***

Pay order – Section 138 NI Act – Maintainability of complaint – Dishonour of a pay order can sustain a complaint under Section 138 NI Act, and the complainant-bank is entitled to possess and recover the amount under the instrument.

***

Draft – Pay order – Sections 85A, 131A NI Act – A draft drawn by one branch of a bank on another branch is a negotiable instrument, and provisions relating to crossing of cheques apply to such drafts.

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Pay order – Holder in due course – Presumption – The complainant, being the holder of the instrument in its own right, may be presumed to be a holder in due course, subject to rebuttal by the respondents at trial.

***

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 6, 8, 9, 17, 85A, 138 -- Pay Order – Holder in due course -- Dishonour of pay order – Maintainability of cheque bounce complaint -- Complainant-bank was well within its right to possess the cheque and to receive or recover the amount covered by the instrument -- High Court quashed the complaint on the ground that Pay order is not cheque -- Supreme Court dissented – Appeal allowed, impugned judgment, set aside -- Trial to proceed.

(Para 2, 18, 21)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 6, 85A, 131A – Draft – Pay order – Cheque -- Section 85A deals with drafts drawn by one branch of a bank on another branch of the same bank -- Such draft is a negotiable instrument -- Section 131A makes all the provisions for crossing of cheques applicable to the drafts also.

(Para 9, 10)

C. Negotiable Instruments Act, 1881 (26 of 1881), Section 8, 9, 50, 85A, 118(g) -- Pay order – Holder in due course – Endorsement – Presumption – High Court took the view that complainant was not a holder in due course in the absence of an endorsement made on the instrument in the manner prescribed under section 50 of the Act – Held, this ground was adopted by the High Court without regard to certain relevant provisions of the Act – Complainant-company is the holder of the instrument on its own right and could be a holder in due course also until the concerned party adduces evidence to rebut the presumption -- It is open to the respondents to rebut the presumption in the trial but till then the High Court could not say that the complainant is not a holder in due course..

(Para 20-23)

***

Presumption – Rebuttal – Sections 118, 138, 139 NI Act – Once the foundational facts exist, the statutory presumption must be drawn, but it can be rebutted by showing the defence to be either established or reasonably probable on the standard of a prudent person.

***

Negotiable Instruments Act, 1881 (26 of 1881), Section 118, 138, 139 – Cheque bounce complaint – Presumption – Rebuttal -- Provided the facts required to form the basis of a presumption of law exists, no discretion is left with the Court but to draw the statutory conclusion, but this does not preclude the person against whom the presumption is drawn from rebutting it and proving the contrary -- Rebuttal does not have to be conclusively established but such evidence must be adduced before the Court in support of the defence that the Court must either believe the defence to exist or consider its existence to be reasonably probable, the standard of reasonability being that of the ’prudent man’.

(Para 19)

***

Bill of exchange – Section 5 NI Act – A bill of exchange is a negotiable written instrument directing a third party to pay a specified sum of money on demand or at a designated future date.

***

Post-dated cheque – Sections 5, 6 NI Act – A post-dated cheque remains a bill of exchange until the date mentioned on it, when it becomes a cheque payable on demand.

***

Post-dated cheque – Section 138 NI Act – Validity period – The six-month/validity period for presentation of a post-dated cheque is reckoned from the date mentioned on the cheque, and not from the date of its delivery to the payee.

***

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 5 -- Bill of exchange – Bill of exchange is a negotiable instrument in writing containing an instruction to a third party to pay a stated sum of money at a designated future date or on demand.

(Para 17)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 5, 6 -- Bill of exchange – Cheque -- A ‘cheque is a bill of exchange drawn on a bank by the holder of an account payable on demand -- A ‘post-dated cheque is not payable till the date which is shown thereon arrives and will become cheque on the said date and prior to that date the same remains bill of exchange.

(Para 17)

C. Negotiable Instruments Act, 1881 (26 of 1881), Section 6, 138 – Cheque bounce complaint – Post dated cheque – For prosecuting a person for an offence u/s 138 of the Act, it is inevitable that the cheque is presented to the banker within a period of six months from the date on which it is drawn or within the period of its validity whichever is earlier – Post-dated cheque becomes a cheque within the meaning of Section 138 of the Act on the date which is written thereon -- Six months period shall be reckoned from the date mentioned on the face of the cheque and not any earlier date on which the cheque was made over by the drawer to the drawee.

(Para 18)

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Object and purpose of NI Act – Section 1 – The NI Act aims to regulate and facilitate the negotiability of mercantile instruments by providing an authoritative legal framework and special remedies for their enforcement.

***

Strict interpretation – As Section 138 creates a penal offence, its provisions must be strictly construed to prevent unwarranted criminal prosecution.

***

Post-dated cheque – Sections 5, 6 – A post-dated cheque is a bill of exchange until the date mentioned on it, when it becomes a cheque under the NI Act.

***

Presentation of cheque – Sections 72, 138 – For criminal liability under Section 138, the cheque must be presented at the bank on which it is drawn within the prescribed period, whether directly or through the payee’s collecting bank.

***

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 1 -- Object and purpose of NI Act -- The negotiable instruments are, in fact, the instruments of credit being convertible on account of the legality of being negotiated and thus easily passable from one hand to another. The source of Indian law relating to such instruments is admittedly the English Common Law. The main object of the Act is to legalise the system by which instruments contemplated by it could pass from hand to hand by negotiation like any other goods. The purpose of the Act was to present an orderly and authoritative statement of the leading rules of law relating to the negotiable instruments. The Act intends to legalise the system under which claims upon mercantile instruments could be equated with ordinary goods passing from hand to hand. To achieve the objective of the Act, the Legislature in its wisdom thought it proper to make provision in the Act for conferring such privileges to the mercantile instruments contemplated under it and provide special procedure in case the obligation under the instrument was not discharged.

(Para 5)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138 – Interpretation -- It has, always to be kept in mind that Section 138 of The Act creates an offence and the law relating to the penal provisions has to be interpreted strictly so that non-one can ingeniously or insidiously or guilefully or strategically be prosecuted.

(Para 5)

C. Negotiable Instruments Act, 1881 (26 of 1881), Section 5, 6 – Post dated cheque -- Bill of Exchange – Cheque -- When a post-dated cheque is written or drawn, it is only a bill of exchange -- Post-dated cheque become a cheque under the Act on the date which is written on the said cheque.

(Para 6)

D. Negotiable Instruments Act, 1881 (26 of 1881), Section 72, 138 -- Presentation of cheque -- Bank, where to present – Drawer Bank – Cheque to be presented at the bank on which it is drawn if the drawer is to be held criminally liable -- Such presentation is necessarily to be made within six months at the bank on which the cheque is drawn, whether presented personally or through another bank, namely, the collecting bank of the payee.

(Para 9)

***

Demand notice to Director – Section 138 NI Act – Notice served on the Director who signed the company’s cheque constitutes valid notice to the drawer; proceedings cannot be quashed for want of notice.

***

Subsequent payment – Section 138 NI Act – Quashing of proceedings – Subsequent payment or deposit of the cheque amount does not absolve the accused of criminal liability or warrant quashing of proceedings, though it may have a bearing on sentence.

***

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 141 -- Cheque by Company -- Demand notice to Director of Company – Validity of – Demand notice to Director of Company, who signed the cheque -- High Court committed error in recording a finding that there was no notice to the drawer of the cheque, as required u/s 138 of the NI Act – Held, Impugned order of the High Court is liable to be quashed.

(Para 1, 7)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 141 -- Code of Criminal Procedure, 1973 (2 of 1974), Section 482 -- Cheque by Company -- Offence by Company – Deposit of money in court – Quashing of proceedings – Permissibly of -- Once the offence is committed, any payment made subsequent thereto will not absolve the accused of the liability of criminal offence, though in the matter of awarding of sentence, it may have some effect on the Courts trying the offence -- But by no stretch of imagination, a criminal proceeding could be quashed on account of deposit of money in the Court.

(Para 8)

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Premature complaint – Cognizance – Mere filing of a premature complaint does not amount to taking cognizance; it may await maturity or be returned for presentation later without absolving the accused of criminal liability.

***

Return of complaint – Cognizance – Return of a complaint for rectification of defects, such as unsigned verification, does not amount to taking cognizance under Section 142 NI Act.

***

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 142 – Cause of action -- Pre-mature filing of complaint – Cognizance by Magistrate -- "Taking cognizance of an offence" by the Court has to be distinguished from the filing of the complaint by the complainant -- Taking cognizance would mean the action taken by the Court for initiating judicial proceedings against the offender in respect of the offence regarding which the complaint is filed – Mere presentation of the complaint in the Court cannot be held to mean that its cognizance had been taken by the Magistrate -- If the complaint is found to be pre-mature, it can await maturity or be returned to the complainant for filing later and its mere presentation at an earlier date need not necessarily render the complaint liable to be dismissed or confer any right upon the accused to absolve himself from the criminal liability for the offence committed.

(Para 8-10)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 142 – Presentation of complaint – Cognizance by Magistrate -- Complaint was returned to the complainant/ appellant on the ground that the verification was not signed by the counsel, could not be termed to be an action of the Magistrate taking cognizance within the meaning of Section 142 of the Act.

(Para 11)

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SICA proceedings – Maintainability of Section 138 NI Complaint –** Section 22 SICA does not bar institution or prosecution of a criminal complaint under Section 138 NI Act against a company or its Directors.

***

SICA proceedings – BIFR restraint order – Section 138 NI Complaint –** Where a BIFR restraint order under Section 22-A SICA precedes completion of the Section 138 offence, criminal prosecution may not be justified if non-payment was beyond the accused’s control; the issue depends on the facts of each case.

***

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 141 – Sick Industrial Companies (Special Provisions) Act (1 of 1986), Section 22 – Code of Criminal Procedure, 1973 (2 of 1974), Section 482 – Constitution of India, Article 227 -- Dishonour of Cheque -- Prosecution of the Company/ Directors – SICA proceedings -- Maintainability of complaint u/s 138 of NI Act -- Section only creates an embargo against disposal of assets of the company for recovery of its debts -- Purpose of such an embargo is to preserve the assets of the company from being attached or sold for realisation of dues of the creditors -- Section does not bar payment of money by the company or its directors to other persons for satisfaction of their legally enforceable dues -- Section 22 SICA does not create any legal impediment for instituting and proceeding with a criminal case on the allegations of an offence u/s 138 of the NI Act against a company or its Directors.

(Para 18)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 141 – Sick Industrial Companies (Special Provisions) Act (1 of 1986), Section 22-A – Code of Criminal Procedure, 1973 (2 of 1974), Section 482 -- Constitution of India, Article 227 -- Dishonour of Cheque -- Prosecution of the Company/ Directors – Company declared Sick -- Maintainability of complaint u/s 138 of NI Act -- In a case in which the BIFR has submitted its report declaring a company as ‘sick’ and has also issued a direction u/s 22-A restraining the company or its directors not to dispose of any of its assets except with consent of the Board then the contention raised that a criminal case for the alleged offence u/s 138 NI Act cannot be instituted during the period in which the restraint order passed by the BIFR remains operative cannot be rejected outright -- Whether the contention can be accepted or not will depend on the facts and circumstances of the case -- For instance, before the date on which the cheque was drawn or before expiry of the statutory period of 15 days after notice, a restraint order of the BIFR u/s 22-A was passed against the company then it cannot be said that the offence u/s 138 NI Act was completed -- In such a case it may reasonably be said that the dishonoring of the cheque by the bank and failure to make payment of the amount by the company and/or its Directors is for reasons beyond the control of the accused -- In such circumstances it would be unjust and unfair and against the intent and purpose of the statute to hold that the Directors should be compelled to face trial in a criminal case.

(Para 19, 20)

***

Recovery of cheque amount – Proceedings under Section 138 are penal in nature and are intended to impose criminal liability for the dishonour of cheque, not merely to recover the cheque amount.

***

SICA proceedings – Maintainability of Section 138 NI Complaint – Proceedings under Section 22(1) SICA do not bar prosecution under Section 138 NI Act where the offence was completed before commencement of SICA proceedings.

***

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 138 -- Cheque bounce case – Complaint u/s 138 of NI Act – Recovery of money under cheque -- A criminal prosecution is neither for recovery of money nor for enforcement of any security etc. -- Section 138 of the NI Act is a penal provision the commission of which offence entails a conviction and sentence on proof of the guilt in a duly conducted criminal proceedings -- Once the offence u/s 138 is completed the prosecution proceedings can be initiated not for recovery of the amount covered by the cheque but for bringing the offender to the penal liability.

(Para 20)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 141, 142 – Sick Industrial Companies (Special Provisions) Act (1 of 1986), Section 22(1) –Cheque bounce case -- Prosecution of the Company/ Directors – Effect of SICA proceedings – Maintainability of Complaint u/s 138 of NI Act – Section 138 of NI Act was introduced in 1988 when SICA was already in vogue -- Parliament did not think it necessary to exclude companies falling u/s 22 of SICA from the operation thereof -- Held, if commission of the offence u/s 138 of the NI Act was completed before the commencement of proceedings u/s 22(1) of SICA there is no hurdle in any of the provisions of SICA against the maintainability and prosecution of a criminal complaint duly instituted u/s 142 of the NI Act.

(Para 21, 22)

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Demand notice u/s 138 NI Act – Additional amount claimed -- A demand notice under Section 138 NI Act is not invalid merely because it includes additional claims, but the Section 139 presumption applies only to the cheque amount, while other claims must be pursued through a civil suit.

***

A. Negotiable Instruments Act, 1881 (26 of 1881), Section 138 – Cheque bounce case -- Demand notice for payment – Additional claim in demand notice -- Effect of – If in a notice any other sum is indicated in addition to the cheque amount the notice cannot be faulted.

(Para 10)

B. Negotiable Instruments Act, 1881 (26 of 1881), Section 138, 139 – Cheque bounce case – Presumption -- Additional claim in demand notice -- Presumption u/s 139 of NI Act would arise only in respect of the cheque amount -- Regarding other claims, a civil suit would be necessary.

(Para 10-13)