Delhi District Court
M/S Fil Industries vs Rajendra Dixit on 13 August, 2012
CC No.6628/1
M/s FIL Industries Vs Rajendra Dixit
13.08.2012
ORDER
The issue involved in the present case is whether dishonour due to reason "account frozen" falls under section 138 NI Act or not. Contention of Ld. counsel is that once cheque is dishonoured, the reason of dishonour becomes immaterial and it will be for the accused to rebut the mandatory presumptions of law. Ld. counsel has relied upon section 139, 142 & proviso c to section 138 NI Act. He, however, submits that he could not get any judgment on the issue of "account frozen". Ld. counsel submits that even dishonour due to "drawer signatures differ" is covered under section 138 NI Act and the same is for the accused to state the contrary.
I have heard Ld. counsel for complainant and perused the record.
Primarily, only two reasons are mentioned in section 138 NI Act which entail a criminal liability. However, Hon'ble Supreme Court of India by some judicial pronouncements expanded the scope of those reasons and included even the dishonour due to "account closed" or "stop payment instructions". Primary reason was that in the case of account closed, the account could not have been taken as having any funds and, therefore, the same does fall under insufficiency of funds i.e one of the reasons prescribed under section 138 NI Act. Even "stop payment instructions" was considered valid for a cause under section 138 NI Act on the ground that it was for the accused to satisfy the court that such "stop payment"
was due to some other reason and was not given to escape the reason of insufficiency of the funds.
No judgment has been placed by Ld. counsel for complainant and he has only relied upon the sections of the NI Act.
However, two judgments of different Hon'ble High Courts were brought to the notice of Hon'ble High Court of Delhi to contend that reasons for dishonour are immaterial. Those judgments cited before Hon'ble High Court of Delhi are Rakesh Nemkumar Porwal Vs Narayan Dhondu Joglekar 1993 Crl. LJ 680 & Yogendra Kumar Gupta Vs Ram Prkash Agarwal 2007(2) Crimes 467 (MP). Hon'ble High Court of Delhi dealt with both such cases in Vijay Chaudhary Vs Gian Chand Jain Crl. M. C. No. 1328/2007 dated 06.05.2008. It has been held that reasons for dishonour are very much material.
So far as the arguments in respect of dishonour due to drawer signatures differ is 1 concerned, I consider that this is also material. Hon'ble Supreme Court of India in Vinod Tanna & Anr. Vs Zaheer Siddiqui & Ors. 2001 (2) ALD Cri 124 has quashed the proceedings where dishonour was due to "drawer signature incomplete". In Vinod Tana (supra) Hon'ble Supreme Court of India has reversed the judgment of Bombay High Court. Interestingly, the judgment of Bombay High Court in Vinod Tana (supra) has also been dissented by Hon'ble High Court of Delh in Vijay Chaudhary (supra).
Hon'ble High Court of Delhi in Standard Chartered Bank & Anr. Vs State in Crl. M. C.No.137/2004 has quashed the proceedings when dishonour was found due to attachment of account by Income Tax Authorities.
Clearly, the reason for dishonour is always material. More on this can be found in the judgment of Hon'ble High Court of Delhi in Vijay Chaudhary (supra) which I will quote in this order.
In the present case, reason is "account frozen". A bare perusal of the dishonour memo goes to show that this reason is not associated with "account closed", "no account" or other such reasons. Clearly, the reason "account frozen" does have some other meaning. Normally, if the accused is closed by the accused or by the bank, reason written is "account closed". If there is no such account the reason is written is no account. Normally, if the account is freezed by any order then reason can be written as "account frozen" or "account attached by order" or such similar expressions. Ld. counsel, however, submits that bank may also right to account frozen if the account is inoperative for certain period or account has been declared NPA. I consider that in both the situations given by Ld. counsel, the reason may be treated as close to insufficiency of funds as in the case of accused closed. However, there is nothing on record to infer the same. If we believe that accused has been attached, then the judgment in Vijay Chaudhary (supra) will apply. Now the question is whether accused should be summoned without considering the actual scope of reason "account frozen". I consider that summoning of the accused is a very thing as held by Hon'ble Supreme Court of India in Pepsi Foods Ltd and another. Vs. Special Judicial Magistrate and Others, 1998 SCC(Crl) 1400, the Supreme Court observed thus:
"28. Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. It is not that the complainant has to bring only two witnesses to support his allegations in the complaint to have the criminal law set into motion. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be sufficient for the complainant to succeed in bringing charge home to the accused. It is not that the Magistrate is a silent spectator at the time of 2 recording of preliminary evidence before summoning of the accused. The Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused."
Therefore, it would be better if this reason is clarified by the bank.
Now to quote from Vijay Chaudhary (supra):-
"9.In M/s Modi Cements Ltd (supra), the Supreme Court held that once the cheque is issued by the drawer, a presumption u/s 139 of the Act arises in favour of the holder, and merely because the drawer issues a notice to the drawee or to the bank for stoppage of payment, it will not preclude an action u/s 138 of the Act by the drawee, or the holder of the cheque in due course. The Supreme Court, while reversing its earlier view in Electronics Trade and Technology Development Corporation Ltd., Secundrabad vs. Indian Technologists & Engineers (Electronics) (P) Ltd. (1996) 2 SCC 739 wherein the Court had taken the view that "..... after the cheque is issued to the payee or to the holder in due course and before it is presented for encashment, notice is issued to him not to present the same for encashment and yet the payee or holder in due course presents the cheque to the bank for payment and when it is returned on instructions, Section 138 does not get attracted" (emphasis supplied), observed that if this proposition is accepted Section 138 would be rendered a dead letter "for by giving instructions to the Bank to stop payment immediately after issuing a cheque against a debt or liability the drawer can easily get rid of the penal consequences notwithstanding the fact that a deemed offence was committed." Once again, this decision does not appear to be of much relevance to the present fact situation. It is not the respondent's case that the cheque has been dishonoured on account of stop payment instructions given by the petitioner. Similarly, the decision of the Supreme Court in NEPC MICON Ltd (supra) is of no avail to the respondents, since the fact situation was materially different from the facts of the present case. In that case the drawer of the cheque had closed the account from which the cheque was issued. The Supreme Court in that decision observed:
"After issuing the cheque drawn on an account maintained, a person, if he closes that account apart from the fact that it may amount to another offence, it would certainly be an 3 offence under S.138 as there was insufficient or no fund to honour the cheque in 'that account." (emphasis supplied)
10. From the aforesaid, it appears that to rope in the drawer of the cheque within the ambit of Section 138 of the Act, when the cheque is dishonoured for ostensible reasons different from those specifically provided under the Act, it is necessary to establish that the ostensible reason is one attributable to a voluntary act/omission of the drawer, and that the same is merely a ruse to avoid payment of the cheque and the real reason is the insufficiency of funds in the account, or that the amount of the cheque exceeds the arrangement that the drawer has with the bank under an agreement.
11. In Yogendra Kumar Gupta (supra) the Madhya Pradesh High Court has expressed the view that the reason for dishonour of cheque is wholly irrelevant, and if the amount remained unpaid despite demand notice being served upon accused, he can be held liable under Section 138 of the Act. With due respect, the interpretation given by the Madhya Pradesh High Court in the aforesaid decision does not appeal to me. For arriving at its aforesaid conclusion, the Madhya Pradesh High Court has relied upon the decision in Modi Cements Limited (supra), which was a case where the drawer of the cheque had issued stop payment instructions after drawing the cheque and before its presentation by the drawee. With respect to the Madhya Pradesh High Court, the Supreme Court in this decision does not appear to have laid down a general and broad proposition that irrespective of the reason for the dishonour of the cheque, the offence under Section 138 is made out if the drawer of the cheque does not make payment despite issuance of statutory notice by the payee. The Madhya Pradesh High Court also relies upon a decision of a Division Bench of the Bombay High Court in Rakesh Nemkumar Porwal v. Narayan Dhondu Joglekar 1993 Crl. LJ 680. The various observations made in the decision of the Bombay High Court in Rakesh Nemkumar Porwal(supra), no doubt supports the proposition laid down by the Madhya Pradesh High Court in Yogendra Nath Gupta (supra) .....
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12.It may be pertinent to analyze the dispute before the Bombay High Court in Rakesh Nemkumar Porwal(supra) and the circumstances in which these observations were made by the Court. The Court was dealing with a situation where a complaint under Section 138 the Act had been filed by the complainant within the notice period of 15 days after dishonour as provided by the Section. In this factual background, the real controversy that arose for consideration was whether the complaint when filed was premature or not. However, it appears that 4 arguments were advanced on various other issues, which strictly were not even required to be gone into, to decide the primary issue arising in the case. The Court had framed the following questions for its considerations:
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(d) Is section 138 to be afforded restrictive application by confining it to the narrow category of cases where the rejection slip reads "insufficiency of funds" or was it prescribed as an antidote for the malignant trade practice of indiscriminately issuing cheques that are dishonoured without any compunction, in other words, would dishonour of a cheque attract criminal consequences in the normal course ?"
13. The Court answered the first question against the complainant, and held that the complaint was premature and liable to be dismissed. Therefore, in my humble view, question(d) was not required to be considered. The decision of the Court on question(d) was, in my view an obiter dicta.
14.Even otherwise, the above extracted observations do not seem to be in consonance with the clear and unambiguous language of the Statute. Section 138 of the Act is a comprehensive provision. It firstly creates the offence that defines the ingredients that must exist for the offence to get completed and thereafter also prescribes the punishment with which the offender can be punished. The Section is divided into two parts. The first part deals with the essential ingredients which constitute the offence. The second part is a proviso, which lays down certain preconditions which must be fulfilled before the Section can be applied. The essential preconditions found in the main body of the Section cannot be obliterated by focussing only on the preconditions laid down in the proviso, for the application of the Section.
15.The Legislature, in its wisdom has cautiously not used the expression "irrespective of the reasons for dishonour" and instead has used the words "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".
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17.I may also refer to Section 140 of the Act, which states that "It shall not be a defence in a prosecution for an offence under section 138 that the drawer had no 5 reason to believe when he issued the cheque that the cheque may be dishonoured or presentment for the reasons stated in that section."(emphasis added). The intention of the Parliament is, therefore, not to create the offence under Section 138 of the Act in all cases of Dishonour of Cheque, but only in such cases where the dishonour is "for reasons stated in that Section."
18.I am in respectful disagreement with the aforesaid view of the Division Bench of the Bombay High Court. In my view one cannot ignore the language used by the Parliament in the Statute and stretch its meaning to such an extent as to obliterate the express words used by the Parliament. Moreover, if this decision is understood as laying down the correct law, then the same is irreconcilable with the decision of the Supreme Court in Kusum Ingots(supra) wherein the Supreme Court has held that proceedings under Section 138 read with Section 142 of the Act would not lie where, 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 BIFR under Section 22A of the SICA was passed against the company. In such a case it may reasonably be said that the dishonouring 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. This Court has also held in M.L.Gupta & Anr. V. Ceat Financial Services Ltd., 136(2007) DLT 308 that once the Company Court passes an order for winding up of a company and appoints a provisional liquidator, in respect of cheques which may have been issued prior to the passing of such an order by the Court, which became payable after the passing of the winding up orders, no offence under Section 138 of the Act would be made out.
19. No doubt, the said provision has to be construed in a meaningful way so as to advance the purpose for which it has been enacted. However, the interpretation of the said section cannot be stretched to such limits so as to render the drawer of a cheque liable for penal action wherever the cheque has been returned by the bank unpaid for whatever reason. It is well settled that penal Statutes have to be construed strictly.
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21...........The last decision relied upon by the respondent is of the Supreme Court in D.Vinod Shivappa (supra). The same has been cited to contend that the object of Section 138 of the Act is to punish unscrupulous persons, who purport to discharge their liability by issuing cheques without intending to do so which is demonstrated by insufficient balance in account to discharge their liability. In para 13 of the said decision, the Supreme Court held as follows:-
"13. Section 138 of the Act was enacted to punish 6 those unscrupulous persons who purported to discharge their liability by issuing cheques without really intending to do so, which was demonstrated by the fact that there was no sufficient balance in the account to discharge the liability. Apart from civil liability, a criminal liability was imposed on such unscrupulous drawers of cheques. The prosecution, however, was made subject to certain conditions. With a view to avoid unnecessary prosecution of an honest drawer of a cheque, or to give an opportunity to the drawer to make amends, the proviso to Section 138 provides that after dishonour of the cheque, the payee or the holder of the cheque in due course must give a written notice to the drawer to make good the payment. The drawer is given 15 days time from date of receipt of notice to make the payment, and only if he fails to make the payment he may be prosecuted.
The object which the proviso seeks to achieve is quite obvious. It may be that on account of mistake of the bank, a cheque may be returned despite the fact that there is sufficient balance in the account from which the amount is to be paid. In such a case if the drawer of the cheque is prosecuted without notice, it would result in great in-justice and hardship to an honest drawer. One can also conceive of cases where a well intentioned drawer may have inadvertently missed to make necessary arrangements for reasons beyond his control, even though he genuinely intended to honour the cheque drawn by him. The law treats such lapses induced by inadvertence or negligence to be pardonable, provided the drawer after notice makes amends and pays the amount within the prescribed period. It is for this reason that Clause (c) of proviso to Section 138 provides that the section shall not apply unless the drawer of the cheque fails to make the payment within 15 days of the receipt of the said notice. To repeat, the proviso is meant to protect honest drawers whose cheques may have been dishonoured for the fault of others, or who may have genuinely wanted to fulfill their promise but on account 7 of inadvertence or negligence failed to make necessary arrangements for the payment of the cheque. The proviso is not meant to protect unscrupulous drawers who never intended to honour the cheques issued by them, it being a part of their modus operandi to cheat unsuspecting persons."(emphasis added).
22.A perusal of the above extract shows that the Supreme Court consciously used the words "which was demonstrated by the fact that there was no sufficient balance in the account to discharge their liability". This observation of the Supreme Court also reaffirms my view that whatever be the reason for dishonour of the cheque, it has to be co-related to the insufficiency of funds in the account or to the lack of arrangement made by the drawer with his bank under an agreement.
23. Turning to the facts of the present case, one finds that the attachment by an order of the Court in this case was after the alleged issuance of the cheque, but prior to its presentation for encashment. The attachment of the bank account of the petitioner had the effect of disabling the petitioner from operating or maintaining the said account. The petitioner could not exercise his right either to deposit into or withdraw from the said account. Even if it were to be assumed for the sake of argument, that the cheque was in fact issued in discharge of the petitioner's liability owed to the respondent, and that at the time of issuance of the cheque, he did not have sufficient balance in the account, or an arrangement with his banker, in case the bank account had not been attached under the orders of a Court, nothing prevented the petitioner from either depositing money in his account or entering into an agreement with his bank to arrange for sufficient funds in the account, to be able to honour the cheque in question by the date when the said cheque could have been presented for payment at the earliest. This is so because there was sufficient time gap i.e of nearly one year and eight months between the date of alleged issue of cheque and the date of its presentation. As held by the Hon'ble Supreme Court in Modi Cements (supra), the issuance of the cheque without having sufficient balance in the account of the drawer does not by itself tantamount to the commission of an offence u/s 138 of the Act. However, in the facts of this case, the petitioner could not have, even if he would have so desired, either deposited funds in his account or otherwise made arrangements for the payment of the cheque upon its presentation by entering into an agreement with the bank, since there was a Court attachment on the bank account of the drawer. This Court attachment was by a Court ceased of 8 the case arising out of FIR No.283/2005 u/s 406/420/467/468/471 & 120-B IPC registered with P.S. Connaught Place. The act of attachment of the bank account of the drawer/petitioner cannot be said to be a voluntary act of the drawer. It cannot be said that the petitioner contrived to have the account attached only for the purpose of warding of the penal consequences u/s 138 of the Act. It also cannot be said that after the attachment of the bank account, the same was being maintained by the petitioner. For an account to be maintained by an account holder, it is essential that he is in a position to operate the said account by either depositing monies therein or by withdrawing money therefrom. He should be in a position to give effective instructions to his banker with whom the account is maintained. However, in the present case, once the account has been attached by an order of the Court, the said account could not be operated by the petitioner. He could not have issue any binding instructions to his banker, and the banker was not obliged to honour any of his instructions in relation to the said account, so long as the attachment under the court orders continued."
Let the bank witness from the bank of accused be called through all available modes together with relevant records upon filing of necessary PF.
(Rakesh Kumar Singh) MM-01 NI Act (Central) Distt.
THC, Delhi/13.08.2012 9