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CASE NO.:

Appeal (crl.) 797 of 2002

PETITIONER:

I.C.D.S. LTD.

Vs.

RESPONDENT:

BEENA SHABEER & ANR.

DATE OF JUDGMENT: 12/08/2002

BENCH:

Umesh C. Banerjee & Y.K. Sabharwal.

JUDGMENT:

BANERJEE,J.

Leave granted.

A short but an interesting question falls for consideration in

this appeal to the effect as to the maintainability of a proceeding

under Section 138 of the Negotiable Instruments Act, 1881, vis-a-

vis a guarantor. The High Court negated it and hence the matter

before this Court under Article 136 of the Constitution. In order,

however, to appreciate the contentions raised in the matter, it

would be worthwhile at this juncture to notice Section 138 for its

true terms, scope and effect as also to assess the situation

ourselves. Section 138 of the Negotiable Instruments Act, 1881

reads as below :

"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 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.

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(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."

It is on the basis of the provision as above, the High Court

came to a conclusion when a cheque was issued as security, no

complaint will lie under Section 138 of the Act since the cheque

issued cannot be said to be for the purpose of discharging any debt

or liability : In justification of the said conclusion the High Court

records the following reasons :

"Reading of the above Section would make it

clear that issuance of a cheque must be for payment of

amount of money from out of the account. In the case

of a guarantor or surety, even if a cheque is issued, that

cannot be said to be for immediate payment of money :

Section 138 of the Act further says that issuance of

cheque to another person is towards discharge, in whole

or in part of any debt or other liability."

The High Court has also placed reliance on a decision of the

Kerala High Court in the case of Sreenivasan v. State of Kerala

(1999 (3) K.L.T. 849). Incidentally, a learned Single Judge of the

High Court in the decision last noted (supra) also placed reliance

on a decision of Andhra Pradesh High Court in Taher N. Khambati

v. Vinayak Enterprises (1995 (1) KLT SN 5), wherein it has been

held as follows :-

"In the instant case, the appellant advanced some

money to the respondents and obtained a pronote. It

was stipulated hat the respondent should pay interest

every month. At the same time appellant-creditor took

a blank signed cheque from the respondents with the

understanding that the complainant could fill the other

columns in the cheque and present it if the respondents

committed default in payment of interest. So, the

appellant has obtained this blank signed cheque with a

view to make use of it, as a threat to the respondents for

realisation of the amount. So it cannot be construed

that the respondent had issued the cheque voluntarily

for discharge of any debt or legal liability as envisaged

under Section 138."

Having, however, the support of Andhra Pradesh High Court

judgment, the Kerala High Court in Sreenivasan (supra) observed :

"A comparative reading of the principle laid down

by the Andhra Pradesh High Court and the mandatory

provisions laid down in Section 138 of the Negotiable

Instruments Act is crystal clear that when a cheque has

been issued as a security, no complaint will lie under

Section 138 of the Negotiable Instruments Act."

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After having noted the interpretation of the High Court as

regards Section 138 of the Act, time has thus now come for us to

assess the acceptability of such a wisdom. Before however doing

so, a brief factual reference would be convenient. The facts

reveal : The appellant herein is a Company incorporated under the

provisions of the Companies Act, 1956, having its registered and

administrative office at Syndicate House, P.B. No.46, Upendra

Nagar, Manipal-576119 and branches among other places at

Palayam, Trivandrum. The husband of respondent No.1 entered

into a hire purchase agreement with the appellant for the purposes

of the purchase of a Maruti car on hire purchase basis. The

respondent No.1, his wife stood as a guarantor in respect of the

hire purchase facilities being made available to her husband. The

facts further reveal that the respondent No.1, on account of the

aforesaid transaction and towards part payment issued a cheque

bearing No.672501 dated 29.8.1998 for Rs.80,490/- drawn on

Catholic Syrian Bank Limited, St. Mary's School, Pattom,

Trivandrum to the Appellant. Admittedly, the said cheque was

dishonoured and returned to the appellant with a remark

"insufficient funds".

The factual matrix depict that the appellant issued a statutory

notice on 2.9.1998 as contemplated under Section 138 of the

Negotiable Instruments Act, calling upon the respondent No.1 to

pay the amount covered under the cheque within a period of 15

days and since the respondent No.1 did not think it fit and proper

to reply to the said notice in spite of receipt thereof, the appellant

thereafter filed a complaint under Section 138 of the Act before the

Chief Judicial Magistrate's Court, Thiruvananthapuram. The

complaint has been registered as S.T. No.141/1999 in the Court of

the Additional Chief Judicial Magistrate, Thiruvananthapuram and

subsequently the case was taken on file for the purposes of the

complaint and immediately thereafter, the respondents herein

moved a Petition under Section 482 of the Code of Criminal

Procedure for quashing of the complaint and the proceedings

noticed above pending before the Additional Chief Judicial

Magistrate's Court, Thiruvananthapuram.

The High Court, as noticed above, did allow the Petition

upon a categorical finding that being a cheque from the guarantor

it could not be said to have been issued for the purpose of

discharging any debt or liability and the complaint under Section

138 of the Negotiable Instruments Act, 1881, thus cannot be

maintained.

As noticed hereinbefore, the principal reason for quashing of

the proceeding as also the complaint by the High Court was by

reason of the fact that Section 138 of the Act provides for issuance

of a cheque to another person towards the discharge in whole or in

part of any debt or liability and on the factual context, the High

Court came to a conclusion that issuance of the cheque cannot be

co-related for the purpose of discharging any debt or liability and

as such complaint under Section 138 cannot be maintainable.

The language, however, has been rather specific as regards

the intent of the legislature. The commencement of the Section

stands with the words "Where any cheque". The above noted

three words are of extreme significance, in particular, by reason of

the user of the word "any" the first three words suggest that in

fact for whatever reason if a cheque is drawn on an account

maintained by him with a banker in favour of another person for

the discharge of any debt or other liability, the highlighted words

if read with the first three words at the commencement of Section

138, leave no manner of doubt that for whatever reason it may be,

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the liability under this provision cannot be avoided in the event the

same stands returned by the banker unpaid. The legislature has

been careful enough to record not only discharge in whole or in

part of any debt but the same includes other liability as well. This

aspect of the matter has not been appreciated by the High Court,

neither been dealt with or even referred to in the impugned

judgment.

The issue as regards the co-extensive liability of the

guarantor and the principal debtor, in our view, is totally out of the

purview of Section 138 of the Act, neither the same calls for any

discussion therein. The language of the Statute depicts the intent

of the law-makers to the effect that wherever there is a default on

the part of one in favour of another and in the event a cheque is

issued in discharge of any debt or other liability there cannot be

any restriction or embargo in the matter of application of the

provisions of Section 138 of the Act: 'Any cheque' and 'other

liability' are the two key expressions which stands as clarifying

the legislative intent so as to bring the factual context within the

ambit of the provisions of the Statute. Any contra interpretation

would defeat the intent of the legislature. The High Court, it

seems, got carried away by the issue of guarantee and guarantor's

liability and thus has overlooked the true intent and purport of

Section 138 of the Act. The judgments recorded in the order of

the High Court do not have any relevance in the contextual facts

and the same thus does not lend any assistance to the contentions

raised by the respondents.

It is to be noted, however, that both the parties during the

course of arguments have made elaborate submissions on Sections

126 and 128 of the Contract Act, but in our view, by reason of the

specific language used by the legislature, question of consideration

of the matter from the point of view of another Statute would not

arise, neither we would like to express any view since that may

have some effect as regards the merits.

In our view, the High Court fell into a manifest error and as

such the judgment impugned cannot obtain our concurrence. The

appeal succeeds and is thus allowed. The order of the learned

Single Judge stands quashed and the proceeding in ST

No.141/1999 on the file of the Additional Chief Judicial

Magistrate's Court, Thiruvananthapuram stands restored and so is

the complaint under Section 138 of the Act. No costs.