  Enterprises, M/s S.K. Trading and M/s Jupitor Art. The respondent/accused  is  sole  proprietor  of  all  these business concerns. (5)  It is  alleged by  the appellant  in the complaint that the respondent  purchased from  them non-levy Modi Cement on credit against  the orders placed on behalf of his concerns. These orders were placed by the respondent with the Calcutta office of  the appellant and it was agreed that the price of the consignments  was to  be paid  by the  respondent at the said office.  After taking  accounts it  was found  that  on 23.2.1994 the  respondent incurred  a liability/debt  of Rs. 1,10,53,520.30  payable   to  the   appellant  towards   the purchased price  of the  cement  supplied  by  them  to  the respondent. In  partial discharge of the said liability/debt

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the respondent drew three cheques in favour of the appellant on 23.2.94, 26.2.94 and 28.2.94 bearing cheque Nos. 1308340- 42 for a sum of Rs.2,00,000/- each. (6)  The appellant presented these three cheques on 9.8.1994 for encashment  through their  bankers. Bank  of India, J.L. Nehru Road  Branch, Calcutta.  On  6.9.94  the  Indian  Bank Bankura, the  Banker of  the respondent  returned  the  said cheques as  unpaid with  an endorsements "payment stopped by the drawer".  Lateron it  transpired that  vide  his  letter dated 8.8.94  the respondent had given such instruction. The appellant on 13.9.94 sent a legal notice in terms of Section 138 of  the Act  to the  respondent demanding payment of the aforesaid amounts  under the  cheques. The  said notice  was duly  served   on  the  respondent  on  17.9.94.  Since  the respondent failed  and neglected  to make the payment of the amount of  the aforesaid three cheques within the stipulated period of  15 days  which expired  on 2.10.94, the appellant filed three criminal complaints against the respondent under Section  138  of  the  Act.  After  entering  appearance  in obedience to  the processes  issued in  connection with  the above three  cases the  respondent  filed  applications  for staying the  proceedings which were rejected. (7)  The respondent then filed three petitions under Section 482 Cr.P.C.  in the  High Court of Calcutta for quashing the complaints.  The   Learned  Single  Judge  vide  his  common Judgment and  order dated  21.11.96 allowed the petitions of the respondent and quashed the complaints.      It is  against this  order passed by the High Court the appellant has filed these appeals.      Section 130 of the Act reads thus:-      Dishonor     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 honor 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 one  year,  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

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    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      fifteen days  of the receipt of the      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. Explanation -  For the  purpose of  this Section,  "debt  or other liability"  means a  legally enforceable debt or other liability. (8)  Briefly stated  the reasons given by the High Court are as under:- (i)  The appellant has not pleaded in his complaint that the cheques were  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 mad with that Bank. The necessary ingredients of Section 138 of the  Act having not been pleaded the Court could not have taken cognizance of the offence. (ii) Mere endorsement  of the Bank "payment stopped" was not sufficient to  entertain the  complaint as  that was  not an ingredient of the offence under Section 138 of the Act. (9)  The High  Court has laid much stress in its judgment to emphasize that  a petition  under Section  482 Cr.  P.C.  is tenable when no offence even prima facie was made out in the complaint. There  can be  no dispute  regarding  that  legal proposition but the application thereof will depend upon the averment made  in the complaint. But the second reasoning of the High  Court is  contrary to  the decision  of this Court (rendered by  a Bench  of two Judges) in Electronics Trade & Technology Development  Corporation Ltd.,  Secunderabad  vs. Indian Technologists & Engineers (Electronics) (P) Ltd., & & Anr. 1996 (2) SCC 739. While interpreting Section 138 of the Act, it firstly observed as under:      "It would thus be clear that when a      cheque is  drawn by  a person on an      account maintained  by him with the      banker for payment of any amount of      money to  another person out of the      account for  the discharge  of  the      debt in  whole or  in part or other      liability is  returned by  the bank      with the  endorsement like  (1)  in      this case,  "refer to  the  drawer"      (2) "instructions  for stoppage  of      payment" and  stamped (3) " exceeds      arrangement",   it    amounts    to      dishonor  within   the  meaning  of      Section 138 of the Act. On issuance      of the  notice by  the payee or the      holder   in    due   course   after      dishonor, to  the drawer  demanding      payment within  15  days  from  the      date  of  the  receipt  of  such  a      notice. if he does to pay the same,      the   statutory    presumption   of

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    dishonest intention, subject to any      other liability, stands satisfied". (10) It been  took up for consideration a similar contention advanced before  them by  the Learned Counsel for the drawer of the  cheques that stoppage of payment due to instructions does not  amount to  an offence under Section 138 of the Act and repelling  the same  observed, "We  find no force in the contention. The  object  of  bringing  Section  138  on  the Statute appears  to be to inculcate faith in the efficacy of banking operations  and credibility  in transacting business on  negotiable   instruments........".  The   Court  further observed,".............. it is seen that once the cheque had been drawn  and issued  to  the  payee  and  the  payee  has presented the cheque and thereafter, if any instructions are issued to  the  bank  for  non-payment  and  the  cheque  is returned to  the payee  with such an endorsement, it amounts to dishonor  of cheque  and it  comes within  the meaning of Section 138". (11) Another two  Judge Bench  while dealing  with the  same question in  K.K. Sidharthan  vs. T.P.  Praveena Chandran  & Anr.. (1996)  6 SCC  369 observed.  "This shows that Section 138 gets  attracted in terms if cheque is dishonored because of insufficient  funds  or  where  the  amount  exceeds  the arrangement made  with the  bank. It has, however, been held by a Bench of this Court in Electronics Trade and Technology Development  Corpn.   Ltd.,  vs.  Indian  Technologists  and Engineers (Electronics)  (P) Ltd..  that even if a cheque is dishonored because  of ‘stop  payment’  instruction  to  the bank, Section  138 would  get attracted". We are in complete agreement with the above legal proposition. (12) The Learned  Counsel for the appellant vehemently urged that both  these decisions of this Court clearly support the case of the appellant and the trial court had rightly issued the process and the High Court was totally wrong in taking a contrary view. (13) It was,  however contended  on behalf of the respondent that  the   decision  in   Electronics  Trade  &  Technology Development Corporation  Ltd., Secunderabad (supra) does not support the  appellant as  far as  the facts that emerged in the present  cases inasmuch  as the  drawer had intimated to the Bank on 8.8.1984 to stop the payment whereas the cheques were presented  for encashment  on 9.8.94  although the same were drawn on 23.2.1994, 26.21994 and 28.2.1994. The Learned counsel  for   the  respondent   strongly  relied  upon  the following observations  in Electronics  Trade and Technology Development Corporation Ltd., (supra):      "Suppose after the cheque is issued      to the  payee or  to the  holder in      due  course   and  before   it   is      presented for encashment, notice is      issued to  him not  to present  the      same for  encashment  and  yet  the      payee  or   holder  in  due  course      presents the cheque to the bank for      payment and  when it is returned on      instructions Section  138 does  not      get attracted".            emphasis supplied (14) The Learned Counsel for the appellant submitted that if the attention  of the  Court was  drawn to the provisions of Section 139  of the  Act which  according  to  him.  had  an important bearing  on the  point in  issue, the  Court would certainly not  have made  the above  observations. The  said Section reads as under:      Section 139 - Presumption in favour

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    of holder  :- it shall be presumed,      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, of any debt or      to her liability". (15) According to the learned counsel if the observations of this Court  in Electronics  Trade &  Technology  Development Corporation  Ltd.   Secunderabad  (supra)   to  the  effect, "Suppose after  the cheque  is issued to the payee or to the holder  in  due  course  and  before  it  is  presented  for encashment, notice  is issued to him not to present the same for encashment  and yet  the payee  or holder  in due course presents the  cheque to  the Bank for payment and when it is returned on instruction. Section 138 does not get attracted" is accepted  as good  law, the  very object  of  introducing Section 138 in the Act would be defeated. (16) We see grate force in the above submission because once the cheque  is issued  by the  drawer  a  presumption  under Section 139 must follow and merely because the drawer issues a notice  to the  drawer or  to the Bank for stoppage of the payment it  will not preclude an action under Section 138 of the Act  by the  drawer or  the holder  of a  cheque in  due course. The  object of  Chapter XVII,  which is intituled as "OF PENALTIES  IN CASE  OF DISHONOR  OF CERTAIN  CHEQUES FOR INSUFFICIENCY   OF  FUNDS  IN  THE  ACCOUNTS"  and  contains Sections 138  to 142,  is to promote the efficacy of banking operations and to ensure credibility in transacting business through cheques.  It is  for  this  reason  we  are  of  the considered view  that the  observations  of  this  Court  in Electronics Trade & Technology Development Corporation Ltd., Secunderabad (supra)  in paragraph  6 to the effect "Suppose after the  cheque is issued to the payee or to the holder in due course and before it is presented for encashment, notice is issued  to him not to present the same for encashment and yet the payee or holder in due course presents the cheque to the  bank   for  payment   and  when   it  is   returned  on instructions. Section  138 does not get attracted", does not fit in  with the  object and  purpose for  which  the  above chapter has been brought on the Statute Book. (17) The above  view had been referred to in K.K. Sidharthan (supra) as is clear from Paras 5 and 6 of the Judgment.      Paras 5 and 6 read as under:-      "5. The above apart, through in the      aforesaid case this Court held that      even  "stop   payment"  instruction      would  attract   the  mischief   of      Section 138,  it has  been observed      in  para  6,  that  if  "after  the      cheque is issued to the payee or to      the holder in due course and before      it  is  presented  for  encashment,      notice is  issued  to  him  not  to      present the same for encashment and      yet the  payee  or  holder  in  due      course present  the cheque  to  the      bank for  payment and  when  it  is      returned  on  instruction,  Section      138 does not get attracted".      "6. From the facts mentioned above.      We  are   satisfied  that   in  the      present case cheques were presented      after the  appellant  had  directed      its bank to "stop payment". We have

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    said ‘so because though it has been      averred in  the complaint  that the      cheque   dated    10-10-1994    was      presented for  collection  on  that      date itself through the bank of the      respondent which is Catholic Syrian      Bank  Ltd.,   from  the   aforesaid      letter  of   the  Indian   overseas      Branch, we find that the cheque was      presented   on    15.10.1994    (in      clearing). The  lawyer’s notice  to      the   respondent   being   of   4th      October, which  had been replied on      12th from Cochi, which is the place      of  the   respondent,  whereas  the      Advocate  who   issued  notice   on      behalf  of  the  appellant  was  at      Thrissur, it  would seem to us that      the  first  cheque  had  even  been      presented after  the instruction of      "stop  payment"   issued   by   the      appellant had  become known  to the      respondent".      With  the   above  observations,  the  complaint  under Section 138 of the Act was quashed. (18) The  aforesaid  propositions  in  both  these  reported judgments, in  our considered  view, with  great respect are contrary to the spirit and object of Sections 138 and 139 of the Act.  If we  are to accept this proposition it will make Section 138  a dead  letter, for,  by giving instructions to the Bank  to stop payment immediately after issuing a cheque against a debt or liability the drawer can easily get rid of the penal  consequences  notwithstanding  the  fact  that  a deemed  offence   was  committed.   Further  the   following observations in  para 6  in Electronics  Trade &  Technology Development   Corporation    Ltd.,   Secunderabad   (supra). "........... Section  138 of  the Act  intended  to  prevent dishonesty  on   the  part   of  the  drawer  of  negotiable instrument to  draw a cheque without sufficient funds in his account maintained  by him in a bank and induce the payee or holder in  due course  to act  upon it.  Section  138  dress presumption that  one commits  the offence  if he issues the cheque dishonestly" in our opinion, do not also lay down the law correctly. (19) Section 138 of the Act is a penal provision wherein if a person draws a cheque 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, is returned by the Bank  unpaid, on the ground either because of the amount of  money   standing  to  the  credit  of  that  account  is insufficient to  honor 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. The  distinction between  the deeming provision  and  the  presumption  is  well  discernible.  To illustrate, if  a person,  draws a cheque with no sufficient funds available  to his  credit on  the date  of issue,  but makes the  arrangement or  deposited the  amount  thereafter before the  cheque is out in the bank by the drawer, and the cheque  is   honored,  in   such  a   situation  drawing  of presumption of  dishonesty on  the part  of the drawer under Section 138  would not  be justified. Section 138 of the Act gets attracted only when the cheque is dishonored. (20) On careful  reading of  Section 138  of the Act, we are

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unable to  subscribe to the view that Section 138 of the Act draws presumption of dishonesty against drawer of the cheque if he  without sufficient  funds to  his credit in  his bank account to  honor the cheque issues the same and, therefore, amounts to  an offence under Section 138 of the Act. For the persons stated hereinabove, we are unable to share the views expressed by  this Court  in the  above  two  cases  and  we respectfully differ  with the  same regarding interpretation of Section 138 of the Act of the limited extent as indicated above. (21) It is  needless to  emphasize  that  the  Court  taking cognizance of  the complaint under Section 138 of the Act is required to be satisfied as to whether a prima facie case is made out  under the said provision. The drawer of the cheque undoubtedly gets an opportunity under Section 139 of the Act to rebut the presumption at the trial. It is for this reason we are of the  considered opinion that the complaints of the appellant could not have been dismissed by the High Court at the threshold. (22) In the  result the appeals succeed and the common order dated 21.11.96 passed by the High Court in Criminal Revision Petition Nos. 2303-2304 of 1995 is quashed and set aside and the order  passed by the Metropolitan Magistrate 11th Court. Calcutta on  6.4.95 is  restored. It  is made clear that all contentions are kept open.