Anil Kumar, S. vs Ramakrishna Kartha and Another

M. Sasidharan Nambiar, J.—Can a person who is not the payee and not an indorsee is entitled to file a complaint u/s 138 of Negotiable Instruments Act. This is the question to be settled in the revision.

Facts are admitted. Revision Petitioner issued Ext. P-1 cheque for Rs. 1,00,000 in favour of Krishnadas. First Respondent claiming that for consideration he received the cheque from the brother of the payee as the payee is out of India, presented the cheque for encashment and as it was dishonored for want of sufficient funds, sent Ext. P-4 notice demanding the amount and on the failure, lodged the complaint, which was taken cognizance by the learned Magistrate. Revision Petitioner pleaded not guilty. Learned Magistrate on the evidence of first Respondent as P.W. 1 and Exts. P-1 to P-6 found revision Petitioner guilty and convicted and sentenced him for the offence u/s 138 of Negotiable Instruments Act. Revision Petitioner challenged the conviction before Sessions Court, Alappuzha in Crl. A. 778/2005. Learned Sessions Judge rejecting the case of revision Petitioner that first Respondent is not a holder in due course and therefore is not entitled to file a complaint u/s 142 of Negotiable Instruments Act, dismissed the appeal. It is challenged in the revision.

Learned Counsel appearing for revision Petitioner and first Respondent were heard.

Learned Counsel appearing for revision Petitioner relying on Sub-section (a) of Section 142 of Negotiable Instruments Act argued that no Court shall take cognizance of an offence punishable u/s 138 except upon a complaint in writing made by the payee or holder in due course of the cheque and u/s 9 of Negotiable Instruments Act a holder in due course of a cheque, if payable to order could only be the indorsee thereof and when first Respondent is neither the payee nor the indorsee, learned Magistrate is not competent to take cognizance of the offence and therefore the conviction is bad. Learned Counsel pointed out that u/s 15 of Negotiable Instruments Act indorsement is provided for as the maker or holder of a negotiable instrument signs the same for the purpose of negotiation on the back or face thereof or on a slip of paper annexed thereto or so signs for the same purpose a stamped paper intended to be completed as the negotiable instrument, he is said to indorse the same and is called the indorsee and u/s 46 of Negotiable Instruments Act delivery is defined and under the said section a cheque payable to bearer is negotiable by delivery and a cheque payable to order is negotiable by the holder by indorsement and delivery thereof and Section 48 mandates that a cheque payable to order is negotiable by the holder by indorsement and delivery thereof and when admittedly there is no indorsement in Ext. P-1 cheque in favour of first Respondent, first Respondent cannot be a holder in due course and therefore complaint is not maintainable. Reliance was placed on the decision of Apex Court in Shankar Finance and Investments Vs. State of Andhra Pradesh and Others, and it was submitted that decision of Apex Court in Punjab and Sindh Bank v. Vinkar Sahakari Bank Ltd. 2001 (3) KLT 533 is not applicable to the facts of the present case and as first Respondent is not the holder in due course, conviction is not sustainable. Learned Counsel appearing for first Respondent argued that u/s 9 of the Negotiable Instruments Act, a person who for consideration became a payee of a cheque before the amount mentioned in it became payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title, is a holder in due course and as held by Apex Court in Punjab and Sindh Bank''s case (supra) a person who possesses the cheque for consideration is a holder in due course and therefore learned Magistrate is competent to take cognizance of the offence and so the conviction is perfectly maintainable.

u/s 142 of Negotiable Instruments Act no Court can take cognizance of an offence punishable u/s 138, except upon a complaint in writing either made by the payee or the holder in due course of the cheque. Admittedly, first Respondent is not the payee of the cheque. It is also admitted case that even though first Respondent contended that as a payee he was the holder in due course as he paid the consideration to the brother of the payee and obtained Ext. P-1 cheque for consideration, there is no endorsement in his favour in Ext. P-1 chque.

Crucial question is whether first Respondent could claim to be the holder in due course of the cheque in the absence of an indorsement in his favour.

Section 9 of Negotiable Instruments Act defines "holder in due course" as follows:

"Holder in due course" means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if (payable to order) before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

A reading of the section makes the position absolutely clear. As far as a promissory note is concerned, holder in due course means a person who for consideration became its possessor. So also as far as a cheque payable to bearer is concerned, a person who for consideration became its possessor, is a holder in due course. But in the case of a cheque payable to order a person can be the holder in due course only if he is either the payee or the indorsee. Section 15 provides for indorsement and Section 16 the indorsement in blank and in full. u/s 15 when the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, on the back or face thereof or on a strip of paper annexed thereto or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, for the purpose of negotiation, he is said to indorse the same and he is called the indorsee If he signs his name only, the indorsement is said to be in blank and if he adds a direction to pay the amount to a specified person or to order, the indorsement is said to be in full and the person so specified, the indorsee. u/s 14, when a promissory note or bill of exchange or cheque is transferred to any person so as to constitute that person the holder thereof, the instrument is said to be negotiated. Therefore, in order to make a person other than a payee the holder in due course as defined u/s 9, there should be a negotiation and for a valid negotiation there should be an indorsement in his favour by the payee or holder in due course.

Chapter IV of Negotiable Instruments Act deals with negotiations. u/s 46, the making, acceptance or indorsement of a promissory note, bill of exchange or cheque is complete by delivery either actual or constructive. Even though in the case of a cheque payable to the bearer or a promissory note or bill of exchange, it is negotiable by delivery thereof and no indorsement is necessary, in the case of a promissory note, bill of exchange or cheque payable to order it is negotiable by the holder by indorsement and delivery thereof. Section 46 reads:

Delivery.- The making, acceptance or indorsement of a promissory note, bill of exchange or cheque is completed by delivery, actual or constructive.

As between parties standing in immediate relation, delivery to be effectual must be made by the party making, accepting or indorsing the instrument, or by a person authorised by him in that behalf.

As between such parties and any holder of the instrument other than a holder in due course, it may be shown that the instrument was delivered conditionally or for a special purpose only, and not for the purpose of transferring absolutely the property therein.

A promissory note, bill of exchange or cheque payable to bearer is negotiable by the delivery thereof.

A promissory note, bill of exchange or cheque payable to order is negotiable by the holder by indorsement and delivery thereof.

From Section 46 it is clear that there cannot be a negotiation of a cheque payable to order unless the holder of the cheque makes an indorsement and also deliver the cheque to the indorsee. It is further made clear by Section 48. Section 48 provides that subject to the provisions of Section 58, a promissory note, bill of exchange or cheque payable to order is negotiable by the holder by indorsement and delivery thereof. Effect of an indorsement is provided u/s 50. Under the said Section the indorsement of a negotiable instrument followed by delivery transfers to the indorsee, the property therein with the right of further negotiation. But the indorsement by express words may restrict or exclude such right or may merely constitute the indorsee an agent to indorse the instrument or to receive its contents for the indorsee or for some other specified person.

Therefore, it is absolutely clear that in order to make a person other than a payee, a holder in due course of a cheque payable to order, there shall be indorsement in his favour and a delivery of the cheque as provided u/s 48 of Negotiable Instruments Act. Delivery alone is not sufficient to make him a holder in due course indorsement is mandatory. Ext. P-1 shows that it is payable to Krishnadas. There is no indorsement by Krishnadas in favour of first Respondent. Even if, there was delivery of Ext. P-1 cheque by the brother of the payee in favour of first Respondent as alleged in the complaint and that too for consideration as claimed by first Respondent as P.W. 1 at the time of his examination, he cannot be the holder in due course as defined u/s 9 of Negotiable Instruments Act so long as there is no indorsement in his favour. Hence first Respondent is not a holder in due course. When he is not the holder in due course Magistrate cannot take cognizance of the offence punishable u/s 138 of Negotiable Instruments Act, except upon a complaint in writing by the payee or the holder in due course of the cheque. The Magistrate could not have taken cognizance of the offence as first Respondent is not the holder in due course. If so, the conviction is bad in law. Hence it can only be found that conviction of revision Petitioner for the offence u/s 138 of Negotiable Instruments Act is not legal.

Revision is allowed. Conviction of revision Petitioner for the offence u/s 138 of Negotiable Instruments Act by the Judicial First Class Magistrate I, Cherthala as confirmed by Additional Sessions Judge, Alappuzha is set aside. Revision Petitioner is acquitted. The complaint stands dismissed.