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

PETITIONER: NEPC MICON LIMITED AND OTHERS

       Vs.

RESPONDENT: MAGMA LEASING LIMITED

DATE OF JUDGMENT:       26/04/1999

BENCH: K.T.Thoms, M.B.Shah

JUDGMENT:

Shah, J.

     Leave granted.

     NEPC Micon Limited, Appellant No.  1 and its directors approached  the  High Court for quashing the proceedings  in Case  No.   C-494  of  1997  pending  on  the  file  of  the Metropolitan   Magistrate,  Calcutta,   initiated  by  Magma Leasing Limited, Respondent-Company under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as the  Act).   It  was alleged by the  complainant  that  in discharge  of its existing liability, the  appellant-Company had  given five cheques dated 1st January, 1997 for  various amounts  totalling to Rs.  58,25,980/- drawn on Canara Bank, Broadway    Branch,    Madras,    in     favour    of    the Respondent-Company.  Those cheques were duly tendered to the bankers,  Punjab National Bank, Calcutta for encashment, but were returned by the banker of the accused persons, that is, Canara  Bank,  Madras  with  the  remark  account  closed. Appellants  have  also challenged before the High Court  the order dated 10.12.1997 passed by the Metropolitan Magistrate rejecting  their  application  under Section  258,  Criminal Procedure  Code  for  dropping  the  proceedings.   In  that application  before the Metropolitan Magistrate,  appellants have  stated  that before closing the account on  behalf  of appellant No.  1, a letter dated 3rd August 1996 was sent by the second accused to the Chief Manager, Canara Bank, Madras informing  them to close their group companys accounts;  in case, any of the cheque by mistake comes to the Canara Bank, Madras,  then  the same be sent back with the note  account closed   payment stopped.  That Revision Application under Section  482,  Criminal Procedure Code was rejected by  High Court  by  its  judgment and order dated  15th  June,  1998. Against  that Order, the present appeal is filed by  special leave  in which this Court issued notice on 26th March, 1999 for  final disposal.  At the time of hearing of this matter, learned Counsel for the appellants submitted that complaint, on  the face of it, does not make out any offence punishable under  Section  138 of the Negotiable Instruments  Act  and, therefore,  it  deserves to be quashed.  He  submitted  that cheques  were  returned  by  the bank  with  an  endorsement account  closed  which is not covered by the section.   He submitted  that  Section 138 envisages only two  situations, which  would fall within its purview, namely, (i) the amount

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

of   money  standing  to  the   credit  of  the  account  is insufficient  to honour the cheque;  or (ii) that it exceeds the  amount  arranged  to be paid from that  account  by  an agreement  made  with the bank.  It is his  contention  that there are more than 40 kinds of eventualities where the bank may  return the cheque but the legislature in its wisdom has specified  only the aforesaid two situations and, therefore, return  of  the cheque on the ground that the account  being closed  would  not fall within Section 138.  He  has  fairly pointed  out the conflicting views expressed by the  various High  Courts on the aforesaid question.  He referred to  the decisions  in  the case of G.  F.  Hurasikattimath vs.   Sr. of  Kant.  70 Company cases 278 (Karnataka), S.Prasanna  vs. R.   Vijayalakshmi  1192  Criminal LJ 1233 (Madras)  and  Om Prakash  Bharadwaj  Maniyar vs.  Swati Girish Bhide  &  Ors. wherein  the  Courts  have taken the view that  Section  138 would not be attracted in a case where cheque is dishonoured on  the  ground of closure of account by the drawer  of  the cheque  in  the  particular bank on which he has  drawn  the cheque  as  Section 138 is a penal provision and  should  be construed  strictly.  He has also pointed out the  decisions in  Shivendra Samsguiri vs.  M/s.  Adrnio & Anr.  [1996  Cr. L.J.   1816 (Bengal)], Veeraraghavan Vs.  Lalita Kr.   [1995 Cr.   L.   J.   1882 (Madras)], M/s.  Dada  Silk  Mills  Vs. Indian  Overseas  Bank  Banking  Co.  [1994 Cr.   L  J  2874 (Gujarat)],  M/s.  G.  M.  Mittal Stainless Steels Ltd.  Vs. M/s.   Nagarjuna Investment Trust Ltd.  [1995 (4) Crimes 379 (Andhra Pradesh)], Japahari Vs.  Priya [1994 (1) Crimes 3798 (Kerala)]  and Rakesh Porwal vs.  Varayan Joglekar [1993 Cr. L.J.688]  wherein  a  contrary view has been taken  and  the Courts  have held that Section 138 would be applicable in  a case  where cheque is dishonoured on the ground that account by the drawer is closed.  For deciding the contention raised by  the  learned  counsel  for the appellant,  it  would  be necessary  to  refer  to the relevant Sections 138  and  140 which  are  as  under:   - 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 of 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 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 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

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.

     140.   Defence  which  may  not   be  allowed  in  any prosecution under Section 138  It shall not be a defence in a  prosecution  for  an offence under section 138  that  the drawer  had  no reason to believe when he issued the  cheque that  the  cheque may be dishonoured on presentment for  the reasons stated in that section.

     From  Section  138,  it is apparent  that  (i)  cheque should  be 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;  (ii) the cheque  should be  returned  by  the bank unpaid either because:-  (a)  the amount  of  money standing to the credit of that account  is insufficient  to  honour the cheque;  or (b) it exceeds  the amount  arranged  to be paid from that account by  a  person with  the  bank.   (iii) In such a  situation,  such  person (drawer  of  cheque)  shall be deemed to have  committed  an offence.   Further,  the offence will be complete only  when the  conditions in the proviso (a), (b) and (c) are complied with.   Hence,  the question is, in a case where  cheque  is returned  by the bank unpaid on the ground that the account is  closed, would it mean that cheque is returned as unpaid on  the  ground  that the amount of money standing  to  the credit  of  that  account  is  insufficient  to  honour  the cheque.   In our view, the answer would obviously be in the affirmative  because cheque is dishonoured as the amount  of money  standing to the credit of that account was nil at the  relevant  time apart from it being closed.  Closure  of the  account would be an eventuality after the entire amount in  the  account is withdrawn.  It means that there  was  no amount  in the credit of that account on the relevant date when  the cheque was presented for honouring the same.   The expression  the  amount of money standing to the credit  of that  account  is  insufficient to honour the cheque  is  a genus of which the expression that account being closed is specie.   After  issuing  the  cheque drawn  on  an  account maintained, a person, if he closes that account apart from the  fact  that it may amount to another offence,  it  would certainly  be  an  offence under Section 138  as  there  was insufficient  or  no  fund  to honour the  cheque  in  that account;   Further,  cheque is to be drawn by a person  for payment  of  any amount of money due to him on  an  account maintained  by him with a banker and only on that account cheque  should be drawn.  This would be clear by reading the Section  along  with  provisos (a), (b) & (c  ).   Secondly, proviso (c) gives an opportunity to the drawer of the cheque to  pay  the  amount within 15 days of the  receipt  of  the notice as contemplated in proviso (b).  Further, Section 140 provides  that it shall not be a defence in prosecution  for an  offence under Section 138 that the drawer has no  reason to  believe when he issued the cheque that the cheque may be dishonoured  on  presentment for the reasons stated in  that Section.  Dishonouring the cheque on the ground that account is  closed  is  the  consequence of the act  of  the  drawer rendering  his account to a cipher.  Hence, reading  Section 138  and  140 together, it would be clear that dishonour  of the  cheque  by a bank on the ground that account is  closed would be covered by the phrase the amount of money standing to  the credit of that account is insufficient to honour the cheque.   Learned  Counsel  for  the  appellants,  however, submitted  that  Section  138 being a  penal  provision,  it

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

should  be strictly interpreted and if there is any omission by the Legislature, wider meaning should not be given to the words  than  what is used in the Section.  In our view  even with  regard  to penal provision, any interpretation,  which withdraws  life  and  blood of the provision  and  makes  it ineffective  and  a dead letter should be averted.   If  the interpretation,  which  is sought for, were given,  then  it would  only encourage dishonest persons to issue cheques and before  presentation of the cheque close that account  and thereby  escape from the penal consequences of Section  138. This   Court  in  the  case  of  Kanwar  Singh  Vs.    Delhi Administration,  (1965) 1 SCR 7 while construing Section 418 (i)  of the Delhi Municipal Corporation Act, 1959  observed: -  It  is the duty of the Court in construing a statute  to give  effect  to  the  intention of  the  legislature.   If, therefore,  giving  a literal meaning to a word used by  the draftsman, particularly in a penal statute, would defeat the object  of  a legislature, which is to suppress a  mischief, the Court can depart from the dictionary meaning or even the popular  meaning  of the word and instead give it a  meaning which will advance the remedy and suppress the mischief.

     Further,  while interpreting, the statutory  provision rule dealing with penalty under the Drugs and Cosmetics Act, 1940  and  the rules in the case of Swantraj and Others  Vs. State  of  Maharashtra 1975(3) S.C.C.  322, this Court  held that  every  legislation is a social document  and  judicial construction  seeks  to  decipher   the  statutory  mission, language permitting, making the one from the rule I Heydons case  of  suppressing  the evil and  advancing  the  remedy. Court held that what must tilt the balance is the purpose of the   statute,  its  potential   frustration  and   judicial avoidance  of  the  mischief by a construction  whereby  the means of licensing meet the ends of ensuring pure and potent remedies  for the people.  Court observed that this  liberty with  language is sanctified by great judges and  textbooks. Maxwell instructs as in these words:

     There  is no doubt that the office of the Judge  is, to make such construction as will suppress the mischief, and advance  the  remedy, and to suppress all evasions  for  the continuance  of the mischief.  To carry out effectively  the object  of  a statute, it must be so construed as to  defeat all  attempts  to  do,  or avoid doing, to  an  indirect  or circuitous  manner that which it has prohibited or  enjoyed: quando  aliquid  prohibetur,  prohibetur  et  omne  pe  quod devenitur ad illud.

     The  manner  of construction has two aspects.  One  is that  the Courts, mindful of the mischief rule, will not  be astute  to  narrow the language of a statute so as to  allow persons  within its purview to escape its net.  The other is that the statute may be applied to the substance rather than the mere form of transactions, thus defeating any shifts and contrivances  which parties may have devised in the hope  of thereby  falling  outside the Act.  When the Courts find  an attempt  at concealment, they will, in the words of  Wilmot, C.J.   brush  away  the  cobweb   varnish,  and  shew   the transactions in their true light.

     This  benignant rule originated four hundred years ago in  Heydons  case, which resolved  That for the  sure  and true  interpretation  of all statistics in general (be  they penal  or beneficial restrictive or enlarging of the  common law)  four things are to be discerned and considered:  (1st)

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

What  was the common law before the making of the Act, (2nd) What  was  the mischief and defect for which the common  law did  not  provide.   (3rd) What remedy the  Parliament  hath resolved   and  appointed  to  cure   the  disease  of   the commonwealth.   And,  (4th) The true reason of  the  remedy; and then the office of all the Judges is always to make such construction as shall suppress the mischief, and advance the remedy,  and to suppress subtle inventions and evasions  for continuance of the mischief, and pro private commodo, and to ad  force and life to the cure and remedy, according to  the true intent of the makers of the Act, pro bono publico.

     Even  with regard to the penal provision which is also remedial  one  in  the  case  of State  of  Tamil  Nadu  Vs. M.K.Kandaswami  and  Others 1974(4) S.C.C.  745,  the  Court observed   that   in  interpreting   such  a  provision,   a construction  which would defeat its purpose and, in effect, obliterate  it from the statute book should be eschewed;  if more  than one construction is possible that which preserves its  workability, and efficacy is to be preferred to the one which would render it otiose or sterile.

     In the case of M/s.  International Ore and Fertilizers (India)   Pvt.   Ltd.   Vs.    Employees  State   Insurance Corporation  AIR  (1988)  S.C.  79, this Court  referred  to often  quoted  passage  from  the decision in  the  case  of Seaford  Court Estates ltd.  Vs.  Asher (1949) 2 All ER  155 wherein Lord Denning, L.J.  observed:  The English language is  not  an  instrument  of  mathematical  precision.    Our literature  would be much poorer if it were.  This is  where the draftsmen of Acts of Parliament have often been unfairly criticized.   A  Judge, believing himself to be fettered  by the  supposed  rule  that he must look to the  language  and nothing  else, laments that the draftsmen have not  provided for  this  or  that, or have been guilty of  some  or  other ambiguity.   It  would certainly save the judges trouble  if the  Acts of Parliament wee drafted with divine  pre-science and  perfect  clarity.  In the absence of it, when a  defect appears,  a judge cannot simply fold his hands and blame the draftsman.   He must set to work on the constructive task of finding the intention of Parliament, and he must do this not only  from  the  language of the statute, but  also  from  a consideration of the social conditions which gave rise to it and  of the mischief which it was passed to remedy, and then he must supplement the written word so as to give force and life  to the intention of legislature.  A judge should  ask himself  the  question  how, if the makers of  the  Act  had themselves  come across this ruck in the texture of it, they would  have straightened it out?  He must then do so as they would  have  done.  A judge must not alter the  material  of which  the Act is woven, but he can and should iron out  the creases (Emphasis supplied)

     Lastly,   we  would  refer  to   the  decision  by   a Three-Judge  Bench of this Court in the case of Modi Cements Ltd.   Vs.  Kuchil Kumar Nandi (1998) 3 S.C.C.  249  dealing with  a  similar contention and interpreting Section 138  of the  Act.   In that case, the Court referred to the  earlier decisions  in  the case of Electronics Trade and  Technology Development   Corporation   (1996)  2   SCC  739  and   K.K. Siddharthan  Vs.   T.P.  Praveena Chandran (1996)  6  S.C.C. 369  and agreed that the legal proposition enunciated in the aforesaid  decisions  to  effect  that   if  the  cheque  is dishonoured,  because  of stop payment instruction to  the bank,  Section 138 would get attracted.  It also amounts  to

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

dishonour  of  the cheque within the meaning of Section  138 when  it  is returned by the bank with the endorsement  like (I)   in   this  case,  referred   to  the   drawer   (ii) instructions  for  stoppage of payment and  stamped  (iii) exceeds  agreement.  The Court observed that the object  of bringing  Section 138 on statute appears to be to  inculcate faith  in the efficacy of banking operations and credibility in  transaction in business on negotiable instruments and to promote  the  efficacy of banking operations and  to  ensure credibility   in  transacting   business  through   cheques. Thereafter,  the Court disagreed with other views  expressed in  aforesaid  two  cases and held that 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 drawee  or  to the bank for stoppage of the payment it  will not  preclude an action under Section 138 of the Act by  the drawee  or the holder of a cheque in due course.  The  Court further  held that it will make section 138 a dead letter if the  contention  that by giving instruction to the  Bank  to stop  payment immediately after issuing a cheque against the debt  or  liability,  the drawer can easily get rid  of  the penal  consequences  notwithstanding  the fact  that  deemed offence was committed.  Finally, the Court held that Section 138  of  the  Act  gets attracted only when  the  cheque  is dishonoured.   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  show 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, to an indirect or circuitous manner that 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.   In  the result, the appeal is dismissed.  However, there shall be no order as to costs.