Orissa High Court
Sri Siba Shankar Sahu vs Utkal Asbestos Ltd. on 24 December, 1993
Equivalent citations: 1994(I)OLR165
JUDGMENT L. Rath, J.
1. A question of considerable importance as to the relative scope of Section 138 of the Negotiable Instruments Act, 1891 (hereinafter referred to as 'the Act') for launching prosecutions when cheques are dishonoured falls for decision in this case. A preamble of the facts is necessary to introduce the question. The petitioner is a proprietorship firm having business of supply of building materials and for the purpose, uses to get A. C. Sheets of different brands including Konark brand manufactured by the opposite party-company. The agreement for payment of the cost of A. C. Sheets was both cash and credit. There were some oustanding dues against the petitioner against 0. A. No. 367 of the opposite party and goods invoice No. DAD 535 dated 11-11-1892. It is the petitioner's case that against the amounts outstanding cash payment of Rs. 41,000/- was made and after adjustment of a sum of Rs. 22,000/- in the accounts, a sum of Rs. 19,000/- was outstanding for payment for which he issued a cheque in favour of the opposite party bearing No. 827512, without entering any date thereupon. The under-standing between the parties was that the amount outstanding would be incorporated in the cheque. On 19-5-1993 the petitioner received voucher No 2294 from the opposite party for Rs. 75,483/- instead of voucher for Rs. 19,000/-. Since the voucher for such a large amount was sent, the petitioner instructed the Branch Manager, Bank of Baroda on 22-5-1993 not to cash the cheque No. 827512 drawn on his account No. 3226. The cheque was presented by the opposite party on that very day but was returned by the Bank on 26-5-1993/1-6-1993 with the endorsement "payment stopped by the drawer". Thereafter the opposite party through its letter dated 3-6-1993 requested the petitioner to clear up the outstanding dues within seven days of due receipt of the letter but he did not respond for which the opposite party filed the complaint in the Court with the allegation that the outstanding dues against the petitioner were Rs. 90,841.51 which he did not clear in spite of repeated verbal/written requests and had ultimately issued the cheque for Rs. 75,483/- as part payment. Even though the cheque had been issued, yet on its presentation it was dishonoured and the petitioner having failed to pay the amount even after notice, was guilty of the offence Under Section 138 of the Act.
2. The present application Under Section 482, Cr PC has been filed by the petitioner seeking quashing of the complaint and the notice issued to him for appearance on the submission that ingredients of Section 138 of the Act are not attracted to maintain the prosecution. It is the submission that since the petitioner had never issued the cheque for Rs. 75,483/- and the arrangement between the parties was only to draw an amount of Rs. 19,000/-, and that since stoppage of payment of a cheque is not refusal of payment on the cheque either due to insufficiency of funds or because of the fact that the amount mentioned exceeds the amount agreed to be paid by the Bank from the account on the petitioner's behalf, the move to pursue a charge Under Section 138 of the Act against the petitioner was misconceived. On notice being issued, the opp. party has appeared and contends that since the cheque was in fact made out for Rs. 75,483/- and the Bank has refused to pay on it, whatsoever may be the reason, the petitioner has become liable for prosecution under the section and that at any rate, the complaint cannot be scuttled before trial as in course of the trial it may be possible for it to show that in fact the petitioner had not the requisite amount to his credit in his account in the Bank and that the real reason for refusal to draw upon the cheque was insufficiency of funds or that the figure on the cheque exceeded the amount agreed by the Bank to clear on cheques issued by the petitioner.
3. Some salient features of the case may be noticed. Admittedly, the cheque carried the figure Rs. 75,483/- as the amount to be drawn upon it. Even though the petitioner stopped payment on the cheque by written instruction to the Bank on 22-5-1993, reasons for stopping payment on the cheque was not communicated to the opp. party in writing and that too even when the letter of 3-6-1993 from the opposite party was received by the petitioner. There is no such averment in the petition though a case has been advanced in the present petition that the petitioner carried on personal negotiation with the opposite party meeting the General Manager in his office.
4. Whether or not refusal by the Bank to pay upon a cheque for whatsoever grounds would create a liability for prosecution and whether the provisions of Section 482, CrPC can be invoked to quash the prosecution so launched have engaged the attention of different High Courts of this country to which decisions my attention has been drawn by both the learned counsels for the parties. It is beneficial to deal with the citations before analysis of the provisions of the Act is made to reach a conclusion. Mr. Misra, the learned counsel for the petitioner has placed reliance on 1992 (2) Crime 215 (M/s. Union Road Ways(P) Ltd. and Anr. v. M/s. Shah Ramanlal Santosh Kumar and Anr.), Single Judge decision of the Andhra Pradesh High Court, which took the view that where payment on a cheque is refused by the Bank with the endorsement "Refer to Drawer", a presumption drawn that the endorsement indicates insufficiency of funds or that the cheque had been issued without the necessary funds in the account is unwarranted and as the offence is not made out, the proceeding could be quashed. In taking the view, observation was made that the cheque might have been returned for various reasons and it was noticed that similar view had been taken by the Punjab and Haryana High Court in 1990 (2) Bank C. L. R. 416 (Abdul Samad v. Satya Narayan Kahewar) and 1991 (1) All. 37 (Hunasikattinath v. State of Karnataka). In 1992 (2) Crimes 919 (Thomas Karghesa v. P. Jerona), a Division Bench the Kerala High Court took the view that for an offence under the section the endorsement made by the banker while returning the cheque was not decisive and that irrespective of the endorsement, if it is established that in fact the cheque was returned unpaid either because the amount standing to the credit of the account of the drawer is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that Bank, the offence would be established. It was explained that an endorsement by the canker that the cheque is returned due to insufficiency of funds standing in the name of the drawer may tell upon the financial soundness of the drawer and may adversely affect his reputation and that sometimes the banker may be slow to use the words such as "no sufficient fund in the account". For such reason, the mere refraining by the banker from making the derogatory endorsement would not halt the object of the legislation to be carried out. Taking the view, the complaint was refused to be quashed. In 1992(2) Crimes 1047 (Thomas Gupta v. Bakeman's Home Products),a learned Single Judge of Punjab and Haryana High Court took the view that where the cheque had been issued not in discharge of payment of any goods purchased but in discharge of pre-existing liability and the payment of the cheque was stopped by the drawer, there would be no fraudulent or dishonest act of him to induce the complainant to deliver any property against the cheque and that the liability, if any, was only civil with the ingredients of the offence being absent. The Court directed quashing of the proceeding. In 1992(1) Crimes 5 (Mrs. I. Jayalakshmi v. Mrs. Isshida), a learned Single Judge of the Madras High Court held the view that a plain reading of Section 138 of the Act already indicates that only in those two contingencies viz.,when the cheque is returned unpaid because of insufficiency of funds and/or that it exceeds the amount arranged to be paid, the offence is committed and that whom the cheque is returned unpaid with endorsement "refer to drawer" and "payment countermanded by the drawer", the case would not come within the ambit and scope of Section 138 of the Act and the proceeding initiated would be liable to be quashed. In 1993 (1) Crimes 394 (M/s. Smbee Textiles Ltd. and Anr. v. Sadhu Ram), is a Single Judge decision of the Punjab and Haryana High Court which took the view, where there was no averment in the complaint that the cheques were dishonoured either due to inadequacy of funds or because of the amount mentioned in it exceeding the limit against the account if any, and where before filing the complaint, the respondent did not try to ascertain whether there were sufficient funds in the account of the drawer or whether the payment was stopped by the bank for the other reason, that the cheques were dishonoured not due to any of the grounds stated in Sec. 138 of the Act and the complaint was quashed. Another decisions, 1993(1) Crimes 679 (Prasanna v. Vijayalakshmi) relied upon by the learned counsel is of the same learned Single Judge of the Madras High Court that where the cheque was returned unpaid with the endorsement "Account Closed," the complaint did not fall within the ambit of Section 138 and was liable to be quashed.
5. On behalf of the opposite party reliance has been placed on 1993 (1) Crimes 268 (Rakesh Nemkumar Porwal v. Narayan Dhondu Joglekar and Anr.), a Division Bench decision of the Bombay High Court which has taken the view that the circumstances under which the dishonour takes place are to be totally ignored and that the law only takes note of the fact that the payment has not been forthcoming. It matters little that any of the manifold reasons for which a cheque is refused payment may have caused that situation. If, for instance, the closure of an account or the stoppage of payment or 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 the offence. No such intention could be read into Section 138 as none exists. Reliance has also been placed on 1993 (3) Crimes 395 (M/s. Peeray Lal Rajendra Kumar Pvt. Ltd. v. State of Rajasthan) that when a prosecution is launched Under Section 138 of the Act for a cheque having been stopped payment by the drawer and the plea in the complaint was that the cheque was returned due to insufficiency of funds and the evidence is led in support of the plea, the question as to what was the real reason for dishonouring the cheque can be decided only after evidence is led by both the parties in the case and the proceeding cannot be quashed by the High Court.
6. Section 138 of the Act, for ready reference, may be extracted :
"138. Dishonour of cheque for insufficiency, etc. of funds in the account.
Where any cheque drawn by a person on an account maintai- ned by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amont arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with 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;
Provided that nothing contained in this section shall apply unless :
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier ;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid ; and
(c) 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.
Explanation :-For the purpose of this section "debt or other liability' means a legally enforceable debt or other liability."
7. An analysis of the section shows the liability under it to arise-
(i) When a cheque is drawn by a person on an account maintained by him with a banker in favour of a person ;
(ii) The cheque is drawn for the purpose of discharge, either in whole or in part, of any debt or other liability ;
(iii) The cheque is returned by the bank unpaid ; and
(iv) Non-encashment of the cheque is either because the amount standing to the credit of the drawer in that account is insufficient to honour the cheque or the amount for which the cheque is drawn exceeds the amount arranged to be paid from that account by an agreement made with the bank.
By the proviso some riders are added to the applicability of the substantive provision.
8. It is a well-known canon of construction of statutes that where it is penal in nature it must receive a strict interpretation. It is another cardinal principle of criminal jurisprudence that for commission of an offence, mens rea is a necessary ingredient unless it is statutorily or by necessary implication excluded. To establish that an offence has been committed Under Section 133 of the Act, all the ingredients as are found in the above analysis are to be present. Hence when a complaint is filed alleging the offence to have been committed, it will be for the complainant to show that the cheque had been issued in discharge of a debt or liability and that the cheque was returned by the bank because of the reason that there was insufficient funds in the account to honour it or that it exceeded the amount agreed by the Bank to be paid from that account. The pre-existence of any debt or liability has to be independently established and it is also to be shown that the cheque was issued in discharge of such debt or liability either in whole or in part. The necessity is of a conscious execution of the cheque by the drawer in respect of the debt or liability. The position remains the same both when the cheque is for a specific amount of is a blank cheque.
9. Once such ingredient is satisfied, the next fact to be seen is whether the cheque has not been paid either because of the twin reasons as stated in the section itself. Since the legislature has been specific that the criminal liability would arise when the cheque is returned because of either of those two reasons, it would not be proper to hold that for whatever reason the cheque is returned, the drawer would become criminally liable A cheque may be returned for a host of reasons and the drawer stopping payment of it is one of them. He may stop payment on the cheque even when sufficient funds are available in the account to meet it or even when the amount is lesser than the limit of drawal agreed to by the Bank. It cannot be said that even then a criminal liability would arise as that would run counter to the very provision of the section that the offence is committed if the cheque is returned only because of either of those two reasons. Supposing a cheque has been issued to meet the price of some article supplied, but bafore the cheque is encashed it was discovered that the article was not the same for which the price was paid and the payment is directed to be stopped, even though necessary funds are there in the account, it can hardly be said that the drawer has become criminally liable. In that case, the dispute between the parties would be of civil nature only.
10. It is for such reason I am unable to agree with the views expressed by the Bombay High Court in 1993 (1) Crimes 268 (Rakesh Nemkumaro v. Narayan Dhondu Joglekar and Anr.) cited by Mr. Mohanty. Their Lordships in that case were persuaded to interpret the meaning of the provision taking recourse to the heading of the section and interpreting the words "dishonour" and ''etc." found in it. Because of those two words, view was taken that the Negotiable Instruments Act does not define the word "Dishonour" but the heading of the Section 138 lists insufficiency of funds as being one of the situations that can contribute to dishonour of the cheque and is inevitably the most important one ; yet as the word made to follow that, it is of some significance because of the definition of the word ''dishonour" given in Black's Law Dictionary.
11. With great respect to the learned Judges, it is to be seen that the headings of sections in a statute cannot either control restrict or restrain the scope of the sections where the language is free from ambiguity and are not to be taken into consideration if the language of the section is clear. Undoubtedly the headings which form part of the statute, are of help when there are obscurities or ambiguities in the substantive provision but where there are none the question of catling in the heading for interpretation would not arise. Reference may be made to AIR 1990 SC 689(M/s. Frick India Ltd. v. Union of India and Ors.) where the Apex Court observed ;
"It is well settled that the heading prefixed to sections or entries cannot control the plain words of the provision; they cannot also be referred to for the purpose of construing the provision when the words used in the provision are clear and unambiguous ; nor can they be used for cutting down the plain meaning of the words in the provision. Only, in the case of ambiguity or doubt the heading or sub-heading may be referred to as an aid in construing the provision but even in such a case it could not be used for cutting down the wide application of the clear words used in the provision."
Since the provisions of the section are clear and in express words confine the liability to arise only if the dishonour of the cheque is made for either of the two specified reasons, the scope of incurring the criminal liability cannot be expanded by judicial interpretation.
12. Even the statement of objects and reasons of the Banking, Public Financial Institutions and Negotiable instruments Laws (Amendment) Act, 1988 (Act 66 of 1988) which introduced Chapter XVII to the Act including Section 138 also shows the same purpose as reason for the enactment. In it, Clause (xi) of the objects enumerated is ;
"to enhance the acceptability of cheques in settlement of liabilities by making, the drawer liable for penalties in case of bouncing of cheques due to insufficiency of funds in the accounts or for the reason that it exceeds the arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers."
It is explicit that the Parliament in making the law was having the two- fold objectives to see that bouncing of cheques for the reasons as stated therein is avoided and that at the same time adequate safeguards are provided not to expose bona fide drawers to unnecessary harassment. It hence could not be the object of the Parliament that bouncing of cheques for whatsoever reason would make the drawer criminally liable.
13. The primary object for the legislation seems to be to create criminal liability for unscrupulous issue of cheque without having the intention to pay. A cheque is an alternate mode of discharge of debt or other liability without paying cash. When a cheque is issued for such purpose, the representation is made to the drawee that there is sufficient funds in the account to meet the cheque. But when a cheque is issued with the knowledge that the account does not have sufficient funds to meet the cheque or that it is in excess of the amount agreed by the Bank for payment from the account, the issue of the cheque is itself a dishonest act and it is such conduct of the drawer which is purported to be treated as an offence. When a cheque is issued under such circum- stances, the mens rea is palpable since though issue of the cheque is an ostensible act for discharge of debt or other liability, in fact the dis- charge is never intended to be carried out. A respite is given by the section that despite the fact that the cheque is issued with the know- ledge that it would be dishonoured by the Bank, an offence would not be taken to have been committed if by the time the cheque is presented and before it is returned unpaid by the Bank for either of the two reasons, the drawer takes step to make the necessary deposit to satisfy the cheque or makes arrangement for its payment by the Bank otherwise. If such section is taken by the drawer, then again his intention in issuing the cheque at the first instance would not be taken as criminal. It is hence clear that what has been made punishable is the criminal conduct only. A cheque may be dishonoured for a large number of reasons. Indeed the cheque might not have been issued at all either for discharge of debt or other liability. Ordinarily the non-payment on a cheque would constitute a civil liability and there does not appear to be any. authority to ho\d that all such civil liabilities which may arise out of return of a cheque unpaid are all made criminal liabilities. It would hence be logical to hold that the scope and ambit of Section 138 of the Act for initiation of a criminal prosecution is only in respect of a criminal conduct which is prima facie evidenced by the fact of issue of a cheque which is dishonoured for either of the two reasons only.
14. Even while such conclusions are reached, yet I am in respectful agreement with the view expressed by their Lordships of the Kerala High Court in 1992 (2) Crimes 919 (Thomas Varghese v. P. Jerome) that the mere words endorsed by the banker as the reasons for non-payment is neither final nor decisive and that even whan it is stated that the payment was stopped under orders of the drawer, it would yet be possible for the complainant to show that the real reason for stoppage of payment was either insufficiency of fund in the account or that the cheque was for an amount which exceeded the amount agreed by the bank to be paid from the account. This is a question for factual determination by the Court on evidence led It may be that while the reason for refusal of payment was as contemplated under the section, yet the banker was obliged so as o to satisfy its customer to endorse the reason for non-payment as being the direction to stop the payment. Hence where the complainant has come with a case that the cheque had been issued to meet any debt or liability but that the cheque when presented was refused payment because either of the two reasons even though the ostensible reason advanced by the bank was stoppage of payment and the Court has taken cognizance of the offence and has directed issue of process, the proceeding cannot be quashed as the matter is one of trial with opportunity to the parties to establish their case, It is of course true that it will be open to the accused to appear either after cognizance has been taken or any steps have been taken under Chapter XV of the Code of Criminal Procedure and move the Court for recall of the cognizance or the process issued showing legitimately, if he can, that an offence v, as not made out and that he need not stand the trial An application Under Section 482, Cr PC to quash a proceeding may also be permissible, but as has been often observed, such a jurisdiction is to be exercised by the High Court only in rarest of rare cases and not merely because of the spacious ground that the endorsement of the banker in refusing the cheque was "stoppage of payment". So far as the present case is concerned, it is however seen that the complainant has not come with a case that even though the cheque was refused to be paid because of stoppage of payment by the petitioner, yet the real reason for refusal to pay was as contemplated under Sec.138 of the Act. in his initial statement also no such case has been made out. There is no showing that the complainant had made any investigation as to whether there was actual shortage of funds in the petitioner's account to meet the cheque or that the cheque amount was for one which exceeded the amount agreed to be paid back by the bank on that account. Without such facts being alleged in the complaint petition and stated in the initial deposition, the ingredients of the offence cannot be said to have been made out to justify launching of the prosecution. I would hence find the complaint not to have been well launched and the petitioner to have made out a case for quashing of the proceeding since even accepting the complaint case as a whole, an offence Under Section 138 of the Act is not made out. The petitioner hence has made out a case for invoking the inherent powers of the Court to quash the complaint and the proceeding ensued thereupon though however it is made clear that the quashing of the proceeding would not bar the complainant to lodge a fresh complaint if it is in law otherwise entitled to upon proper facts.
15. In the result, the petition succeeds and I.C.C. Case No. 69 of 1993 as also the complaint therein are quashed.