Yeskey Enterprises vs State Bank of India

K. Mohan Ram, J.—The above criminal original petitions have been filed by the accused 2, 3 and 5, in C.C. Nos. 1287, 1525, 1526,

1286, 1288 and 1284 of 2005 on the file of the XVII Metropolitan Magistrate, Saidapet, Chennai. The petitioners are facing trial for an offence

u/s 138 of the Negotiable Instruments Act (hereinafter referred to as ""the Act"") in all the aforesaid cases on the complaints filed by the respondent

herein.

The brief facts which are necessary for the disposal of the above Criminal Original Petitions are set-out below:

As per the allegations contained in the respective complaints, the first accused had issued the following cheques,

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C.C. Nos. Cheque Nos. Cheque dates Amount in Rs. Drawn on/Bank

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1287 of 2005 312100 4/5/04 5,20,000/- Indian Bank, South Usman Road,

T.Nagar, Chennai � 17

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550304 7/6/04 5,60,000/-

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1525 of 2005 552273 7/6/04 5,35,000/- Indian Overseas Bank,

Mahalingapuram Branch.

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1526 of 2005 273483 7/5/04 7,10,000/- City Union Bank, Mahalakshmi

Street, T.Nagar,

273488 7/6/04 7,15000/- Chennai - 17

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1286 of 2005 312114 7/5/04 5,20,000/- Indian Bank, South Usman

Road, T.Nagar, Chennai � 17

312120 7/6/04 5,30,000/-

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1288 of 2005 121778 7/7/04 8,63,000/- Bank of India, Thousand

Lights Branch.

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1284 of 2005 272939 7/5/04 6,95,000/- City Union Bank, Mahalakshmi

272932 7/5/04 7,90,000/- Street, T.Nagar,

272943 7/6/04 7,50,000/-

272944 7/6/04 7,53,000/-

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in favour of the second accused. The respondent-Bank had credited the amounts covered by the aforesaid cheques to the account of the second

accused when the second accused presented the cheques on various dates by discounting the same and according to the respondent, the amounts

had been utilised by the second accused on the same day. According to the complainant, on such discounts being made, the respondent herein /

complainant becomes the ''holder in due course'' of the cheques issued by the first accused and the second accused takes the position of the

''drawer'' of the cheques, since the amounts covered under the cheques have been discounted and credited to the accounts of the second accused.

It is further alleged in the respective complaints that when the above mentioned cheques were presented for encashment by the respondent Bank,

the same were returned by the Banker of the first accused with endorsements ""Funds Insufficient"". Thereafter, after complying with the statutory

requirements, the aforesaid complaints came to be filed by the respondent against the petitioners herein, the first accused and one P.R. Ganesan,

the fourth accused, who is alleged to be the partner of the second accused. In the complaint it is alleged that to the best of the complainant''s

knowledge, accused 3 to 5 are responsible for the day-today affairs of the business of the second accused, hence the second accused is

represented by third, fourth and fifth accused. The petitioners have filed the above petitions seeking to quash all further proceedings in the cases

initiated against them by the respondent contending that Section 138 of the Act contemplates action to be initiated by the payee against the drawer

and not against both the drawer and the endorsee. It is contended that the respondent has filed the cases against the petitioners on the ground that

the cheques presented by the second accused were discounted by the respondent and hence the respondent becomes the ''holder in due course''

and the first petitioner becomes the ''drawer'', but simply because the cheques were discounted by the respondent-Bank, the second accused will

not become the drawer.

Heard the learned Counsel on either side.

Though some other grounds, apart from the above said grounds, have been raised in the quash petitions by the petitioners, the learned Counsel

for the petitioners confined his submissions only to the aforesaid contentions.

Learned Counsel for the petitioners in support of the aforesaid contentions relied on a decision of the Andhra Pradesh High Court reported in

(2001) 103 Comp Cas 782 Kalyani Refineries v. Banaras State Bank (A.P.). He further submitted that the facts of that case and the facts of the

cases on hand are similar; in that decision it has been held that a company cannot be prosecuted u/s 138 of the Act simply because the cheque

issued in favour of the company and got discounted by it with the Bank got dishonoured subsequently; the reason for such a decision being that the

company which got the cheques in its favour and got the same discounted with the bank cannot come under the definition of a drawer and u/s 138

of the Act on a cheque being dishonoured the drawer of the cheque alone is liable to be prosecuted for the offence u/s 138 of the Act.

Learned Counsel for the petitioners also relied upon a decision of the learned single Judge of this Court reported in (2006) 2 DCR 770 Ravi

Chandran v. Subramanian. In that decision, while considering as to whether the mandate holder is liable to be prosecuted u/s 138 of the Act on the

cheque issued by him as a mandate holder being dishonoured, this Court has come to the conclusion that the mandate holder cannot be termed as

a drawer simply because he has signed the cheques in his capacity as mandate holder; the said reasoning is sought to be pressed into service in

support of the contention of the learned Counsel for the petitioners.

Countering the said contentions, the learned Counsel for the respondent in all the above criminal original petitions submitted that the respondent-

Bank had paid the amounts covered by the cheques issued by the first accused in favour of the second accused only to the second accused and as

such on the cheques being dishonoured the first accused as well as the second accused who is the beneficiary of the amounts covered by the

various cheques are equally liable. According to the learned Counsel for the respondent, by operation of the endorsements made on the cheques,

the second accused takes the position of the drawer in so far as the complainant is concerned and hence the second accused is also liable to be

prosecuted u/s 138 of the Act. Learned Counsel further submitted that Section 138 of the Act will have to be interpreted along with the objects

and reasons for bringing in chapter XVII under Amendment Act 66 of 1988 and Sub-clause XI of the objects and reasons says that ""to enhance

the acceptability of cheques in settlement of liabilities by making the drawer responsible for penalties in case of bouncing of cheque due to

insufficiency of funds"".

I have considered the aforesaid submissions made by the learned Counsel on either side, perused the materials available on record, the

averments in the complaint, the provisions contained in Section 138 of the Act and the decisions relied upon by the learned Counsel for the

petitioners.

Before considering the contentions put forth by the respective counsel it will be useful to refer to Section 138 of the Act which reads as follows:

- 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 upaid, 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.

A careful analysis of the aforesaid provision makes it clear that criminal liability for the offence can basically be fastened only on the drawer of the

cheque. Not only that, the cheque must have been drawn on an account maintained by him. In this case, admittedly, it was the first accused who

had drawn all the cheques in question showing the name of the second accused as the payee. Hence, by no stretch of imagination, the second

accused can be deemed as a person who has drawn the cheque. Further, admittedly, the cheques in question have not been drawn on an account

maintained by the second accused. The cheques were not drawn for payment of the amounts out of the account maintained by the second

accused.

Though it is true that any civil action that may be brought by the respondent Bank, the Bank may be legally entitled to recover the amounts

both from the first and the second accused and that cannot be a ground to criminally make the second accused liable for prosecution. The criminal

liability cannot be fastened against the second accused unless the ingredients of the offence u/s 138 of the Act are made out. Admittedly,

discounting of a cheque is a normal business operation of a Bank. The mere fact that the cheques drawn by a third party in favour of its clients are

discounted by the banks, does not lead to any privity of contract between the drawer of the cheque and the Bank. The conception of civil liability

cannot be imported into the question of criminal liability. Criminal liability has to be gathered from the specific statutory provisions in that behalf.

The decision of the Andra Pradesh High Court reported in (2001) 103 Company Cases 782 (referred to supra) supports the above view of mine.

A similar issue has come up for consideration before a learned Judge of this Court in a decision reported in 1991 (2) MWN (Crl.) 237 (Mad)

S. Badhusha Bibi v. Anandkumar Trading Co. and the learned Judge after going through the provisions of Section 138 of the Act has held as

under:

A reading of the section makes it clear that only the drawer of the cheque can alone be proceeded with for offence u/s 138 Negotiable Instruments

Act, provided the other requirements are satisfied. The 2nd accused who is the petitioner herein is not the drawer of the cheque. Hence she cannot

be proceeded with. The case as against her is necessarily to be quashed.

The said view also supports the view taken by me.

Thus, when by no stretch of imagination the second accused could be called as the drawer of the cheque, as contemplated in Section 138 of

the Act, and when admittedly the second accused had not drawn the cheques in question on an account maintained by it with a Bank for payment

of any amount of money to another person and from out of that account, the second accused cannot be made criminally liable u/s 138 of the Act.

The accused 3 to 5 have been prosecuted only on the allegation that to the best of the complainant''s knowledge, they are responsible for the day

today affairs of the business of the second accused. Apart from the aforesaid allegation, no further allegations are found in the complaints as to how

these accused are responsible for the day today affairs of the business of the second accused and as such they cannot be made vicariously liable

even if it is held that the second accused can be prosecuted.

Therefore, for the aforesaid reasons, this Court is constrained to quash the proceedings in C.C. Nos. 1287, 1525, 1526, 1286, 1288 and

1284 of 2005 on the file of the XVII Metropolitan Magistrate, Saidapet, Chennai, as against the petitioners herein, who are arrayed as A-2, A-3

and A-5. Though the fourth accused (A-4)-P.R. Ganesan, Partner, M/s.Yeskey Enterprises, No. 19/195, Imayam Colony, Anna Nagar West

Extn., Chennai, in the aforesaid criminal cases, namely, C.C. Nos. 1287, 1525, 1526, 1286, 1288 and 1284 of 2005 on the file of the XVII

Metropolitan Magistrate, Saidapet, Chennai, is not one of the petitioners in the above quash petitions and he has also not approached this Court

by way of a quash petition to quash the proceedings in the above said criminal cases, since this Court has held that the prosecution against the

second accused firm is not maintainable, the fourth accused, being its partner, cannot also be prosecuted. When on a question of law, this Court

has quashed the criminal proceedings as against the other accused as this Court has come to the conclusion that the allegations contained in the

complaint do not reveal the commission of any offence, the benefit of such order of quashing shall be extended to the other co-accused/non-

petitioner, though he has not sought for quashing of the same as has been laid down by the Apex Court in the decision reported in State of U.P.

Vs. R.K. Srivastava and Another, and which has been followed by me on an earlier occasion in an order dated 14.10.2008 passed in Crl.O.P.

No. 4032 of 2008.

For the aforesaid reasons, all further proceedings in C. Nos. 1287, 1525, 1526, 1286, 1288 and 1284 of 2005 on the file of the XVII

Metropolitan Magistrate, Saidapet, Chennai, are quashed as against the accused 2, 3, 4 and 5 alone are concerned and the above Criminal

Original Petitions are allowed. Consequently, the connected Crl.M.Ps. are closed.