Mahaplasto Ltd. and Another vs Bhushan Steels and Strips Ltd.

V.S. Aggarwal, J.—By this common judgment both Criminal Miscellaneous No. 310-M of 1996, and Criminal Miscellaneous No. 307-M of 1996 can conveniently be disposed of together. The facts in both the criminal miscellaneous petitions basically are identical. Therefore, it would be sufficient if the basic facts in Criminal Miscellaneous No. 310-M of 1996 are stated.

Bhushan Steels and Strips Ltd., Chandigarh, had filed a criminal complaint against the petitioners with respect to the offence punishable u/s 138 of the Negotiable Instruments Act, 1881 (hereinafter described as "the Act"), read with the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, besides Section 420 of the Indian Penal Code.

It was alleged that Vijay Dalmia is the director of Mahaplasto Ltd., Calcutta. He had for valuable consideration and for clearing the outstanding payment due to Bhushan Metallics Ltd., a sister concern of Bhushan Steels and Strips Ltd., agreed, vide letter of July 17, 1995, and had issued certain post-dated cheques. They were drawn on Allahabad Bank, Calcutta, in favour of Bhushan Steel and Strips Ltd. The total amount of the cheques was Rs. 11,87,174. It was with an assurance that on presentation, the same shall be encashed. Thereafter, the petitioner to avoid the payment had advised the respondent, Bhushan Steel and Strips Ltd. not to present the cheques on one pretext or the other. Bhushan Steel and Strips Ltd., however, under intimation to the petitioners presented the cheques for encashment through Punjab National Bank, Sector 28. The same were returned unpaid with the endorsement "payment stopped by the drawer". It was asserted that the petitioners with mala fide intention had stopped the payment with an object to withhold the payment of the cheques, In fact, there were not sufficient funds in the accounts of the petitioners. A legal notice was served calling upon the petitioners to clear the outstanding amount which was not cleared.

The learned Chief Judicial Magistrate, Chandigarh, after perusal of the preliminary evidence, summoned the petitioners as accused for the offence punishable u/s 138 of the Negotiable Instruments Act.

By virtue of the present petitions filed u/s 482 of the Code of Criminal Procedure, the petitioners seek quashing of the orders passed by the Chief Judicial Magistrate, Chandigarh, dated November 4, 1995. It is claimed that no case was drawn against the petitioners in the complaint. The respondent had no locus standi to file the complaint. The petitioners had no business transactions with the respondent. The cheques were not issued in discharge of any debt or liability. The cheques were not returned for insufficiency of funds but were returned for payment having been stopped by the drawer. This will not attract the strict provisions of Section 138 of the Negotiable Instruments Act. The cheques were issued as security and were not meant to be presented.

The petition as such has been contested and the averments and contentions of the petitioners have been denied,

Learned counsel for the petitioners urged that the cheques were basically given as a security and there was no legal obligation of the petitioners to pay any amount to the respondents. It was further contended that in any case since the cheques were returned because the payment had been stopped, it will not attract Section 138 of the Act.

Since the petitions are liable to succeed on the last argument of the petitioners, it is unnecessary to consider the other contentions.

Section 138 of the Negotiable Instruments Act was inserted with effect from April 1, 1989, with a view to penalise the accused in case of dishonour of cheques for insufficiency of funds in the account of the accused. By this statutory provision, a new offence was created. It reads :

"138. Dishonour of cheques for insufficiency, etc., of funds in the account.--Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both :

Provided that nothing contained in this section shall apply unless-- (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier ;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid ; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice.

Explanation.--For the purposes of this section, ''debt or other liability'' means a legally enforceable debt or other liability."

A reading of the above provision shows that the cheque should be issued for payment of the money due. The same should be returned by the bank for insufficiency of the funds or it exceeds the amount to be paid by agreement with the bank. In that event, it shall be deemed that the concerned person who had issued the cheque had committed the offence punishable u/s 138 of the Act. The exceptions, namely, Clauses (a) to (c), are not relevant for purposes of the present petitions.

It is not being disputed that the cheques in fact were returned because the payment had been stopped. They were not returned for insufficiency of funds. When such is the position, will it attract Section 138 of the Act ? The answer would be in the negative. Reference to two decisions of the Supreme Court on the subject would clinch the matter in favour of the petitioners.

In the case of M/s. Electronics Trade and Technology Development Corpn. Ltd., Secunderabad Vs. M/s. Indian Technologists and Engineers (Electronics) Pvt. Ltd. and another, the cheques had been issued by the accused and the payment had been stopped. The Supreme Court considered this, aspect and in paragraph 7 held (at page 33) :

"Shri Nageswara Rao, learned counsel appearing for the respondents, contended that stoppage of payment due to instructions does not amount to an offence u/s 138 and that, therefore, the ingredients in Section 138 have not been satisfied. We find no force in the contention. The object of bringing Section 138 on the statute appears to be to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. Despite the civil remedy, Section 138 intended to prevent dishonesty on the part of the drawer of a negotiable instrument to draw a cheque without sufficient funds in his account maintained by him in a bank and induces the payee or holder in due course to act upon it. Section 138 draws a presumption that one commits the offence if he issues the cheque dishonestly. It is seen that once the cheque has been drawn and issued to the payee and the payee has presented the cheque and thereafter, if any instructions are issued to the bank for non-payment and the cheque is returned to the payee with such an endorsement, it amounts to dishonour of cheque and it comes within the meaning of Section 138. Suppose after the cheque is issued to the payee or to the holder in due course and before it is presented for encashment notice is issued to him not to present the same for encashment and yet the payee or holder in due course presents the cheque to the bank for payment and when it is returned on instructions, Section 138 does not get attracted. Under these circumstances, since the accused has not made the payment within 15 days from the date of the receipt of the notice issued by the payee or the holder in due course, the dishonest intention is inferable from those facts. Accordingly, the ingredients as contained in Section 138 have been prima facie made out in the complaint. The High Court, therefore, was wholly incorrect in its conclusion that the ingredients have not been made out in the complaint. The orders of the High Court quashing the complaints are illegal. They are accordingly, set aside and the trial court is directed to dispose of the matters as expeditiously as possible. It is made clear that we do not intend to express any opinion on the merits."

It is apparent from a perusal of the judgment referred to above that if after the cheque is issued and before it is presented, a notice is issued not to present the same and still the holder in due course presents the cheque which is returned on instructions, Section 138 of the Act is not attracted. But if the cheque has been issued and instructions are issued for non-payment of the same after it had been presented, it would attract Section 138 of the Act. The same question was again considered by the Supreme Court in the case of K.K. Sidharthan Vs. T.P. Praveena Chandran and Another, In paragraph 6, the Supreme Court on similar lines as in the case of M/s. Electronics Trade and Technology Development Corpn. Ltd., Secunderabad Vs. M/s. Indian Technologists and Engineers (Electronics) Pvt. Ltd. and another, held that when instructions are issued stopping the payment before the cheque is presented, it will not attract Section 138 of the Act.

The position in the present case is identical. The petitioners have been informing Bhushan Metallics Ltd. not to present the cheques. Annexure P-4 is the copy of the letter dated August 10, 1995, in which the petitioner had stated :

"In the meantime, we shall request you not to present the cheques to the bank, till you discuss with us.

In case you are not interested to purchase the materials, we shall request you to kindly re-date the cheques and submit the cheques to the bank only on September 6, 1995, September 9, 1995, September 12, 1995, and September 15, 1995, since we have to make the arrangement for clearance of imported cargo and make the payment to you. We are enclosing herewith the copy of the letter for the arrangement with Sh. C. M. Mittal on July 29, 1995, the fax of which was sent by him."

This request for not presenting the cheques was rebutted vide letter dated August 12, 1995 (annexure "P-5") addressed to Bhushan Metallics Ltd. It was repeated vide letter of August 14, 1995 (annexure "P-7"), and the subsequent letters. It is true that there has been some correspondence between the petitioners and Bhushan Metallics Ltd. but the fact established is that instructions were being issued not to present the cheques and the payment had been stopped by instructing the bank even before the cheques were presented. Keeping in view the law laid down by the Supreme Court, since the cheques had been presented despite instructions issued earlier to the bank not to make the payment and even the intimation had been given otherwise, in the facts of the present case Section 138 of the Act will not be attracted.

For these reasons, the petitions are allowed. The complaints and the proceedings thereon pending in the Court of the Chief Judicial Magistrate, Chandigarh, are quashed.