http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

CASE NO.: Appeal (crl.) 10-12  of 2001. Special Leave Petition (crl.)   3210-3212        of 1999

PETITIONER: RAJNEESH AGGARWAL

       Vs.

RESPONDENT: AMIT J. BHALLA

DATE OF JUDGMENT:       04/01/2000

BENCH: G.B.Pattanaikk, U.C.Banerjee

JUDGMENT:

L.....I.........T.......T.......T.......T.......T.......T..J

     PATTANAIK,J.

     Leave Granted.

     The  complainant is the appellant against the impugned orders  dated 13th August, 1999 of a learned Single Judge of the   Himachal   Pradesh  High   Court  in  three   criminal miscellaneous  petitions filed under Section 482 of the Code of  Criminal Procedure.  By the impugned orders, the learned Judge  quashed three criminal complaints filed under Section 138 read with Section 141 of the Negotiable Instruments Act. Admittedly,  three cheques had been given to the  appellant, drawn  on  Bank  of Baroda, Parliament  Street,  New  Delhi, representing  different amounts, amounting to  Rs.2,32,600/- in  all.  These cheques were presented by the appellant  for encashment,  but the same were returned with the endorsement Payment  stopped by the drawer.  The appellant, therefore, served  notices  on the respondent, calling upon him to  pay the  amount of cheques within 15 days of the receipt of  the notice.   Since the respondent failed to pay the amount, the complaints  were  filed  in  the  Court  of  Chief  Judicial Magistrate, Kullu.  The learned Magistrate proceeded to hold inquiry  under Section 202 of the Code of Criminal Procedure and  thereafter took cognizance of the offence and  directed issuance  of process.  The accused respondent challenged the order   of  the  Magistrate,   issuing  process  by   filing application  under Section 482 inter alia on the ground that the stoppage of payment by the drawer does not constitute an offence  under Section 138 of the Negotiable Instruments Act and  service of notice, as contemplated under proviso (b) to Section 138 of the Act has not been proved.  Those petitions however  were  dismissed  by the High Court by  order  dated 25.3.1998.   It  was held by the High Court that in view  of the  Judgment  of  the  Supreme Court in  M/s  Modi  Cements Limited  vs.   Shri Kuchil Kumar Nandi, JT 1998(2)  SC  198, there  is  no  merit in any of the petitions  and  the  same accordingly  stand rejected.  It was, however observed  that the accused shall be at liberty to raise all such points, as may  be available to him during the trial of the case before

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

the   trial   Court.   After   dismissal   of   respondents application  filed under Section 482 of the Code of Criminal Procedure,  the  respondent  filed  application  before  the Magistrate  for  recalling  the issuance  of  process.   The Magistrate   however  dismissed   those  applications.   The accused,  therefore,  filed  the petitions before  the  High Court  again  under  Section  482.  The  High  Court  having allowed  the  application  filed under Section  482  by  the impugned   orders  dated  1.2.1999,   the  complainant   has preferred  these appeals against the same.  Two  contentions had  been raised before the High Court by the accused:   (1) Cheques  had been issued in the capacity of the Director  of the  company  to  whom the watches were  supplied,  but  the complaint  has been filed without impleading the company  as accused  and as such the same is not maintainable;  and  (2) In  the absence of notice, as contemplated by clause (b)  of the  proviso  to Section 138 of the  Negotiable  Instruments Act, criminal proceedings cannot be proceeded with.

     The  High Court rejected the first contention and held that the criminal prosecution would lie under Section 138 of the  Negotiable  Instruments  Act,  without  impleading  the company  of which the accused is the Director as the  party. But  so far as the second contention is concerned, the  High Court came to the conclusion that the notice that was issued by  the  complainant on account of dishonour of the  cheques having been issued to the accused in his individual capacity and not having been issued to the drawer thereof, no offence can  be  said  to have been committed by  the  company  M/s. Bhalla  Techtran  Industries  Limited, and,  therefore,  the criminal  proceedings cannot be proceeded against by  taking recourse  to Section 141 of the Act.  It is this  conclusion of  the High Court, which is the subject matter of challenge in these appeals.

     It  may  be stated at this stage that in  the  earlier round  of litigation, when the accused has filed application under  Section 482 of the Code of Criminal Procedure, it had been urged that the service of notice, as contemplated under proviso  (b) to Section 138 of the Act, has not been proved, but  yet  the Court refused to exercise  jurisdiction  under Section  482  and  refused to quash  the  proceedings.   The learned  Judge after analyzing the provisions of Section 138 of  the Negotiable Instruments Act, came to hold that before an offence under the said provision can be said to have been made  out, it must be shown that the cheque was presented to the  bank for encashment within a period of six months  from the  date on which it was drawn or within the period of  its validity, whichever is earlier ;  the payee or holder in due course  of  the cheque makes demand for the payment  of  the amount  of  money  under the cheque by giving  a  notice  in writing  to  the  drawer  of the cheque within  15  days  of information   received  by  him   from  the  bank  regarding dishonour of the cheque;  and the drawer of the cheque fails to make payment of the amount of money within 15 days of the receipt  of notice.  The High Court, however construed,  the notices issued to the accused respondent, as a notice in his individual  capacity  and  not  to the  company  M/s  Bhalla Techtran  Industries Ltd., notwithstanding the fact that the notice  was  addressed  to  Shri Amit  J.   Bhalla,  Bhalla Techtran  Industries Ltd., 116-Jor Bagh, New Delhi-110  003 and, therefore, it was not a notice to the drawer.  The High Court  further  held that the judgment of this Court in  M/s Bilakchand  Gyanchand  Co.   Vs.  A.   Chinnaswami,  1999(2)

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

SCALE  250,  will have no application to the facts  of  this case.   It  ultimately  came to the conclusion that  in  the absence  of requisite notice to the drawer of the cheque, no offence  can  be said to have been committed by the  company within the meaning of Section 141 of the Act.

     Mr.   D.A.Dave, the learned senior counsel,  appearing for  the appellant contended before us that on the self-same ground,   the  High  Court   having  earlier  dismissed  the application,  filed  under Section 482, could not  have  re- examined the matter when fresh applications were filed under Section  482  and could not have allowed the same.  He  also further  urged that the very construction of the notice  and the  conclusion of the High court on that score is erroneous and further, the High Court committed error in not following the  judgment of this Court in Bilakchand Gyanchand  1999(5) SCC 693.

     Mr.   G.L.  Sanghi, the learned counsel, appearing for the  respondent, referred to the evidence of the complainant before issuance of summons and submitted that on the face of the  said  evidence, the High Court was fully  justified  in coming  to the conclusion that there has been no service  of notice  to the drawer, which is sine qua non for  completion of  offence  under Section 138 read with Section 141 of  the Act  ,  and, therefore, the conclusion of the High Court  is unassailable.  Mr.  Sanghi further urged that the conclusion of  the High court to the effect that supply of watches made by  the  respondent  to  the  company  M/s  Bhalla  Techtran Industries  Ltd.  and cheques involved in the case were also issued  by the said company through its Director that is the petitioner  and  in  view  of   such  admitted  facts,   the petitioner cannot be proceeded against for the offence under Section  138  of the Act in his individual capacity, is  the only   conclusion   permissible   under    the   facts   and circumstances of the case and, therefore, the order quashing the  criminal  proceedings  should not be  interfered  with. According   to  Mr.   Sanghi,   the  complainant  has   been prosecuting  the  accused  Amit  Bhalla  in  his  individual capacity, though categorically in the complaint petition, it has  been  stated  that the cheques had been issued  by  M/s Bhalla  Techtran  Industries  Ltd.,  through  Mr.   Amit  J. Bhalla as a Director and consequently, so far as the company is  concerned,  who  is the real drawer of  the  cheque,  no notice  can  be  said to have been issued,  and,  therefore, criminal  proceeding has rightly been quashed.  Mr.   Sanghi urged  that  the  respondent  not being the  drawer  of  the cheque,  could  not have been prosecuted in  his  individual capacity  inasmuch  as there is no vicarious liability of  a Director   in  the  criminal   matters.   Mr.   Sanghi  also contended that the ultimate decision of quashing of criminal proceeding  can be supported on the further ground that  the complaint  is purely one of civil nature and the complainant has  abused  the  process  of  law  by  initiating  criminal prosecution  as an arm- twisting device and in this view  of the  matter, the case does not warrant interference by  this Court  in exercise of jurisdiction under Article 136 of  the Constitution.   Mr.  Sanghi also urged that in course of the proceedings, the entire amount involved in the three cheques having  been deposited, the criminal proceedings should  not be  allowed  to  be continued and the  order,  quashing  the criminal proceedings should not be interfered with.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

     Having regard to the contentions raised by the counsel for  the  parties,  two  questions   really  arise  for  our consideration:

     (1)  Was  the  High Court justified in coming  to  the conclusion  that  the drawer has not been duly  served  with notice  for  payment?   (2) Whether deposit  of  the  entire amount covered by three cheques, while the matter is pending in this Court, would make any difference?

     So  far  as the first question is concerned, it is  no doubt  true  that all the three requirements  under  clauses (a),  (b)  and (c) must be complied with before the  offence under  Section 138 of the Negotiable Instruments Act, can be said  to have been committed and Section 141 indicates as to who would be the persons, liable in the event the offence is committed by a company.  The High Court itself on facts, has recorded  the  findings  that conditions (a) and  (b)  under Section  138 having been duly complied with and,  therefore, the  only  question  is whether the conclusion of  the  High Court  that condition (c) has not been complied with, can be said  to  be  in accordance with law.  Mere dishonour  of  a cheque would not raise to a cause of action unless the payee makes  a  demand in writing to the drawer of the cheque  for the  payment and the drawer fails to make the payment of the said  amount  of money to the payee.  The cheques  had  been issued  by  M/s Bhalla Techtran Industries Limited,  through its  Director  Shri Amit Bhalla.  The appellant  had  issued notice  to said Shri Amti J.  Bhalla, Director of M/s Bhalla Techtran Industries Limited.  Notwithstanding the service of the notice, the amount in question was not paid.  The object of  issuing notice indicating the factum of dishonour of the cheques  is  to  give an opportunity to the drawer  to  make payment within 15 days, so that it will not be necessary for the  payee  to proceed against in any criminal action,  even though the bank dishonoured the cheques.  It is Amit Bhalla, who  had  signed the cheques as the Director of  M/s  Bhalla Techtran Industries Ltd.  When the notice was issued to said Shri Amit Bhalla, Director of M/s Bhalla Techtran Industries Ltd.,  it  was  incumbent upon Shri Bhalla to see  that  the payments  are made within the stipulated period of 15  days. It  is  not  disputed that Shri Bhalla has  not  signed  the cheques,  nor  is it disputed that Shri Bhalla was  not  the Director  of  the  company.  Bearing in mind the  object  of issuance  of  such notice, it must be held that the  notices cannot  be  construed  in  a narrow  technical  way  without examining  the  substance of the matter.  We really fail  to understand  as  to  why  the   judgment  of  this  court  in Bilakchand  Gyanchand  Co.,1999(5)  SCC 693,  will  have  no application.   In  that case also criminal  proceedings  had been initiated against A.  Chinnaswami, who was the Managing Director of the company and the cheques in question had been signed  by  him.   In  the aforesaid premises,  we  have  no hesitation  to  come to the conclusion that the  High  Court committed  error  in recording a finding that there  was  no notice  to  the  drawer  of the cheque,  as  required  under Section  138  of  the Negotiable Instruments  Act.   In  our opinion,  after the cheques were dishonoured by the bank the payee had served due notice and yet there was failure on the part  of  the accused to pay the money, who had  signed  the cheques, as the Director of the company.  The impugned order of the High Court, therefore, is liable to be quashed.

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

     So  far as the question of deposit of the money during the  pendency  of these appeals is concerned, we  may  state that  in course of hearing the parties wanted to settle  the matter  in Court and it is in that connection, to prove  the bona fide, the respondent deposited the amount covered under all  the  three cheques in the Court, but the  complainants counsel  insisted that if there is going to be a settlement, then  all  the pending cases between the parties  should  be settled,  which was, however not agreed to by the respondent and,  therefore, the matter could not be settled.  So far as the  criminal  complaint is concerned, once the  offence  is committed,  any  payment  made subsequent thereto  will  not absolve  the  accused of the liability of criminal  offence, though  in  the matter of awarding of sentence, it may  have some  effect  on  the Court trying the offence.  But  by  no stretch  of  imagination,  a criminal  proceeding  could  be quashed  on account of deposit of money in the Court or that an  order  of  quashing  of criminal  proceeding,  which  is otherwise  unsustainable in law, could be sustained  because of  the deposit of money in this Court.  In this view of the matter,  the so-called deposit of money by the respondent in this Court is of no consequence.  In the aforesaid premises, we set aside the impugned orders of the High Court and allow these appeals and direct that the criminal proceedings would be  continued.   The money which had been deposited  by  the accused  in  this  Court,  may be refunded  to  the  accused through  his counsel.  The Magistrate is directed to dispose of the proceedings at an early date.