IMPORTANT JUDGMENTS ON CHEQUE BOUNCE/SECTION 138 OF NI ACT

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January 12, 2019

Mediation for Offence under Section 138 of Negotiable Instruments Act, 1881

Case name: Dayawati v. Yogesh Kumar Gosain (Delhi High Court)

In a remarkable judgment passed by the Delhi High Court, the Court has drawn a distinction between traditional criminal cases and offence under Section 138 of Negotiable Instruments Act, 1881 (hereinafter referred to as NI Act) to hold that it is legal to refer a criminal compoundable case as one under Section 138 of NI Act to mediation.

The Court in the case also expounded the procedure that is to be followed in cases of mediation for offences under Section 138 of NI Act and also delineated the contents of the settlement.

In the case, the Court held that it is legal to refer a criminal compoundable case as one under Section 138 of NI Act to mediation.

SC Issues Directions for Speedy Disposal of Dishonor of Cheque Cases

Case Name: M/s Meters and Instruments Private Limited & Anr. v. Kanchan Mehta

In this case, Two-Judge Bench of Supreme Court made some key observations regarding dishonor of cheque cases and also issued directions for speedy disposal of cheque cases under Section 138 of NI Act.

Use of modern technology for speedy disposal of cases– The Court took into consideration use of modern technologies for enabling speedy disposal of cases under Section 138 of NI Act  and noted that use of modern technology needs to be considered not only for paperless Courts but also to reduce overcrowding of Courts. There appears to be need to consider categories of cases which can be partly or entirely concluded “online” without physical presence of the parties by simplifying procedures where seriously disputed questions are not required to be adjudicated. Traffic challans may perhaps be one such category.

Atleast some number of Section 138 cases can be decided online. If complaint with affidavits and documents can be filed online, process issued online and accused pays the specified amount online, it may obviate the need for personal appearance of the complainant or the accused. Only if the accused contests, need for appearance of parties may arise which may be through Counsel and wherever viable, video conferencing can be used. Personal appearances can be dispensed with on suitable self-operating conditions.

Only Handing over of Dishonored Cheque does not Attract Offence under Section 138 of NI Act

Case name- Smt. Asha Baldwa v. Ram Gopal

In the case, the Petitioner had instituted petition under Section 482 of CrPC  for quashing of the entire proceeding of criminal case qua the petitioner for offence under Section 138 of NI Act.

In the case, it was alleged that the dishonored cheque was handed over to the present respondent by the petitioner and, therefore, she was consenting party to the act of giving the cheque and hence responsible for any proceedings in consequence of giving the cheque.

The Petitioner in the case contended that as per Section 141(2) of the Negotiable Instrument Act, 1881 the allegation can only be levelled against the Company or its partners or its Directors only when the offence was committed with the consent or connivance or, is attributable to, any neglect on the part of, any director, manager, secretary or partners.

Key takeaways from the case

That the legislative intention while making a specific provision of Company/Firm was that any person who was not directly responsible or merely a Director of Company or Firm could be held guilty for the alleged offence, only if he had committed offence with the consent of such person.

That on a bare reading of the complaint as well as the record, it is clear that only role of the petitioner is that she handed over the cheque but it has not been alleged that what was her role in consenting to the offence that is a default or dishonoring of the cheque.

That the purport of the special law under the Negotiable Instrument Act is to ensure that the promise to pay is abided by the person so promising. The provision under Section 139 of the NI Act is that it shall be presumed that the holder of a cheque received the cheque of the nature referred to in Section 138 of NI Act for the discharge, in whole or in part, of any debt or other liability.

That the legislative intention was that the holder of the cheque shall be entitled to receive the amount so promised from the person from whom the cheque is received. Any person, other than the person could be held responsible under Section 141(2) of the NI Act only when he is an office bearer of the Company of Firm.

That a bare reading of the complaint as well as the relevant law, on the face of it, makes it clear that the offence is not made out against the present petitioner as she neither issued the cheque and it has not been attributed to her and the allegation was that she had handed over the cheques which does not mean she had consented to offence by any stretch of imagination.

Case to be Instituted at the Place where Branch of the Bank on which Cheque was drawn is located

Case name: Dashrath Roopsingh Rathod Vs. Stae of Maharashtra & Anr.

In this case, the Supreme Court changed the basic criteria under Section 138 of Negotiable Instruments Act which is to prosecute a person who had presented the cheque which had been returned due to insufficiency of funds or if the amount exceeds the amount in the bank of the payer.

Earlier, a case under Section 138 could be initiated by the holder of the cheque at his place of business or residence. But, a bench of justices TS Thakur, Vikramjit Sen and C Nagappan ruled that the case has to be initiated at the place where the branch of the bank on which the cheque was drawn is located.

And the judgment would apply retrospectively. This means, lakhs of cases pending in various courts across the country would witness a interstate transfer of cheque bouncing cases.

The bench said: “In this analysis, we hold that the place, situs or venue of judicial inquiry and trial of the offence must logically be restricted to where the drawee bank is located.”

SC on Rebuttal by Accused against Presumption in Cheque Bounce Cases

Case name: Kishan Rao v. Shankargouda

In this recent case, the Division Bench of Supreme Court has deliberated on two legal propositions. Firstly, High Court’s scope of revisional jurisdiction and secondly, presumption in favour of holder of cheque under Section 139 of NI Act.

In the case, the Appellant challenged High Court’s order, whereby the Court while exercising revisional jurisdiction had set aside the order of conviction against the Respondent under Section 138 of Negotiable Instrument Act.

During trial of the case, the Appellant examined witnesses as well as produced documentary evidence to prove the Respondent’s offence u/Section 138 of NI Act. However, the respondent did not produce any oral or documentary evidence in the case. The Trial Court drew presumption under Section 139 of the Act, 1881 against the accused. Accused failed to rebut the presumption by leading any evidence on his behalf. Hence, the Trial Court convicted the Respondent u/Section 138 of NI Act.

Aggrieved by Trial Court’s order the Respondent filed Criminal Revision in the High Court. The High Court by the impugned judgment has allowed the revision by setting aside the conviction order. The High Court held that the accused has been successful in creating doubt in the mind of the Court with regard to the existence of the debt or liability. Aggrieved by the judgment of High Court, the Appellant approached the Supreme Court.

Bench’s Verdict

The Supreme Court in the case ruled in favour of the Appellant and set aside High Court’s order. The Apex Court in the case deliberated on two essential points, firstly, High Court’s scope of revisional jurisdiction and secondly, presumption in favour of holder of cheque under Section 139 of NI Act.

Scope of Revisional Jurisdiction of High Court- That the High Court in exercise of revisional jurisdiction shall not interfere with the order of the Magistrate unless it is perverse or wholly unreasonable or there is non-consideration of any relevant material, the order cannot be set aside merely on the ground that another view is possible.

With reference to the facts of the present case, the Court observed that in the instant case also conviction of the accused was recorded, the High Court set aside the order of conviction by substituting its own view. That the High Court did not returned any finding that order of conviction based on evidence on record suffers from any perversity or based on no material or there is other valid ground for exercise of revisional jurisdiction.

Presumption u/ Section 139 of NI Act– While referring to the case of Kumar Exports vs. Sharma Carpets, the Supreme Court held that the accused may adduce evidence to rebut the presumption, but mere denial regarding existence of debt shall not serve any purpose.

With reference to the facts of the present case, the Court noted that the trial court as well as the Appellate Court having found that cheque contained the signatures of the accused and it was given to the appellant to present in the Bank of the presumption under Section 139 was rightly raised which was not rebutted by the accused. The accused had not led any evidence to rebut the aforesaid presumption.

It was also stated that in the event the accused is able to raise a probable defence which creates doubt with regard to the existence of a debt or liability, the presumption may fail.

Supreme Court on Object behind Enactment of Section 138 of NI Act

Case name: Dalmia Cement (Bharat) Ltd vs M/S.Galaxy Trades & Agencies Ltd.

The Supreme Court in the case while stressing on the object behind enactment of Section 138 of NI Act stated that the provision was incorporated with a specified object of making a special provision by incorporating a strict liability so far as the cheque, a negotiable instrument, is concerned. The law relating to negotiable instrument is the law of commercial world legislated to facilitate the activities in trade and commerce making provision of giving sanctity to the instruments of credit which could be deemed to be convertible into money and easily passable from one person to another. In the absence of such instruments, including a cheque, the trade and commerce activities, in the present day would, are likely to be adversely affected as it is impracticable for the trading community to carry on with it the bulk of the currency in force.

The negotiable instruments are in fact the instruments of credit being convertible on account of legality of being negotiated and are easily passable from one hand to another. To achieve the objectives of the Act, the legislature has, in its wisdom, thought it proper to make such provisions in the Act for conferring such privileges to the mercantile instruments contemplated under it and provide special penalties and procedure in case the obligations under the instruments are not discharged. The laws relating to the Act are, therefore, required to be interpreted in the light of the objects intended to be achieved by it despite there being deviations from the general law and the procedure provided for the redressal of the grievances to the litigants.

Bank’s Role when Signature on the Cheque is Forged

Case name: Canara Bank vs Canara Sales Corporation & Ors.

The Supreme Court while analyzing the Supreme Court’s role in the case stated that when a cheque which is presented for encashment contains a forged signature the bank has no authority to make payment against such a cheque. The bank would be acting against law in debiting the customer with the amounts covered by such cheques.

Bhaskaran v. Shankaran Vaidhyan Balan

In this case, the Two-Judge Bench of the Supreme Court had held that the offence under Section 138 of NI Act can be completed only with the concatenation of a number of acts. However, this ruling was overruled by Supreme Court’s judgment in Dashrath Roop Singh case.

Modi Cements Limited v. Kuchil Kumar Nandi (1998) 3 SCC 249

Insufficiency of funds at the time of issue of cheque does not by itself create the presumption of dishonesty in issuing the cheque.

Vicarious Liability of Company’s Director in Cheque Bounce Cases

Case name: Jayalakshmi Nataraj v. Jeena & Co. (1996) 86 Comp Case 265

The Managing Director of a Company accused under Section 138 of NI Act was held guilty notwithstanding her plea that she did not participate in the day-to-day administration of the company and was not aware of it’s affairs.

Geekay Exim (India) Ltd. v. State of Gujarat (1998) 94 Comp Cas 516

Mens rea not open to presumption- event though mens rea is not an essential condition specified in Section 138, such element may be presumed to have existed only on the basis of facts and circumstances of each case.