Man Roland Druckimachinen AG Vs Multicolour Offset Ltd. and another[SC 2004 APRIL]

KEYWORDS-Restraining Legal Proceeding-

Capture

19-04-2004-

  • Undoubtedly when the parties have agreed on a particular forum, the Courts will enforce sauch agreement. This is not because of a lack or ouster of its own jurisdiction by reason of concensual conferment of jurisdiction on another Court, but because the Court will not be party to a breach of an agreement. Such an agreement is not contrary to public policy nor does it contravene Section 28 or Section 23 of the Contract Act.

AIR 2004 SC 3345 : (2004) 1 Suppl. SCR 396 : (2004) 7 SCC 447 : JT 2004 (1) Suppl. SC 349 : (2004) 4 SCALE 872

(SUPREME COURT OF INDIA)

Man Roland Druckimachinen AG Appellant
Versus
Multicolour Offset Ltd. and another Respondent

(Before : Mrs. Ruma Pal And P. Venkatarama Reddi, JJ.)

Civil Appeal No. 7244 of 1999*, Decided on : 19-04-2004.

Civil Procedure Code, 1908—Section 9—Jurisdiction of Court—Choice of Forum—Agreement between parties conferring jurisdiction on any one of Courts having jurisdiction to try the matter—Such agreement not contrary to public policy.

Undoubtedly when the parties have agreed on a particular forum, the Courts will enforaon on another Court, but because the Court will not be party to a breach of an agreement. Such an agreement is not contrary to public policy nor does it contravene Section 28 or Section 23 of the Contract Act.

Counsel for the Parties:

Sunil Gupta, Sr. Advocate, Ms. Mohna Lal and Rajiv Mehta, Advocates with him for Appellant.

Arvind Minocha, Ravi Sharma, V. K. Rao, Satish Kumar and Ms. Madhu Sikri, Advocates for Respondents.

Judgment

Ruma Pal, J—The appellant has challenged the order of the Commission set up under the Monopolies and Restrictive Trade Practices Act, 1969 (referred to as the Act) by which the Commission held it had the jurisdiction to entertain the respondent’s claim for compensation under Section 12B of the Act against the appellant and the respondent No.2.

2. The appellant carries on its business of manufacturing printing machines in Germany. It was incorporated under German Law and has its registered office at Offenbach, Main, Germany. The respondent No.1 and the respondent No.2 have their registered offices at Mumbai.

3. Pursuant to the agreement a printing machine was sold to the respondent No.1 by the appellant. The machine was shipped by the appellant from Germany to Mumbai on 16th June, 1994. It was off-loaded at Mumbai on 5th August, 1994 and cleared by the respondent No.1 from the customs warehouse on 22nd April, 1997.

4. In November, 1997 the respondent No.1 filed two applications before the Commission viz. Unfair Trade Practices Enquiry (UTPE) No. 388 of 1997 in effect complaining of unfair trade practices by the appellant and the respondent No.2 relating to the supply of the printing machine. Compensation Application (CA) No. 383 of 1997 was filed claiming over Rs.13 crores towards the cost of the machine, customs duty paid by respondent No.1 on the machine interest on the cost and customs duty and damages. However, UTPE No. 388 of 1997 was withdrawn in August, 1999.

5. The appellant had raised objections to the Commission’s jurisdiction to entertain the respondent’s application for compensation. The first ground was that the parties had agreed that the applicable law in the event of any dispute would be German Law. It was also agreed that disputes between the parties should be resolved either by proceedings brought in German Courts or alternatively through arbitration conducted in accordance with the International Chamber of Commerce Rules. The second ground on which the jurisdiction of the Commission was questioned by the appellant was that the appellant neither provided any service nor carried on any trade or trade practice in India for the purpose of the Act and even the machine in question had been sold to the respondent No.1 outside India.

6. The Commission rejected both the submissions of the appellant. As far as the first ground was concerned, it was held that the clause regarding the choice of forum was contrary to Sections 28 and 23 of the Contract Act and was void.

7. The memorandum of understanding executed between the appellant and the respondent No. 1 on 21st December, 1993 contained a clause to the following effect:

“13. Arbitration:

As claims and disputes arising out of the Contract shall be settled amicably between the parties as far as possible. But in case of failure all disputes arising in connection with this Contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the Rules. The venue of such Arbitration shall be Paris (France) and the proceedings shall be conducted in English language.”

8. Pursuant to this memorandum, a formal offer was sent by the appellant to respondent No.1 on 24th January, 1994 to sell the printing machine. This was accepted by the respondent No. 1’s letter dated 2nd February, 1994 to the appellant. On the same date, the appellant acknowledged receipt of the order and the fact of sale of the machine subject to inter alia, the following condition:

“XVI. Jurisdiction and Arbitration

1. The place of jurisdiction for all disputes arising out of the Contract – including actions on negotiable legal instruments and documents – shall be the place of the Works supplying the goods concerned i.e. Augsburg or Offenbach MR may also bring an action at the place of the Purchaser’s registered office.

2. In the event arbitration proceedings being agreed with a Purchaser having his registered office outside the Federal Republic of Germany any disputes arising out of the contract or in respect of its validity or the validity of the arbitration agreement shall be finally settled to the exclusion of legal proceedings under the rules of Conciliation and Arbitration of the International Chamber of Commerce in Paris by a Court of arbitration composed of three arbitrators appointed under such Rules. As long as no recourse to arbitration has been made the contracting parties shall be free to bring an action at the competent Court of law at the place of the defendant’s party’s registered office.”

9.Undoubtedly when the parties have agreed on a particular forum, the Courts will enforce sauch agreement. This is not because of a lack or ouster of its own jurisdiction by reason of concensual conferment of jurisdiction on another Court, but because the Court will not be party to a breach of an agreement. Such an agreement is not contrary to public policy nor does it contravene Section 28 or Section 23 of the Contract Act. This has been held in Jakkam Singh vs. M/s. Gammon (India) Ltd., AIR 1971 SC 740; A. B. C. Laminart Pvt. Ltd. vs. A. P. Agencies, (1989) 2 SCC 163 and Modi Entertainment Network vs. W. S. G. Cricket Pte. Ltd., (2003) 4 SCC 341, 351. The decision of the Delhi High Court in Rajendra Sethia vs. Punjab National Bank, AIR 1991 Del. 285 relied on by the Commission which holds to the contrary is, therefore, clearly erroneous.

10.But although the commission rejected the first submission of the appellant on an untenable ground, nevertheless the conclusion arrived at was correct. The principle which we have outlined in the previous paragraph is applicable to a situation where the Court is called upon to enforce rights arising under a contract which contains such a jurisdictional clause. The principle does not apply to proceedings under the Act which provides for statutory remedies in respect of statutorily defined offences. The remedies available under the Act are additional to the usual remedies available under the Contract Act to the parties. This is clear inter alia from Sections 4(1) and 12B (1) of the Act, both of which indicate that the proceedings under the Act are additional to, and therefore distinct from, proceedings, before a Civil Court. The powers invoked by the complainant under the Act are not exercisable otherwise than under the Act and it is certainly not exercisable by Courts in Germany. The jurisdictional clause in the contract would therefore not apply to proceedings before the Commission. This is so even assuming that the Commission is a “Court” as contended by the appellant on the basis of Canara Bank vs. Nuclear Power Corporation of India Ltd. (1995) 3 Suppl. SCC 81 and P. Sarathy vs. State Bank of India, (2000) 5 SCC 355.

11. The question then arises whether the Commission can at all exercise jurisdiction in respect of the complaint of unfair trade practice made by the respondent No.1 before it? An ‘unfair trade practice’ has been defined in Section 36A as meaning “a trade practice which, for the purpose of promoting the sale, use or supply of any goods or the provision of any services, adopts any unfair method or unfair or deceptive practice” including any of the practice specified in that section. The respondent has in its complaint relied on the following provisions in Section 36B:

(1) the practice of making any statement, whether orally or in writing or by visible representation which,-

(i) falsely represents that the goods are of a particular standard, quality, quantity, grade, composition, style or mode;

(ii) falsely represents that the services are of a particular standard, quality or grade;

(iii) falsely represents any re-built, second hand, renovated, re-conditioned or old goods as new goods;

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(vii) gives to the public any warranty or guarantee of the performance, efficacy or length of life of a product or of any goods that it is not based on an adequate proper test thereof.

Provided that where a defence is raised to the effect that such warranty or guarantee is based on adequate or proper test, the burden of proof of such defence shall lie on the person raising such defence;

(viii) makes to the public a representation in a form that purports to be-

(I) a warranty or guarantee of a product or of any goods or services; or

(II) a promise to replace, maintain or repair an article or any part thereof or to repeat or continue a service until it has achieved a specified result.

If such purported warranty or guarantee or promise is materially misleading or if there is no reasonable prospect that such warranty, guarantee or promise will be carried out.”

12. In the case of an unfair trade practice as invoked by the respondent No.1 the object of inquiry is a statement which is a false representation of the kind specified in clauses (i), (ii) or (iii) of sub-section (1) of Section 36A or is an advertisement of the kind specified in clauses (vii) or (viii) thereof. The statement or advertisement is the trade practice. The further requirement under the section is that the trade practice complained of must be for the purpose of promoting the sale, use or supply of goods or for promoting the provision of any service. The sale, use or supply need not, for the purposes of the section, actually have taken place although it may be relied upon by the complainant to establish the falsity of the representation.

13. The unfair trade practices alleged to have been committed by the appellant, according to the respondent No.1, were as follows :–

(a) Falsely representing that the machine in question was of a particular standard and model whereas in fact the machine supplied was a machine which was obsolete and out of production.

(b) Representing that the old goods were new and passing off the same as such to the respondent No.1.

(c) Giving guarantees and warranty in the purchase agreement regarding the performance, installation and commissioning of the machine but ensuring that the said clauses could not be invoked.

(d) in spite of being obliged under the contract to repair the goods insists on the payment of an additional sum of Two lakhs as initial payment to the second respondent for carrying out repairs.

(e) and in spite of making the said payment not carrying out of any repairs.

14. The appellant’s contention is that if the party alleged to have indulged in unfair trade practice does not reside in India the practices complained of must take place within India as the Act has no extra territorial operation. As a proposition of law this is correct and follows from section 14 of the Act which deals with “Orders where party concerned does not carry on business in India” and says:

“Where any practice substantially falls within monopolistic, restrictive or unfair trade practice, relating to the production, storage, supply, distribution or control of goods of any description or the provision of any services and any party to such practice does not carry on business in India, an order may be made under this Act with respect to that part of the practices which is carried on in India.”

15. The subject matter of complaint of an unfair trade practice must be such that relief under Section 36D can be granted in respect of it. As the commission can grant relief only in respect of practices within India, it necessarily follows that the practice complained of must have taken place in this country. This has also been held in Haridas Exports vs. All India Float Glass Manufacturers Association and others: (2002) 6 SCC 600.

16. The appellant has relied on Haridas Exports also to contend that if the sale or supply in respect of which complaint is made had taken place outside India then the Commission would not have the jurisdiction to proceed with the complaint. In that case the complaint alleged was a restrictive trade practice and related to the sale and import of goods (float glass) into India at predatory prices. It was found that the sale by the foreign manufacturers of the goods had taken place outside India. It was in that context that the Court held :

“If the float glass was ready and available, then being ascertained goods the sale would be regarded as having taken place where the goods existed at the time of sale i.e. in Indonesia. If the glass had to be manufactured and was not readily identifiable, then the sale would take place outside India when the goods are appropriated to the contract by the foreign exporter. Here the appropriation would take place in Indonesia when the glass is earmarked and exported to India. In either case, the MRTP Commission would have no jurisdiction to stop that sale. If the said sale cannot be stopped and the import policy permits the Indian exporter to import on payment of duty then we fail to see what jurisdiction the MRTP Commission can possibly have till a restrictive trade practice takes place after the float glass is imported into India.”

17. In the present case, the respondent No.1 has alleged that the appellant and the respondent No. 2 have made statements which were false because the appellant had not only sold, but also the respondent No. 2 had failed to repair, the machine which was not in keeping with such statements. We are not required to decide on the correctness of these allegations in this appeal.

18. An objection to jurisdiction can either be taken by way of demurrer or raised as an issue in the proceeding. In the first case the objection will have to be decided on the basis of the allegations contained in the complaint, taking the statements contained therein to be correct. Otherwise an objection to the jurisdiction of a Court may be raised as a preliminary issue. In such event, the issue would have to be adjudicated upon after giving the parties an opportunity to lead evidence. The Commission proceeded on the basis that both the objections raised by the appellant, were by way of demurrer.

19. The appellants’s first objection to the Commission’s jurisdiction based on the clause in the agreement was in fact in the nature of a demurrer and could be decided as such. But in our opinion the second objection to the jurisdiction of the Commission was not. It would have to be determined on evidence.

20. The Commission held that it had the jurisdiction to entertain the complaint because (1) the appellant carried on its trade practice of supply of the printing machinery to the respondent No.1 in India through the respondent No. 2 who “admittedly” was its Indian Agent (2) the contract between the appellant and the respondent No. 1 was required to be performed in India and (3) the supply of the printing machinery pursuant to the sale transaction was within the definition of “trade practice” in Section 2(u) of the Act and the effect of such trade practice “would certainly be on the Indian soil as the printing machinery was to be supplied in India”. The issue of passing of title was not gone into by the commission, because the commission felt it was not necessary to be considered at that stage.

21. The Commission erred in holding that the respondent No. 2 was ‘admittedly’ the Indian Agent of the appellant in view of the fact that the assertion of the respondent No.1 to that effect has been specifically controverted in the counter affidavit of the appellant. But then it certainly is not an issue which could be determined without taking evidence. The Commission would have to enquire into the question whether the respondent No. 2 was in fact involved in the capacity of the appellant’s agent as alleged by the respondent No.1. If it is so found the appellant may be said to carry on business in India thus giving the Commission the necessary jurisdiction to determine the respondent No.1’s complaint.

22. Even if it be found that the respondent No. 2 was not the agent of the respondent No. 1, the question would still remain to be determined on evidence as to whether the alleged representations were made and if so, whether the representations were falsified by the actions of the appellant. In this case there is also an allegation by the respondent No.1 relating to the carrying out of repairs to the machine. The appellant says that there was no obligation under the contract to repair the goods because the warranty period in the contract had expired long before the goods were cleared by the respondent No.1 and also because the goods had admittedly been demaged in the Customs Warehouse by fire. These are all questions of fact which require adjudication. Having regard to the nature of the allegations noted in clauses (a) and (b) of the complaint as noted earlier, the commission’s refusal to consider the question of passing of title in the machine as unnecessary to the question of jurisdiction was, particularly in the light of this court’s decision in Haridas Exports (supra), erroneous. According to the appellant, the sale was completed in Germany and the appellant was required to deliver the machine at Bombay Port C. I. F. It is contended that the property in the machine had passed from the appellant to the respondent No. 1 before the goods were imported by the respondent No. 1. It is not necessary to consider these arguments as the Commission has not addressed its mind to this aspect at all. It must do so. The appellant has also contended that the machine had been inspected in Germany prior to its sale by the respondent No.1. This again pertains to the defence of the appellant on merits. The contract dated 21st December, 1993 envisaged not only the supply of the machine by the appellant to the respondent No.1, but also provided for the appellant No.1 helping in the erection and installation of the machine at the respondent No.1’s site. According to the appellant, the contract was signed by it “without any obligation”. This would also have to be tried and determined on evidence. The appellant has also claimed that the portion of the contract providing for installation of the machine had been subsequently deleted and a proportionate part of the price paid by the respondent No.1 had been remitted to it. These are all matters to be adjudicated upon.

23. But the commission erred in law when it held that it would have jurisdiction because the effect of the unfair trade practice would be in India. Haridas Exports (supra) also dealt, inter alia, with the contention that even if the ‘practice’ took place outside India but the resultant adverse effect was experienced in India, then the MRTP Commission had the jurisdiction to entertain the complaint.

24. This court after considering the definition of ‘goods’, ‘trade’, ‘trade practice’ and Sections 14 and 33 came to the conclusion that the ‘effect doctrine’ would apply provided that the ‘effect’ amounted to a restrictive trade practice in India:

“Even if an agreement is executed outside India or the parties to the agreement are not in India and agreement may not be registrable under Section 33, being an outside-India agreement, nevertheless, if any, restrictive trade practice, as a consequence of any such outside agreement, is carried out in India then the commission shall have jurisdiction under Section 37 (1) in respect of that restrictive trade practice if it comes to the conclusion that the same is prejudicial to the public interest.”

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“The counsel for the respondents is right in submitting that if the effect of restrictive trade practices came to be felt in India because of a part of the trade practice, being implemented here the MRTP Commission would have jurisdiction. This ‘effect doctrine’ will clothe the MRTP Commission with jurisdiction to pass an appropriate order even though a transaction, for example, which results in exporting goods to India at predatory price, which was in effect a restrictive trade practice, had been carried out outside the territory of India if the effect of that resulted in a restrictive trade practice in India.”

25. Therefore, merely because the effect of an unfair trade practice is felt in India, this would not clothe the Commission with jurisdiction unless the ‘effect’ is itself an ‘unfair trade practice’ within India. This follows from the reasoning in Haridas Exports as well as the nature of the powers conferred on the Commission under Section 36D read with Section 14. The Commission, therefore, erred in holding that it would have jurisdiction only because the effect of the trade practice was felt in India.

26. We therefore, dispose of the appeal by directing the Commission to deal with the second aspect of the preliminary objection on evidence which may be adduced by either party and in the light of the legal issues determined by us. It is clarified that in the event the Commission finds on the evidence that the appellant does not carry on business in India through the respondent No. 2 and that the alleged unfair trade practice did not take place in India, the Commission will dismiss the respondent No.1’s complaint without deciding the matter on merits. The appeal is accordingly disposed of without any order as to costs.

 

Agreements in restraint of legal proceedings is void u/s 28

Contract

Indian Contract Act 1872

Section 28 of the Contract Act was introduced on the recommendation of the Law Commission in order to remove the anomalies created by the earlier Act. The position of law settled before the amendment[ 1997 amendment to the Section] was that Section 28 would invalidate only a clause in an agreement which restricts a party from enforcing his right absolutely or which limits the time within which he may enforce his right. Section 28 before the amendment does not come into operation when contractual term spell out an extension of a right of a party to sue or spell out the discharge of a party from the liabilities.

Indian Contract Act 1872

28. Agreements in restraint of legal proceedings, void.-

Every agreement,—

(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or

(b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability,. under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent.

Exception 1.—Saving of contract to refer to arbitration dispute that may arise.—

This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.

Exception 2.—Saving of contract to refer questions that have already arisen.—

Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration.L

Exception 3.—Saving of a guarantee agreement of a bank or a financial institution.—

This section shall not render illegal a contract in writing by which any bank or financial institution stipulate a term in a guarantee or any agreement making a provision for guarantee for extinguishment of the rights or discharge of any party thereto from any liability under or in respect of such guarantee or agreement on the expiry of a specified period which is not less than one year from the date of occurring or non-occurring of a specified event for extinguishment or discharge of such party from the said liability.

(a) Explanation.—

(i)In Exception 3, the expression “bank” means—a “banking company” as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949).
(b)”a corresponding new bank” as defined in clause (da) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
(c)”State Bank of India” constituted under section 3 of the State Bank of India Act, 1955 (23 of 1955);
(d)”a subsidiary bank” as defined in clause (k) of section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959);
(e)”a Regional Rural Bank” established under section 3 of the Reg, tonal Rural Banks Act, 1976 (21 of 1976);
(f)”a Co-operative Bank” as defined in clause (cci) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
(g) “a multi-State co-operative bank” as defined in clause (cciiia) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); and
(ii)In Exception 3, the expression ‘a financial institution” means any Public financial institution within the meaning of section 4A of the Companies Act, 1956 (1 of 1956).[ Inserted dt. 5.1.2013]


  • In respect of the arbitration clause in an agreement requiring the claim to be filed within 90 days from the date the final bill was raised for payment. It was held that the said clause in the arbitration agreement limiting the time during which a claim can be made by a party would be clearly against public policy and would be void under Section 28 of the Contract Act. Supreme Court in National Insurance Co. Ltd v. Sujir Ganesh Nayak and Co. and Anr. ; It was held that an agreement which curtails the period of limitation and prescribes a shorter period than prescribed by law would be void as offending Section 28 of the Contract Act. This was so because such an agreement would seek to restrict a party from enforcing his right in court after the period prescribed under the agreement expires even though the period prescribed by law for enforcement of his relief has yet not expired. However, there was possibility of agreements which do not seek to curtail the time for enforcement of the right but which provide for forfeiture or waiver of a right itself if no action is commenced within the period stipulated by the agreement and such a clause would not fall within the mischief of Section 28 of the Act.
  • Undoubtedly when the parties have agreed on a particular forum, the Courts will enforce sauch agreement. This is not because of a lack or ouster of its own jurisdiction by reason of concensual conferment of jurisdiction on another Court, but because the Court will not be party to a breach of an agreement. Such an agreement is not contrary to public policy nor does it contravene Section 28 or Section 23 of the Contract Act. This has been held in Jakkam Singh vs. M/s. Gammon (India) Ltd., AIR 1971 SC 740; A. B. C. Laminart Pvt. Ltd. vs. A. P. Agencies, (1989) 2 SCC 163 and Modi Entertainment Network vs. W. S. G. Cricket Pte. Ltd., (2003) 4 SCC 341, 351. The decision of the Delhi High Court in Rajendra Sethia vs. Punjab National Bank, AIR 1991 Del. 285 relied on by the Commission which holds to the contrary is, therefore, clearly erroneous. Man Roland Druckimachinen AG Vs Multicolour Offset Ltd. and another[SC 2004 APRIL]

  • SUPREME COURT CASES-

AVM SALES CORPORATION VS M/S ANURADHA CHEMICALS PVT LTD[SC 2012(2)SCC 315

RAJASTHAN STATE ELECTRICITY BOARD VS M/S UNIVERSAL PETROL CHEMICAL LTD[SC 2009(3) SCC 107

M/s. Laxmi Dyechem Vs. State of Gujarat & Ors. [SC 2012 November]

Keywords :- Stop Payment – Mismatching signature-

Capture

November 27, 2012-

  • Heavy onus lies on the court issuing summons in such cases as the trial is summary in nature.
  • 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.

  •  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.

Act :- 138 of Negotiable Instrument Act

Bench: T.S. Thakur, Gyan Sudha Misra

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

M/S Laxmi Dyechem vs State Of Gujarat & Ors

[Criminal Appeal Nos. 1870-1909 of 2012 arising out S.L.P. (CRL.) Nos. 1740-1779 of 2011] [Criminal Appeal Nos. 1910-1949 of 2012 arising out S.L.P. (CRL.) Nos. 1780-1819 of 2011]

T.S. THAKUR, J.

1. Leave granted.

2. These appeals are directed against orders dated 19th April, 2010and 27th August, 2010 passed by the High Court of Gujarat at Ahmedabad whereby the High Court has quashed 40 different complaints under Section138 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 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 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 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 dishonor that could constitute an offence under Section 138 of the Negotiable Instrument Act.

4. By a common order dated 19th 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 of2009 and connected matters.

The Court 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 19th 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 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 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 dishonor 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 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 innumerous 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 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) 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 aspecie.

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 dishonor punishable under Section 138 of the Act. Relying upon two earlier decisions of this Court in Electronics Trade & Technology Development Corporation Ltd. v. Indian Technologists and Engineers (Electronics) (P)Ltd. (1996) 2 SCC 739 and K.K Sidharthan v. T.P. Praveena Chandran (1996) 6SCC 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 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 inM.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 (P)Ltd. v. Chico Ursula D’souza and Anr. (2003) 3 SCC 232, where this Courtheld 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 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 dishonor of a cheque on the ground that the account has been closed is a dishonor 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 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 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 dishonor 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 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 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 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:

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.

(T.S. THAKUR)

(GYAN SUDHA MISRA)

New Delhi

November 27, 2012

M/S. Laxmi Dyechem Vs. State of Gujarat & Ors.

[Criminal Appeal Nos. 1870-1909 of 2012 arising out of S.L.P. (CRL.) Nos.1740-1779/2001)

[Criminal Appeal Nos. 1910-1949 of 2012 arising out of S.L.P. (CRL.) Nos.1780-1819/2011]

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 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 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 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 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 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 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 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.

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.

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 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 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.

 (Gyan Sudha Misra)

New Delhi;

November 27, 2012