G. Manohar and Another vs S. Mahalingam

Padmini Jesudurai, J.—The two accused in C.C.No. 22174 of 1989 on the file of the XIV Metropolitan Magistrate, Egmore, Madras, on a

complaint given by the respondent herein, for an offence u/s 138 of the Negotiable Instruments Act, 1881, as amended by the Banking Public

Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, (Act 66 of 1988) have filed this application, invoking the inherent

powers of this Court u/s 482 of the Criminal Procedure Code, to quash the above proceedings.

The allegations in the complaint are as follows: The petitioners are stockists for the respondent-company, which is manufacturing cement and

they owed the respondent a sum of Rs. 1,48,045/- on the purchase of cement from the respondent. On 12.10.1989, the petitioners issued a

cheque for the above sum in favour of the respondent drawn on the Bank of Baroda. The cheque was presented for payment, but was returned

unpaid to the Collecting Bank, the State Bank of India, Madras-34 with an endorsement ''Stopped payment''. After issuing the statutory notice, as

the amount was not paid, the complaint was Laid against the petitioners, who on receiving summons from the trial Court, have filed this petition for

quashing the above proceedings.

Thiru M.N. Padmanabhan, learned counsel for the petitioners would contend that the averments made in the complaint, do not disclose an

offence u/s 138 of the Negotiable Instruments Act (hereinafter referred to as ''the act''), since one of the basic ingredients of the offence, that the

cheque must be returned unpaid either for want of funds or for exceeding over-draft arrangement, which alone would attract the provisions of

Section 138 of the Act, is lacking in the instant case and the cheque really had been returned unpaid, not for want of funds or for exceeding over-

draft arrangement but because, for valid reasons, the petitioner had to stop payment to the respondent and as such, the provisions of Section 138

of the Act would not be applicable and the prosecution being mis-conceived, it would be an abuse of the process of the Criminal Court, to allow it

to continue and this Court invoking its inherent powers, should prevent such an abuse by quashing the entire proceedings.

Per contra, Thiru A. Natarajan for M/s. Anand Das Gupta, learned counsel for the respondent would urge that though the return of the cheque

unpaid for want of funds or for exceeding over draft arrangements, is a necessary ingredient of the offence u/s 138 of the Act, still that fact had to

be proved by the complainant only during trial, by summoning the necessary documents from the Bank and neither the complainant nor the Court,

was bound by the rubber-stamp endorsement made by the Bank as to the cause for the return of the cheque and as such, proceedings ought not to

be quashed, when the petitioners knowing fully well that they had no funds, had sought to circumvent the provisions of the Act by a ""Stop

payment"" order, while in reality, the cheque had been returned unpaid only for want of funds. According to the learned counsel in these

circumstances, the respondent should be given an opportunity to prove, by summoning the bank officials and the bank records that the cheque had

been returned, really for want of funds and that the prosecution should not be stifled at its very threshold.

The question that arises for consideration is, whether the complaint has to be quashed for the reasons put forward by the learned counsel for the

petitioners?

The powers of this court u/s 482 of the Criminal Procedure Code, in a situation such as this, when called upon to quash a complaint, at the very

threshold, are considerably limited. As the Supreme Court has repeatedly pointed out, this Court has to accept the allegations made in the

complaint as they are, without adding or subtracting and find out, if the ingredients of the offence are disclosed in the complaint. If the complaint

discloses the necessary ingredients of the offence, this court has no option but to allow the complainant to prosecute his complaint, if, however, the

allegations in the complaint, do not constitute an offence or if there is any legal impediment to the trial, then alone would this Court be justified in

quashing the complaint, since allowing such a prosecution, would amount to abuse of the process of the criminal court.

We have now to find out whether the present complaint discloses the ingredients of the offence u/s 138 of the Act. This penal provision requires

that the cheque should be returned unpaid, only for want of funds or for inadequate arrangement. In the instant case, the endorsement on the

returned cheque shows that it has been returned unpaid for the reason that a ''stop payment'' order had been issued by the petitioner. We have

therefore, to find out, whether the complainant and the Court, have merely to accept the endorsement made by the bank in the return of the unpaid

cheque and act only on that endorsement or whether it would be open to the complainant, to go behind that endorsement and through the bank

records, to establish that despite a different return, the cheque was returned unpaid, only for want of funds or for exceeding over-draft arrangement

and that, therefore, the offence u/s 138 of the Act has been committed.

The object of introducing Chapter XVII in the Negotiable Instruments Act, 1881 by an amendment in 1988, containing Sections 138 to 142,

under the caption of penalties in case of dishonour of certain cheques for insufficiency of funds in the accounts'' is to enhance the acceptability of

cheques in settlement of liabilities by making the drawer penalty liable, when cheques are returned unpaid, due to want of funds or for exceeding

over-draft arrangement, providing sufficient safeguards to prevent harassing of honest drawers.

A bank is bound to honour the cheques issued by its customer. Failure to do so, when funds are available, would expose the banker to an

action for damages by its customer. This liability to honour the customers'' cheques, is no doubt subject to certain limitations such as a customer

countermanding payment by a ''stop payment'' order, death or insolvency of a customer and so on. Besides insufficiency of funds or exceeding

over-draft arrangement, a cheque could also be returned for being incomplete or for absence of or irregular or illegible endorsement of the payee,

improper crossing, incomplete, doubtful signature of the drawer, alteration in dates or figures or words, the cheque being mutilated, post dated, out

of date and so on. When such a cheque is returned unpaid, the banker returns it with the slip giving the reason for the dishonour. There is no

statutory obligation on the banker to give ''an answer'' or ''an objection memo'' - as they are commonly called - to the payee, indicating the reason

for the dishonour of the cheque. This is so because, the rights and liabilities as between the banker and the customer are based upon the contract,

between them while there is no privity of contract between the banker and the payee of a cheque. However, in actual practice, bankers do issue an

answer, indicating the reason for the dishonour. The answers are very brief, each bank adopting its own terminology, taking care to see that the

answer is consistent with the truth and is not such as to mislead the party presenting the cheque, while at the same time causing as little damage as

possible to its customers'' reputation and saves the bank from any action for libel by the customer. The answers coined by the bankers therefore,

are not standardised. They lack uniformity and when it comes to returning a cheque for want of funds, the answer is vague, indecisive and evasive.

The answer ''refer to drawer'' often adopted by bankers, could mean anything from shortage of time, to death or insolvency of the drawer and

could also include insufficiency of funds. It could include serving of a garnishee order and could be a milder form of refusal than ''no funds'' or ''no

arrangement''. At times, it may not really reflect the financial position of the drawer and could only mean, ''we are not paying, just ask the drawer

why''. Unlike most other answers, which if proved to be untrue, would be libellous the return ''refer to drawer'' is not. It is seen therefore, that the

nomenclature of the return by itself, would not be decisive of the cause of the return.

In the same way, a clearer drawer, knowing fully well, that the cheque would be returned for want of funds, could always circumvent Section

138 of the Act, by issuing ''stop payment'' order to the bank and later contend, that Section 138 of the Act cannot apply, since the cheque was

returned unpaid, not for want of funds but in pursuance of a ''stop payment order'' issued by him. The penal provision could not be nullified that

way.

One of the basic ingredients of the offence u/s 138 of the Act is that, the cheque must have been returned unpaid, either for want of funds or

for exceeding the over-draft arrangement. The question as to whether the cheque was returned unpaid for either of the above reasons, is a question

of fact, which the prosecution has to prove in the same way in which, any other fact is required to be proved in a criminal prosecution. This fact

could be proved by summoning the bank records, as also the bank officials connected with the records. The presumption raised in favour of the

holder of a cheque u/s 139 of the Act, does not extend to this ingredient of the offence. However, u/s 140 of the Act, it is not open to an accused

in a prosecution u/s 138 of the Act to contend, that he had no reason to believe when he issued the cheque, that the cheque might be dishonoured

on presentation for either of the reasons set out in Section 138. This gives us an indication of the rigour of the penal provision. Once, therefore, a

cheque is issued and returned unpaid for want of funds or for exceeding over-draft arrangement, it is not open to the drawer to contend, that he

intended to provide adequate funds at the time of the presentation and had failed to do so. It is for the drawer to see that funds are available when

the cheque is presented and no other defence is open to him, so far as the sufficiency of the funds goes.

It follows from the foregoing discussions that even though the answer or the objection memo on the unpaid cheque shows a reason other than

insufficiency of funds or inadequate arrangement, it would still be open to the complainant to establish, as a fact, that the cheque was really returned

unpaid only for want of funds or for inadequate arrangement. This the complainant could do by summoning the necessary bank records and the

bank witnesses. This ingredient has to be established dehors an answer by the bank to that effect in the returned cheque or even inspite of a

different answer given by the bank in the returned cheque. This could be done only during trial, by oral and documentary evidence. It is for the

court of facts, on the material placed before it, to render a finding, as to whether the cheque had been returned unpaid either for want of funds or

for inadequate arrangement.

Even if the cheque had been returned unpaid with an answer ""stopped payment"" as in this case, it would be open to the complainant to

establish, that on the day when the cheque was presented, funds were not available in the drawer''s account or that the overdraft arrangement had

been exceeded. Section 140 of the Act would indicate that when it is established as a fact, that the drawer had no funds or adequate arrangement

on the day when the cheque was presented and the cheque was returned unpaid a stop payment order by the drawer and a consequent answer in

the returned cheque showing the ""stop payment"" order as the cause for the return, would not take the act of the drawer out of the purview of

Section 138. Any other interpretation would defeat the very object of the penal provision. The proceedings, therefore, cannot be quashed, even

before trial has commenced, merely because of the return by the bank, indicating causes other than insufficiency of funds or inadequate

arrangement. The nomenclature of the return, by itself, is not decisive of the cause of the return.

However, as stated earlier, the complaint must disclose ail the necessary ingredients of an offence, though their proof could only be during trial.

If the complaint does not disclose the ingredients of the offence, this court has only to quash the proceedings. In the case before us, though it is

stated in the complaint that the petitioners have committed an offence u/s 138 of the Act, the complaint does not contain the allegation that the

petitioners did not have sufficient funds on the day when the cheque was presented for encashment and that the reason for the cheque being

unpaid, was really insufficiency of funds or inadequate arrangement. Unless such an allegation is made in the complaint, the complaint would not

disclose an offence u/s 138 of the Act. All that is stated in the complaint is that, the cheque was presented and returned with an endorsement

stopped payment"". If on the date of the presentation of the cheque, the petitioners had either sufficient funds or adequate arrangement, Section

138 of the Act will not apply. Learned counsel for the respondent strongly urged that in the complaint, it is stated that the petitioners had

committed an offence u/s 138 of the Act and as such, the complaint is in order. I am unable to accept the above contention, since a criminal

complaint should disclose all the ingredients of the offence, which the accused is alleged to have committed and the bald averment that the accused

have committed the offence, without the necessary ingredients of the offence that the accused are alleged to have committed, would not satisfy the

requirements of law. In the absence of any allegation in the complaint that on the day when the cheque was presented, the petitioners did not have

sufficient funds and the cheque was returned unpaid for want of funds, I am unable to hold that the complaint discloses an offence u/s 138 of the

Act. While so, it would be an abuse of process of the criminal court to allow further proceedings, which are accordingly quashed.

In the result, the proceedings in C.C.No. 22174 of 1989 on the file of the XIV Metropolitan Magistrate''s Court, Egmore, Madras, are

quashed.