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CHAPTER- SIX

LIABILITIES AND LEGAL TRENDS

I. LIABILITY OF PARTIES OF NEGOTIABLE INSTRUMENTS


Section 32 which provides about the liability of the maker of a note or
the acceptor of a bill, is as follows:-
In the absence of a contract to the contrary, the maker of a promissory
note and the acceptor before maturity of a bill of exchange are bound to pay the
amount there of at maturity according to the apparent tenor of the note or
acceptance respectively, and the acceptor of a bill of exchange at or after
maturity is bound to pay the amount thereof to the holder on demand.
In default of such payment as aforesaid, such maker or acceptor is bound
to compensate any party to the note or bill for any loss or damage sustained by
him and caused by such default.
When the maker of a promissory note signs the same there is an
unconditional undertaking made by him to pay the amount of the note
according to its tenor. His engagement to pay is unconditional and his liability
to pay is absolute. His liability arises when he signs the promissory note and
delivers the same to the person in whose favour it has been made, the payee.
The drawee of a bill of exchange becomes liable on the bill when he
accepts the same. The liability of the acceptor of a bill of exchange is similar to
that of the maker of the promissory note. An acceptance by him, the acceptor
becomes primarily liable to pay the amount of the bill on its maturity. The
acceptor of a bill of exchange is liable there under as principal debtor and as
such, the suit filed merely against the acceptor of a bill of exchange is
maintainable in law even though a separate suit has been filed by the plaintiffs
against the drawers of that bill of exchange on the basis of the suit bill of
exchange along with other reliefs claimed there in.
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When a bill of exchange is payable to draws order and the drawer is a


fictitious person, the acceptor of the bill will still be liable to a holder in due
course provided the latter can show that he got the bill purporting to be
endorsed by the drawer and the signatures of the first endorsement and of the
drawer are in same handwriting. A forged endorsement cannot convey a good
title even to a holder in due course and therefore no person can be made liable
on a negotiable instrument towards one who derives his title through a forged
endorsement. To this general rule there is an exception. If the forged
endorsement is there before acceptance, negligently accepting such a bill will
make the acceptor liable. An acceptor is also not liable towards a holder
deriving title out of a forged endorsement which was made after the bill has
been accepted.
The nature of the liability of the endorser is similar to that of drawer, i.e.
it is conditional upon the non-performance of the duty by those whose liability
is primary and unconditional. Every endorser impliedly undertakes to be liable
to every subsequent holder if the maker, drawee or the acceptor dishonour the
same. It may be noted that if payee transfers an instrument by making an
endorsement, then only his liability can arise. In the absence of any
endorsement by the payee his liability cannot arise. In Gaddam Venkata Raju
V. Andhra Bank, Hyderabad,1 the payee delivered a cheque to the bank without
making endorsement and the bank discounted the same. The said cheque was
dishonoured by the drawee bank. The bank to whom the payee had delivered
the cheque brought an action against the payee for recovery of the amount of
the cheque. It was held that that payee could not be held liable because he had
not made any endorsement.
Such a liability of the endorser, as stated above, arises unless he, in such
endorsement, excludes his liability or makes the same conditional. Section 52,
permits an endorser to make the endorsement in such a way that he either

1
A.I.R. 2000 A.P. 379.
184

excludes his own liability (by sans recourse endorsement), or, makes such
liability or the right of the endorsee to receive the amount due there on depend
upon the happening of a specified event.

II CIVIL LIABILITY
The impugned complaint was brought by M/s Kapoor brothers Roller Flour
Mills, Panchkula (respondent firm hereinafter) under Section 138 of the Act, read
with Section 406/420 I.P.C. The respondent firm pleaded therein that it was a
registered partnership-firm, carrying on business of running a flour mill. It supplies
flour mill products. In December 1988, petitioner No. 2 approached the respondent-
firm for the supply of the Maida as per the bill. Interest at the rate of 23% per annum
was to be charged if the payment was not made within the stipulated period of 10
days. The supplies were then made. The transactions were entered in the Daily Sales
Register and the Ledger Book maintained. A running account was opened and
payments were made though irregularly. As per the account books, a balance of Rs.
1,24,640/- stood due to the respondent firm from the petitioner firm. Some of the
cheques issued were dishonoured and ultimately, a registered notice was issued on
24.10.1989, but, in spite of the same, and the information being delivered of
dishonour of the cheques, the payment was not made. A meeting was then arranged.
B, petitioner No. 2 issued two cheques, one dated 02.11.1989 for Rs. 15,900/- and the
second dated 09.11.1989 for Rs. 11,000/- as part payment. These cheques were drawn
on Punjab National Bank, Sector 17B, Chandigarh with the assurance the same would
be encashed on presentation to the Bank. These cheques were then presented, but
were received back with the endorsement refer to drawer. After receiving the
information of the dishonour of the cheques, a legal notice dated 25.11.1989 was
issued. Two of the notices were received back undelivered, while one was delivered
to petitioner No. 2. In spite of this service of notice, payment in question was not
made and as such, the offence under Section 138 of the Act was committed. From the
very beginning, the intentions of the petitioners were dishonest and as such, offences
under Sections 406/420 I.P.C. had also been committed.
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According to section 30, The drawer of a bill of exchange or cheque is


bound, in case of dishonour by the drawee of acceptor thereof, to compensate
the holder, provided due notice of dishonour has been given to, or received by,
the drawer as here in after provided.
The liability of the acceptor of a bill of exchange is the primary liability
and he is to be approached in the first instance by the holder if he wants to have
the payment of the bill. A cheques is also to be presented to the drawee bank to
obtain its payment. If the drawee or the acceptor of the cheque or the bill of
exchange does not pay then the liability of drawer arises. The drawer of a bill
of exchange or a cheque makes an implied promise to pay the sum if the
drawee or the acceptor there of makers default in payment.
Section 30 of the Negotiable Instruments Act, 1881 deals with civil liability in
case of dishonour of cheque, Bill of exchange and the same provides that the drawer
had to compensate the holder of the cheque and bill of exchange. The Legislature has
by means of Banking Public Financial Institutions and Negotiable Instruments Laws
(Amendment) Act, 1988 inserted Section 138 and 142 to make out the dishonour of
cheque for want of funds and after service of notice, the amount is not paid within
prescribed period. The offence is deemed presumed to have been committed under the
provisions Section 138, shall be a complete offence only if three conditions
mentioned specified in the proviso to the section also exist. The dishonour of the
cheque must be for the cause that the amount of money standing to the credit of the
drawer is not sufficient to honour the cheque or that it exceeds the financial
arrangement made with the Bank. In the complaint, the respondent-firm has given all
the facts on the basis of which it claims the commission of the offence under Section
138. The term refer to drawer is a courteous way adopted by a Bank to show its
inability to honour the cheque for want of funds. The petitioner-firm has not been able
to show that the term refer to drawer to the present case conveyed a different
meaning. Section 142 provides the clincher. The cause of action will be complete only
when the drawer fails to make the payment of the amount of the cheque within 15
days of the receipt of notice, provided by the proviso (b) to Section 138. The offence
will, thus, be complete only when the period of notice expires and the payment is not
186

made. In support of my above observations, this Court derives support from the
following observations made by their Lordships in Amar Jothi Spinning Mills Ltd.
v. B.R.B Garments,2 :
When the main body of the section is read along with the proviso,
it is clear that the offence will be deemed to have been committed
only if the drawer of the cheque-failed to make payment, within
fifteen days of receipt of the notice. An offence as defined in
Section 2(n) of the Code includes not only the doing of a positive
act but by omitting to do something as well. Here the relevant
provision says that the offence is the omission to make payment
within fifteen days of receipt of notice. Drawing the cheque is not
the act by which the offence is deemed to have been committed.
When the drawer fails to make the payment within the payment
within the period specified in clause (c) of the proviso, the offence
is complete. This aspect is made further clear in Section 142(b) of
the Act. Under the said clause no Court shall take cognizance of
any offence punishable under Section 138 unless 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. Normally,
cause of action does not arise until the commission of the offence.
When Section 142(c) says that the cause of action is the one which
arises under clause (c) of the proviso, such cause of action is the
omission to make payment within fifteen days of the receipt of the
notice.

It is not necessary to always stay proceeding in civil action and whether the
proceedings in action should be stayed or parallel proceeding both civil and criminal
may continue depend from fact and circumstances of each case. There is no legal bar
to the continuance of the civil and criminal proceedings simultaneously.3

2
(2003) 117 (Mad) 117.
3
Smt. Gayathri v. Smt. Clement Mary (2003) 114 Karn 261 .
187

According to section 31, the drawee bank is bound to honour the customers
cheque if he has sufficient funds of the drawer applicable to the payment of such
cheque. If the drawee bank wrongfully dishonours the cheque. It can be made liable
for such default. The liability for such a default is not towards the payee or the holder
but towards the drawer. The basis of the bankers liability is the relation between the
bank and its customer which implies an undertaking to honour the customers cheques
if there are sufficient funds to meet the same. There are some cases when a banker
may be either justified or bound to dishonour the cheques. Dishonour of the cheque in
such cases does not create any liability for the drawee bank.
When a cheque properly drawn is duly presented to a banker is must pay the
cheque, and on default of such payment it is bound to compensate the drawer for any
loss or damage caused by such default. In Jagjivan Mavji v. Ranchhoddas Megh
Ji,4 the Supreme Court observed. There is no provision in the act that the drawee is
as such liable on the instrument, the only exception being under section 31 in the case
of a drawee of a cheque having sufficient funds of the customer in his hands, and even
then, the liability is only towards the drawer and not the payee. There is no privity of
contract between the banker and the payee and therefore no liability towards the
holder or the payee arises even though he has sufficient funds of the drawer in his
hands to meet the cheque.5 Apart from an action for the breach of contract, the
customer may bring an action under the law of torts on the ground that due to the
negligence of the bank there has resulted some loss to the credit or the reputation of
the customer.
According to section 37, the maker of a promissory note or cheque, the drawer
of a bill of exchange until acceptance, and the acceptor are, in the absence of a
contract to the contrary, respectively, liable there in as principal debtors, and other
parties there to are liable there on as sureties for the maker, drawer or acceptor, as the
case may be In a contract of guarantee a person who undertakes to be primarily liable
is the principal debtor and the person who undertakes to be liable if the principal
debtor does not perform his duty is a surety. Four persons i.e. the maker of a
promissory note, the maker or drawer of a cheque, the drawer of a bill of exchange

4
A.I.R. 1954 SC 554.
5
Hopkinson v. Forster, (1894) L.R.19EQ74.
188

until acceptances and the acceptor of a bill of exchange occupy the position of a
principal debtor.
It has been noted above that the maker, drawer and the acceptor are the
principal debtors and the other parties are sureties in respect of the agreement
contained in the negotiable instrument. That position is there unless there is a contract
to the contrary. There can be an agreement between the parties by which the above-
stated position may be varied. For example, in the case of an accommodation bill of
exchange the presumption of an agreement to the contrary is there.6 There, the drawee
accepting a bill for the accommodation of the drawer is not the principal debtor but
surety, and the drawer himself is the principal debtor. Therefore if the acceptor of
such a bill makes the payment he can recover the same from the drawer who is
deemed to be the principal debtor on the other hand, if the payment to the holder is
made by the drawer he cannot recover anything from that acceptor.
Where there are two or more sureties, the position inter-se them is stated in
section 38 which is as follows: as between the parties so liable as sureties. Each prior
party is, in the absence of a contract to the contrary, also liable there on as a principal
debtor in respect of each subsequent party. The above stated provision implies that
various persons liable on a negotiable instrument are not merely co-sureties, but as
between themselves, each prior party is a principal debtor as related to each
subsequent party, who is his surety. The relationship between the parties has been
explained by Byles as under Suppose a bill to have been accepted and endorsed for
value. The acceptor is the principal debtor, and all the other parties are sureties for
him, liable only on his default. But though all the other parties are in respect of the
acceptor sureties only, they are not as between themselves merely co-sureties, but
each prior party is a principal in respect of each subsequent party. If a bill to have
been accepted by the drawee, and afterwards endorsed by the drawer and by two
subsequent endorsers to the holder. As between the holder and the acceptor is the
principal debtor, and the drawer and the endorsers are his sureties. But as between the
holder and the drawee, the drawer is the principal debtor, and the subsequent
endorsers are his sureties. As between the holder and the second endorser, the second

6
Nanda Ram v Sitla Prasad, 5 All 484.
189

endorser is the principal debtor and the subsequent or the third endorser is his
surety.7
A. Presumption Under Section 118 of the Negotiable Instruments Act, 1881-
It would be clear that when the suit is based on pronote, and promissory note
as proved to have been executed. Section 118(a) raise the presumption, until the
contrary proved, that the promissory note was made for consideration. That initial
presumption raised under Section 118 (a) becomes unavailable when the plaintiff
himself pleases in the plaint different considerations. If he pleases that the promissory
note is supported by a consideration as recited the negotiable instruction and the
evidence adduced in support thereof, the burden is on the defendant to disapprove that
the promissory note is not supported by consideration of different consideration other
than one recited in the promissory note did pass. If that consideration is not valid in
law nor enforceable in law, the Court would consider whether the suit pronote is
supported by valid consideration or legally enforceable consideration.
The Honble Supreme Court of India has held that the burden of proof is of
academic interest where the evidence was adduced by the parties. The court is
required to examine the evidenced consider whether the suit as pleaded in the plaint
has been established and the suit requires to be declared as dismissed.8
The burden is, entirely on the drawer of the cheque, Bill of exchange to
establish that the payee had no authority in put the date and encash the cheque, Bill of
exchange. In other words, payee has got the implied authority to put the date. When
the date appears on the cheque, presumption under Section 118 (b) operates.
Therefore, the burden shifts to the drawer to establish that he did not authorised the
payee to put the date on the cheque or bill of exchange.
In this case, admittedly the cheque was complete in all respects, except the
date. It is the contention of the defendant that handwriting of the date on the cheque is
different and that the ink used for putting the date is also different. Assuming that if
there is difference in the handwriting with regard to the date as well as the ink used,
that is not enough to rebut the presumption under Section 118(b) of the Act, since the
payee has put the date on the basis of implied authority. Defendant has not discharged

7
Byles, Bills of Exchange, 21 St ed, p.284.
8
K.P.O. Moideenkutty Hajee v. Pappu Manjooran, (1997) (1) BC at p.361 (SC).
190

the burden or rebutted the presumption under Section 118(b) of the Act.9 In order to
discharge the burden, defendant has to adduce acceptable evidence. Merely because
there were same transactions between the plaintiff and defendant, the same would not
lead to the conclusion that Negotiable instrument was not support by consideration.
Oral evidence of DW-1 would not lead to the conclusion that the cheque was not
supported by consideration. Those documents would show that there were some
transactions between the plaintiff and defendant. But defendant has to adduce reliable
evidence to rebut the presumption under Section 118 of the Act, which he has not
discharged.
If the promissory note is proved to have been signed and executed by the
defendant, than presumption under section 118 of the negotiable instruments act
would arise and it is for defendant to rebut by establishing that he did not receive the
consideration by direct evidence or by bringing on record preponderance of
probabilities also. 10 In the under mentioned case the defendants were able to rebut the
presumption of passing off consideration and so were not held liable for the suit
claim11 .

B. DUTY OF THE COURT TO EXERCISE JUDGEMENT POWER

There are two constraints which are imposed on the Court for exercising the
power. First is, if the Court thinks in a situation it is proper to adjourn the hearing then
the Magistrate shall not acquit the accused. Second is, when the Magistrate considers
that personal attendance of the complainant is not necessary on that day the
Magistrate has the power to dispense with his attendance and proceed with the case.
When the Court notices that the complainant is absent on a particular day the Court
must consider whether personal attendance of the complainant is essential on that day
for the progress of the case and also whether the situation does not justify the case
being adjourned to another date due to any other reason. If the situation does not
justify the case being adjourned the Court is free to dismiss the complaint and acquit

9
Bhaskaran Chandrasekharan v. Radhakrishnan, 1(1999)BC 301 Ker :(2000)101 Comp cas 15 (DB).
10
Harbans Singh v. Sunder Mal Satpal, 1(2000)BC 472(P&H) Rama Sami Moopar v. Ramaswami.
Moopanar, II (2003)BC 662 (Mad)DB.
11
S.Narayana Samy Reddiar v K.P.Sivaraman , II (2003) BC 420 (Mad).
191

the accused. But if the presence of the complainant on that day was quite unnecessary
then resorting to the step of axing down the complaint may not be a proper exercise of
the power envisaged in the section. The discretion must, therefore, be exercise
judicially and fairly without impairing the case of administration of criminal justice.12
In the instant case the complaint has specifically stated that the cheque was
dishonoured as payment was stopped by the drawer. Nowhere did the complainant say
that the cheque was dishonoured due to want of sufficient amount in the account. It is
extremely difficult to deduce from the complaint in a case of dishonour of the cheque
due to want of amount in the account. Averments in the complaint are totally bereft of
such a case. This revision is dismissed in limine.13
It is a well settled that a clause beginning with notwithstanding any thing
contained is appended to a section with a view to give the enacting part of the section
in case to conflict an overriding effect of the provision mentioned in the non obstarite
clause will not be an impediment for the operation of sub section(1). Under sub-
section (1) every person in charge of and responsible to the company for the conduct
of the business of the company shall be deemed to be guilty of the offence under
Section 138 of the Act. But sub-section (2) provides that besides the person
mentioned in sub-section (1) where any offence committed by a company is proved to
have been committed with the consent or connivance or is attributable to any neglect
on the part of any Director, Manager, Secretary or other Officer of the company then
said Director, Manager, Secretary or Officer shall also be deemed to be guilty of that
offence. It would mean that even if such Director, Manager, Secretary etc. was not
incharge and was not responsible to the company for the conduct of the business of
the company; he will still be liable if the offence was committed with his consent,
connivance or due to his negligence. No such averments are required to be made in
the complaint against the persons who were in-charge of the business of the company.
The allegations as contained to the complaint prima facie made out a case against the
petitioners and they were rightly summoned by the trial Court to stand trial.14

12
Associated Cement Co. Ltd. v. Keshwanand, I (1998) CCR 82 at pp 87.
13
Balakrishna Pillai v. V. Abdullakuty, 1994(2) Crimes 327.
14
Manju Podar v. Ashwani Kumar, 1 (1994) BC 557.
192

It may be observed that the powers under Section 482 Cr. P.C. can be invoked
only when redress under any other provision was unavailable. The implication is that
non one should have recourse to short-cut which is often a wrong cut in life as well as
in law. The inherent power is certainly circumscribed and is intended to be used rather
sparingly.
It is a serious matter in that it entails nature of process by which the accused
persons are required to appear in the Court. The District Judge, Mandleshwar is,
therefore, directed to make an enquiry into all the aforesaid cases about this change to
the order sheet and submit his report to this court.15
The facts are that the cheque was returned with an endorsement stop
payment. The allegation in the complaint was that the accused have acted
diabolically and that on both the occasion when the cheque reached the accuseds
Bank for collection sufficient funds were not available, resulting in the dishonour of
the cheque and it was held by this court that in the face of positive allegations in the
complaint that only due to the insufficiency of funds the cheque was returned, only
during the course of trial it can be found out whether the cheque was returned due to
the insufficiency of funds or otherwise and that the complaint cannot be quashed at
the threshold.16
It has been held by the Supreme Court of India that the second revision
petition even though filed under Section 482 of the Criminal Procedure Code is not
maintainable.17
The petitioner admittedly was one of the partners on the date when the
cheques in question were issued by the firm. Whether he ceased to be a partner
thereafter is not the relevant question which can be gone into in the proceedings under
Section 482 of the Code. Regarding second contention of the petitioner that the firm
had issued a letter to the complainant that they had closed the Bank account because
of the petition of the firm, involves a question of fact which against cannot be gone
into in the proceedings under Section 482 of the Code.18

15
Bhupendra Shah v. Mahendra, (1993) Crimes 185.
16
Nagender Prasad Singh and others v. State of Bihar and Another (2007)1 0698 (Patna).
17
Deepti @ Arti Rai v. Akhil Rai, (1995) 7 JT (SC) 175.
18
Aji Narain Aggarwal v. Firm Mandan Lal Rajinder Prasad, 1996 Cri.LJ 2022.
193

It is clear from a reading of Section 141 of the Act that if the offence under
Section 138 of Negotiable Instruments Act is committed by the company or a firm,
every person who was in charge and responsible for the affairs and conduct of the
business for the company or firm, as the case may be at the time when the alleged
offence was committed, is also liable for prosecution along with the company19. It is
an admitted fact, in this case, that the cheque was issued by A-2 of the Managing
Partner of A-1 firm, and indisputably there is no allegation in the complaint that the
petitioner herein (A-3) was in charge and responsible for the conduct of the business
of the A-12 firm at the time of alleged commission of the offence. Therefore, in the
absence of any such allegation and when admittedly, the cheque was issued by A-2 ,
the Managing Partner of A-1 firm and in view of Section 138 and 141 of the
Negotiable Instruments Act. There is no hesitation in holding that the complainant is
not entitled to initiate prosecution against every partner of the firm.20
It is clear that Section 138 does not contemplate of issuing demand notice
mentioning fifteen days time for the drawer to pay the amount and the only obligation
is that the payee or holder in due course has to wait for fifteen days after receipt of the
notice by the drawer giving opportunity to pay the said amount to him payable on
account of the dishonour of the cheque. Therefore, on considering the provisions of
Section 138 to Section 142 of the Act. There is not hesitation in holding that there is
no obligation on the part of the payee or the holder in due to specifically mentioned
demanding to pay the said amount within fifteen days and there is no substance in the
contention of the learned Counsel for the petitioner. 21
The fact that the petitioner did not even appear before the Magistrate to show
cause but directly he moved the High Court for quashing issuance of process, the
petitioner is liable to be dismissed.22
It cannot be said that the payee demanding the drawer to pay the amount
within fifteen days by itself is not a ground to quash the proceedings particularly

19
Everest Advertising (P) Ltd. v. State Govt. of NCT of Delhi and others (2007) 3 Comp LJ 410 (SC).
20
N.K. Wahi v. Shekhar Singh and Others (2007) 2 comp LJ 10(SC).
21
Central Bank of India v. Saxons Farms.(2000)2 comp LJ 36 (SC).
22
Meena Ashok Vawani v. State of Maharashtra, II(1997) CCR 533.
194

when the complaint was filed within one month after expiry of fifteen days from the
date of receipt of notice.23
The filing of the petitioner under Section 258 of the Criminal Procedure Code
would not be maintainable, since the said section relates to the power of the Court to
stop proceedings in summons case and it does not relate to the discharge of the
accused. Whatever it is, there is no material to show that the petitioners are liable to
be discharged at this stage.24

The questions of act viz. no liability or no debt, no notice of demand as


required by Section 138 of Negotiable instruments Act and the inconsistently in the
endorsements of the Bankers on the dishonoured cheques are all matters to be decided
by the trial Court after the appreciation of evidence from the oral and documentary
evidence that has been let in before the trial Court. In such circumstances this is not a
fit case to interfere under Section 482 of Cr. P.C. to quash the proceedings.25

There is not any scope for interference with the action adopted by the Chief
Judicial Magistrate making over the case to the file of Judicial Magistrate of the first
class in the same district.26

The criminal proceedings are seldom stayed till the decisions of a civil suit
over the self same matter but having regard to the facts and circumstances which in
this Court opinion is a compelling circumstances when for ends of justice there is no
way out but to stay the criminal proceeding till disposal of the civil suit.27

Pleases cannot be decided merely on the basis of the averments made in the
present petition and the affidavit sworn in respect thereof. It is now well settled by a
number of decisions of the Apex Court that for the purpose of exercising its powers
under Section 482 of the Code of Criminal Procedure or its extraordinary jurisdiction
under Articles 226/227 of the Constitution of India to quash a F.I.R. or a complaint,
the High Court would have to proceed entirely on the basis of the allegations made in

23
K.Muralidahr Rao v. State of Andhra Pradesh, 1998 Cri. LJ 748: 1998(1) CCR 171(AP) : 1998 (1)
CCR 80 (AP): 1998(2) Civil LJ 196.
24
Mehta Praful Chandra Kali Das v. Patel Cheljibhai Kali das and another 2006 (4) CC Cas 563
(Gujarat ).
25
K.N.Sadagopan v. T.C. Govindarajan, 1998 Cri. LJ 143 at p. 145.
26
Jaya Baby v. Vijayan, 1994(1) Crimes 291.
27
Anil Kumar Parlia v. Md. Shafique Khan , 1997 Cri. LJ 717.
195

the complaint or documents accompanying the same per se. It has no jurisdiction to
examine the correctness or otherwise of the allegations. These powers cannot be
exercised to stifle a legitimate prosecution.28

A complaint not disclosing a prima facie offence for which cognizance has
been taken is an abuse of process of the Court and as such the inherent power need be
exercised to quash such a criminal proceeding.29
Without evidence having come on record, it will not be appropriate for the
petitioner to invoke the inherent powers of this Court and seek to halt the proceedings
pending before the trial Magistrate.30
So far as the offence under Section 420 I.PC. is concerned, in the complaint
allegations to that effect are made. Still it is a question of fact. The complainant
respondent has a right to adduce evidence to prove his allegations. If he is unable to
prove prima facie the offence under Section 420 I.PC. the petition would be
discharged by the trial Magistrate. 31
The offence under Section 138, Negotiable Instruments Act is to be proved by
a complaint by proving all the ingredients of the offence laid down in the section. All
the necessary factors have to be prayed at the trial. What will be effect of certain
payments after the accused has been summoned as an accused is a matter to be taken
into consideration by trial Court and cannot be a ground to quash the trial
proceedings. These revisions under Section 482 Cr. P.C. in both the cases have no
force.
Trial Court will be competent Court to record the findings on materials, that
may be placed before it by parties on questions of facts,. Powers under Article 226 of
the Constitution are not meant to be exercised for this purpose at this stage. Thus it
appears, there is no ground at present to quash the complaint as the case does not
come within the purview of those exceptional cases in which this Court can under

28
Raj Kumar Khurana v. State of (NCT of Delhi) and another (2009) 3 Comp LJ 11(SC): Criminal
Appeal no 913 (2009).
29
Kuchil Kumar Nandi v. M/s. Modi Cement Ltd. 1997 Cri. LJ 805.
30
M.Sreeramula Reddy v. N.C. Ramasamy, I (1993) BC 8.
31
Mrs. Anuradha alias Renu Syal v. Satpal Singh and others (2003) (P&H) 216.
196

Article 226 quash the FIR or complaints in accordance with the law laid down in the
case State of Haryana v. Bhajan Lal.32
The relevant clause is in the course of their business, the accused had issued a
cheque. The requirement for an offence under Section 138 of the Act is the cheque
must be drawn for the discharge in whole or in part of any debt or other liability.
The allegation in the complaint does not satisfy the requirements, needed for making
out an offence under Section 138 of the Act. On this ground, the complaint is liable to
be quashed.33
The maintainability of the proceedings against a particular accused has to be
considered without adding or subtracting anything in the complaint. Now it is found
that without impleading the company, the present complaint against the petitioner is
not sustainable. Therefore, when the complaint has the initial defect in its
sustainability, the defect cannot be cured by amending the proceedings. Section 319,
Code of Criminal Procedure no doubt permits for impleading any other accused, who
was party to the commission of the offence. But impleading such co-accused under
Section 319 Code of Criminal Procedure will not have any bearing as to the
maintainability of the proceedings against other accused. Section 319, Code Criminal
Procedure is not intended for curing the infirmity in the proceedings but only to bring
all the culprits before Court when their role in the commission of the offence was
brought to light only after the evidence before Court. Such is not position in this case.
The respondent had deliberately omitted to implead the company in the complaint
though Section 141 of the Negotiable Instruments Act emphasizes that the company
also shall be an accused. When the proceedings has legal infirmity in its initiation
itself, the respondent is not entitled to invoke Section 319, Code of Criminal
Procedure because on the date of the complaint, it was not maintainable against the
petitioner.34
In the absence of any provision found available in Chapter 20, which deals
with the trial of summons cases, by the Magistrate; the Magistrate cannot invoke

32
1992(I) Supp. SCC 335: AIR 1992 SC 604; V.D. Agarwal v. Ist Additional Munsif Magistrate,
Lucknow, 1994(4) Civil LJ 370.
33
Southern Steel Ltd. Others v. Jindal Vijaya Nagar Steel Ltd. (2008) 4 Comp LJ300 (SC) Criminal
Appeal Nos : 845-46 of 2008.
34
Suryanarayanan v. M/s Anchor Marine Service, I (1995) BC 466.
197

inherent powers, which are not vested with him to discharge the accused/petitioners.
Time and again the Apex Court as well as this Court have held that the Courts have to
render justice only in accordance with the procedure contemplated under the statute
and not otherwise, and especially a Magistrate cannot discharge that under the garb of
securing the ends of justice by invoking inherent powers, which are vested only with
the High Court under Section 482 of the Code of Criminal Procedure. Therefore, the
order dated 3.5.1995, of the lower Court is, quite correct and in accordance with law
and the same is liable to be confirmed.35
It is settled principle of law that inherent powers under Section 482 Cr. P.C.
can be invoked to prevent abuse of the process of the Court or to secure ends of
justice. In this case, admittedly, no cause of action arose for filing the complaint
against the petitioner for an offence under Section 138 of the Act on 30.11.1993 and
in order to secure the ends of justice this Court can exercise powers under Section 482
Cr. P.C. to quash the impugned order as well as the proceedings in C.C. No. 408/1993
on the file of the V Additional Munsif Magistrate, Chittoor.36
It is the settled principle of law that the Court should be at loath in exercise of
powers under Section 482 of the Code, and such powers should be exercised in the
rarest of rare cases. The ground stand in the application involves disputed questions of
fact, which cannot be gone in to by this Court in the inherent exercise of its powers.37
Section 195 of the Code provides a bar on filing of complaint while Section
340 provides for removal of the bar by conferring jurisdiction on the Court to file
complaints. Since the cheque is produced in evidence in Court, 16 months prior to the
present complaint, the complaint, which is contained is not at all sufficient to attract
the offences charged with. The complaint is really an abuse of the process of Court.38
A complaint petition is maintainable and the disputed incidents can be gone
into after taking the evidence but at this stage. It is impossible to see any prima facie
case to quash the proceedings or to stay the proceedings under the powers under

35
Jameel Khan v. Thomas Cook India Ltd, II (1996) BC 596 at p. 600.
36
Chittoor District Co-operative Market Society Ltd. v. M/s Sri Jyothi Trading Co. I (1998) BC 27 at
p. 220.
37
Saroj Kumar Poddar v. State NCT of Delhi (2007) 1 comp LJ 302 (SC).
38
Narayana Sharma v. State of Kerala, 1998 (3) Crimes 256 at p. 257.
198

Section 482 Cr. P.C. Thus the complaint petitioner filed before the learned Magistrate
is definitely maintainable.39
Consensus of judicial opinion in the matter of quashing a criminal proceeding
in exercise of inherent power is that such power should be exercised very sparingly
and with circumspection and that too in rarest of rare cases and the Court will not be
justified in embarking upon an enquiry as to the reliability of the allegations made in
the first information report or complaint. It is not permissible for the Court to look
into the documents placed on record by the accused in support of his defence plea.
The impugned order taking cognizance of the offence cannot be quashed.40
It goes without saying that once an offence has been committed and is
complete offence, merely by marking the payment will not put an end to the same. It
may affect the gravity of the said offence. There is no ground, thus, to quash the
proceedings.41
C. Personal Appearance of the Accused
Since the petitioner-accused does not dispute his identity in the present case
and also states that he would appear through the Counsel and that trial may proceed in
his absence there does not seem any legal objection in grating exemption from
personal appearance to the accused.
In view of the above, the order dated 30.08.1996 refusing exemption from
personal appearance to the accused is set aside and the accused shall appear before the
trial court through his Counsel. However, it is clarified that in case at any stage of the
case, personal appearance of the petitioner is required by the trial Court, then the
Court can direct the personal appearance of the accused.42
D. Conditional Leave
The learned Additional District Judge has considered the various grounds
raised. The petitioners had pleaded that the respondent had left a packet containing the
jewels, which had not been inspected, and post-dated cheques were given on
05.02.1994. Further that the goods supplied were not even worth Rs. 1,00,000/-.
These pleas neither appear to be credible nor inspire any confidence. Respondent on
39
Kulbir Singh Uberoi and another v M/s Kumar Industries (2007)3 civil Case 0181 (P&H).
40
M/s Sharadha Foundation (P) Ltd. v. M/s Suryo Udyog Ltd. I (1998) BC 3 at pp 6,7.
41
M/s Compact Disc. India Ltd. v. Contour Adverting (P) Ltd. II(1997) BC 15 at pp 16,17.
42
Jayadev, Managing Director v. State, I (1998) BC at p. 229.
199

the other hand, had denied the sale as sale by samples and submitted that the jewels
had been duly inspected and the petitioners after being fully satisfied as to their
quality issued the cheques. Further, that the transaction in which a cheque of Rs.
30,000/- was issued to the respondents brother was a separate one and not connected
with the present transaction. The cheques in favour of the respondents brother was
dated 18.12.1993 for Rs. 30,000/- and was encased on 22.12.1993, while the
negotiation for the present transaction itself, even as per the petitioner, had
commenced on 29.12.1993, the learned Additional District Judge has also right held
that there was no ground for stay of the civil suit during the pendency of the
proceedings under Section 138 of the Negotiable Instruments Act. 43
The order passed by the learned Additional District Judge granting conditional
leave to the petitioner was fully justified and it cannot be faulted with. The present
case, clearly falls in the category of cases where conditional leave should have been
granted subject to deposit of the amount as has been rightly done.
III. CRIMINAL LIABILITY UNDER PENAL CODE
It may be mentioned that the existence of a civil remedy would not necessarily
exclude a trial by a criminal court of an offence.44 Similarly there cannot be any
absolute proposition of law that whenever any civil proceeding is pending between
the parties, criminal proceeding can never be proceeded with. There are many
transactions, which result, civil as well as criminal liabilities. Cheating,
misappropriate and theft is undoubtedly the transactions of this type. Therefore,
simply because civil proceedings between the parties are pending, it cannot be said
that criminal proceedings cannot be go on.45

A. Cognizance of the offence under Section 138 of the Negotiable


Instruments Act.

Once a cheque has been drawn and issued to the payee and the payee has
presented the cheque for encashment but the Bank has not enacted it for insufficiency
of funds in drawers account an offence under Section 138 would stand committed.

43
Raju v. Jai Parkash (2006)4 Civil Case 0148 (Karnataka).
44
Lal Bahdur v. Emperor, AIR 1933 All 42 : 33 Cri L.J. 884.
45
D. Purushotama Reddy and another v. K. Sateesh (2008) 4 Civil Case (0287) (SC).
200

The provisions contained in Section 138 in clauses (a), (b) and (c) shall have
to be read in the larger interest of the trade practice prevailing in commercial activities
so as to promote and advance industry and commerce.
Where the complaint is in respect of the dishonour of the cheques the
applicants are entitled to be released on anticipatory bail. Normally, in such cases the
private complaints are filed. There is no question of making investigation by the
police as the facts are born out by documentary evidence like the dishonoured
cheques. Bank record and the correspondence between the parties.46
The cheques was returned on two grounds, viz., that is a stale cheque and the
funds in the account were insufficient. Though the petitioner has specifically alleged
that he presented his cheque even on 17.01.1997 the learned Magistrate has not
considered the allegation, but simply dismissed the complaint saying that the cheque
was dishonoured on the ground that it is a stale cheque. The learned Magistrate was
not justified in dismissing the complaint under Section 203, Cr. P.C. when there was
allegations prima facie on the complaint itself. In this Courts view, the order of the
Judicial First Class Magistrate-I Muvattupuzha, has to be set aside and accordingly it
is set aside.47
R. Rajeshwari V. H.N. Jagadish48 - In this case the question before the court
involved the interpretation of the provisions of section 147 of the Negotiable
Instruments Act, 1881, vis--vis section 320 of the Code of Criminal Procedure, 1973.
The provisions of the Code of Criminal Procedure, 1973 would be applicable to the
proceedings pending before the courts for trial of offences under the said Act. Stricto
sensu, however, the table appended to section 320 of the Code of Criminal Procedure
is not attracted as the provisions mentioned there in refer only to provisions of Indian
Penal Code and none other.
In such a situation, a settlement could be arrived at by and between the
complainant and the accused. While a settlement is arrived at, it is not necessary
under the provisions of the Act and/or Code of Criminal Procedure to file any
affidavit affirmed by the complainant or the accused. By reason of the authority

46
Deepak N. Vora v. State of Maharashtra, I(1997) CCR 362.
47
Jogy David v. Babum, 1998(3) Civil LJ 425 at p. 426: 1998(2) Crimes 375.
48
(2008)2 Camp L.J.20 (SC): Criminal Appeal No. 442 (2008).
201

granted by a litigant in favour of his advocate which, inter alia, empowers the latter to
enter into a settlement, any settlement arrived at, on behalf of a party to a lis would be
binding on the parties thereto.
The High Court, while disposing of the criminal revision filed by the
respondents herein passed a Judgment merely modifying the order passed by the
learned trial court, while directing the accused to pay a further sum of Rs.30,000/-.
Apart from the sum of Rs. 75,000/- deposited by him, he was directed to pay a fine of
Rs.5,000/- to the State, the order of conviction was not set aside.
A judgment of conviction and sentence, therefore, was passed against the
respondent. Such a judgment of conviction and sentence could not have been
modified by the High Court in view of the express bar contained in section 362 of the
Code of Criminal Procedure.
In view of the aforementioned specific bar created in regard to exercise of the
jurisdiction of the High Court to review its own order, it is clear that ordinarily
exercise of jurisdiction under section 482 of the Code of Criminal Procedure would be
unwarranted. It is assumed that, in some rare cases, the High Court may do where a
judgment has been obtained from it by practicing fraud but it does not appear that
such a case has been made out. Appellant did not make any complaint against his
lawyer. She did not even implead her lawyer as a party.
No material has, therefore, been placed on record to show that the allegations
made in the said application are correct and/or on the basis thereof the court set the
law in motion and take suo motu action in the matter or direct initiation of any
proceeding against the lawyer concerned. Furthermore, even before the High Court,
the appellant contended that she was not satisfied with the payment of Rs.30,000/- as
she was entitled to the interest on the said sum.
The court cannot rule out the possibility of the appellants changing her mind
after agreeing to the terms of settlement.
No case has been made out for interference with the impugned judgment. The
appeal is dismissed accordingly. However, the appellant shall be at liberty to approach
the concerned Bar Council or file an appropriate action against the lawyer concerned.
202

N. Rangachari V. Bharat Sanchar Nigam Limited49 - In this case it was


decided that a Director in a company cannot be deemed to be incharge of and
responsible to the company for the conduct of his business in the context of section
141 of the Act. What is to be looked into is whether in the complaint in addition to
asserting that the appellant and another are the directors of the company, it is further
alleged that they are incharge and responsible to the company for the conduct of the
business of the company.
S.M.S. Pharmaceuticals Ltd. V. Neeta Bhalla50 - relied on such an
allegation is clearly made in the complaint. But the complaint cannot be held to be
unsustainable only for the reason that there was no specific averment that at the time
of issuance of the cheque that was dishonoured, the persons named in the complaint
were in-charge of the affairs of the company. Indeed, too technical an approach on the
sufficiency of notice and the contents of the complaint is not warranted in the context
of the purpose sought to be achieved by the introduction of section 138 and 141 of the
Negotiable Instruments Act, 1881.
Though the figure has not been written by the accused, the cheque was signed
by the accused alone, and that the evidence of P.Ws 1 to 3 who speak about the same
could be relied upon. When there is challenge against cheque, the accused/petitioner
would have, as well, sent the cheque to handwriting expert for opinion which has not
been done in this case. The initial burden to prove the issuance of the cheque by the
accused has been satisfactorily discharged by the prosecution through P.Ws 1 to 3 in
that view of the matter, both the Court below have correctly come to the conclusion
that the offence under Section 138 of the Act has been committed by the petitioner.51
It is settled law that pendency of the criminal matter would not be an
impediment to proceed with the civil suits. The criminal Court would deal with the
offence punishable under the Act. On the other hand, the Courts rarely stay the
criminal cases and only when the compelling circumstances require the exercise of
their power. 52

49
(2008)1 Comp. L.J. 124 (SC): Crl. A.No. 592 (2007).
50
(2005)6 Comp. L.J. 144 (SC): (2005)8 SCC 89.
51
Naga Raja Upadhya v. M. Sanjeevan (2007) 4 Civil Case 338 (Karnataka).
52
Raju v. Jai Parkash (2006)4 Civil Case 148 (Karnataka): (2006 ) 4 Criminal Case 0166 (Karnataka).
203

Courts have never come across stay of any civil suits by the Court so far. The
High Court of Rajasthan is only an exception to pass such orders. The High Court
proceeded on a wrong premise that the accused would be expected to disclose their
defence in the criminal case by asking them to proceed with the trial of the suit. It is
not a correct principle of law. Even otherwise, it no longer subsists, since many of
them have filed their defences in the civil suit. On principle of law, this Court holds
that the approach adopted by the High Court is not correct. But since the defence has
already been filed nothing survives to this matter. The appeal is accordingly
allowed.53
The accused gave the cheque has already the account was closed. But, the
respondent-accused has chosen to issue the cheque after the closure of the account
itself. From the very conduct of the respondent, it is seen that he acted with a
dishonest intention from the time of the transaction and even if the complaint is filed
two days later, he is not prepared to pay the amount within the time stipulated by the
Legislature to pay off the amount. The complaint need not be thrown out on the
ground of technicalities as the very intention of the respondent is not to pay the
amount itself from the time of transaction itself. The Magistrate lacks appreciation of
evidence and for the sake of dismissal of the cases, he dismissed the complaint.54
B. Provisions of Cr. P.C. do not Exclude Proceedings under Section 138 of
the Negotiable Instruments Act.
Just because in the particular case the Magistrate has not chosen to grant the
prayer made by the petitioner, it will not invalidate either Section 138 of the Act or
Section 243 of the Code of Criminal Procedure, if in a particular case, the Magistrate
has committed an error in not granting the prayer of the petitioner, several remedies
are available to the petitioner to challenge such an action on the part of the Magistrate.
That will not be a ground to declare Section 138 of the Act as unconstitutional. In
fact, Section 243 of the Code of Criminal Procedure does not exclude proceedings
under Section 138 of the Act. Nor does Section 138 of the Act exclude the
applicability of Section 243 of the Code of Criminal Procedure. It is open to the

53
State of Rajasthan v. Kalyan Sundaaram Cement Industries Ltd. (1997) 1 Crimes I CCR 80 : 1996(3)
Crimes 92(SC): 1996(2) Civil LJ 392.
54
Sri Koteshwari Lacc Industries v. Madasu Parasuram, 1997(3) Crimes 294 at pp. 296,297.
204

petitioner to take appropriate proceedings in order to set right the action of the
Magistrate, if according to petitioner, the Magistrate has acted erroneously.55
It is obvious that the provisions are erective and are meant for a fair trial to the
accused, who has every right to adduce evidence in defence, no doubt, subject to the
caveat engrafted in the provisions itself, that it is the Magistrates duty to abide by.
Failure to give full effect to Section 243 Cr. P.C. would be an illegality and would
vitiate the entire proceedings. If the accused desires experts opinion in defence he
can make it available and may, if necessary, examine the expert also. In this Courts
view, even in the absence of a specific provision in Chapter XIX, Cr. P.C., he could
request the Court that the documents, whose genuineness he disputes may be sent to
the expert for his opinion. This is implicit in sub-section (2) of Section 243 Cr. P.C. It
is a valuable right not entirely in the realm of investigation and would admit no
restriction, save where the Magistrate is satisfied for reasons to be recorded, that the
intended exercise is manifestly for the purpose of vexation and delay or for defeating
the ends of justice. Whether he should go or not go by the expert opinion is a different
matter not affecting his right under the aforesaid provision.56
C. Criminal Liability u/s 138 of the Negotiable Instruments Act, 1881
The respondent had deposited Rs. 1 lakh under the pensioners fixed deposit
scheme in a company of which the petitioners were directors the company issued post
dated cheque for Rs. 1,02675 including interest in favour of the respondent to
discharge the liability. When the respondent presented the cheque for encashment, it
was dishonoured on December 6, 1999 with an endorsement funds in Sufficient
consequent there upon the respondent issued a statutory notice and since the demand
made there under was not met by the company the respondent lodged a complaint
under the provisions of the N.I. Act 1881 against the company and its directors. The
trial court issued summons to the petitioners. On a writ petition to quash the
proceedings contending that the company law boards had passed an order on January
12, 2000 Stating that all the cheques issued by the company to its depositors would be
deemed to have been cancelled and were to be returned so that the depositors could be
paid in terms of its order; that the petitioners were whole time directors of the

55
R. Sankaralingam v. Union of India, I (1997) BC 541 at pp. 544,545(Mad).
56
Kuruvilla v. Sivarama Pillai, IV (1996) CCR 629(FB): 1996(4) Crimes 522.
205

company working for a salary and could not be proceeded against. Held, Dismissing
the petition, that order passed subsequently by the company law board could not
takeaway the rights already accrued in favour of the parties to the cause of action
which culminated in the pending criminal proceeding. More over at the relevant point
of time all the petitioners were very well available as directors of the company and
they could not get released from the proceedings instituted. 57
In the case of Krishna Texport industries Ltd. V. D.C.M. Ltd.58, Power of
company court to stay suit or proceeding against company under section 391(6),
Companies Act Section 391(6) does not envisage quashing or stay of criminal cases
against the company or its Directors. In the proceedings before the company judge,
interim orders were granted whereby in view of the pending scheme for restructuring
and arrangement, the proceedings against the respondent company were stayed. The
order with which the appellant was aggrieved in the present case noted the contention
of counsel for the respondent that the scheme had been sanctioned and the same
provided for payment to creditors through the mechanism of an escrow account
subject to the condition that the creditors withdraw all the cases against the company
and its executive directors. It was pleaded that three persons, whose particulars were
given, had not with drawn the proceedings because of which payment could not be
made to them although the respondent was ready and willing to make the payment in
terms of the scheme subject to withdrawal of the criminal complaints. The company
judge stayed the proceedings of the cases filed by the three parties. Not only that, it
was noticed that some of the creditors had filed complaints before different consumer
forums which claim also the respondent was willing to settle in accordance with the
scheme. The grievance of the appellant was that the criminal proceedings in the form
of complaints filed under section 138 of the Negotiable Instruments Act by the
appellant could not have been stayed by the company judge.
The words proceedings or other proceedings used in section 391(6), as also
in sections 442 and 446, of the Company Act, 1956, must be construed ejusdem
generis with expression suit used before them clearly imply civil proceedings. It is

57
P.S.Venkatesan and others v. C.Vijay Lakshmi (2003) 117 (Mad)744.
58
(2008)4 Comp. LJ 177 (Del).
206

only such construction which is in conformity with the intent of the legislature
introducing these provisions in the said Act.
The legislature in its wisdom introduced section 138 of the Negotiable
Instruments Act, 1881, conscious of the existence of the other provisions under the
said act. Thus, section 138 of the Negotiable Instruments Act, a later enactment,
envisaged criminal prosecution for the offence of negotiable instruments being
dishonoured, including cheques. The object was to reinforce sanctity of commercial
transactions. Once the rigours of the provisions have been complied with, a
person/company cannot, as a matter of right, come to the court to deposit the amount
and claim that the prosecution should be brought to an end. It can, thus, hardly be
expected that the provisions of sections 442 and 446, or for that matter section 391 of
the said Act, can be interpreted in a manner so as to bring the proceedings under
section 138 of the Negotiable Instruments Act to a stand still. Thus even if in a
scheme which is approved and it was envisaged that certain amounts have to be paid,
the debtor company or its directors cannot insist that the proceedings under section
138 of the Negotiable Instruments Act be quashed.
The matter may also be looked into from another perspective. The company
court cannot call before itself the proceedings under section 138 of the Negotiable
Instruments Act and quash the proceedings. The power to quash those proceedings
rests only with the hierarchy of the criminal courts. Thus, what would be the intent to
put such proceedings in abeyance by an order of a company court when the company
court itself has no power at any stage to bring to an end these proceedings?
The object of section 391(6) of the said Act is to prevent action against the
officers of the company who may be involved in cheating, criminal breach of trust,
misappropriation forgery and for that matter dishonour of the cheque. Again, the
provision cannot be used to bring to an end a prosecution arising from income tax or
Foreign Exchange Control Act. The proceedings are clearly not of a pecuniary nature
involving recovery of money. Interestingly, even the scheme stated to be approved at
the behest of the respondent-company does not envisage bar to any criminal
proceedings or payment of any actual amount in the given facts of the case as
discussed at the inception of this judgment, but only seeks to extinguish the liability
207

of the appellant on the ground that the respondent is liable to pay a lesser amount, the
interest not running and the claim is alleged to have been extinguished by payment to
a third party at the behest of the appellant for which there is no written document.
Thus, the unequivocal view is that section 391(6) of the Companies Act 1956, does
not envisage either quashing or stay of criminal cases against the company or its
directors and, thus the proceedings against the respondents under section 138 of the
Negotiable Instruments Act instituted by the appellant could not have been stayed.
While considering the prosecution of directors for violations of the provisions
of Provident Fund Act, the Supreme Court in Rabindra Chamaria V. Registrar of
Companies59 considered the scope of the expression any proceedings in section 633
of the Act and held that it cannot save directors of the company from liability or
prosecution for violating these provisions. It was observed that such a relief can be
granted only in the case of proceedings arising under the Companies Act and not
under other acts.
Antony Kakkad V. Official liquidator, High Court of Kerala60 - The
observations made in paragraph 11 in the case are of direct relevance wherein it was
held that the provisions of the special statute namely, the Negotiable Instruments Act,
would have an overriding effect over the general principles of the Companies Act and
that criminal proceedings as in the case of section 138 of the Negotiable Instruments
Act which are not in respect of the assets of the company would end in the conviction
or acquittal of the accused, cannot be stayed under the Companies Act.
Harman Electronics (P) Ltd. And another V. National Panasonic India
Ltd.61 In this case the parties had been carrying on business at Chandigarh. The
head office of the complainant respondent may be at Delhi but it has a branch office
at Chandigarh. It is not in dispute that the transactions were carried on only from
Chandigarh. It is furthermore not in dispute that the cheque was issued and presented
at Chandigarh. The complaint petition is totally silent as to whether the said cheque
was presented at Delhi. There is therefore no option but to presume that the cheque
was presented at Chandigarh. Indisputably, the dishonour of the cheque also took

59
(1992)1 Comp. LJ 1(SC): 1992 (Supp) 2SCC 10.
60
(2008)3 Comp. LJ 502 (Ker): (2000) 100 Comp. Cas 811 (Ker).
61
(2009)1 Comp. LJ 29 (SC) Criminal appeal No. 2021 (2008).
208

place at Chandigarh. The only question, therefore, which arises for consideration is
that as to whether sending of notice from Delhi itself would give rise to a cause of
action for taking cognizance under the Negotiable Instrument Act, 1881.
It is one thing to say that sending of a notice is one of the ingredients for
maintaining the complaint but it is another thing to say that dishonour of a cheque by
itself constitutes an offence. For the purpose of proving its case that the accused had
committed an offence under section 138 of the Negotiable Instruments Act 1881, the
ingredients thereof are required to be proved. What would constitute an offence is
stated in the main provision. The proviso appended thereto, however, imposes certain
further conditions which are required to be fulfilled before cognizance of the offence
can be taken. If the ingredients for constitution of the offence laid down in the
provisos (a), (b) and (c) appended to section 138 of the Negotiable Instruments Act
intended to applied in favour of the accused, there cannot be any doubt that receipt of
a notice would ultimately give rise to the cause of action for filing a complaint. As it
is only on receipt of the notice the accused at his own peril may refuse to pay the
amount. Clauses (b) and (c) of the proviso to section 138 therefore must be read
together. Issuance of notice would not by itself give rise to a cause of action but
communication of the notice would.
For constitution of an offence under section 138 of the Negotiable Instruments
Act 1881, the notice must be received by the accused. It may be deemed to have been
received in certain situations. The word communicate, inter alia, means to make
known, inform, convey, etc.
Section 177 of the Code of Criminal Procedure determines the jurisdiction of a
court trying the matter. The court ordinarily will have the jurisdiction only where the
offence has been committed. The provisions of sections 178 and 179 of the Code of
Criminal Procedure are exceptions to section 177. These provisions presuppose that
all offences are local. Therefore, the place where an offence has been committed plays
an important role. It is one thing to say that a presumption is raised that notice is
served but it is another thing to say that service of notice may not be held to be of any
significance or may be held to be wholly unnecessary.
209

Presumption raised in support of service of notice would depend upon the


facts and circumstances of each case. Its application is on the question of law or the
fact obtaining. Presumption has to be raised not on the hypothesis or surmises but if
the foundational facts are laid down therefore. Only because presumption of service
of notice is possible to be raised at the trial, the same by itself may not be a ground to
hold that the distinction between giving of notice and service of notice ceases to exist.
Indisputably all statutes deserve their strict application, but while doing so the
cordinal principles therefore cannot be lost sight of. A court derives a jurisdiction only
when the cause of action arose within his jurisdiction. The same cannot be conferred
by any act of omission or commission on the part of the accused. A distinction must
also be borne in mind between the ingredient of an offence and commission of a part
of the offence. While issuance of a notice by the holder of a negotiable instrument is
necessary, service thereof is also imperative. Only on a service of such notice and
failure on the part of the accused to pay the demanded amount within a period of 15
days thereafter, commission of an (offence) completes. Giving of notice, therefore,
cannot have any precedent over the service.
The court cannot, as things stand today, be oblivious of the fact that a banking
institution holding several cheques signed by the same borrower cannot only present
the cheque for its encashment at four different places but also may serve notices from
four different places so as to enable it to file four complaint cases at four different
places. This only causes grave harassment to the accused. It is, therefore, necessary in
a case of this nature to strike a balance between the right of the complainant and the
right of an accused vis--vis the provisions of the Code of Criminal Procedure.
The submission that the principle that the debtor must seek the creditor should
be applied in a case of this nature cannot be applied in a criminal case. Jurisdiction of
the court to try a criminal case is governed by the provisions of the Criminal
Procedure Code and not on common law principle.
Clearly, the Delhi High Court has no jurisdiction to try the case. While
exercising the jurisdiction under Article 142 of the Constitution of India it is directed
that the present complaint case pending in the court of Additional Sessions Judge,
210

New Delhi, be transferred to the court of the District and Sessions Judge, Chandigarh,
who shall assign the same to a court of competent jurisdiction.
The transferee court shall fix a specific date of hearing and shall not grant any
adjournment on the date on which the complainant and its witnesses are present. The
transferee court is furthermore directed to dispose of the matter within a period of six
months from the date of receipt of the records of the case on assignment by the
District and Sessions Judge, Chandigarh.
The appeal is thus allowed with the aforementioned observations and
directions.
Subodh S. Salaskar v. Jayprakash M. Shah and another62 - In this case it
was held that section 138 of the Act provides a penal provision. The object of the
Parliament in bringing the same in the statute book is well-known, viz., to create an
atmosphere of faith and reliance in the banking system.
The Negotiable Instruments Act, 1881, was amended in the year 2002 by the
Negotiable Instruments (Amendment and Miscellaneous Provision) Act, 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 discretion to waive the
period of one month.
Indisputably, therefore, unless the conditions precedent for taking cognizance
of an offence under section 138 of the Negotiable Instruments Act, 1881 are satisfied,
the court will have no jurisdiction to pass an order in that behalf.
A complaint petition in view of clause (b) of section 142 of the Act was
required to be failed within one month from the dated on which the cause of action
arose in terms of clause (c) of the proviso to section 138 of the Act which stipulated
that 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. The legal notice was issued. It was sent
by speed post. It was supposed to be served within a couple of days.
Thirty days time ordinarily must be held to be sufficient for service of notice.
Even under order V, rule 9(5), of the Code of Civil Procedure, 1908, summons is

62
(2008) 4 Comp. L.J. 278 (SC) Criminal Appeal No. 1190 (2008).
211

presumed to be served if it does not come back within thirty days. In a situation of this
nature, there was no occasion for the court to hold that service of notice could not be
effected within a period of thirty days. If the presumption of service of notice within a
reasonable time is raised, it should be deemed to have been served at best within a
period of thirty days from the date of issuance thereof.
Ex facie, it was barred by limitation. No application for condonation of delay
was filed. No application for condonation of delay was otherwise maintainable. 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. It is, therefore, a substantive
provision and not a procedural one. The matter might have been different if the
magistrate could have exercised its jurisdiction either under section 5 of the
Limitation Act, 1963 or section 473 of the Code of Criminal Procedure 1976. The
provisions of the said Acts are not applicable. In any event, no such application for
condonation of delay was filed. If the proviso appended to clause (b) of section 142 of
the Act contained a substantive provision and not a procedural one, it could not have
been given a retrospective effect. A substantive law, as it is well-settled, in absence of
an express provision, cannot be given a retrospective effect or retroactive operation.
Therefore, there cannot be any doubt whatsoever that the courts below
committed a manifest error in applying the proviso to the fact of the instant case. If
the complaint petition was barred by limitation, the magistrate had no jurisdiction to
take cognizance under section 138 of the Act. The direction to issue summons on the
appellant, therefore, being illegal and without jurisdiction was a nullity. Section 415
of IPC defines Cheating. The said provision requires: (i) deception of any person (ii)
whereby fraudulently or dishonestly inducing that person to deliver any property to
any person or to consent that any person shall retain any property, or (iii) intentionally
inducing that person to do or omit to do anything which he would not do or omit if he
were not so deceived and which act or omission causes or is likely to cause damage or
212

harm to that person in body, mind reputation or property. Deception of any person is
common to the second and third requirements of the provision.
The cheques here were post-dated ones. They were presented before the bank
on a much later date. When the cheques were issued the accounts were operative.
Even assuming that the account was closed subsequently the same would not mean
that the appellant had an intention to cheat when the post-dated cheques were issued.
Even otherwise the allegations made in the complaint petition, even if given face
value and taken to be correct in its entirely, do not disclose commission of an offence
under section 420 of the IPC. They do not satisfy the ingredients of the said provision.
Jindal Steel and Power Ltd. and another v. Ashoka Alloy Steel Ltd. and
others63, in this case by the impugned order, the High Court has quashed the
prosecution under section 138 of the Negotiable Instrument Act 1881 and section 420
of the Penal Code, on the sole ground that the complaint was filed two days after the
expiry of limitation.
Saketh India Ltd. v. India Securities Ltd.64 In this case taking into
consideration the provisions of section 12(1) of the Limitation Act, it was laid down
that the day on which cause of action had accrued has to be excluded for reckoning
the period of limitation for filing a complaint under section 138 of the Act. In the
present case, after excluding the day when cause of action accrued, the complaint was
filed well within time, as such the High Court was not justified in holding that there
was two days delay in filing the complaint. For the foregoing reasons, we are of the
view that the High Court was not justified in quashing prosecution of the respondents.
In the case of Malwa Cotton and Spinning Mills Ltd. v. Virsa Singh Sidhu
and others65, challenge this appeal was to the order passed by the High Court
accepting the prayer of the first respondent for quashing the proceedings pending
before the trial court. The proceedings related to the complaint filed by the appellant
alleging commission of offence punishable under section 138 of the Negotiable
Instrument Act 1881. The High Court had quashed the proceedings primarily on the
ground that the first respondent had resigned from the directorship before the cheques

63
(2006) 9 SCC 340.
64
(1999)3 SCC1: AIR 1999 SC 1090.
65
(2008)4 Comp. LJ 252 (SC) Criminal Appeal No. 1265 (2008).
213

were issued. The question that arose for determination in this appeal was whether the
High Court was justified in its view that the first respondent had intimated the
company about his desire to resign and that, if company had delayed in submitting the
requisite form before the Registrar of Companies he could not be made to suffer.
In this case, factual disputes are involved. What was the effect of delayed
presentation before the Registrar of Companies is essentially a matter of trial.
Whether the first respondent had intimated the company and whether there was any
resolution accepting his resolution are matter in respect of which evidence has to be
led. Therefore, the High Court was not justified in its view. So far as allegations
against the directors are concerned about their position in the company the complaint
specifically contained the averments regarding the position of the accused directors in
the company. Therefore, the High Court was not justified in quashing the proceeding
so far as the first respondent is concerned. The appeal is allowed.
In the case of Raj Kumar Khurana v. State of (NCT of Delhi) and
another66, the appellant had kept two blank cheques in his office along with some
stamp papers. They were said to have been stolen from his office. Information as
regards missing of the said cheques was also given to the bank. He lodged a FIR
regard thereto. The blank cheques were allegedly filled up on 24.6.2001. They were
presented before the bank but the same were returned dishonoured with the remarks
said cheque reported lost by the drawer. The second respondent thereafter upon
issuance of notice in terms of the proviso appended to section 138 of the N.I. Act,
1881, had filed a complaint petition in the court of Chief Metropolitan Magistrate,
Delhi. It was not in dispute that the concerned Superintendent of Police had issued a
Certificate showing that FIR No. 57 of 2003 arising out of the FIR filed by the
appellant before the S.H.O. had been closed. It was furthermore not in dispute that the
appellant in the mean while had filed a complaint petition under section 380 read with
sections 34, 467, 468, 471, 420 and 120-B of I.P.C. in the court of Judicial Magistrate,
First Class and the same was pending adjudication. Admittedly, the appellant had
lodged a F.I.R. under sections 369, 495, 498, 420 and 34 of the I.P.C. with police
station against the second respondent and his brother, wherein also a closer report had

66
(2009)3 Comp. LJ 11 (SC): Criminal Appeal No. 913 (2009).
214

been submitted. Appellant had filed another criminal complaint against the second
respondent under section 409 of the I.P.C. which had also been dismissed on the
ground that the dispute is of civil nature. Appellant had moreover filed a suit for
recovery of a sum against the second respondent and his brother several other
applications were filed by the appellant before the said court to which we need not
advert to. Appellant filed an application under section 482 of the Code of Civil
Procedure 1963, praying for quashing of the proceedings under section 138 of the N.I.
Act 1881, on or about 6.9.2007 on the premise that the same was not maintainable. By
reason of the impugned judgment, the said application was dismissed. The question
that arose for decision was whether return of a cheque by the bank on the ground that
it was reported lost by the drawer would attract the penal provisions contained in
section 138 of the N.I. Act, 1881.
A bare perusal of the provisions contained in section 138 of the Negotiable
Instruments Act 1881, would clearly go to show that by reason there of a legal fiction
has been created. A legal fiction, as is well known, although is required to be given
full effect, has its own limitations. It cannot be taken recourse to for any purpose other
than the one mentioned in the statute itself. Section 138 of the Negotiable Instruments
Act 1881, moreover provides for a penal provision. A penal provision created by
reason of a legal fiction must receive strict construction. Such a penal provision,
enacted in terms of the legal fiction drawn would be attracted when a cheque is
returned by the bank unpaid.
Before a proceeding thereunder is initiated, all the legal requirements therefore
must be complied with. The court must be satisfied that all the ingredients of
commission of an offence under the said provision have been complied with. The
parameters for invoking the provisions of section 138 of the Act, thus, being limited,
we are of the opinion that refusal on the part of the bank to honour the cheque would
not bring the matter within the mischief of the provisions of section 138 of the Act.
The court while exercising its jurisdiction for taking cognizance of an offence
under section 138 of the Act was required to consider only the allegations made in the
complaint petition and the evidence of the complainant and his witnesses, if any. It
could not have taken into consideration the result of the complaint petition filed by the
215

respondent No.2 or the closer report filed by the superintendent of police in the F.I.R.
lodged by the appellant against him. The complaint petition does not disclose an
offence punishable under section 138 of the Act.
IV. BANKERS LIABILITY
A. Liability to Pay Damages
In case all the conditions which are necessary for the payment of a cheque are
present and have been fulfilled then if the bank dishonours a cheque it will amount to
a breach of the contract for which the banker is liable to pay damages. In Hadley v.
Baxen Dale67, it was held that the party in breach must pay the amount of damages
which flows directly and naturally from his failure. To keep his contract provided that
it was contemplated at the time of contract. If a party loses the benefit of
exceptionally high profits would the bank be liable for the same in case of a wrongful
dishonour of a cheque. Apart from general danger of this kind there is danger to the
customers reputatioin and business. It is difficult to assess damages in these cases. In
Rolin v. Steward,68 the plaintiff who banked with a company of which the defendant
was public officer (i.e. who was the proper party to be sued) had three cheques and a
domiciled bill dishonoured by them owing to the inadvertence of a clerk. They were
represented and paid next day. The plaintiff brought this action for damages, and gave
no evidence to show that he had actually suffered injury. A jury awarded 500. Held-
That the jury were entitled to give substantial damages, though 500 was in the
circumstances excessive 200 was actually agreed.
Damages to reputation follows almost as a matter of course when the customer
is in trade or business, unless, of course, it can be shown that owing to bankruptcy or
some other reason the customers credit is of no business value. In the case of other
persons, however, the loss to reputation may be problematical.
B. Nature of Damages
In Evans v. London and Provincial Bank69, the plaintiff drew a cheque on
her husbands behalf payable to the mess steward of a shop on which he was serving,

67
(1854) 9 EX 354.
68
(1854) 14 CB 595. The doctrine appears first in Marzetti v. Williams (1830) I B and AD 415.
69
(1917) Legal Decision Affecting Bankers, Vol. III, p. 152.
216

and owing to a mistake this was dishonoured. There was no suggestion of any actual
damage to the plaintiff herself and the jury awarded her one shilling.
It is accordingly contended by Paget that, except in the case of the customer in
business, actual damage to reputation must be proved before it can be recovered, and
this view was followed in Gibbons v. Westminister Bank Ltd.70
The damages are just in the nature of damages in an action for defamation. If it
is correct that only a trader can recover so called exemplary damages for wrongful
dishonour, it might be possible for a non trader to recover by framing his action in
liable only, as was done kin Davidson v. Barelays Bank Ltd.71 So long as bankers
continue the practice in question they must except occasional actions against them
framed in libel, especially in actions by non-traders.
In the case of Urquhart Lindsay v. Eastern Bank72, the important question of
how much in damages a bank must pay if it wrongly dishonours drafts drawn under a
credit was discussed. It was argued for the bank that, since by English law failure to
pay a debt does not sound in damages, they could not be liable for more than the
amount of the drafts in question less an allowance for the value of the documents
which should have been taken up. While for the sellers it was contended that the
banks failure to take up the draft amounted to a repudiation of the contract as a whole
and that damages must be assessed on that basis. The latter was the view taken by the
court. It is clear, however, that each case must be considered on its merits, and if the
evidence shows that the breach of contract by the bank is confined to one particular
draft or otherwise indicates that there was no intention to repudiate, damages will not
be recoverable.
A reference should be made to a number of English cases. An important case is
Gibbons v. Westminister Bank Ltd.73, upon the wrongful dishonour of his cheque a
customer who is a trader must prove special damage before he can be awarded
substantial damages. In this case the plaintiff was a woman customer of the defendant
bank, who, after paying in a sum of money to her account, drew a cheque which was

70
(1930) 2 KB 882: C & S 69. In this case it was held that in order to succeed a non trader must
prove actual damage.
71
164 LT 25 : C and S 71,where the words used were not sufficient.
72
(1922) 1KB 318,323: ante, p. 237, Contra see Steln v. Hambros Bank, (1921) 9 LILR 433.
73
(1939) 2 KB 882.
217

dishonoured as a result of the banks having put the credit to another account instead
of to hers. Upon the dishonour, she called on the manager of the branch at which the
account was kept, and he paid her 1.1s.- in full satisfaction, as the bank claimed, of
any claim she might have against them. The jury found, however, that she did not so
accept the payment.
The defendant bank contended that the plaintiff was entitled to nominal
damages only, as she had not pleaded any special or actual damages. The jury awarded
substantial damages, however, in the sum of 50, and after they had then been
discharged, the court heard further argument regarding damages. It was held that as
the plaintiff was a non-trader, who had not proved any special damages, she was
entitled to nominal damages only 40 shilling were awarded. In the course of his
judgement, Lawrence J. said:
The authorities which have been cited in argument all lay down that a trader is
entitled to recover substantial damages for the wrongful dishonour of his cheque
without pleading and proving actual damage, but it has never been held that that
exception to the general rule as to the measure of damages for breach of contract
extends to any one who is not a trader. The cases cited in which this view has been
taken are Morzetti v. Willams74, Rolin v. Steward75, Bank of New South Wales v.
Milvain76 and Kinlan v. Ulster Bank Ltd.77
Coming to the Indian scene and Indian cases, we first refer to the case of
Gopesh Chandra Pal v. Nirmal Kumar Das Gupta78 in this case it was held by the
Calcutta High Court that where a person, who had opened a current account in a bank,
sought to prosecute the managing director, the chief accountant and the accountant of
the bank for the offences of criminal misappropriation and criminal breach of trust by
a banker for wrongfully dishonouring his cheque.
Held- (i) That they were not bankers and the essential ingredient of entrustment in the
offence of criminal breach of trust was not involved in a deposit of money on current

74
(1830) IB and Ad 415.
75
(1854) 14 CB 595; infra.
76
(1884) 10 VLR 3.
77
(1928) IR 171.
78
(1950) 20 Comp Cas.220.
218

account; (ii) That dishonouring a cheque did not connote misappropriation and that
therefore no case of a criminal nature was made out against them.
The remedy for a cheque being wrongfully dishonoured lies in the civil court.
Similarly the Madras High Court in New Central Hall v. United Commercial
Bank Ltd.79, held that where a banker having sufficient funds of a customer in his
hands fails, even by mistake to honour cheque issued by the customer, the customer
has a right to claim damages. Further it was held that in an action for damages against
a bank by a non-trader customer for dishonour of cheques nominal damages should be
awarded where there is no proof of special loss or damage by the wrongful
dishonouring, and in the case of a trader, substantial damages should be awarded even
in the absence of proof of special loss or damages. Of course, if there is proof of
special loss or damages, that will be taken into consideration for arriving at the exact
quantum of damages. The Indian law on the subject is not at all different from the
English law on the point.
An interesting case regarding the liability of the bank to pay damages under
section 31 of the Negotiable Instruments Act, 1881 in Canara Bank Ltd, represented
by its Branch Manager, Madras v. I.V. Rajagopal80. In this case it was held that
mere expression of regret is not the answer to the situation. It is expected of a bank to
honour its customers cheque if it has sufficient funds in his hands. If it fails to do so,
it will be liable to damages. The reason is obvious. It injuriously affects the reputation,
credit and integrity of its customer. Even section 31 of the Negotiable Instruments Act
provides that the drawee of a cheque having sufficient funds of the drawer in his hands
properly applicable to the payable of such cheque must pay the cheque when duly
required so to do, and in default of such payment, must compensate the drawer for any
loss or damage caused by such default. The bank aggravated the situation by its
inaction between 24th April, 1964 and 6th May, 1964. Even when the bank was put on
notice about the disconnection of the telephone, the attitude of the bank did not
change. The plaintiff in an agonising mood complained under Exhibit B-1 about the
gravity of the situation. The bank would reply in a very matter of fact fashion stating
that it took up the matter with the Telephone Department and has concluded by saying

79
AIR 1959 Mad 153.
80
1975(1) MLJ 420.
219

Inspite of this we do not understand why this misunderstanding has been created. Of
course, they followed it up by an expression of regret. As pointed out by a Division
Bench of this Court in New Central Hall v. United Commercial Bank81, the fact that
such dishonouring took place due to a mistake of the bank is no excuse nor can the
offer of the Bank to write and apologise to the payees of such dishonoured cheques
affect the liability of the bank to pay damages for their wrongful act.
The court held that the Judges were satisfied that beyond reasonable doubt,
there is sufficient nexus between the dishonour of the cheque and the consequential
disconnection of the telephone with the final act of dismissal of the plaintiff from
services by his employers. It is not in dispute in the instant case that the group
companies in which the plaintiff was employed was a commercial group having a
recognised business status and mercantile integrity. It was not also urged before us that
the absence of a telephone with the liaison officer of such group companies at Madras
would not matter. On the other hand, the appellant insisted that he was not negligence
and that all possible efforts were made by him to ease the situation. As we said, the
methodology adopted by the bank in a serious situation like this is not a satisfactory
one and in a case like this we should characterise such a slow and haphazard
movement of a responsible bank as negligence on its part. The causa causans of the
dismissal of the plaintiffs service is therefore attributable to the conduct of the bank
which we find is far from reasonable and indeed abounding in negligence.
As per Award of the damages the learned court held that the well understood
proposition in law is that damages are awardable if a sufficient nexus is established
between the wrongful Act and the resultant loss to the injured. This principle laid
down in section 73 of the Indian Contract Act, 1872 (9 of 1872), is a well known, one.
Under this section, the measure of compensation for any loss or damage caused in case
of breach of contract is fixed as that which naturally arose in the usual course
Of things from such breach or which the parties knew, when they made the
contract, to be likely to result from the breach of it and such compensation is not to be
given for any remote and indirect loss or damage sustained by reason of the breach.
The court further made a distinction between the damages which are to be paid to a

81
(1959 1 MLJ 26 : 29 Comp. Cas. 78: 72 LW 131: ILR (1959( Mad 198: AIR 1959 Mad 153.
220

trader and non-trader and referred to the following observations of McGregor on


Damages, Thirteenth Edition, at page 917:
The important characteristic of such cases is that the plaintiff,
where a trader, can recover substantial damages for injury to his
credit without proof of actual damages.
The following observations are also relevant :-
The ratio decidendi in such cases is that the refusal to meet the
cheque, under such circumstances, is so obviously injurious to the
credit of a trader that the latter can recover, without allegation of
specific damage, reasonable compensation for the injury done to his
credit: but this rule does not apply where the customer is not a
trader: in such cases substantial damages cannot be awarded
without proof of actual injury to credit.

In Jagendra Nath Chakrawarti v. New Bengal Bank Limited82, it was held


that where the Banker, being bound to honour his customers cheque, has failed to do
so, he will be liable in damages. If special damage, naturally ensuing from the
dishonour, is proved, it will be properly taken into account in assessing the amount of
the damages. If the customer be a trader, the court may properly award substantial
damages, in the absence of proof of special damages. In other cases the customer will
be entitled to such damages as well reasonably compensate him for the injury which,
from the nature of the case, he has sustained. All loss flowing naturally from the
dishonour of a cheque may be taken into account in estimating the damages.
In Mohamed Hussain v. Chartered Bank83, it was held that negligent act
may be the effective cause of an injury though it may not be proximate in time, if it is
the particular incident, in a chain of events which has in fact led to the injury, that is,
if it is the real cause of subsequent accident. To determine responsibility the law will
consider the proximate and not the remote cause of an injury.
Tindal, C.J. in Davis v. Carret 84, held-

82
AIR 1939 Cal 63.
83
ILR(1964) 1 Mad 1012: (1965) 2 Comp. LJ 37 : AIR 1965 Mad 266.
84
130 ER 1456.
221

no wrong doer can be allowed to apportion or qualify his own


wrong and that as a loss has actually happed whilst his wrongful
act was in operation and force, and which is attributable to his
wrongful act, he cannot set up as an answer to the action the bare
possibility of a loss, if his wrongful act had never been done.
C. Compensation
The principle of awarding compensation to the drawer of a cheque is
reparation for the injury sustained or likely to be sustained by reason of the
dishonour. In almost every case the drawer can recover substantial damages against
the drawee on the basis of injury to his credit, although he may not be able to prove
that he had suffered actual pecuniary loss through the dishonouring of the cheque.85
But there appear to be distinction between a trader and non-trader in this respect;
while a trader is always entitled to substantial damages for dishonouring of his
cheque, a non-trader will be entitled only to nominal damages in the absence of an
allegation and proof of substantial damages.86
This is the rule followed by the High Court of Andhra Pradesh in S.K. C.C.
Bank v. Subrahmanyam.87
It is a discredit to a person and therefore injurious in fact to have payment
refused of a draft for so small a sum, for it shows that the banker had very little
confidence in the customer, it is particularly injurious to a person in trade.88
D. Loss includes Damages to Reputation
Loss or damage contemplated by the section mean not merely pecuniary loss,
but includes damage to reputation also, which is always considered as damage in law.
In measuring the compensation in these cases section 117 of the Act has no
application. The general principles which regulate the measure of damages have,
therefore, to be applied. According to English law where the drawer has not sustained
actual damage, he is at least entitled to a verdict for nominal damages.89

85
Sridhar v. Tyrwitt, (101) AWN 113; Rolin v. Steward, (1854) 4 CB 595.
86
Gibbons v. Westminster Bank, (1939) 3 All ER 577.
87
(1962) 2 All WR 324.
88
Marzetti v. Williams, (1830) IB and AD 415.
89
Ibid.
222

Thus, so far as the civil remedy is concerned a customer on account of a


wrongful dishonour can claim damages against the Bank. So far as the question of
civil remedy for the payee is concerned, it is a case for recovery of money under the
summary procedure which can be filed against the Drawer. As for criminal remedy
against the drawer the same are (1) Prosecution for cheating, and (2) Prosecution
under the newly added chapter XVII of the Negotiable Instrument Act, 1881
V. ROLE OF MENS REA
Section 138 was introduced with a laudable public policy behind it. It is
intended to prevent or curtail a mischief which is likely to affect financial
transactions, and thereby trade and business and ultimately, economy of the country.
Even though the normal rule is that an act or illegal omission in order to constitution
an offence, must be had with the requisite mental condition on the form of attention,
knowledge or reasonable belief, that pre-requisites could be authority dispensed
within appropriate cases by creating strict liability offences in the interest of nation,
just like offences under the Prevention of Food Adulteration Act. Further, there is no
point in contending that mens rea is not required for constituting an offence
punishable under Section 138. What is made an offence is not the drawing of cheque
alone. It must have been drawn in discharge, in whole or in part, of a legally
enforceable debt or other liability. It must have been duly presented in time and
dishonoured for the reasons specified. Then there must be a written demand for the
amount within a specified time, followed by failure to make payment within another
specified time. It becomes an offence only on such failure which is an illegal omission
made with requisite mens rea. This aspect is also answers to the contention of
petitioner that date of commission of the offence cannot be ascertained. Whether
cheque is post-dated or not is immaterial. It becomes an offence only after the expiry
of fifteen days from the date of written demand, if the amount is not paid on that date.
Date of commission of the offence could be ascertained with accuracy. Cause of
action for filing a complaint under Section 138 arises only on that date and complaint
will have to be filed within one month (now the period for issue of notice by the
payee to the drawer from 15 days to 30 days vide Amendment Bill No. 55 of 2002
)from the date on which cause of action arose, as provide in Section 142(b). It is duty
223

of the person, who draws the cheque in discharge of a legally enforceable debt or
other liability so provide funds in the account to honour the cheque. There is nothing
arbitrary or unconstitutional in Section 140 because a person, who drew the cheque
without reason to believe that it may be dishonoured on presentation, can avoid
liability by making payment on demand in writing. One, who is not having such a
capacity, should not issue a cheque. Possibility of a stolen cheque being made the
subject of complaint need not be considered, because that is only an imaginary
possibility and it is a matter of proof, depending upon facts.
Section 142 (c) invents certain Magistrates with power of trying of fences
punishable under Section 138. When power is given to try an offence, it includes the
power to convict or acquit and in case of conviction, to exercise the sentencing
discretion also to award an appropriate sentence, allowed by law. In order to convict
an accused, Court must find him guilty. For the purpose of entering conviction or
acquittal, Magistrate must get himself satisfied of the ingredients of the offence.
Power to try and convict includes the power to decide existence of the ingredients
necessary to constitute the offence. One of the ingredients to be found is whether the
cheque was drawn in discharge, in whole or in part, in any legally enforceable debt or
other liability. If that question arises in civil suit, it could be said that it could be
decided only by that Civil Court. In a criminal prosecution, that question will arise
only collaterally for the purpose of deciding criminal liability. Magistrate himself can
decide it for the purpose of the criminal trial and conviction. He is not deciding that
matter to decree a suit for money due under the cheque. His finding may not be
finding on a Civil Court. Still, for the purpose of conviction, he himself can decide
that matter. Without deciding that matter, he cannot enter conviction. Power to
convict includes the power to decide anything necessary for that purpose. As
apprehended by petitioner, after taking cognizance, he need not refer the question of
drawing of the cheque in discharge of a legally enforceable debt or other liability to a
competent Civil Court and await its decision to proceed with the trial. Such an absurd
contingency could never have been contemplated by the Legislature.90

90
K.S.Anto v. Union of India, 1992(1) BC 223 at pp. 225,226.
224

The mere drawing of a cheque and its dishonour even if it constitutes an


offence of cheating, as defined in Section 415 of the Penal Code, will not be an
offence under Section 138 unless the above conditions are satisfied. So far as Section
138 is concerned, mens rea is irrelevant. That is why it is specified in Section 140 that
it shall not be defence in a prosecution for an offence under Section 138. As Section
142(b) indicates, the cause of action for a prosecution under 138 will arise only under
Clause(c) of the proviso to Section 138 when the drawer fails to make the payment
within fifteen days of receipt of the notice under clause (b) of the proviso and there is
a prohibition against taking cognizance except on a complaint in writing by the payee
or holder in due course and that too except when the complaint is made within one
month of the date on which the cause of action arises.
Notice was issued only on February 9, 1990, which is long after fifteen days.
There, the question of compliance with Clause (c) of the proviso does not arise and it
cannot be said that the offence is made out. Even from the date of receipt of notice,
the complaint was filed more than one month afterwards.
The magistrate was well justified in dismissing the complaint as the offence is
not disclosed. The criminal revision petition dismissed.91
In the case of Rahul Builders v. Arihant Fertilizers and Chemical and
another92, a cheque was issued by the first respondent in favour of the appellant. It
was not honoured on the ground that the first respondent had closed its account with
the bank. A notice was sent by appellant to the first respondent stating that the cheque
having been returned unpassed by the bank authorities with the plea that the account
had already been closed and that the appellant was free to takeup any legal step
against the first respondent to get the amount of pending bills. The respondent
requested to remit the payment of pending bills within 10 days from the date of
receipt of this letter otherwise suitable action as deemed fit would be taken against the
respondent. The High Court of Madhya Pradesh by reason of its impugned order, in
exercise of its jurisdiction under section 482 of the Code of Criminal procedure, 1908,
quashed the criminal proceedings pending against it holding: (i) 15 days notice having
not been served upon the respondent, the same was not valid in law (ii) the notice was

91
K.T.Kurtyan v. K.K.Sreedharan 1 (1994) BC 140.
92
(2008)2 Camp LJ83 (SC).
225

vague and did not serve the statutory requirements of provisos (b) and (c) of section
138 of the Negotiable Instrument Act 1881. The question that arose for determination
was whether, on the facts, failure on the part of the appellant to serve a proper notice
strictly in terms of proviso appended to section 138 of the Negotiable Instrument Act
1881, would lead to quashing of a criminal proceedings initiated on a complaint made
by the appellant herein.
Service of a notice, it is trite, is imperative in character for maintaining a
complaint. It creates a legal fiction. Operation of section 138 of the Negotiable
Instrument Act is limited by the proviso (b) there to. When the proviso applies, the
main section would not. Unless a notice is served in conformity with proviso (b)
appended to section 138 of the Act, the complaint petition would not be maintainable.
The Parliament while enacting the said provision consciously imposed certain
conditions. One of the conditions was service of a notice making demand of the
payment of the amount of cheque as is evident from the use of the phraseology
payment of the said amount of money such a notice has to be issued within a period
of 30 days from the date of receipt of information from the bank in regard to the
return of the cheque as unpaid. The statute envisages application of the penal
provisions. A penal provision should be construed strictly; the condition precedent
where for is service of notice. It is one thing to say that the demand may not only
represent the unpaid amount under cheque but also other incidental expenses like
costs and interests, but the same would not mean that the notice would be vague and
capable of two interpretations. An omnibus notice without specifying as to what was
the amount due under the dishonoured cheque would not sub serve the requirement of
law. Respondent was not called upon to pay the amount which was payable under the
cheque issued by it.
The amount which it was called upon to pay was the outstanding amounts of
bills. The notice was to respond to the said demand. Pursuant thereto, it was to offer
the entire sum. No demand was made upon it to pay the said sum of which was
tendered to the complainant by cheque. What was, therefore, demanded was the entire
sum and not a part of it. As in the case, no demand was made for payment of the
226

cheque amount the impugned judgment cannot be faulted. For the reasons
aforementioned, there is no merit in this appeal which is dismissed accordingly.
In the case of Jose Antony Kakkad v. Official Liquidator, High Court of
Kerala and another93 the applicant was being proceeded against before a criminal
court for dishonour of cheque signed by him as managing director of the company.
His application before the company court for stay of criminal proceedings against him
was dismissed on the ground that section 446 of the Companies Act cannot be
attracted in criminal proceedings where the assets of the company are not involved
and the proceedings pending against the accused were only in respect of the
commission of the offence and the punishment thereon. The applicant moved the
present appeal against the order of the court below. The question that arose for
determination was whether, on the facts, the proceedings pending before criminal
court under section 138 of Negotiable Instruments Act 1881, are liable to be stayed
under section 446 of the Companies Act, 1956. It is well settled that the expression
other legal proceedings in section 446 of the Companies Act does not take in all
proceedings and the proceedings under the special Act have an overriding effect over
the general provisions under the Companies Act. The object of winding up of a
company by the court was to facilitate the protection and realization of its assets with
a view to ensure an equitable distribution thereof among those entitled.
Once the court has taken the assets of a company under its control or has
passed an order for its being wound up, in the ordinary course, it will not be proper to
allow proceedings to be started or continued against the company. Section 446 is
intended to avoid multiplicity of proceedings and to safeguard the assets of a
company against wasteful or expensive litigation in regard to matters capable of being
determined expeditiously and effectively by the winding up court itself. Though the
words legal proceedings in section 446 of the Companies Act is wide enough to take
in criminal proceedings also, such criminal proceedings must be in relation to the
assets of the company. Criminal proceedings which are not in respect of the assets of
the company but end in the conviction or acquittal of the accused, cannot be stayed
under section 446 of the Companies Act. The proceedings under section 138 of

93
(2008) 3 Comp. LJ 502 (Ker).
227

Negotiable Instruments Act can end only in the conviction or acquittal of the accused
in the case and no recovery of any amount covered by the dishonoured cheques can be
made in the criminal proceedings. As the criminal proceedings under section 138 of
the Negotiable Instruments Act are not in respect of the assets of the company, the
proceedings pending in the criminal courts cannot be stayed under section 446 of the
Companies Act. Hence the proceedings initiated against the appellant under section
138 of Negotiable Instruments Act before the criminal court cannot be stayed
invoking section 446 of Companies Act.
In the case of Central Bank of India v. Saxons Farms94, the Court held that
the object of the notice is to give a chance to the drawer of the cheque to rectify his
omission. Though in the notice demand for compensation, interest, cost etc. is also
made the drawer will be absolved from his liability under section 138 if he makes the
payment of the amount covered by the cheque of which he was aware within 15 days
from the date of receipt of the notice or before the complaint is filed.
In the case of Paresh P. Rajda v. State of Maharashtra95, the complainant
company, which had commercial dealings with the accused, filed a complaint under
section 138 of the Negotiable Instruments Act, 1881 alleging that the accused had
issued two cheques, each for rupees one lakh, which had been dishonoured, with the
remarks exceeds arrangements. Notice was issued to the company, the Chairman
and a Director of the company and they appeared reluctantly before the court after
bailable warrants had been issued. The accused Chairman thereupon moved an
application that as per the averments made in the complaint itself, no case for
summoning him had been made out as no overt act with regard to the issuance of the
dishonoured cheques had been attributed to him. The High Court, however, directed
that the application under section 395 of the Code of Criminal Procedure 1973 which
had already been made before the Metropolitan Magistrate be decided at the first
instance. The Magistrate, however, rejected the application, holding that he had no
jurisdiction in the matter, as process under section 395 of the Code had already been
issued. It was in this circumstance that the accused once again moved the High Court.
The High Court dismissed the appeal, holding that the argument that the accused had

94
(2000)2 Comp. LJ 36(SC): (1999)8 SCC 221.
95
(2008) 4 Comp. LJ 293 (SC) (Criminal appeal No. 921 of 2008).
228

been arrayed as such merely because he was a director of the company was wrong in
as much as an overall reading of the complaint showed that specific allegations had
been leveled against him as being a responsible officer of the accused company and
therefore equally liable, and that if it was ultimately found that the accused had, in
fact, no role to play, he would be entitled to acquittal. Hence, this appeal was filed by
special leave. It is well settled that the requirement of section 141 of the Negotiable
Instruments Act, 1881, is that the person sought to be made liable should be in charge
of and responsible for the conduct of the business of the company at the relevant time.
This has to be averred as a fact as there is no deemed liability of a director in such
cases. The entire matter thus would boils down to an examination of the nature of
averments made in the complaint.
In this case, the question of responsibility of the Chairman for the business of
the company has not been seriously challenged. Nonetheless, there are allegations
against both the accused/appellants to the effect that they were officers and
responsible for the affairs of the company. Therefore, at a stage where the trial has not
yet started, it would be in appropriate to quash the proceedings against them in the
light of well settled.
Legal position Accordingly, there is no merit in the appeals and are
dismissed.
In the case of Southern Steel Ltd. and others v. Jindal Vijayanagar Steel,
Ltd.96, the request of appellants, respondent company supplied goods to appellants.
The terms of payment under the purchase order granted 45 days interest free credit to
the appellants for the goods sold and delivered by the first respondent. The appellants
issued cheques in question in favour of respondent company. The said cheques were
dishonoured on presentation. The legal notice sent by the respondent company, the
appellants through two substantially identical replies, for the first time, contended that
the appellants had been declared a sick company under the provisions of the Sick
Industrial Companies (Special Provisions) Act, 1985, and, therefore, no legal
proceedings of recovery of the outstanding amount could be initiated against the
appellant company. The above purchases were made by the appellants from the

96
(2008)4 Comp LJ 300 (SC) Criminal Appeal Nos. 845-846 of 2008.
229

respondent company after the appellant company was declared sick under the
provisions of Sick Industrials Companies (Special Provisions) Act, 1985. The
appellants could not dispute the fact that the purchases were made after the appellant
company was declared sick under the SICA. The purchases were made holding out
clear representation that the goods will be paid for ultimately, on non-payment of the
outstanding amount, the respondent company initiated criminal proceedings against
the appellant company by filing a criminal complaint under section 138 of the
Negotiable Instruments Act, 1881. The appellant company, aggrieved by the said
proceedings filed criminal petitions under section 482, Criminal Procedure Court,
1973, for quashing the proceedings under section 138 of the Negotiable Instruments
Act, 1881. The High Court dismissed both these petitions holding that it was
premature to analyze the entire documentary evidence as put forth by both sides to
give a finding one way or the other. Appellants, subsequent to the directions given by
the High Court, approached the trial court and produced the documents including the
order passed by Board for Industrial Financial Reconstruction (BIFR) under section
22A of SICA. They sought discharge of the accused under section 258 of the code of
Criminal Procedure. The trial court dismissed those applications. Thereafter the
appellants again approached the high court by filing two criminal petitions for
quashing the criminal proceedings. The question that arose for determination in the
present appeal by special leave was whether, on the facts, the appellant were entitled
to any indulgence in the matter of the quashing of criminal proceedings initiated
against them under section 138 of the Negotiable Instruments Act, 1881.
In this case the directors had infact issued the cheques for discharging their
liability with the full knowledge, would not only clearly show that there was an
undisputed debt, but would also show that, right from the inception, the appellants
infact had no intention of paying the amount for the purchases made by them. The
intention of the appellants can be gathered by their subsequent acts, conduct and
behaviour of taking a shelter under the provisions of SICA. The appellants are not
entitled to any indulgence of this court under its extraordinary jurisdiction under
Article 136 of the Constitution. The appellants had lost their total credibility because
of their conduct. When the appellant was declared sick, then without disclosing this
230

fact the appellants ought not to have made huge purchases from the respondent
company. This clearly indicates that the appellants had no intention of making
payment of the purchases made by it.
The High Court, in the impugned order, has directed the trial court to dispose
of the cases of the appellants as early as possible, but not later than six months from
the date of its order. The appellants by approaching this court have caused avoidable
delay in disposal of these cases before the trial court. In the facts and circumstances of
the case, it is considered appropriate to request the trial court to conclude the trial of
these cases as expeditiously as possible and, in any event, within six months from the
date of this judgment.
In the case of D.C.M. Financial Services Ltd. v. J.N. Sareen and another97,
the first respondent was a director of a company. The company purchased certain
agricultural equipments on hire purchase. As a part of the said transaction some post-
dated cheques were issued in favour of the appellant herein towards the payment of
monthly hire. The first respondent admittedly resigned from the directorship of the
company. It was accepted one of the said post-dated cheques, when presented to the
bank by appellant for encashment the cheque was dishonoured. Pursuant thereto a
notice for payment was issued. Amount having not been paid despite service of
notice, a complaint petition was filed under section 138 of the Negotiable Instruments
Act, 1881. No allegation was made in the complaint petition that the first respondent
was a signatory to the cheque or he was authorized therefore an application was filed
by the first respondent for his discharge. By reason of the order the same was allowed
by the trial court. The criminal revision application filed there against was dismissed.
The submission on behalf of the appellant was that although before the High Court no
material was placed to show that the first respondent was a signatory to the cheque in
question, in view of the fact that the entire records were available to the High Court, it
should have been held that the first respondent was primarily liable for payment of the
amount thereunder. The question that arose for decision in the present appeal by
special leave under Article 136 of the Constitution was as to what would be the effect
of a post-dated cheque vis--vis prosecution in terms of section 141 of the Negotiable

97
(2008)4 Comp. LJ 265 (SC) Crl. Appeal No. 875 (2008).
231

Instruments Act, 1881. In other words, the question that arose for decision was as to
whether an authorized signatory, in a situation of this nature, would be liable for
prosecution. The underlying purpose for which the Parliament enacted section 138 of
the Negotiable Instruments Act, 1881, is not in doubt or dispute. What, however, is
necessary to be borne in mind is the distinction between a civil proceeding and a
criminal proceeding. What is also necessary to be borne in mind is the standard of
proof in a civil suit and a criminal case.
Averments made in the complaint petition supported by the statements of the
complainant form the basis for taking cognizance of an offence by the Magistrate. The
complaint petition in this case did not disclose as to who had signed the cheque on
behalf of the company. Involvement of the first respondent in commission of the
offence as signatory was neither averred nor stated by authorized representative of the
complainant. Even the complaint petition proceeded on the basis that the averments
contained in the complaint petition were sufficient to enable the Magistrate to
summon the accused. Even before the High Court such a contention was not raised.
Such a contention was raised in the present proceedings for the first time. This itself
indicates the manner in which the complaint proceeded. Fairness on the part of the
complainant is also expected in such a matter.
It is now not in dispute that the first respondent had intimated the complainant
as regards his resignation from the company. The first respondent indisputably was a
director of the company. The liability attached to him was not a personal liability. It
was a constructive liability. The cheque was drawn on behalf of the company. He
might have been liable as a person-in-charge of the company within the meaning of
section 141 of the Negotiable Instruments Act, 1881. For the reasons above
mentioned no case has been made out for interference with the impugned judgment.

VI. CONVICTION AND QUESTION OF SENTENCE


The provisions regarding the punishment of 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 were firstly inserted in Section 138 by the Amendment Bill No.
66 of 1988 which has been increased by the Amendment Bill No. 55 of 2002 from
one year to two years.
232

It is established without any doubt that the cheque was dishonoured due to
insufficiency of funds. It is also clear from notice sent on behalf of the appellant and
reply sent by the respondent to the appellant that the appellant has complied with the
necessary requirements under Proviso (b) to Section 138 of the Act. Therefore, it is
clear from the evidence on record that the respondent has committed the offence
punishable under Section 138 of the Act and the lower Court was in manifest error in
holding otherwise.
Respondent was convicted and sentenced to undergo simple imprisonment for
three months and to pay a fine of Rs. 3,000/- and in default of payment to undergo
simple imprisonment for a period of one month for the offence punishable under
Section 138 of the Act.98
Power is conferred on the Magistrate notwithstanding anything contained in
the Code of Criminal Procedure. Section 138 of the Act makes the offence under that
section punishable with imprisonment for a term which may extend to one year or
with fine which extend to twice the amount of the cheque or with both. The
Legislature was, therefore, aware of the necessity of awarding fine in excess of
Rs. 5,000/- while conferring powers on a Judicial Magistrate of First Class to take
cognizance of an offence under Section 138 of the Act. Specific powers had,
therefore, been conferred on a Magistrate of the First Class under Section 142 to
impose fine exceeding Rs. 5,000/-99
It cannot be assumed that merely because under Section 138 of the Act, a
guideline is given regarding the quantum of fine to be imposed on the accused, there
are different offences. The main punishment prescribed is imprisonment which may
extend to a period of one year. As regards fine, it is stated that the quantum may
extend twice the amount of the cheque. It is important to note that the fine is not a
compulsory punishment and only the maximum amount is prescribed. There
guidelines do not alter the nature of the punishment. In the matter of sentence, the
Magistrate is given a discretionary power depending upon the amount for which the
cheque is drawn. This discretionary power in the matter of which the cheque is drawn.
This discretionary power in the matter of sentence does not alter the nature of the

98
Michael Kuruvilla v. Joseph K. Kondody, 1998( 3) Civil L.J. 379 at p. 380.
99
Sahadevan v. Sreedharan, I (1996) BC 512.
233

offence. So, even if the cheques had been issued for different amounts, if other
conditions laid down in Section 219(2) are satisfied, the cases in respect of three
cheques could be tried jointly. Moreover, this is a procedural law and the main
question to be considered is whether the accused is seriously prejudiced by that. If the
present procedure is adopted, the accused is not likely to be prejudiced and it will
avoid multiplicity of cases.100
The entire amount has been paid to proprietor of the respondent firm
complainant respondent is present in Court and admits this fact. He has been
identified by the petitioners learned counsel. There is nothing on the record to
indicate whereby it could be stated that petitioner is not entitled to the
benefit of Section 360 of the Code of Criminal Procedure.101
The madras High Court had occasion to consider the aspect in Prabhakar v.
Naresh Kumar N. Singh,102 interpreting Section 142 of the Negotiable Instruments
Act in the light of Section 29(2), Cr. P.C. It was held that Section 29(2), Cr. P.C. is
not applicable in view of the primary clause in procedure. Agreeing with the view of
the Madras High Court the Magistrate of the First Class is empowered to impose a
fine exceeding Rs. 5,000/- for offence under Section 138 of the Negotiable
Instruments Act.103
In the instant case, the appellate Court miserably failed in the proper exercise
of Section 389(1), Cr. P.C. by suspending the sentence of fine including the
compensation by merely saying that the Court has got power to do so. This is beyond
the jurisdiction.
Coming to the facts of this case, the cheque amount is Rs. 5,23,700/-. As per
Section 138 of the Negotiable Instruments Act, the trial court could impose fine to the
extent of twice the amount of the dishonoured cheque. In the instant case, the trial
court took a lenient view and imposed a fine of Rs. One lakh, out of which the
respondent was directed to pay Rs. 95,000/- to the complainant as compensation.
Therefore, though the appellate court has got powers to suspend the sentence of fine,

100
Swarniatha v. Chandramohan, 1996(3) Crimes 283 (Ker): 1996 (3) CCR 543(Ker): 1996 (2) Civil
LJ. 904.
101
Gian Chand v. M/s Malwa Traders, 1995 ( 4) Crimes 300.
102
1994 MLJ Cri 91.
103
K.P.Sachdevan v. T.K. Sreedharn , 1996 Cri L.J. 1223.
234

in the absence of any valid reason to suspend the fine imposed in the this case it is
impossible to thing that the impugned order would stand.104

VII. JUDICIAL TRENDS IN RESPECT OF NEGOTIABLE INSTRUMENTS


The Constitution has given the immense powers to the judiciary for the
protection of the Constitutional rights of citizens. There is no reason why the courts
should not adopt activist approach similar to Courts in America to set right the things
and in order to bring social changes. It is adopting right approach keeping in view the
intention of the legislature expressed through the Banking Public Financial
Institutions and Negotiable Instruments Laws ( Amendment) Act, 1888 ( 66 of 1988 )
and The Negotiable Instruments (Amendment and Miscellaneous Provisions Bill,
2002 ( Bill No. 55 of 2002) in order to meet the challenges of present day economy
and ensuring the credibility and acceptability of cheques to teach the lesson to the
offenders who make the mockery of the sections relating to the dishonour of cheques
in order to create loopholes and back doors from where a through exist can be made.
It is the larger public interest that commercial transaction maintain the speed
and tempo and that a swift sale or a prompt purpose, is not unduly impeded by
suspicions always hovering round that part of promise to be performed in future. The
issue of a cheque carries with it assumptions which could regulate the normal
functioning of a honest citizen. At a period of time when multitudinous persons and
institutions press into services, devices and facilities available under the Negotiable
Instruments Act, it may be necessary to ensure that those who issue such vital
documents, do not adopt a casual or careless attitude which could block the free flow
of trade. It is in the light of the experience which the State had, that the enactment has
been attempted. Court is unable to detect any legal infirmity or constitutional
incompetence. The courts have taken keen interest to prevent the fraud relating to the
dishonour of cheques as the Section 138 of the Negotiable Instruments was enacted to
ensure the preservation of that concept being the life blood of commerce and
economy.

104
Bay Leathers Exports Pvt. Ltd. v. Saileela II(1998) BC 38 at p. 42.
235

In order to provide adequate remedy to the victims of an illegal act or a


dishonest move, the Parliament could then make a provision with sufficient teeth, as
to strongly deal with the ruffians in the trading area, or the unscrupulous elements
who play foul with negotiable instrument.
Global exposure has led to an awakening in Indian on all points leaving no
segments of business or society untouched. India is a signatory of WTO and therefore
the international global banking games rules must also apply to us and to have good
credentials in the international market of open economy we must have a sound, stable
and creditable banking system of which cheques and bill of exchange are important
components. The Supreme Court in BALCO & Contract Labour amply reveals that
our judiciary is much alive to the economic reforms.
The Apex Court has time and again forwarded the erring and defaulting
drawers of fake cheques still many of us are not forearmed and the malaise of
dishonouring of cheques still persists. The Supreme Court whenever it gets an
opportunity to dole the hole in this branch of law, it does so unhesitatingly.
Thus, the legal machinery is to be geared in a new direction to prove a memo
cure to the dishonour of cheques as the battle is not to be fought on the legal field
alone. A change is also need in the moral and psychological approach to the subject to
establish a convention and it should be condemned unless warranted by serious
consideration to prevent some positive wrong. A change in the mental, moral and
psychological attitude of all having bank accounts and issuing cheques is also need to
makes them realise that a changes is a precious document and value lies in the its
being honoured and not in its being retuned for want of funds. As the intention of the
Parliament was only to bring home offenders so save the innocent individuals from
harassment and loss except to such persons who wanted to defraud the creditor by
providing penalty in case of dishonour of the cheque as the cheques are a backbone of
the monetary system not only in the national but in the international economy as a
whole and specially keeping in view the fact the instance of dishonour of cheques in
India is greater in comparison to the other countries.
236

VIII. THE NEGOTIABLE INSTRUMENTS (AMENDMENT &


MISCELLANEOUS PROVISIONS) BILL, 2002 (Bill No. 55 of 2002)

As the existing provisions in the Negotiable Instruments Act, 1881,


enumerated in sections 138 to 142 in Chapter XVII which were inserted by the
Banking, Public Financial Institutions and Negotiable Instruments Laws
(Amendment) Act, 1988 have been found deficient in dealing with dishonour of
cheques because neither the punishment provided in the Act has proved to be
adequate nor the procedure prescribed for the Courts to deal with such matter has
been found to be cumbersome. As such, the Courts are unable to dispose of such cases
expeditiously in a time bound manner in view of the procedure contained in the Act
which resulted a large number of cases pending in various courts under sections 138
to 142.
Further, in order to meet the challenges of present day economy and ensuring
the credibility of cheques, THE NEGOTIABLE INSTRUMENTS (AMENDMENT AND
MISCELLANEOUS PROVISIONS) BILL, 2002(Bill No. 55 of 2002) has been enacted
by the Parliament in the Fifty -third Year of the Republic of India to amend the
Negotiable Instruments Act, 1881, The Bankers Books Evidence Act, 1891 and the
Information and Technology Act, 2000. The detail of the statement of Objects and
reasons of this bill is given below :
Objects and Reasons
A) The Negotiable Instruments Act, 1881 was amended by the Banking, Public
Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988
wherein a new Chapter XVII was incorporated for penalties in case of dishonour of
cheques due to insufficiency of funds in the account of the drawer of the cheque.
These provisions were incorporated with a view to encourage the culture of use of
cheques and enhancing the credibility of the instrument. The existing provisions in the
Negotiable Instruments Act, 1881, namely, sections 138 to 142 in Chapter XVII have
been found deficient in dealing with dishonour of cheques. Not only the punishment
provided in the Act has proved to be inadequate, the procedure prescribed for the
Courts to deal with such matter has been found to be cumbersome. The Courts are
237

unable to dispose of such cases expeditiously in a time bound manner in view of the
procedure contained in the Act.
B) A large number of cases are reported to be pending under sections 138 to 142
of the Negotiable Instruments Act in various Courts in the country. Keeping in view
the large number of complaints under the said Act pending in various Courts, a
Working Group was constituted to review section 138 of the Negotiable Instruments
Act, 1881 and make recommendations as to what changes were needed to effectively
achieve the purpose of that section.
C) The recommendations of the Working Group along with other representations
from various institutions and organisations were examined by the Government in
consultation with the Reserve Bank of India and other legal experts, and a Bill,
namely, the Negotiable Instruments (Amendment) Bill, 2001 was introduced in the
Lok Sabha on 24th July, 2001. The Bill was referred to Standing Committee on
Finance which made certain recommendations in its report submitted to Lok Sabha in
November, 2001.
D) Keeping in view of the recommendations of the Standing Committee on
Finance and other representations, it has been decided to bring out, inter alia, the
following amendments in the Negotiable Instruments Act, 1881, namely :-
i) to increase the punishment as prescribed under the Act from one year to
two years.
ii) to increase the period for issue of notice by the payee to the drawer from
15 days to 30 days;
iii) to provide discretion to the Court to waive the period of one month,
which has been prescribed for taking cognizance of the case under the
Act;
iv) to prescribe procedure for dispensing with preliminary evidence of the
complainant;
v) to prescribe procedure for servicing of summons to the accused or
witness by the Court through speed post or empanelled private couriers;
vi) to provide for summary trial of the cases under the Act with a view to
speeding up disposal of
238

vii) to make the offences under the Act compoundable;


viii) to exempt those directors from prosecution under section 141 of the Act
who are nominated as directors of a company by virtue of their holding
any office or employment in the Central Government or State
Government or a financial corporation owned or controlled by the
Central Government or the State Government as the case may be;
ix) to provide that the Magistrate trying an offence shall have power to pass
sentence of imprisonment for a term exceeding one year and amount of
the fine exceeding five thousand rupees;
x) to make the Information Technology Act, 2000 applicable to the
Negotiable Instruments Act, 1881 in relation to electronic cheques and
truncated cheques subject to such modifications and amendments as the
Central Government, in consultation with the notification in the Official
Gazette; and
xi) to amend definitions of bankers books and certified copy given in
the Bankers Evidence Act, 1891.
E) The Bill seeks to achieve the above objects.
The four new chapters have been inserted in the Negotiable Instruments Act,
1881 by this amendment and the detail of these chapters is given below :-
CHAPTER I
The first Chapter relates to Preliminary which simply says about its short title and
commencement as under :
1) This Act may be called THE NEGOTIABLE INSTRUMENTS
(AMENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 2002.
2) It shall come into force on such date as the Central Government may, by
notification in the Official Gazette, appoint and different dates may be
appointed for different provisions of this Act.
CHAPTER II
The Second Chapter relates to Amendments to the Negotiable Instruments
Act, 1881 in which following sections have been amended or substituted :-
Substitution of new section for section 6
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For section 6 of the Negotiable Instruments Act, 1881 (26 of 1881)


(hereinafter referred to as the principal Act), the following section shall be substituted,
namely :-
6. Cheque- A cheque is a bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on demand and it includes the electronic
image of a truncated cheque and a cheque in the electronic form.
Explanation I For the purposes of this section, the expression
a) a cheque in the electronic form means a cheque which contains the exact
mirror image of a paper cheque, and is generated, written and signed in a
secure system ensuring the minimum safety standards with the use of digital
signature (with or without biometrics signatures) and asymmetric crypto
system;
b) a truncated cheque means a cheque which is truncated during the course of a
clearing cycle, either by the clearing house or by the bank whether paying or
receiving payment, immediately on generation of an electronic image for
transmission, substituting the further physical movement of the cheque in
writing.
Explanation II For the purposes of this section, the expression, clearing house
means the clearing house managed by the Reserve Bank of India or a clearing house
recognised as such by the Reserve Bank of India.
Amendment of section 64
Section 64 of the principal Act shall be renumbered as sub-section (1) thereof,
and after sub-section (1) as so re-numbered, the following sub-section shall be
inserted, namely ;-
(2) Notwithstanding anything contained in section 6, where an electronic
image of a truncated cheque is presented for payment, the drawee bank is entitled to
demand any further information regarding the truncated cheque from the bank holding
the truncated cheque in case of any reasonable suspicion about the genuineness of the
apparent tenor or instrument, and if the suspicion is that of any fraud, forgery,
tampering or destruction of the instrument, it is entitled to further demand the
presentment of the truncated cheque itself for verification.
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Provided that the truncated cheque so demanded by the drawee bank shall be
retained by it, if the payment is made accordingly.
Amendment of Section 81
Section 81 of the principal Act shall be re-numbered as sub-section (1)
thereof, and after sub-section (1) as so re-numbered, the following sub-section shall
be inserted, namely :-
(2) Where the cheque is an electronic image of a truncated cheque, even
after the payment the banker who received the payment shall be entitled to retain the
truncated cheque.
(3) A certificate issued on the foot of the printout of the electronic image of a
truncated cheque by the banker who paid the instrument, shall be prima facie proof of
such payment.
Amendment of section 89
Section 89 of the principal Act shall be re-numbered as sub-section (1)
thereof, and after sub-section (1) as so re-numbered, the following sub-sections shall
be inserted, namely :-
(2) Where the cheque is an electronic image of a truncated cheque, any
difference to apparent tenor of such electronic image and the truncated cheque shall
be a material alteration and it shall be the duty of the bank or the clearing house, as
the case may be, to ensure the exactness of the apparent tenor of electronic image of
the truncated cheque while truncating and transmitting the image.
(3) Any bank or a clearing house which receives a transmitted electronic
image of a truncated cheque, shall verify from the party who transmitted the image to
it, that the image so transmitted to it and received by it, is exactly the same.
Amendment of Section 131
In section 131 of the principal Act, Explanation shall be re-numbered as
Explanation I thereof, and after Explanation I as so re-numbered, the following
Explanation shall be inserted, namely :-
Explanation II It shall be the duty of the banker who receives payment
based on an electronic image of a truncated cheque held with him, to verify the prima
facie genuineness of the cheque to be truncated and any fraud, forgery or tampering
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apparent on the face of the instrument that can be verified with due diligence and
ordinary care.
Amendment of section 138
In section 138 of the principal Act
a) for the words a term which may be extended to one year , the words
a term which may be extended to two years shall be substituted;
b) in the proviso, in clause (b), for the words within fifteen days, the
words within thirty days shall be substituted.
Amendment of section 141
In section 141 of the principal Act, in sub-section (1) after the proviso, the
following proviso shall be inserted, namely:-
Provided further that where a person is nominated as a Director of a
company by virtue of his Holding any office or employment in the Central
Government or State Government or a financial corporation owned or controlled by
the Central or State Government, as the case may be, he shall not be liable for
prosecution under this Chapter.
Amendment of Section 142
In section 142 of the principal Act, after clause (b), the following proviso shall
be inserted, namely:
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.
Insertion of new sections after section 142
Five more sections regarding power of court to try cases summarily, mode of
service of summons, evidence on affidavit, Banks slip prima facie evidence of
certain cases and compoundability of offences punishable under this Act have been
inserted. The detail of the same is given below :-
143 Power of Court to try cases summarily (1) Notwithstanding anything
contained in the Code of Criminal Procedure, 1973 (2 of 1974), all offences under this
Chapter shall be tried by a Judicial Magistrate of the first class or by a Metropolitan
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Magistrate and the provisions of sections 262 to 265 (both inclusive) of the said Code
shall, as far as may be apply to such trials:
Provided that in the case of any conviction in a summary trial under this
section, it shall be lawful for the Magistrate to pass a sentence of imprisonment for a
term not exceeding one year and an amount of fine exceeding five thousand rupees;
Provided further that when at the commencement of, or in the course of, a
summary trial under this section, it appears to the Magistrate that the nature of the
case is such that a sentence of imprisonment for a term exceeding one year may have
to be passed or that it is, for any other reason, undesirable to try the case summarily,
the Magistrate shall after hearing the parties, record an order to that effect and
thereafter recall any witness who may have been examined and proceed to hear or
rehear the case in the manner provided by the said Code.
(2) The trial of a case under this section shall, so far as practicable, consistently
with the interests of justice, be continued from day to day until its conclusion, unless
the Court finds the adjournment of the trial beyond the following day to be necessary
for reasons to be recorded in writing.
(3) Every trial under this section shall be conducted as expeditiously as possible
and an endeavour shall be made to conclude the trial within six months from the date
of filing of the complaint.
144. Mode of service of summons (1) Notwithstanding anything contained in the
Code of Criminal Procedure, 1973 (2 of 1974) and for the purposes of this Chapter, a
Magistrate issuing a summons to an accused or a witness may direct a copy of
summons to be served at the place where such accused or witness ordinarily resides or
carries on business or personally works for gain, by speed post or by such courier
services as are approved by a Court of Session.
(2) Where an acknowledgement purporting to be signed by the accused or the
witness or an endorsement purported to be made by any person authorised by the
postal department or the courier services that the accused or the witness refused to
take delivery of summons has been received the Court issuing the summons may
declare that the summons has been duly served.
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145. Evidence on affidavit (1) Notwithstanding anything contained in the Code of


Criminal Procedure, 1973 ( 2 of 1974), the evidence of the complainant may be given
by him on affidavit and may, subject to all just exceptions, be read in evidence in any
enquiry, trial or other proceedings under the said Code.
(2) The Court may, if it thinks fit, and shall, on the application of the prosecution
or the accused, summons and examine any person giving evidence on affidavit as to
the facts contained therein.
146. Banks slip prima facie evidence of certain facts
The Court shall, in respect of every proceeding under this Chapter, on
production of banks slip of memo having thereon the official mark denoting that the
cheque has been dishonoured, presume the fact of dishonour of such cheque, unless
and until such fact is disproved.
147.Offence to be compoundable
Notwithstanding anything contained in the Code of Criminal Procedure, 1973
(2 of 1974), every offence punishable under this Act shall be compoundable.
In addition to amendment made in the Negotiation Instruments Act, 1881,
amendments have also been made to the Bankers Books Evidence Act, 1891 and to
the Information Technology Act, 2000 and two more chapters III and IV have been
inserted in order to amend the relevant sections. Chapter III tells about the amendment
to the Bankers Books Act, 1891. However, the detail is given below :-
Amendment of section 2
In section 2 of the Bankers Books Evidence Act, 1891 (18 of 1891)
(a) for clause (3), the following clause shall be substituted, namely :-
(3) bankers books include ledgers, day-books, cash-books, account- books
and all other records used in the ordinary business of the bank, whether these records
are kept in written form or stored in a micro film, magnetic, tape or in any other form
of mechanical or electronic date retrieval mechanism, either onsite or at any offsite
location including a back-up or disaster recovery site of both.
(b) in clause (8), after sub-clause(b), the following sub-clause shall be
inserted, namely :-
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(c) a printout of any entry in the books of a bank stored in a micro film,
magnetic tape or in any other form of mechanical or electronic data retrieval
mechanism obtained by a mechanical or other process which in itself ensures the
accuracy of such printout as a copy of such entry and such printout contains the
certificate in accordance with the provisions of section 2-A.
Further, the Chapter IV tells about the Amendments to the Information
Technology Act, 2000, the detail of which is given below:-
Amendment to section 1 of Information Technology Act, 2000
In the Information Technology Act, 2000 (21 of 2000) (hereinafter referred to
as the principal Act), in section 1, in sub- section (4) for clause (a), the following
clause shall be substituted, namely :
(a) a negotiable instrument (other than a cheque) as defined in section 13 of
the Negotiable Instruments Act, 1881 (26 of 1881);
Insertion of a new section 81-A
After section 81 of the principal Act, the following section shall be inserted,
namely:-
81-A. Application of the Act to electronic cheque and truncated cheque
(1) The provisions of this Act, for the time being in force, shall apply to, or in
relation to, electronic cheques and the truncated cheques subject to such modifications
and amendments as may be necessary for carrying out the purposes of the Negotiable
Instruments Act, 1881 (26 of 1881) by the Central Government, in consultation with
the Reserve Bank of India, by notification in the Official Gazette.
(2) Every notification made by the Central Government under sub-section (1)
shall be laid, as soon as may be after it is made, before each House of Parliament,
while it is in session, for a total period of thirty days which may be comprised in one
session or in two or more successive sessions, and if, before the expiry of the session
immediately following the session or the successive sessions aforesaid, both Houses
agree in making any modification in the notification or both Houses agree that the
notification should not be made, the notification shall thereafter however, that any
such modification or annulment shall be without prejudice to the validity of anything
previously done under that notification.
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Explanation For the purposes of this Act, the expressions electronic cheque and
truncated cheque shall have the same meaning as assigned to them in section 6 of
the Negotiable Instruments Act, 1881 (26 of 1881).
It may be mentioned that the existence of a civil remedy would not necessarily
exclude a trial by a criminal court of an offence. Similarly there cannot be any
absolute proposition of law that whenever any civil proceeding is pending between
the parties, criminal proceeding can never be proceeded with. There are many
transactions, which result, civil as well as criminal liabilities. Cheating,
misappropriate and theft is undoubtedly the transactions of this type. Therefore,
simply because civil proceedings between the parties are pending, it cannot be said
that criminal proceedings cannot be go on.
The Negotiable Instruments Act, 1881 was amended by the Banking, Public
Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988
wherein a new Chapter XVII was incorporated for penalties in case of dishonour of
cheques due to insufficiency of funds in the account of the drawer of the cheque.
These provisions were incorporated with a view to encourage the culture of use of
cheques and enhancing the credibility of the instrument which have been found
deficient in dealing with dishonour of cheques. Not only the punishment provided in
the Act has proved to be inadequate, the procedure prescribed for the Courts to deal
with such matter has been found to be cumbersome which resulted delay in disposing
the cases. To deal with the problem effectively further amendment has been made
vide Bill N0 55 of 2002.

IX. CONCLUDING REMARKS

It is not necessary to always stay proceeding in civil action and whether the
proceedings in action should be stayed or parallel proceeding both civil and criminal
may continue depend from fact and circumstances of each case. There is no legal bar
to the continuance of the civil and criminal proceedings simultaneously. Where any
offence committed by a company is proved to have been committed with the consent
or connivance or is attributable to any neglect on the part of any Director, Manager,
Secretary or other Officer of the company then said Director, Manager, Secretary or
Officer shall also be deemed to be guilty of that offence. It would mean that even if
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such Director, Manager, Secretary etc. was not incharge and was not responsible to
the company for the conduct of the business of the company; he will still be liable if
the offence was committed with his consent, connivance or due to his negligence.
It may be observed that the powers under Section 482 Cr. P.C. can be invoked
only when redress under any other provision was unavailable. It has been held by the
Supreme Court of India that the second revision petition even though filed under
Section 482 of the Criminal Procedure Code is not maintainable. It is clear from a
reading of Section 141 of the Act that if the offence under Section 138 of Negotiable
Instruments Act is committed by the company or a firm, every person who was in
charge and responsible for the affairs and conduct of the business for the company or
firm, as the case may be at the time when the alleged offence was committed, is also
liable for prosecution along with the company
On considering the provisions of Section 138 to Section 142 of the Act. There
is not hesitation in holding that there is no obligation on the part of the payee or the
holder in due to specifically mentioned demanding to pay the said amount within
fifteen days and there is no substance in the contention of the learned Counsel for the
petitioner. The criminal proceedings are seldom stayed till the decisions of a civil suit
over the self same matter but having regard to the facts and circumstances which in
this Court opinion is a compelling circumstances when for ends of justice there is no
way out but to stay the criminal proceeding till disposal of the civil suit. The High
Court would have to proceed entirely on the basis of the allegations made in the
complaint or documents accompanying the same per se. It has no jurisdiction to
examine the correctness or otherwise of the allegations. These powers cannot be
exercised to stifle a legitimate prosecution.
Without evidence having come on record, it will not be appropriate for the
petitioner to invoke the inherent powers of this Court and seek to halt the proceedings
pending before the trial Magistrate. The offence under Section 138, Negotiable
Instruments Act is to be proved by a complaint by proving all the ingredients of the
offence laid down in the section. All the necessary factors have to be prayed at the
trial. Trial Court will be competent Court to record the findings on materials, that may
be placed before it by parties on questions of facts,. Powers under Article 226 of the
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Constitution are not meant to be exercised for this purpose at this stage. The
requirement for an offence under Section 138 of the Act is the cheque must be drawn
for the discharge in whole or in part of any debt or other liability. It is settled
principle of law that inherent powers under Section 482 Cr. P.C. can be invoked to
prevent abuse of the process of the Court or to secure ends of justice. Section 195 of
the Code provides a bar on filing of complaint while Section 340 provides for removal
of the bar by conferring jurisdiction on the Court to file complaints. Once an offence
has been committed and is complete offence, merely by marking the payment will not
put an end to the same. It may affect the gravity of the said offence. There is no
ground, thus, to quash the proceedings. It may be mentioned that the existence of a
civil remedy would not necessarily exclude a trial by a criminal court of an offence.
Similarly there cannot be any absolute proposition of law that whenever any civil
proceeding is pending between the parties, criminal proceeding can never be
proceeded with. There are many transactions, which result, civil as well as criminal
liabilities. Cheating, misappropriate and theft is undoubtedly the transactions of this
type.
It is settled law that pendency of the criminal matter would not be an
impediment to proceed with the civil suits. The criminal Court would deal with the
offence punishable under the Act. On the other hand, the Courts rarely stay the
criminal cases and only when the compelling circumstances require the exercise of
their power. Section 243 of the Code of Criminal Procedure does not exclude
proceedings under Section 138 of the Act. Nor does Section 138 of the Act exclude
the applicability of Section 243 of the Code of Criminal Procedure. In case all the
conditions which are necessary for the payment of a cheque are present and have been
fulfilled then if the bank dishonours a cheque it will amount to a breach of the
contract for which the banker is liable to pay damages. The evidence shows that the
breach of contract by the bank is confined to one particular draft or otherwise
indicates that there was no intention to repudiate, damages will not be recoverable.

The defendant bank contended that the plaintiff was entitled to nominal
damages only. If there is proof of special loss or damages, that will be taken into
248

consideration for arriving at the exact quantum of damages. The Indian law on the
subject is not at all different from the English law on the point. It is expected of a
bank to honour its customers cheque if it has sufficient funds in his hands. If it fails
to do so, it will be liable to damages. The reason is obvious. It injuriously affects the
reputation, credit and integrity of its customer. All loss flowing naturally from the
dishonour of a cheque may be taken into account in estimating the damages. To
determine responsibility the law will consider the proximate and not the remote cause
of an injury. So far as the civil remedy is concerned a customer on account of a
wrongful dishonour can claim damages against the Bank. So far as the question of
civil remedy for the payee is concerned, it is a case for recovery of money under the
summary procedure which can be filed against the Drawer.
Section 138 was introduced with a laudable public policy behind it. It is
intended to prevent or curtail a mischief which is likely to affect financial
transactions, and thereby trade and business and ultimately, economy of the country.
Even though the normal rule is that an act or illegal omission in order to constitution
an offence, must be had with the requisite mental condition on the form of attention,
knowledge or reasonable belief, that pre-requisites could be authority dispensed
within appropriate cases by creating strict liability offences in the interest of nation,
just like offences under the Prevention of Food Adulteration Act. Further, there is no
point in contending that mens rea is not required for constituting an offence
punishable under Section 138. As Section 142(b) indicates, the cause of action for a
prosecution under 138 will arise only under Clause(c) of the proviso to Section 138
when the drawer fails to make the payment within fifteen days of receipt of the notice
under clause (b) of the proviso and there is a prohibition against taking cognizance
except on a complaint in writing by the payee or holder in due course and that too
except when the complaint is made within one month of the date on which the cause
of action arises. The object of the notice is to give a chance to the drawer of the
cheque to rectify his omission. Though in the notice demand for compensation,
interest, cost etc. is also made the drawer will be absolved from his liability under
section 138 if he makes the payment of the amount covered by the cheque of which he
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was aware within 15 days from the date of receipt of the notice or before the
complaint is filed.
The main punishment prescribed is imprisonment which may extend to a
period of one year. As regards fine, it is stated that the quantum may extend twice the
amount of the cheque. It is important to note that the fine is not a compulsory
punishment and only the maximum amount is prescribed. There guidelines do not
alter the nature of the punishment. In the matter of sentence, the Magistrate is given a
discretionary power depending upon the amount for which the cheque is drawn. A
change is also need in the moral and psychological approach to the subject to establish
a convention and it should be condemned unless warranted by serious consideration to
prevent some positive wrong. A change in the mental, moral and psychological
attitude of all having bank accounts and issuing cheques is also need to makes them
realise that a changes is a precious document and value lies in the its being honoured
and not in its being retuned for want of funds.
The Negotiable Instruments Act, 1881 was amended by the Banking, Public
Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988
wherein a new Chapter XVII was incorporated for penalties in case of dishonour of
cheques due to insufficiency of funds in the account of the drawer of the cheque.
These provisions were incorporated with a view to encourage the culture of use of
cheques and enhancing the credibility of the instrument which have been found
deficient in dealing with dishonour of cheques. Not only the punishment provided in
the Act has proved to be inadequate, the procedure prescribed for the Courts to deal
with such matter has been found to be cumbersome which resulted delay in disposing
the cases. To deal with the problem effectively further amendment has been made
vide Bill N0 55 of 2002.