Page 1 REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NOS. 1870-1909 OF 2012

(Arising out S.L.P. (Crl.) Nos. 1740-1779 of 2011)

M/s Laxmi Dyechem …Appellant

Versus

State of Gujarat & Ors. …Respondents

With

CRIMINAL APPEAL NOS. 1910-1949 OF 2012

(Arising out S.L.P. (Crl.) Nos.1780-1819 of 2011)

J U D G M E N T

T.S. THAKUR, J.

1. Leave granted.

2. These appeals are directed against orders dated 19

th

April,

2010 and 27

th

August, 2010 passed by the High Court of Gujarat at

Ahmedabad whereby the High Court has quashed 40 different

complaints under Section 138 of the Negotiable Instruments Act,

1881 filed by the appellant against the respondents. Relying upon

the decision of this Court in Vinod Tanna & Anr. v. Zaher Siddiqui

& Ors. (2002) 7 SCC 541, the High Court has taken the view that

dishonour of a cheque on the ground that the signatures of the

drawer of the cheque do not match the specimen signatures

Page 2 available with the bank, would not attract the penal provisions of

Section 138 of the Negotiable Instruments Act. According to the High

Court, the provisions of Section 138 are attracted only in cases

where a cheque is dishonoured either because the amount of money

standing to the credit to the account maintained by the drawer is

insufficient to pay the cheque amount or the cheque amount exceeds

the amount arranged to be paid from account maintained by the

drawer by an agreement made with the bank. Dishonour of a

cheque on the ground that the signatures of the drawer do not

match the specimen signatures available with the bank does not,

according to the High Court, fall in either of these two contingencies,

thereby rendering the prosecution of the respondents legally

impermissible. Before we advert to the merits of the contentions

urged at the Bar by the learned counsels for the parties, we may

briefly set out the factual backdrop in which the controversy arises.

3. The appellant is a proprietorship firm engaged in the sale of

chemicals. It has over the past few years supplied Naphthalene

Chemicals to the respondent-company against various invoices and

bills issued in that regard. The appellant’s case is that a running

account was opened in the books of account of the appellant in the

name of the respondent-company in which the value of the goods

supplied was debited from time to time as per the standard

Page 3 accounting practice. A sum of Rs.4,91,91,035/- (Rupees Four Crore

Ninety One Lac Ninety One Thousand Thirty Five only) was according

to the appellant outstanding against the respondent-company in the

former’s books of accounts towards the supplies made to the latter.

The appellant’s further case is that the respondent-company issued

under the signatures of its authorised signatories several post dated

cheques towards the payment of the amount aforementioned.

Several of these cheques (one hundred and seventeen to be precise)

when presented were dishonoured by the bank on which the same

were drawn, on the ground that the drawers’ signatures were

incomplete or that no image was found or that the signatures did not

match. The appellant informed the respondents about the dishonour

in terms of a statutory notice sent under Section 138 and called upon

them to pay the amount covered by the cheques. It is common

ground that the amount covered by the cheques was not paid by the

respondents although according to the respondents the company had

by a letter dated 30.12.2008, informed the appellant about the

change of the mandate and requested the appellant to return the

cheques in exchange of fresh cheques. It is also not in dispute that

fresh cheques signed by the authorised signatories, according to the

new mandate to the Bank, were never issued to the appellant

ostensibly because the offer to issue such cheques was subject to

Page 4 settlement of accounts, which had according to the respondent been

bungled by the outgoing authorised signatories. The long and short

of the matter is that the cheques remained unpaid despite notice

served upon the respondents that culminated in the filing of forty

different complaints against the respondents under Section 138 of

the Negotiable Instruments Act before the learned trial court who

took cognizance of the offence and directed issue of summons to the

respondents for their appearance. It was at this stage that Special

Criminal Applications No.2118 to 2143 of 2009 were filed by Shri

Mustafa Surka accused No.5 who happened to be one of the

signatories to the cheques in question. The principal contention

urged before the High Court in support of the prayer for quashing of

the proceedings against the signatory to the cheques was that the

dishonour of cheques on account of the signatures ‘not being

complete’ or ‘no image found’ was not a dishonour that could

constitute an offence under Section 138 of the Negotiable Instrument

Act.

4. By a common order dated 19

th

April, 2010, the High Court

allowed the said petitions, relying upon the decision of this Court in

Vinod Tanna’s case (supra) and a decision delivered by a Single

Judge Bench of the High Court of Judicature at Bombay in Criminal

Application No.4434 of 2009 and connected matters. The Court

Page 5 observed:

“In the instant case, there is no dispute about the endorsement

that “drawers signature differs from the specimen supplied”

and/or “no image found-signature” and/or “incomplete

signature/illegible” and for return/dishonour of cheque on the

above endorsement will not attract ingredients of Section 138

of the Act and insufficient fund as a ground for dishonouring

cheque cannot be extended so as to cover the endorsement

“signature differed from the specimen supplied” or likewise. If

the cheque is returned/bounced/dishonoured on the

endorsement of “drawers signature differs from the specimen

supplied” and/or “no image found-signature” and/or

“incomplete signature / illegible”, the complaint filed under

Section 138 of the Act is not maintainable. Hence, a case is

made out to exercise powers under Section 482 of the Code of

Criminal Procedure, 1973 in favour of the petitioner”.

5. Special Criminal Applications No.896 to 935 of 2010 were

then filed by the remaining accused persons challenging the

proceedings initiated against them in the complaints filed by the

petitioner on the very same ground as was taken by Mustafa Surka.

Reliance was placed by the petitioners in the said petitions also upon

the decision of this Court in Vinod Tanna’s case (supra) and the

decision of the Single Judge Bench of High Court of Bombay in

Mustafa Surka v. M/s. Jay Ambe Enterprise & Anr. [2010 (1)

Bombay Cases Reporter (Crl.) 758]. The High Court has, on the

analogy of its order dated 19

th

April, 2010 passed in the earlier batch

of cases which order is the subject matter of SLP Nos.1780-1819 of

2011, quashed the proceedings and the complaints even qua the

remaining accused persons, respondents herein. The present

appeals, as noticed above, assail the correctness of both the orders

Page 6 passed by the High Court in the two batch of cases referred to

above.

6. Chapter XVII comprising Sections 138 to 142 of the

Negotiable Instruments Act was introduced in the statute by Act 66

of 1988. The object underlying the provision contained in the said

Chapter was aimed at inculcating faith in the efficacy of banking

operations and giving credibility to negotiable instruments in

business and day to day transactions by making dishonour of such

instruments an offence. A negotiable instrument whether the same

is in the form of a promissory note or a cheque is by its very nature

a solemn document that carries with it not only a representation to

the holder in due course of any such instrument but also a promise

that the same shall be honoured for payment. To that end Section

139 of the Act raises a statutory presumption that the cheque is

issued in discharge of a lawfully recoverable debt or other liability.

This presumption is no doubt rebuttable at trial but there is no

gainsaying that the same favours the complainant and shifts the

burden to the drawer of the instrument (in case the same is

dishonoured) to prove that the instrument was without any lawful

consideration. It is also noteworthy that Section 138 while making

dishonour of a cheque an offence punishable with imprisonment and

fine also provides for safeguards to protect drawers of such

Page 7 instruments where dishonour may take place for reasons other than

those arising out of dishonest intentions. It envisages service of a

notice upon the drawer of the instrument calling upon him to make

the payment covered by the cheque and permits prosecution only

after the expiry of the statutory period and upon failure of the

drawer to make the payment within the said period.

7. The question that falls for our determination is whether

dishonour of a cheque would constitute an offence only in one of the

two contingencies envisaged under Section 138 of the Act, which to

the extent the same is relevant for our purposes 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 provision of this Act, be punished with imprisonment

of a term which may extend to one year, or with fine which

may extend to twice the amount of the cheque, or with both.”

8. From the above, it is manifest that a dishonour would

constitute an offence only if the cheque is retuned by the bank

‘unpaid’ either because the amount of money standing to the credit

of the drawer’s account is insufficient to honour the cheque or that

the amount exceeds the amount arranged to be paid from that

Page 8 account by an agreement with that bank. The High Court was of the

view and so was the submission made on behalf of the respondent

before us that the dishonour would constitute an offence only in the

two contingencies referred to in Section 138 and none else. The

contention was that Section 138 being a penal provision has to be

construed strictly. When so construed, the dishonour must

necessarily be for one of the two reasons stipulated under Section

138 & none else. The argument no doubt sounds attractive on the

first blush but does not survive closer scrutiny. At any rate, there is

nothing new or ingenious about the submission, for the same has

been noticed in several cases and repelled in numerous decisions

delivered by this Court over the past more than a decade. We need

not burden this judgment by referring to all those pronouncements.

Reference to only some of the said decisions should, in our opinion,

suffice.

9. In NEPC Micon Ltd. v. Magma Leasing Ltd. (1999) 4 SCC

253, the cheques issued by the appellant-company in discharge of

its liability were retuned by the company with the comments

‘account closed’. The question was whether a dishonour on that

ground for that reason was culpable under Section 138 of the

Negotiable Instruments Act. The contention of the company that

issued the cheque was that Section 138 being a penal provision

Page 9 ought to be strictly construed and when so interpreted, dishonour of

a cheque on ground that the account was closed was not punishable

as the same did not fall in any of the two contingencies referred to in

Section 138. This Court noticed the prevalent cleavage in the judicial

opinion, expressed by different High Courts in the country and

rejected the contention that Section 138 must be interpreted strictly

or in disregard of the object sought to be achieved by the statute.

Relying upon the decision of this Court in Kanwar Singh v. Delhi

Administration (AIR 1965 SC 871), and Swantraj v. State of

Maharashtra (1975) 3 SCC 322 this Court held that a narrow

interpretation of Section 138 as suggested by the drawer of the

cheque would defeat the legislative intent underlying the provision.

Relying upon the decision in State of Tamil Nadu v. M.K.

Kandaswami (1975) 4 SCC 745, this Court declared that while

interpreting a penal provision which is also remedial in nature a

construction that would defeat its purpose or have the effect of

obliterating it from the statute book should be eschewed and that if

more than one constructions are possible the Court ought to choose

a construction that would preserve the workability and efficacy of the

statute rather than an interpretation that would render the law otiose

or sterile. The Court relied upon the much quoted passage from the

Seaford Court Estates Ltd. v. Asher (1949 2 All E.R. 155)

Page 10 wherein Lord Denning, L.J. observed:

“The English language is not an instrument of mathematical

precision. Our literature would be much poorer if it were. This

is where the draftsmen of Acts of Parliament have often been

unfairly criticised. A judge, believing himself to be fettered by

the supposed rule that he must look to the language and

nothing else, laments that the draftsmen have not provided for

this or that, or have been guilty of some or other ambiguity. It

would certainly save the judges trouble if Acts of Parliament

were drafted with divine prescience and perfect clarity. In the

absence of it, when a defect appears a judge cannot simply

fold his hands and blame the draftsman. He must set to work

on the constructive task of finding the intention of Parliament,

and he must do this not only from the language of the statute,

but also from a consideration of the social conditions which

gave rise to it and of the mischief which it was passed to

remedy, and then he must supplement the written word so as

to give ‘force and life’ to the intention of the legislature. ... A

judge should ask himself the question how, if the makers of

the Act had themselves come across this ruck in the texture of

it, they would have straightened it out? He must then do so as

they would have done. A judge must not alter the material of

which the Act is woven, but he can and should iron out the

creases.”

10. Relying upon a three-Judge Bench decision of this Court in

Modi Cements Ltd. v. Kuchil Kumar Nandi (1998) 3 SCC 249,

this Court held that the expression “the amount of money …………. is

insufficient to honour the cheque” is a genus of which the expression

‘account being closed’ is a specie.

11. In Modi Cements Ltd. (supra) a similar question had arisen

for the consideration of this Court. The question was whether

dishonour of a cheque on the ground that the drawer had stopped

payment was a dishonour punishable under Section 138 of the Act.

Relying upon two earlier decisions of this Court in Electronics

Trade & Technology Development Corporation Ltd. v. Indian

Page 11 Technologists and Engineers (Electronics) (P) Ltd. (1996) 2

SCC 739 and K.K Sidharthan v. T.P. Praveena Chandran (1996)

6 SCC 369, it was contended by the drawer of the cheque that if the

payment was stopped by the drawer, the dishonour of the cheque

could not constitute an offence under Section 138 of the Act. That

contention was specifically rejected by this Court. Not only that, the

decision in Electronics Trade & Technology Development

Corporation Ltd. (supra) to the extent the same held that

dishonour of the cheque by the bank after the drawer had issued a

notice to the holder not to present the same would not constitute an

offence, was overruled. This Court observed:

“18. The aforesaid propositions in both these reported

judgments, in our considered view, with great respect are

contrary to the spirit and object of Sections 138 and 139 of the

Act. If we are to accept this proposition it will make Section

138 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. Further the following observations in para 6 in

Electronics Trade & Technology Development Corpn. Ltd.

“Section 138 intended to prevent dishonesty on the part of the

drawer of negotiable instrument to draw a cheque without

sufficient funds in his account maintained by him in a bank and

induce the payee or holder in due course to act upon it.

Section 138 draws presumption that one commits the offence if

he issues the cheque dishonestly” (emphasis supplied) in our

opinion, do not also lay down the law correctly.

20. On a careful reading of Section 138 of the Act, we are

unable to subscribe to the view that Section 138 of the Act

draws presumption of dishonesty against drawer of the cheque

if he without sufficient funds to his credit in his bank account to

honour the cheque issues the same and, therefore, this

amounts to an offence under Section 138 of the Act. For the

reasons stated hereinabove, we are unable to share the views

Page 12 expressed by this Court in the above two cases and we

respectfully differ with the same regarding interpretation of

Section 138 of the Act to the limited extent as indicated

above.”

12. We may also at this stage refer to the decisions of this Court

in M.M.T.C. Ltd. and Anr. v. Medchl Chemicals and Pharma (P)

Ltd. and Anr. (2002) 1 SCC 234, where too this Court considering

an analogous question held that even in cases where the dishonour

was on account of “stop payment” instructions of the drawer, a

presumption regarding the cheque being for consideration would

arise under Section 139 of the Act. The Court observed:

“19. Just such a contention has been negatived by this Court

in the case of Modi Cements Ltd. v. Kuchil Kumar Nandi. It has

been held that even though the cheque is dishonoured by

reason of “stop-payment” instruction an offence under Section

138 could still be made out. It is held that the presumption

under Section 139 is attracted in such a case also. The

authority shows that even when the cheque is dishonoured by

reason of stop-payment instructions by virtue of Section 139

the court has to presume that the cheque was received by the

holder for the discharge, in whole or in part, of any debt or

liability. Of course this is a rebuttable presumption. The

accused can thus show that the “stop-payment” instructions

were not issued because of insufficiency or paucity of funds. If

the accused shows that in his account there were sufficient

funds to clear the amount of the cheque at the time of

presentation of the cheque for encashment at the drawer bank

and that the stop-payment notice had been issued because of

other valid causes including that there was no existing debt or

liability at the time of presentation of cheque for encashment,

then offence under Section 138 would not be made out. The

important thing is that the burden of so proving would be on

the accused. Thus a court cannot quash a complaint on this

ground.”

13. To the same effect is the decision of this Court in Goaplast

Page 13 (P) Ltd. v. Chico Ursula D’souza and Anr. (2003) 3 SCC 232,

where this Court held that ‘stop payment instructions’ and

consequent dishonour of the cheque of a post-dated cheque attracts

provision of Section 138. This Court observed :

“Chapter XVII containing Sections 138 to 142 was introduced

in the Act by Act 66 of 1988 with the object of inculcating faith

in the efficacy of banking operations and giving credibility to

negotiable instruments in business transactions. The said

provisions were intended to discourage people from not

honouring their commitments by way of payment through

cheques. The court should lean in favour of an interpretation

which serves the object of the statute. A post-dated cheque

will lose its credibility and acceptability if its payment can be

stopped routinely. The purpose of a post-dated cheque is to

provide some accommodation to the drawer of the cheque.

Therefore, it is all the more necessary that the drawer of the

cheque should not be allowed to abuse the accommodation

given to him by a creditor by way of acceptance of a post-

dated cheque.

In view of Section 139, it has to be presumed that a cheque is

issued in discharge of any debt or other liability. The

presumption can be rebutted by adducing evidence and the

burden of proof is on the person who wants to rebut the

presumption. This presumption coupled with the object of

Chapter XVII of the Act leads to the conclusion that by

countermanding payment of post-dated cheque, a party should

not be allowed to get away from the penal provision of Section

138 of the Act. A contrary view would render Section 138 a

dead letter and will provide a handle to persons trying to avoid

payment under legal obligations undertaken by them through

their own acts which in other words can be said to be taking

advantage of one's own wrong.”

(emphasis supplied)

14. A three-Judge Bench of this Court in Rangappa v. Sri

Mohan (2010) 11 SCC 441 has approved the above decision and

held that failure of the drawer of the cheque to put up a probable

defence for rebutting the presumption that arises under Section 139

Page 14 would justify conviction even when the appellant drawer may have

alleged that the cheque in question had been lost and was being

misused by the complainant.

15. The above line of decisions leaves no room for holding that

the two contingencies envisaged under Section 138 of the Act must

be interpreted strictly or literally. We find ourselves in respectful

agreement with the decision in NEPC Micon Ltd. (supra) that the

expression “amount of money …………. is insufficient” appearing in

Section 138 of the Act is a genus and dishonour for reasons such “as

account closed”, “payment stopped”, “referred to the drawer” are

only species of that genus. Just as dishonour of a cheque on the

ground that the account has been closed is a dishonour falling in the

first contingency referred to in Section 138, so also dishonour on the

ground that the “signatures do not match” or that the “image is not

found”, which too implies that the specimen signatures do not match

the signatures on the cheque would constitute a dishonour within the

meaning of Section 138 of the Act. This Court has in the decisions

referred to above taken note of situations and contingencies arising

out of deliberate acts of omission or commission on the part of the

drawers of the cheques which would inevitably result in the

dishonour of the cheque issued by them. For instance this Court has

held that if after issue of the cheque the drawer closes the account it

Page 15 must be presumed that the amount in the account was nil hence

insufficient to meet the demand of the cheque. A similar result can

be brought about by the drawer changing his specimen signature

given to the bank or in the case of a company by the company

changing the mandate of those authorised to sign the cheques on its

behalf. Such changes or alteration in the mandate may be dishonest

or fraudulent and that would inevitably result in dishonour of all

cheques signed by the previously authorised signatories. There is in

our view no qualitative difference between a situation where the

dishonour takes place on account of the substitution by a new set of

authorised signatories resulting in the dishonour of the cheques

already issued and another situation in which the drawer of the

cheque changes his own signatures or closes the account or issues

instructions to the bank not to make the payment. So long as the

change is brought about with a view to preventing the cheque being

honoured the dishonour would become an offence under Section 138

subject to other conditions prescribed being satisfied. There may

indeed be situations where a mismatch between the signatories on

the cheque drawn by the drawer and the specimen available with the

bank may result in dishonour of the cheque even when the drawer

never intended to invite such a dishonour. We are also conscious of

the fact that an authorised signatory may in the ordinary course of

Page 16 business be replaced by a new signatory ending the earlier mandate

to the bank. Dishonour on account of such changes that may occur

in the course of ordinary business of a company, partnership or an

individual may not constitute an offence by itself because such a

dishonour in order to qualify for prosecution under Section 138 shall

have to be preceded by a statutory notice where the drawer is called

upon and has the opportunity to arrange the payment of the amount

covered by the cheque. It is only when the drawer despite receipt of

such a notice and despite the opportunity to make the payment

within the time stipulated under the statute does not pay the amount

that the dishonour would be considered a dishonour constituting an

offence, hence punishable. Even in such cases, the question whether

or not there was a lawfully recoverable debt or liability for discharge

whereof the cheque was issued would be a matter that the trial

Court will examine having regard to the evidence adduced before it

and keeping in view the statutory presumption that unless rebutted

the cheque is presumed to have been issued for a valid

consideration.

16. In the case at hand, the High Court relied upon a decision of

this Court in Vinod Tanna’s case (supra) in support of its view. We

have carefully gone through the said decision which relies upon the

decision of this Court in Electronics Trade & Technology

Page 17 Development Corporation Ltd. (supra). The view expressed by

this Court in Electronics Trade & Technology Development

Corporation Ltd. (supra) that a dishonour of the cheque by the

drawer after issue of a notice to the holder asking him not to present

a cheque would not attract Section 138 has been specifically

overruled in Modi Cements Ltd. case (supra). The net effect is

that dishonour on the ground that the payment has been stopped,

regardless whether such stoppage is with or without notice to the

drawer, and regardless whether the stoppage of payment is on the

ground that the amount lying in the account was not sufficient to

meet the requirement of the cheque, would attract the provisions of

Section 138.

17. It was contended by learned counsel for the respondent that

the respondent-company had offered to issue new cheques to the

appellant upon settlement of the accounts and that a substantial

payment has been made towards the outstanding amount. We do

not think that such an offer would render illegal a prosecution that is

otherwise lawful. The offer made by the respondent-company was in

any case conditional and subject to the settlement of accounts. So

also whether the cheques were issued fraudulently by the authorised

signatory for amounts in excess of what was actually payable to the

appellant is a matter for examination at the trial. That the cheques

Page 18 were issued under the signature of the persons who were authorised

to do so on behalf of the respondent-company being admitted would

give rise to a presumption that they were meant to discharge a

lawful debt or liability. Allegations of fraud and the like are matters

that cannot be investigated by a Court under Section 482 Cr.P.C. and

shall have to be left to be determined at the trial after the evidence

is adduced by the parties.

18. On behalf of the signatories of the cheques dishonoured it

was argued that the dishonour had taken place after they had

resigned from their positions and that the failure of the company to

honour the commitment implicit in the cheques cannot be construed

an act of dishonesty on the part of the signatories of the cheques.

We do not think so. Just because the authorised signatories of the

cheques have taken a different line of defence than the one taken by

by the company does not in our view justify quashing of the

proceedings against them. The decisions of this Court in National

Small Industries Corporation Limited v. Harmeet Singh

Paintal and Anr. (2010) 3 SCC 330 and S.M.S. Pharmaceuticals

Ltd. v. Neeta Bhalla & Anr. (2005) 8 SCC 89 render the

authorised signatory liable to be prosecuted along with the company.

In the National Small Industries Corporation Limited’s case

(supra) this Court observed:

Page 19 “19. xxxx

(c) The answer to Question (c) has to be in the affirmative. The

question notes that the managing director or joint managing

director would be admittedly in charge of the company and

responsible to the company for the conduct of its business.

When that is so, holders of such positions in a company

become liable under Section 141 of the Act. By virtue of the

office they hold as managing director or joint managing

director, these persons are in charge of and responsible for the

conduct of business of the company. Therefore, they get

covered under Section 141. So far as the signatory of a cheque

which is dishonoured is concerned, he is clearly responsible for

the incriminating act and will be covered under sub-section (2)

of Section 141.”

19. In the result, we allow these appeals, set aside the judgment

and orders passed by the High Court and dismiss the special criminal

applications filed by the respondents. The trial Court shall now

proceed with the trial of the complaints filed by the appellants

expeditiously. We make it clear that nothing said in this judgment

shall be taken as an expression of any final opinion on the merits of

the case which the trial Court shall be free to examine on its own.

No costs.

……………………… .……..……J.

(T.S. THAKUR)

………………………… .…..……J.

(GYAN SUDHA MISRA)

New Delhi

November 27, 2012

Page 20 Reportable

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NOS. 1870-1909 OF 2012

(Arising out of S.L.P. (Crl.) No.1740-1779/2001)

M/S. LAXMI DYECHEM .. Appellant

Versus

STATE OF GUJARAT & ORS. ..

Respondents

WITH

CRL.APPEAL NOS. 1910-1949 of 2012

(Arising out of SLP (Crl.) Nos.1780-1819/11

J U D G E M E N T

GYAN SUDHA MISRA, J.

1. I endorse and substantially agree with the views

expressed in the judgment and order of learned Brother Justice

Thakur. However, I propose to highlight a specific aspect relating

to dishonour of cheques which constitute an offence under Section

138 as introduced by the Banking, Public Financial Institutions and

Negotiable Instruments Laws (Amendment) Act, 1988 by adding that

in so far as the category of ‘stop payment of cheques’ is concerned

Page 21 as to whether they constitute an offence within the meaning of

Section 138 of the ‘NI Act’, due to the return of a cheque by the

bank to the drawee/holder of the cheque on the ground of ‘stop

payment’ although has been held to constitute an offence within

the meaning of Sections 118 and 138 of the NI Act, and the same is

now no longer res integra, the said presumption is a ‘rebuttable

presumption’ under Section 139 of the NI Act itself since the

accused issuing the cheque is at liberty to prove to the contrary.

This is already reflected under Section 139 of the NI Act when it

lays down as follows:-

“139. Presumption in favour of holder.-- It shall be presumed, unless

the contrary is proved, that the holder of a cheque received the

cheque, of the nature referred to in Section 138 for the discharge, in

whole or in part, of any debt or other liability.”

2. We have to bear in mind that the Legislature while

incorporating the provisions of Chapter XVII, Sections 138 to

142 inserted in the NI Act (Amendment Act 1988) intends to punish

only those who know fully well that they have no amount in the

bank and yet issue a cheque in discharge of debt or liability already

borrowed/incurred -which amounts to cheating, and not to punish

those who refused to discharge the debt for bona fide and

sustainable reason. It is in this context that this Hon’ble Court in

Page 22 the matter of M.M.T.C. Ltd. And Anr vs. Medchl Chemical and

Pharma (P) Ltd. And Anr.

1

was pleased to hold that cheque

dishonour on account of drawer’s stop payment instruction

constitutes an offence under Section 138 of the NI Act but it is

subject to the rebuttable presumption under Section 139 of the NI

Act as the same can be rebutted by the drawer even at the first

instance. It was held therein that in order to escape liability

under Section 139, the accused has to show that dishonour was

not due to insufficiency of funds but there was valid cause,

including absence of any debt or liability for the stop payment

instruction to the bank. The specific observations of the

Court in this regard may be quoted for ready reference which are

as follows:

“The authority shows that even when the cheque is dishonoured by

reason of stop-payment instructions by virtue of Section 139 the court

has to presume that the cheque was received by the holder for the

discharge, in whole or in part, of any debt or liability. Of course this is

a rebuttable presumption. The accused can thus show that the “stop-

payment” instructions were not issued because of insufficiency or

paucity of funds. If the accused shows that in his account there were

sufficient funds to clear the amount of the cheque at the time of

presentation of the cheque for encashment at the drawer bank and

that the stop-payment notice had been issued because of other valid

causes including that there was no existing debt or liability at the time

of presentation of cheque for encashment, then offence under Section

138 would not be made out. The important thing is that the burden of

so proving would be on the accused. Thus a court cannot quash a

complaint on this ground.”

Therefore, complaint filed in such a case although might not be

1 (2002) 1 SCC 234

Page 23 quashed at the threshold before trial, heavy onus lies on the court

issuing summons in such cases as the trial is summary in nature.

3. In the matter of Goaplast (P) Ltd. vs. Chico Ursula

D’Souza And Anr.

2

also this Court had held that ordinarily the

stop payment instruction is issued to the bank by the account

holder when there is no sufficient amount in the account. But, it

was also observed therein that the reasons for stopping the payment

can be manifold which cannot be overlooked. Hence, in view of

Section 139, it has to be presumed that a cheque is issued in

discharge of any debt or other liability. But the presumption can be

rebutted by adducing evidence and the burden of proof is on the

person who wants to rebut the presumption. However, this

presumption coupled with the object of Chapter XVII of the Act leads

to the conclusion that by countermanding payment of post-dated

cheque, a party should not be allowed to get away from the penal

provision of Section 138 of the Act. Therefore, in order to hold that

the stop payment instruction to the bank would not constitute an

offence, it is essential that there must have been sufficient funds in

the accounts in the first place on the date of signing of the cheque,

the date of presentation of the cheque, the date on which stop

payment instructions were issued to the bank. Hence, in Goaplast

matter (supra), when the magistrate had disallowed the application

in a case of ‘stop payment’ to the bank without hearing the matter

2 (2003) 3 SCC 232 = (2004) Crl.L.J. 664

Page 24 merely on the ground that there was no dispute about the

dishonour of the cheque issued by the accused, since the signature

was admitted and therefore held that no purpose would be served in

examining the bank manager since the dishonour was not in issue,

this Court held that examination of the bank manager would have

enabled the Court to know on what date stop payment order was

sent by the drawer to the bank clearly leading to the obvious

inference that stop payment although by itself would be an offence,

the same is subject to rebuttal provided there was sufficient funds

in the account of the drawer of the cheque.

4. Further, a three judge Bench of this Court in the

matter of Rangappa vs. Sri Mohan

3

held that Section 139 is an

example of a reverse onus clause that has been included in

furtherance of the legislative objective of improving the credibility

of negotiable instruments. While Section 138 of the Act specifies

the strong criminal remedy in relation to the dishonour of the

cheques, the rebuttable presumption under Section 139 is a

device to prevent undue delay in the course of litigation. The Court

however, further observed that it must be remembered that the

offence made punishable by Section 138 can be better described

as a regulatory offence since the bouncing of a cheque is largely

in the nature of a civil wrong whose money is usually confined to

3 (2010) 11 SCC 441

Page 25 the private parties involved in commercial transactions. In such a

scenario, the test of proportionality should guide the construction

and interpretation of reverse onus clauses and the defendant

accused cannot be expected to discharge an unduly high standard

of proof”. The Court further observed that it is a settled position

that when an accused has to rebut the presumption under Section

139, the standard of proof for doing so is all preponderance of

probabilities.

5. Therefore, if the accused is able to establish a probable

defence which creates doubt about the existence of a legally

enforceable debt or liability, the prosecution can fail. The accused

can rely on the materials submitted by the complainant in order to

raise such a defence and it is inconceivable that in some cases

the accused may not need to adduce the evidence of his/her own.

If however, the accused/drawer of a cheque in question neither

raises a probable defence nor able to contest existence of a legally

enforceable debt or liability, obviously statutory presumption under

Section 139 of the NI Act regarding commission of the offence comes

into play if the same is not rebutted with regard to the materials

submitted by the complainant.

6. It is no doubt true that the dishonour of cheques in

order to qualify for prosecution under Section 138 of the NI Act

Page 26 precedes a statutory notice where the drawer is called upon by

allowing him to avail the opportunity to arrange the payment of

the amount covered by the cheque and it is only when the drawer

despite the receipt of such a notice and despite the opportunity to

make the payment within the time stipulated under the statute does

not pay the amount, that the said default would be considered a

dishonour constituting an offence, hence punishable. But even in

such cases, the question whether or not there was lawfully

recoverable debt or liability for discharge whereof the cheque was

issued, would be a matter that the trial court will have to examine

having regard to the evidence adduced before it keeping in view the

statutory presumption that unless rebutted, the cheque is presumed

to have been issued for a valid consideration. In view of this the

responsibility of the trial judge while issuing summons to conduct

the trial in matters where there has been instruction to stop

payment despite sufficiency of funds and whether the same would

be a sufficient ground to proceed in the matter, would be extremely

heavy.

7. As already noted, the Legislature intends to punish

only those who are well aware that they have no amount in the

bank and yet issue a cheque in discharge of debt or liability which

amounts to cheating and not to punish those who bona fide issues

the cheque and in return gets cheated giving rise to disputes

Page 27 emerging from breach of agreement and hence contractual violation.

To illustrate this, there may be a situation where the cheque is

issued in favour of a supplier who delivers the goods which is found

defective by the consignee before the cheque is encashed or a post-

dated cheque towards full and final payment to a builder after

which the apartment owner might notice breach of agreement for

several reasons. It is not uncommon that in that event the

payment might be stopped bona fide by the drawer of the cheque

which becomes the contentious issue relating to breach of contract

and hence the question whether that would constitute an offence

under the NI Act. There may be yet another example where a

cheque is issued in favour of a hospital which undertakes to treat

the patient by operating the patient or any other method of

treatment and the doctor fails to turn up and operate and in the

process the patient expires even before the treatment is

administered. Thereafter, if the payment is stopped by the drawer

of the cheque, the obvious question would arise as to whether that

would amount to an offence under Section 138 of the NI Act by

stopping the payment ignoring Section 139 which makes it

mandatory by incorporating that the offence under Section 138 of

the NI Act is rebuttable. Similarly, there may be innumerable

situations where the drawer of the cheque for bonafide reasons

might issue instruction of ‘stop payment’ to the bank in spite of

sufficiency of funds in his account.

Page 28 8. What is wished to be emphasized is that matters arising out

of ‘stop payment’ instruction to the bank although would constitute

an offence under Section 138 of the NI Act since this is no longer

res-integra, the same is an offence subject to the provision of Section

139 of the Act and hence, where the accused fails to discharge his

burden of rebuttal by proving that the cheque could be held to be

a cheque only for discharge of a lawful debt, the offence would be

made out. Therefore, the cases arising out of stop payment

situation where the drawer of cheques has sufficient funds in his

account and yet stops payment for bona fide reasons, the same

cannot be put on par with other variety of cases where the cheque

has bounced on account of insufficiency of funds or where it

exceeds the amount arranged to be paid from that account, since

Section 138 cannot be applied in isolation ignoring Section 139

which envisages a right of rebuttal before an offence could be made

out under Section 138 of the Act as the Legislature already

incorporates the expression “unless the contrary is proved” which

means that the presumption of law shall stand and unless it is

rebutted or disproved, the holder of a cheque shall be presumed to

have received the cheque of the nature referred to in Section 138 of

the NI Act, for the discharge of a debt or other liability. Hence,

unless the contrary is proved, the presumption shall be made that

the holder of a negotiable instrument is holder in due course.

Page 29 9. Thus although a petition under Section 482 of the

Cr.P.C. may not be entertained by the High Court for quashing such

proceedings, yet the judicious use of discretion by the trial judge

whether to proceed in the matter or not would be enormous in view

of Section 139 of the NI Act and if the drawer of the cheque

discharges the burden even at the stage of enquiry that he had

bona fide reasons to stop the payment and not make the said

payment even within the statutory time of 15 days provided under

the NI Act, the trial court might be justified in refusing to issue

summons to the drawer of the cheque by holding that ingredients

to constitute offence under Section 138 of the NI Act is missing

where the account holder has sufficient funds to discharge the debt.

Thus the category of ‘stop payment cheques’ would be a category

which is subject to rebuttal and hence would be an offence only if

the drawer of the cheque fails to discharge the burden of rebuttal.

10. Thus, dishonour of cheques simpliciter for the reasons

stated in Section 138 of the NI Act although is sufficient for

commission of offence since the presumption of law on this point is

no longer res integra, the category of ‘stop payment’ instruction to

the bank where the account holder has sufficient funds in his

account to discharge the debt for which the cheque was issued,

the said category of cases would be subject to rebuttal as this

Page 30 question being rebuttable, the accused can show that the stop

payment instructions were not issued because of insufficiency or

paucity of funds, but stop payment instruction had been issued to

the bank for other valid causes including the reason that there was

no existing debt or liability in view of bonafide dispute between

the drawer and drawee of the cheque. If that be so, then offence

under Section 138 although would be made out, the same will

attract Section 139 leaving the burden of proof of rebuttal by the

drawer of the cheque. Thus, in cases arising out of ‘stop payment’

situation, Sections 138 and 139 will have to be given a harmonious

construction as in that event Section 139 would be rendered

nugatory.

11. The instant matter however do not relate to a case of

‘stop payment’ instruction to the bank as the cheque in question

had been returned due to mismatching of the signatures but more

than that the petitioner having neither raised nor proved to the

contrary as envisaged under Section 139 of the NI Act that the

cheques were not for the discharge of a lawful debt nor making the

payment within fifteen days of the notice assigning any reason as to

why the cheques had at all been issued if the amount had not been

settled, obviously the plea of rebuttal envisaged under Section 139

does not come to his rescue so as to hold that the same would fall

within the realm of rebuttable presumption envisaged under Section

Page 31 139 of the Act. I, therefore, concur with the judgment and order of

learned Brother Justice Thakur subject to my views on the

dishonour of cheques arising out of cases of ‘stop payment’

instruction to the bank in spite of sufficiency of funds on account of

bonafide dispute between the drawer and drawee of the cheque.

This is in view of the legal position that presumption in favour of

the holder of a cheque under Section 139 of the NI Act has been

held by the NI Act as also by this Court to be a rebuttable

presumption to be discharged by the accused/drawee of the cheque

which may be discharged even at the threshold where the

magistrate examines a case at the stage of taking cognizance as to

whether a prima facie case has been made out or not against the

drawer of the cheque.

………..…………… ..J

(Gyan Sudha Misra)

New Delhi;

November 27, 2012