Andhra HC (Pre-Telangana)
Kalyani Refineries Ltd. And Anr. vs Banaras State Bank Ltd. And Anr. on 1 October, 1999
Equivalent citations: 1999(2)ALD(CRI)938, 1999(2)ALT(CRI)450, [2001]103COMPCAS782(AP)
Author: Vaman Rao
Bench: Vaman Rao
JUDGMENT Vaman Rao, J.
1. These two criminal petitions have been filed under Section 482 of Criminal Procedure Code, for quashing the relative proceedings in C. C. Nos. 727 and 729 of 1998 on the file of the XVII Metropolitan Magistrate, Hyderabad, in which the petitioners are the accused and respondent No. 1 is the complainant. Accused No. 1 is a company and accused No. 2 is its managing director. Accused No. 3 is the sole proprietary firm represented by accused Nos. 4 and 5. The complaint has been filed by the Banaras State Bank Limited, a scheduled bank.
2. The allegations as stated in the complaint briefly are as follows : Accused No. 2 is the managing director of accused No. 1-company (petitioner herein). Accused No. 1-company was sanctioned by the complainant bank credit facilities like cash credit to the bills discounted, cheques discounted, etc., in a limit of Rs. 280 lakhs. Accused No. 1 has withdrawn the said amount and failed to update the accounts. In spite of demands for payment, the accused did not regularise the accounts. When the complainant was about to take steps for recovery of outstandings, accused No. 2 as managing director of accused No. 1 deposited with the complainant bank at their branch office situated at Narayanaguda three cheques amounting to Rs. 9,31440 in Crl. P. No. 4461 of 1998 and four cheques amounting to Rs. 30,41,219 in Crl. P. No. 4462 of 1998. The said cheques were issued by accused No. 3 as sole proprietor of his firm towards outstanding to adjust the overdrafts in the accounts of accused No. 1. The complainant bank bona fide believing the representation of accused Nos. 1 and 2 had discounted the aforementioned cheques on March 31, 1998, and the same was credited to the account of accused No. 1 and adjusted towards overdue of liabilities of accused No. 1 with the complainant bank in bill discounted accounts in anticipation that the said cheques will be honoured on the said representation.
3. The said cheques were returned unpaid on April 9, 1998. This was brought to the notice of accused Nos. 1 and 2. Subsequently, the said cheques were represented on May 25, 1998, in the State Bank of Hyderabad, Bhavanipuram Branch, Vijayawada, with the bankers of accused No. 3. The said cheques were again returned unpaid with endorsement "funds insufficient". The complainant received intimation of dishonour of said cheques through memorandum dated June 3, 1998. It is stated that accused Nos. 1, 2 and 3 had conspired together and issued the cheques in question with a dishonest intention and to cheat the complainant bank.
4. The complainant got issued legal notice dated June 10, 1998, and June 5, 1998, in Crl. P. Nos. 4461 and 4462 of 1998, respectively, bringing to the notice of all the accused about the return of the cheques and calling upon them to arrange payments within 15 days. Though acknowledgments were not received but as the notices were sent to addresses to A-1 to A-3 under certificate of posting, they must be deemed to have received the notices. The accused failed to repay the amounts covered by those cheques. It is stated that the accused issued the cheques without any intention to make arrangements to honour the said cheques and they misrepresented to the bank and got the said cheques discounted with a view to cheat the complainant bank. Thus, all the accused must be held to have intention to cheat the complainant. With these allegations, the complaint was filed for offences under Section 138 of the Negotiable Instruments Act and under Section 420 of the Indian Penal Code.
5. It is stated in the petitions that the learned magistrate on the basis of the above complaints took cognizance of offence under Section 138 of the Negotiable Instruments Act.
6. Learned counsel for the petitioners Sri A. Ramanarayana seeks quashing of these proceedings on the sole ground that under Section 138 of the Negotiable Instruments Act, it is the drawer of the cheque who can be liable for the offence under Section 138 of the Negotiable Instruments Act and not the payee of the cheque.
7. Learned counsel for respondent No. 1 Sri B. Venkata Rama Rao contends that inasmuch as, as per the allegations in the complaint, accused Nos. 1 to 3 had conspired together and it was at the instance of the petitioners herein, i.e., A-1 and A-2, accused No. 3 had issued the cheque, accused Nos. 1 and 2 themselves must be deemed to have issued the cheque and as such they must be held liable under Section 138 of the Negotiable Instruments Act.
8. Section 138 of the Negotiable Instruments Act is extracted below for ready reference :
"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 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."
9. From a reading" of Section 138 of the Negotiable Instruments Act, it is apparent that for constituting the offence under it, the following requirements must be satisfied :
(i) The cheque must have been drawn by the accused on an account maintained by him with a banker for payment of any amount of money to the complainant from out of that account.
(ii) The cheque should have been issued for discharge of any debt or other liability.
(iii) The cheque must have been returned by the bank unpaid either because of insufficiency of funds in that account or because the amount in the cheque exceeded the arrangements made with the bank under an agreement with the bank.
(iv) The proviso to the section lays down that (a) the provision under Section 138 of the Negotiable Instruments Act will come into play only when 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 written notice to the drawer of the cheque within 15 days of the receipt of the information by him about the return of the cheque as unpaid ; and
(c) the drawer of such cheque fails to pay such amount of money to the payee or to the holder in due course within 15 days of receipt of the notice.
10. The Explanation to the section makes it clear that "debt or other liability" mentioned in Section 138 of the Act means a legally enforceable debt or other liability.
11. An analysis of this provision would make it abundantly clear that criminal liability for the offence can basically be fastened on the drawer of the cheque. Not only that, the cheque must have been drawn on an account maintained by him. In this case, admittedly, it was accused No. 3 who has drawn the cheque showing the name of the other accused as payee. By no stretch of imagination can accused Nos. 1 and 2 in this case be deemed as persons who have drawn the cheque. Further, admittedly, the cheque was not drawn on an account maintained by accused Nos. 1 and 2. The cheques were certainly not drawn for payment of the amount out of the account maintained by accused Nos. 1 and 2.
12. Learned counsel for the respondents on the other hand contends that in this case accused No. 2 is the managing director of accused No. 1 and as per the allegations in the complaint they were aware that the cheque drawn by accused No. 3 would not be honoured as the amount was never intended to be paid and as such the cheque must be deemed to have been issued by A-1 and A-2. The contention appears a little far-fetched.
13. Firstly, to constitute an offence under Section 138 of the Negotiable Instruments Act, the cheque should have been drawn by a person who has a legally enforceable liability to pay to the payee or to the holder in due course.
14. In this case, A-3 cannot be said to be under any legally enforceable liability as far as the complainant bank is concerned, his liability if any was towards A-1 and A-2 the payees under the cheques.
15. Even if the contention of learned counsel for the respondents is accepted that it is possible for the complainant under the facts and circumstances of this case to sue accused No. 3 also along with accused Nos. 1 and 2 for recovery of the amount for which the complainant bank has discounted the cheques, this in itself has no relevance to fastening of criminal liability. It was open to the complainant bank to refuse to discount the cheques drawn by A-3 who has no legally enforceable liability in favour of the bank. Discounting of a cheque is a normal business operation of a bank. The mere fact that cheques drawn by a third party in favour of its clients are discounted by the bank, does not lead to any privity of contract between the drawer of the cheque and the bank. The conception of civil liability cannot be imported into the question of criminal liability. Criminal liability has to be gathered from the specific statutory provisions in that behalf. In the teeth of the very specific requirement mandated in Section 138 of the Negotiable Instruments Act that for constituting an offence under it, the cheques should have been drawn by the drawer having legally enforceable liability in favour of the payee and in view of the further requirement that the cheque should have been drawn on an account maintained by the drawer, it is difficult to conceive how in this case accused No. 1 and accused No. 2 can be proceeded against for an offence under Section 138 of the Negotiable Instruments Act inasmuch as the cheques were not drawn by them and they were not drawn on an account maintained by them.
16. The provisions creating criminal liability cannot be stretched too far to render them applicable to situations and persons that stand squarely excluded from it considering the language used in the provision.
17. In the light of the above discussion, these petitions are allowed to the extent of offence under Section 138 of the Negotiable Instruments Act only and the proceedings in respect of offences under Section 138 of the Negotiable Instruments Act are quashed.
18. In the result, the petitions are allowed to the extent mentioned above.