Andhra HC (Pre-Telangana)
M. Ethirajulu vs Rangam Adinarayana And Ors. on 17 February, 2005
Equivalent citations: 2005(1)ALD(CRI)763, I(2007)BC403, [2005]128COMPCAS703(AP)
JUDGMENT T. Ch. Surya Rao, J.
1. The petitioner seeks to invoke the inherent jurisdiction of this Court under Section 482 of the Code of Criminal Procedure to quash the proceedings initiated against him in C .C. No. 488 of 2002 on the file of the Judicial Magistrate of First Class, Dharmavaram.
2. The petitioner is the first accused and respondents Nos. 1 and 2 herein are the complainant and the second accused respectively. The first respondent filed a complaint for the offence punishable under Section 138 read with Section 142 of the Negotiable Instruments Act ("NI Act" for brevity). It is alleged inter alia in the complaint that the second accused in the course of business transactions he had with the complainant purchased silk sarees from the complainant on credit basis. In discharge of the said debt, the second accused gave a cheque bearing No. 740630 dated February 27, 2002, drawn on South Indian Bank Limited, Kanchipuram Branch, for a sum of Rs. 30,000 to the complainant. The said cheque was signed and issued by the first accused in favour of the second accused. The second accused gave the said cheque to the complainant with the permission of the first accused. The complainant accepted the said cheque on the promise made by both the accused that the cheque would be honoured by the banker on its presentation. Thus, the complainant was the holder in due course of the said cheque and had a right to present the same for collection. When the complainant presented the said cheque with his banker for collection, it was dishonoured on August 20, 2002, with an endorsement as, "funds insufficient". Upon receiving intimation from his banker on August 23, 2002, within 15 days thereafter, he sent a registered notice dated September 5, 2002, to the accused through his counsel calling them upon to pay the cheque amount within 15 days from the date of receipt of the said notice. It was duly served on the first accused on September 12, 2002, and on the second accused on September 7, 2002. Since both the accused failed to pay the said amount within one month from the date on which the cause of action had arisen, eventually the complainant filed the complaint.
3. Sri M. V. K. Viswanadham, learned Counsel appearing for the petitioner/ first accused represents that there has been no legally enforceable debt between the petitioner and the first respondent/complainant; and that no consideration was passed under the cheque in question.
4. Per contra, Sri P. Veera Reddy, learned Counsel appearing for the first respondent/complainant, contends that the cheque having been issued by the petitioner to the complainant in the presence of the second respondent/second accused and under his promise, the complainant becomes the holder in due course and, therefore, he can lay the complaint.
5. Apparently, the cheque in question was signed by the first accused and was drawn in favour of the second accused. The name of the complainant, therefore, does not appear on the instrument. Confessedly, the cheque was given to the complainant by the first accused in the presence of the second accused and on the promise made by both the accused that the cheque would be honoured on its presentation, he received the cheque and thereby he became the holder in due course of the said cheque. Perhaps on that premise, he laid the complaint against both the accused. It is therefore appropriate here to consider the question as to whether the complainant is the holder in due course or not.
6. The provisions germane in the context for consideration are Sections 8, 9, 14 and 15 of the Negotiable Instruments Act. Section 8 reads as under :
"8. 'Holder'.--The 'holder' of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.
Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction."
7. From a perusal of the above provision it is obvious that mere possession of the cheque is not sufficient to become a holder and one becomes a holder of a cheque only when the conditions enjoined under Section 8 are satisfied.
8. The expression "holder in due course" has been* defined under Section 9 of the Negotiable Instruments Act and the provision reads as under :
"9. 'Holder in due course'.--'Holder in due course' means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if payable to order, before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title."
9. The term "indorsement" has been defined under Section 15 of the Negotiable Instruments Act, which reads as under :
"15. Indorsement.--When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to indorse the same and is called the indorser."
10. This clearly shows that the holder of a cheque for the purpose of negotiation of the same shall sign on the back or face of the cheque or on a separate slip annexed thereto. Then only he is said to have endorsed the same for the purpose of negotiation.
11. The word "negotiation" is again defined under Section 14, which reads as under :
"14. Negotiation.--When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated."
12. A combined reading of the above provisions clearly shows that a promissory note, bill of exchange or a cheque can be negotiated or transferred by making an endorsement either on the instrument or on a separate paper annexed thereto. The transferee of such instrument becomes the holder if that person is entitled in his own name to the possession thereof when it is transferred in his favour by making the necessary endorsement. The holder of a cheque becomes holder in due course only when he has become the possessor thereof for consideration without knowing any defect existed in the title of the person from whom he derived the title.
13. In the instant case admittedly, the instrument in question was given to the complainant by the first accused in the presence of the second accused. It is not the case of the complainant that necessary endorsement has been made on the cheque for transferring the same. It is axiomatic that there has been no privity of contract in between the complainant and the second respondent, who is the drawer of the cheque, who confessedly issued the cheque in favour of the first accused. Although no cash consideration was passed at the time of transfer it was obviously given in lieu of the debt. The term "consideration" has not been defined under the Negotiable Instruments Act. However, Clause (d) of Section 2 of the Indian Contract Act defines the term "consideration" and it reads as under :
"Consideration.--When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."
14. From a reading of the above provision it is obvious that consideration need not be in cash. But yet, the other invariable requirement is that the person who is in possession of the instrument must be a holder thereof, as discussed hereinabove.
15. The apex court in U. Ponnappa Moothan Sons v. Catholic Syrian Bank Ltd. considered the definition of a holder in due course in the Indian law vis-a-vis the definition as laid down in the old English case Gill v. Cubitt [1824] 3 B & C 466 and it was held thus (page 15 of 70 Comp Cas) :
"Under the Indian law, a holder, to be a holder in due course, must not only have acquired the bill, note or cheque for valid consideration but should have acquired the cheque without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. This condition requires that he should act in good faith and with reasonable caution."
16. At the end of para. 5 the apex court held thus (page 6 of 70 Comp Cas) :
"The definition makes it clear that, to be a 'holder in due course', a person must be a holder for consideration and the instrument must have been transferred to him before it becomes overdue and he must be a transferee in good faith and another important condition is that the transferee, namely, the person who, for consideration, became the possessor of the cheque should not have any reason to believe that there was any defect in the title of the transferor."
17. In the process, the apex court also considered the definition of a holder as per Section 8 of the Negotiable Instruments Act. On the facts, in that case the holder namely the 1st defendant made a necessary endorsement on the two cheques in favour of the plaintiff-bank and the bank in its turn endorsed as "payee account credited".
18. Obviously, in this case no endorsement has been made on the overleaf of the cheque thereby enabling the complainant to possess the same in his own name so as to receive or recover the contents thereof from the parties thereto. The complainant, therefore, cannot be considered to be a "holder", much less a "holder in the due course".
19. Under Section 138 of the Negotiable Instruments Act a complaint can be lodged only by the payee or holder in due course. The Section reads as under:
"138. Dishonour of cheque for insufficiency, etc., of funds in the account.--Where any cheque drawn by a person on an account maintained 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 amount 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 provisions of this Act, be punished with imprisonment for a term which may extended to two years, 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 thirty 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."
20. From the above, it is obvious that it is only the payee or the holder in due course can be the complainant when the cheque is dishonoured. When the complainant is not a holder in due course he cannot maintain the complaint.
21. For the above reasons, the criminal petition is allowed and the complaint filed against the petitioner in C. C. No. 488 of 2002 on the file of the Judicial Magistrate of First Class, Dharmavaram, is hereby quashed.