JUDGMENT
N. V. Dabholkar, J.
1. The writ petition prays this Court to invoke the powers under Article 227 of the Constitution of India as also inherent powers u/s 482 of the Cr.P.C., 1973, for the purpose of quashing the proceedings of Criminal Case No. 130/S/1994 pending before 37th Court of Metropolitan Magistrate at Esplanade, Bombay, presided by Additional Chief Metropolitan Magistrate.
2. Facts giving rise to present petition, according to petitioners, are as follows :
Petitioner No. 2 is a Company incorporated under the Companies Act and dealing in business of processing of food products such as grains, pulses, etc. Petitioner No. 1 is one of the directors.
In or about November, 1992, respondent No. 2 approached petitioners with a proposal for processing a consignment of Masoor imported by them. The proposal was accepted and executed by processing the consignment as required by respondent No. 2. With the passage of time, commercial transactions between the parties increased. In February, 1993, respondent No. 2 offered the work of processing gram/watana to the petitioners. It was agreed that petitioner No. 2 shall effect sale of processed gram and watana on behalf of respondent No. 2 and would get 4% commission on the sale price. As per agreement, respondent No. 2 was to get sale proceeds of processed products only upon realization of the same by petitioners from the purchasers. Respondent No. 2 had agreed to bear the expenses towards commission, transport, insurance, discount, octroi and packing material, etc.
During the business as per agreement described above, petitioners used to furnish to respondent No. 2 day-to-day details of quantity of goods received, processed, sold, amount due and received, etc. At the request of respondent No. 2, petitioners remitted entire realizations of sale proceeds without deducting anything towards processing charges, commission, etc., which was requested to be adjusted afterwards.
In or about July, 1993, at the suggestion of respondent No. 2, in order to overcome the difficulty in forwarding cheques during monsoon, petitioners, in good faith, entrusted 5 blank cheques bearing Nos. 481671 to 75 to the respondent No. 2. It was understanding between the parties that the cheques should be used for withdrawal of amount not exceeding Rs. 1,00,000/- except with prior direction on behalf of petitioner No. 2. Those
cheques were signed by a single director of petitioner No. 2. Since those were to be filled in for amount not exceeding Rs. 1.00,000/-. Petitioner No. 2 had an arrangement with the bankers that in case of a cheque for withdrawing amount exceeding Rs. 1,00,000/-, it was required to be signed by two Directors. At no point of time, petitioners instructed respondent No. 2 to complete the cheques by inserting the amount or to present the same to the bank for realizing the amount.
After July, 1993, respondent No. 2 stopped entrusting work to the petitioners and expressed desire to stop dealing, without paying any amounts for the work already executed or towards commission etc. In October, 1993, petitioners requested respondents for a meeting to settle the accounts which respondent avoided. According to petitioners, amount of rupees eleven lakhs and odd is due from respondent No. 2.
In breach of all terms and conditions agreed between the parties, respondent No. 2 filled in cheque No. 481671 with an amount of Rs. 34,75,654/- and tendered the same to the bank. It was dishonoured by Ahmednagar Sahakari Bank Ltd.. Bombay, for the reason “A/c operation jointly, other director signature required”. Upon enquiry by petitioners, when they learnt the above incident, respondent No. 2 apologized and agreed to settle the account in January, 1994.
Respondent No. 2 again misusing the trust reposed, filled in amount of Rs. 28,75,654/- on cheque No. 481672 on 22.12.1993 and presented the same to the bankers for realization. The said cheque was dishonoured since it exceeded Rs. 1,00,000/- for which signatures of two directors were necessary on the cheque. Petitioners approached respondent Nos. 1 and 2 who refused to talk and threatened of dire consequences.
Petitioners received two letters dated 22.12.1993 and 29.12.1993 from respondent No. 2 on the same day i.e. 6.1.1994. Petitioners sent a reply dated 5.2.1994 through their Advocate.
In all 117 cheques were issued by petitioners in favour of respondents during the course of business and except 9, all others were for amount less than Rs. 1,00,000/-. Maximum amount paid to respondent was Rs. 2,00,000. Petitioners claim that they had no reason to issue a cheque of such huge amount. The accounts were not settled and, therefore, petitioners were not liable to pay the amount as demanded by respondent No. 2.
Respondent No. 2 has filed criminal complaint before Additional C.M.M.
37th Court, Esplanade, Bombay, on 14.2.1994 alleging the petitioners of
having committed offences u/s 420 of the I.P.C. and u/s 138 of the
Negotiable Instruments Act. Additional C.M.M., after considering the
matter, issued summons u/s 138 of Negotiable Instruments Act. It is this
criminal case numbered as 130/S/94, which is being sought to be quashed.
3. Annexed as Exhibit A is copy of cheque return memo dated 23.11.1993
which is pertaining to cheque for Rs. 34,75,654/-. During the course of
arguments, the lawyers have agreed to following chronology of events :
(i) date of cheque 22.12.1093
(ii) date of presentation to the bank 23.12.1093
(iii) date of dishonour 24.12.1993
(iv) notice to the drawer u/s. 138(b) 29.12.1993
(v) date of receipt of notice by the drawer 6.1.1994
(vi) reply by the drawer 5.2.1994
(vii) complaint filed 14.2.1994
After having considered this chronology, there is no disagreement that
impugned prosecution launched on 14.2.1994 does not suffer for want of
compliance of clauses (a), (b) and (c) of section 138.
4. Only two propositions were propounded by learned counsel Shri N.
V. Pradhan :
(1) Prosecution u/s 138 can be entertained in case of dishonour of the cheque only for one of the two reasons prescribed u/s 13 i.e. because amount of money standing to the credit of that account is insufficient to honour the cheque OR it exceeds the amount arranged to be paid from that account by an agreement made with the bank. According to Mr. Pradhan, the cheque was not dishonoured for either of the two reasons and, therefore, it cannot be said to have been dishonoured at all. In fact, the bank advice clearly indicated the technical impediment and since insufficiency of fund or inadequacy of amount arranged by agreement with the bank was not the cause, the prosecution is unsustainable.
(2) Section 138 of the Negotiable Instruments Act contemplates that cheque should be issued for discharge, in the whole or in part of any debt or liability. The debt or liability for short, the dues, ought to be legally enforceable i.e. either there ought to be decree in favour of the complainant or there should be admission of the dues by the debtor/petitioner.
According to Mr. Pradhan since there were continued transactions between the parties, there was a dispute regarding the amount due and there was need to settle the accounts. Hence, it cannot be said that the cheque was issued for legally enforceable dues, as contemplated by the words “any debt or other liability” in Section 138 of the Negotiable Instruments Act. In order to support his contention that there is dispute regarding the amount due, Advocate Shri Pradhan pointed out that respondent No. 2 has filed O.O.C.J. Summary Suit No. 432/1995 against petitioners, in which this Court has granted liberty to defend the suit without imposing any conditions.
According to Mr. Pradhan, if either of these two contentions is approved by the Court, it will have to be said that no offence u/s 138 of the Negotiable Instruments Act is made out by the complainant – respondent and the prosecution in that case will have to be quashed.
5. There is no dispute in the present case that cheque in question was returned with remarks “drawer’s signature incomplete”. Atleast while returning, the cheque unpaid, bank had not specifically stated that the funds at the credit of the account were insufficient to honour the cheque nor it was dishonoured because the amount of the cheque exceeded the amount arranged to be paid from the account by an agreement between the drawer and the bank.
6. In order to substantiate his argument that except these two reasons, no third reason can be available to drawee – complainant, Advocate Shri Pradhan has placed reliance on the decision of Apex Court in K. K. Sidharthan v. T. P. Praveena Chandranand Anr. In the matter, petitioner
had issued two post-dated cheques dated 10.10.1994 and 31.12.1994 each for a sum of Rs. 3,00,000/-. On the cheques being presented, the same were rejected unpaid on 15.10.1994 with the endorsement “payment countermanded by the drawer”. For the reasons in a detailed letter of appellant’s Advocate addressed to respondent dated 4.10.1994, bank was instructed to stop payment. This letter was replied by the respondent on 12.10.1994 denying the allegations in the letter dated 4.10.1994. Hon’ble Court referred to the decision of another Bench of the Supreme Court in Electronics Trade and Technology Development Corporation Ltd. v. Indian Technologists and Engineers (Electronics) (P.) Ltd., wherein it was observed that even if cheque is dishonoured because of “stop payment” instruction to the bank, Section 138 would get attracted. Yet for the reasons recorded in paras 5 and 6 of the judgment, the Court was satisfied that no case u/s 138 of the Act was made out and, therefore, was pleased to quash the complaint in question. It was observed that although in the case of Electronics Trade. Court held that even “stop payment” instruction would attract the mischief of Section 138, it had also observed in para 6 that if, “after the cheque is issued to the payee or to the holder in due course and before it is presented for encashment, notice is issued to him not to present the same for encashment and yet the payee or holder, in due course, present the cheque to the bank for payment, and when it is returned on instruction, Section 138 does not-get attracted.”
Thus, it can be seen that in K. K. Sidharthan case, Section 138 of the Act was held not attracted because the intimation regarding “stop payment” instruction was given to the payee before presentation of the cheque by payee, for withdrawal, to his bank. The decision in the reported case as also observations from Electronics Trade case, as borrowed in the case relied upon, indicate that, ordinarily “stop payment” instruction would attract the mischief of Section 138, but the drawer would not incur criminal liability, only if such instruction is issued before the drawee presents the cheque to the bank and drawee is intimated of the same before such presentation. Fact remains that both the cases had added third category “stop payment” instruction as the reason which would attract Section 138 of the Negotiable Instruments Act, if the cheque was dishonoured.
Shri Pradhan has also placed reliance upon another decision of Supreme Court, which is a decision of 3 Judges Bench in Modi Cements Ltd. v. Kuchil Kumar Nandi,. Referring to para 11 of the Judgment. Shri Pradhan pointed out that the observations of the Supreme Court in judgment of K. K. Sidharthan as borrowed from the case in Electronics Trade are approved by the Larger Bench.
On reference to para 11 of the judgment in Modi Cement Ltd. case, it can be seen that the Hon’ble the Apex Court has recorded its complete agreement with the legal proposition that, even if cheque is dishonoured because of “stop payment” instruction to the bank. Section 138 would get attracted.
7. In the matter of Modi Cements, respondent having incurred a liability of Rs. 1,10,53,520/- payable to the appellant towards purchase price of
cement had drawn 3 cheques in favour of appellant on 23, 26 and 28 February, 1994, for a sum of Rs. 2,00,000/- each. The appellant presented these cheques on 9.8.1994 for encashment through their bankers at Calcutta. On 6.9.1994 bankers of respondent returned the cheques as unpaid with an endorsement “payment stopped by the drawer”. Vide letter dated 8.8.1994, respondent had issued such instructions. Three petitions u/s 482 of the Cr.P.C. 1973, filed by respondent were allowed by High Court of Calcutta vide common judgment and order dated 21.11.1996. Thus, the complaints were quashed. The Hon’ble the Supreme Court was pleased to allow the appeals, set aside the common order of Calcutta High Court and restore the complaints observing that reasoning of the High Court was contrary to the decision of Supreme Court rendered by a Bench of 2 Judges in Electronics Trade & Technology Development Corporation Ltd. case.
Learned Counsel for the respondent in the reported case while claiming that decision in Electronics Trade matter did not support the appellant, because drawer had intimated to the bank to stop the payment before cheques were presented for encashment relied upon following observations in Electronics Trade case.
“Suppose after the cheque is issued to payee or to the holder in due course and before it is presented for encashment and yet the payee or holder in due course presents the cheque to the bank for payment and when it is returned on instructions. Section 138 does not get attracted.”
This argument was replied by the counsel for the appellant by referring to “Section 139- presumption in favour of holder”, of the Act and it was contended that if the observations of Supreme Court in Electronics Trade case reproduced above are accepted as good law, the very object of introducing Section 138 in the Act would be defeated.
Considering these rival contentions, Hon’ble Supreme Court felt that there was great force in the submissions of counsel for the appellant, Supreme Court observed,
“….. because once the cheque is issued by the drawer, a presumption
u/s. 139 must follow and merely because the drawer issues the notice to the drawee or to the bank for stoppage of the payment, it will not preclude an action u/s 138 of the Act by the drawee or the holder of a cheque in due course.”
While concluding para 16, Hon’ble Supreme Court also disapproved the view that Section 138 does not get attracted if a notice is issued to drawee not to present the cheque for encashment before such presentation for encashment and yet the payee presents the cheque to the bank and is returned unpaid on instructions. According to Hon’ble Apex Court, such a proposition did not fit in with the object and purpose for which Chapter XV11 is incorporated on the statute book.
8. On reference to paras 17 and 18 of the judgment, it can be seen that observations in paras 5 and 6 of the judgment in K. K. Sidharthan’s case were disapproved with following words :
“The aforesaid propositions in both these reported judgments, in our considered view, with great respect, are contrary to the spirit and object of Sections 138 and 139 of the Act. If we are to accept this proposition, it will make section 138 a dead letter, for, by giving instruct ions to the bank to stop payment immediately after issuing a cheque against a debt or liability, the drawer can
easily get rid of the penal Consequences notwithstanding the fact that a deemed offence was committed.”
The observations in para 6 of Electronics Trade case, as follows, were also, held to be not laying down the law correctly.
“Section 138 intended to prevent dishonesty on the part of the drawer of negotiable instrument, to draw a cheque without sufficient funds in his account maintained by him in a bank and induce the payee or holder in due course to act upon it. Section 138 draws presumption that one commits the offence if he issues the cheque dishonestly.”
Lastly in para 20, Hon’ble Apex Court observed :
“On a careful reading of Section 138 of the Act, we are unable to subscribe to the view that Section 138 of the Act draws presumption of dishonesty against drawer of the cheque if he, without sufficient funds to his credit in his bank account to honour the cheque, issues the same and, therefore, this amounts to an offence under Section 138 of the Act.”
Thus, it is evident that Larger Bench of the Apex Court adopted the view that “stop payment” instruction, if causes dishonour of the cheque, the same attracts Section 138 of the Negotiable Instruments Act, even if such an instruction to bank was with an intimation to drawee and before presentation of cheque for encashment. And this is so without reference to balance in the account whether sufficient to honour the cheque or not. This is also irrespective of amount of cheque being less on more than the amount arranged to be paid from the account by an agreement with the bank.
Larger Bench in Modi case also disapproves the proposition “Section 138 draws presumption that one commits offence if he issues the cheque dishonestly” as laid down in para 6 of the judgment in Electronics Trade case.
In Modi’s matter, Hon’ble Supreme Court held the cheque dishonoured with bank advice “payment stopped by the drawer” as the situation attracting Section 138 of Negotiable Instruments Act.
9. Considering the observations of Hon’ble Apex Court and especially those referred in para 8 above, it is difficult to accept the proposition of Advocate Shri Pradhan that applicability of Section 138 is interpreted as restricting only to two eventualities referred within the text or that the judgment approved its expansion to a limited extent to cover the cases of dishonour due to “stop payment” instruction. It is pertinent to not that in spite of reproducing para 5 of the judgment in Electronics Trade case, which also held the endorsement “refer to drawer” amounts to dishonour of the cheque. Larger Bench in Modi Cements Ltd. v. Kuchil Kumar,’ did not record disagreement with the same.
Observations of a Division Bench of this Court in the matter of Rakesh Nemkumar v. Narayan Dhondu, on this aspect may usefully be referred.
“A clear reading of section 138 leaves no doubt that the circumstances under which such dishonour takes place are required to be totally ignored. In this case, the law only takes a note of the fact that the payment has not been
forthcoming and it matters little that any of the manifold reasons may have caused that situation. If for instance, the closure of an account or the stoppage of payment of any other of the common place reasons for dishonour were to be justifiable, then, the Legislature would have set these out in the section as exceptions not constituting an offence. No such intention can be read into Section 138, as none exists.”
Thus, contention of learned counsel Shri Pradhan for petitioner that return of the cheque unpaid with the advice “account operation jointly, other director signature required” is not dishonour of the cheque, is not sustainable and will have to be rejected.
10. There is no dispute that respondent No. 2 has filed Summary Suit No. 423/95 against petitioners for recovery of this very amount. Shri Pradhan wanted the Court to be persuaded to believe that amount due from the petitioners is not finalized. According to him, unless the dues are enforceable i.e. either those are decreed in favour of the complainant by a competent Court of law or petitioners have admitted liability to certain extent, those cannot be termed as “any debt or other liability” as contemplated u/s- 138 of the Negotiable Instruments Act. In this context, a reference to presumption u/s 139 as also Section 118(a) the of the Negotiable Instruments Act, will have to be made.
“Section 139. Presumption in favour of holder –
It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability.’
Thus, when it is not disputed by the petitioners that cheque was issued in favour of respondent No. 2, it cannot be open for petitioners to contend that cheque was not for “amount due”. Presumption u/s 139 would assist respondent No. 2 in this region, although presumption being rebuttable, it may be open for the petitioners to establish in theTrial Court that this much was not the amount due etc.
The presumption in favour of drawee also stands strengthened by virtue of Section 118(a) the of Negotiable Instruments Act, which also indicates the presumption being rebuttable by leaving a margin for rebuttal of the presumption with opening phrase :
“Section 118. Presumption as to negotiable instruments –
Until the contrary is proved, the following presumptions shall be made :
(a) of consideration : that every negotiable instrument was made or drawn for consideration, and that every such instrument when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration.”
It can be seen that presumption u/s 118 would favour the respondent No. 2, until petitioners prove contrary that the cheque was not drawn for consideration and until the presumption u/s 118 is not rebutted, it will not be open for the petitioners to say that Section 138 is not attracted because the cheque was not issued for discharge. In whole or in part, of any debt or other liability. In other words, having issued the cheque, it may not be open to the petitioners to claim that the same was not towards amount due.
11. For all above reasons, both propositions propounded by learned counsel Shri Pradhan deserve to be rejected. Whether petitioners had
issued blank cheques, whether those were written by petitioners or those were written beyond instructions of petitioners by respondent No. 2, whether amount due is lesser than the amount endorsed on the cheque, these and such issues are matter of defences, which can be taken by the petitioners at the trial, for which they cannot be entitled to quashing of the process.
Thus, taking the averments in the complaint unrebutted and on their face value, it cannot be said that no offence is made out. The writ petition praying to quash the prosecution, therefore, deserves to be and is accordingly dismissed.
Seven years have expired since filing the prosecution and, therefore, the learned Magistrate shall give due preference to hearing of the matter and dispose it of as early as possible.