GOAPLAST PVT. LTD.versusSHRI CHICO URSULA DSOUZA AND ANR.

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A                        GOAPLAST PVT. LTD.
                                 v.
                SHRI CHICO URSULA D'SOUZA AND ANR.

                                MARCH 7, 2003

B                  [M.B. SHAH AND ARUN KUMAR, JJ.]


          Negotiable Instruments Act, I 881-Sections I 38, I 39 and Chapter XVI/-
    Post dated cheques-Payment of-Countermanding payment of the same-
    Whether would attract the penal provision ofSection I 38-Held, once a cheque
C   is issued a presumption under Section I 39 must follow-Jn yiew of the
    presumption and the object of Chapter XVII, countermanding payment ofpost
    dateq cheques would not preclude an action .under Section I 38.

          Post dated cheques were issued and before the due date of payment,
    instructions were issued to the drawee bank to stop their payment by
D   person issuing the cheque. Respondent filed complaint under Section 138
    of Negotiable Instruments Act, 1881. The co111rt below dismissed the
    complaint taking a view that Section 138 of the Act was not attracted in
    these facts.

E         In appeal to this Court appellant contended that mere writing of
    letter to the bank to stop payment of post dated cheques does not take
    the case out of purview of the Act in view of the object behind the
    provision contained in Chapter XVII of the Act.

         Allowing the appeals and remanding the matter to the concerned
F   Judicial Magistrate for deciding the complaints on merits, the Court
                                                                                             .
          HELD: I. Chapter XVII was introduced in Negotiable Instruments
    Act, 1881 by the Banking, Public Financial Institutions and Negotiable
    Instruments Laws (Amendment) Act, 1988 (Act 66 of 1998) with the
    object of inculcating faith in the efficacy of banking operations and giving
G   credibility to negotiable instruments in business transactions and in order
    to promote efficacy of banking operations. Therefore, while considering
    the question of applicability of Section 138 of the Act to a situation
    presented by the facts of the present case, it is necessary to keep the
    objects of the legislation in mind. The faith, which the legislature has
H   desired that such instruments should inspire in commercial transactions
                                          712
             GOAPLAST PVT. LTD. v. SHRI CHICO URSULA D'SOUZA           713

would be completely lost if parties are as a matter of routine allowed to      A
interdict payment by issuing instruction to banks to stop payment of
cheques. (715-C-G(

     2. Sections 138 to 142 of the Act are intended to discourage people
from not honouring their commitments by way of payment through
cheques. It is desirable that the court should lean in favour of an            B
interpretation which serves the subject of the statute. The penal provisions
contained in Sections 138 to 142 of the Act are intended to ensure that
obligations undertaken by issuing cheques as a mode of payment are
honoured. A post-dated cheque will lose its credibility and acceptability
if its payment can be stopped routinely. The purpose of a post-dated           C
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 post-dated cheque. If stoppage of payment
of a post-dated cheque is permitted to take the case out of the purview of
Section 138 of the Act, it will amount to allowing the party to take           D
advantage of his own wrong. (715-H, 716-A-C]

     3. In view of presumption under Section 139 coupled with the object
of Chapter XVII of the Act which is to promote the efficacy of banking
operations and to ensure credibility in business transactions through
banks, by countermanding payment of post-dated cheque, a party should          E
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. (718-C-E)

      Modi Cements Ltd. v. Kuchil Kumar Nandi, (1998( 3 SCC 249; Teshwant
Badave v. Surendra Madhavrao Nighojakar and Anr., (20011 3 SCC 726             F
and NEPC Micon Ltd. and Ors. v. Magma Leasing Ltd., (199914SCC253,
relied on.

      4. Section 138 of the Negotiable instruments Act will be attracted in
the facts of the case. However, whether a case for punishment under that
provision is made out, will depend on outcome of the trial. (720-D-E)          G
     CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No.
315 of 2003.

     From the Judgment and Order dated 16.3 .2002 of the Mumbai High
Court in Crl. A. No. 68 of 2000.                                               H
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    714                     SUPREME COURT REPORTS                   (2003] 2 S.C.R.

A                                       WITH

          Crl. A. Nos. 316-321/2003.

         Dhruv Mehta, Mohit Choudhary, Ms. Shalini Gupta and Ms. Ruby
    Singh Ahuja, for the Appellant.
B
          Ms. A. Subhashini, for the Respondent No. 2.

          The Judgment of the Court was delivered by

          ARUN KUMAR, J. Leave granted in all the appeals.
c           These appeals involve a pure question of law as to applicability of
    Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to
    as "Act") to a case in which a person issuing a post dated cheque stops its
    payment by issuing instructions to the drawee bank before the due date of
    payment. The facts involved in all the appeals are almost similar except
D   variations in dates and amounts of cheques involved in each case. For purpose
    of this judgment we have taken the facts in Criminal Appeal No. 315/2003
    (arising out of SLP(Crl.)2742/2002. The facts are in a very narrow compass.
    Respondent No. I addressed a letter to the appellant on 20th July, 1992
    enclosing therewith ten post-dated cheques, each for an amount of Rs. 40,000
    by way of refund of amount due from him to the appellant. The two cheques
E   subject matter of the present appeal were dated 10.12.1994 and 10.4.1995.
    On 12th February, 1993 respondent No. I again wrote to the appellant denying
    his liability to pay the amount under the aforesaid cheques on the ground that
    they were issued under a mistaken belief of liability and asked the appellant
    to treat the cheques as invalid. Respondent No. I also wrote to the drawee
F   Bank on 15th March, 1993 to stop payment of the aforesaid post-dated cheques
    issued by him. On I 0th May, 1995, the appellant presented the two cheques
    dated 10.12.1994 and I0.4.1995 for payment but the said cheques were
    returned unpaid with the endorsement "present again" on 12 .5 .1995. On 24th
    May, 1995 the appellant issued notice under Section 1388 of the Act
    demanding payment of the amount of Rs. 80,000 i.e. the total amount of the
G   two cheques. On failure of the respondent No. I to make the payment in
    pursuance to the notice, the appellant filed a complaint under Section 138 of
    the Act on 7th July, 1995. The concerned Magistrate dismissed tpe complaint
    vide order dated 18th October, 1999, taking the view that Section 138 of the
    Act was not attracted in these facts. The appellant filed an appeal against the
H   said order of the Magistrate. The Goa Bench of the Bombay High Court
     1\

               GOAPLAST PVT. LTD. v. SHRI CHICO URSULA D'SOUZA [ARUN KUMAR, J.]      715

          dismissed the appeal on 16th March, 2002 upholding the view of the learned         A
          Judicial Magistrate. Both the courts primarily based their decision on a
          misreading of the judgment of this Court in Anil Kumar Sawhney v. Gulshan
          Rai, (1993] 4 SCC 424. They took the view that the accused had. only
          countermanded a bill of exchange on the date the accused wrote the letter
          about stopping payment of the cheques. Before the due date the instruments         B
          were merely bills of exchange and not cheques. Therefore, no offence could
          be said to have been made out under Section 138 of the Act. According to
          the courts below the payment had been stopped before the cheques became
          payable.

                 The learned counsel for the appellant has submitted that mere writing       C
          of letter to the Bank stopping payment of the post-dated cheques does not
          take the case out of the purview of the Act. He has invited our attention to
          the object behind the provision contained in Chapter XVII of the Act. For
          appreciating the issue involved in the present case, it is necessary to refer to
          the object behind introduction of Chapter XVII containing Sections 138 to
           142. This Chapter was introduced in the Act by the Banking, Public Financial      D
          Institutions and Negotiable Instruments Laws (Amendmt,nt) Act, 1988 (Act
          66 of 1998) with the object of inculcating faith in the efficacy of banking
          operations and giving credibility to negotiable instruments in business
          transactions and in order to promote efficacy of banking operations. With the
          policy of liberalisation adopted by the country which brought about increase       E
          in international trade and commerce, it became necessary to inculcate faith
          in banking. World trade is carried through banking operations rather than
          cash trimsactions. The amendment was intended to create an atmosphere of
          faith and reliance on banking system. Therefore, while considering the question
          of applicability of Section 138 of the Act to a situation presented by the facts
          of the present case, it is necessary to keep the objects of the legislation in     F
          mind. If a party is allowed to use a cheque as a mode of deferred payment
          and the payee of the cheque on the faith that he will get his payment on the
          due date accepts such deferred payment by way of cheque, he should not
.~

          normally suffer on account of non payment. The faith, which the legislature
          has desired that such instruments should inspire in commercial transactions        G
          would be completely lost if parties are as a matter of routine allowed to
          interdict payment by issuing instruction to banks to stop payment of cheques.
          In today's world where use of cash in day to day life is almost getting extinct
          and people are using negotiable instruments in commercial transactions and
          plastic money for their daily needs as consumers, it is all the more necessary
          that people's faith in such instruments should be strengthened rather than         H
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    716                    SUPREME COURT REPORTS                   [2003] 2 S.C.R.

A weakened. Provisions contained in Sections 138 to 142 of the Act are intended
  to discourage people from not honouring their commitments by way of
  payment through cheques. It is desirable that the court should ban in favour
  of an interpretation which serves the object of the statute. The penal provisions
  contained in Sections 138 to 142 of the Act are intended to ensure that
  obligations undertaken by issuing cheques as a mode of payment are honoured.
B A post-dated cheque will lose its credibility and acceptability if its payment
  can be stopped routinely. A cheque is a well recognized mode of payment
  and post-dated cheques are often used in various transactions in daily life.
  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
C of the cheque should not be allowed to abuse the accommodation given to
  him by a creditor by way of acceptance of post-dated cheque. If stoppage of
  payment of a post-dated cheque is permitted to take the case out of the
  purview of Section 138 of the Act, it will amount to allowing the party to
  take advantage of his own wrong.

D        The present case was decided by courts below mainly on the basis of
  the judgment of this Court in Sawhney 's case (supra). In that case this court
  noted that a ch<'que under Section 6 of the Act is a bill of exchange drawn
  on a banker and is payable on demand. From this it follows that a bill of
  exchange though drawn on a banker, if not payable on demand is not a
E cheque. A post-dated cheque is only a bill of exchange when it is written or
  drawn. It becomes a cheque when it is payable on demand. It is not payable
  till the date is shown on the face of the document. It will become a cheque
  only on the date shown on it, prior to that it remains a bill of exchange. In
  Sawhney 's case this Court was concerned with the question of limitation as
  provided in proviso (a) to Section 138 of the Act. This proviso requires that
F a cheque should be 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. The cheques in question in Sawhney's case (supra) were dated
   15.12.1991 and 15.5.1991 totalling an amount of Rs. 5,00,000. These cheques
  were returned by the Banker with the endorsement "not arranged for no
G fund". The payee thereafter issued notice as contemplated under Section 138
  of the Act followed by complaint under Section 138 being filed in the Court
  of the Chief Judicial Magistrate at Kamal. It appears from the judgment that
  these cheques were handed over to the payee in a settlement arrived at in a
  court case on 5th March, 1990. The question for consideration was as to the
  date on which the cheques in question could be taken as drawn, in other
H words, what is the starting point of limitation of six months provided in
     GOAPLAST PVT.LTD. v. SHRI CHICO URSULA D'SOUZA [ARUN KUMAR, J]       717

proviso (a) to Section 138 of the Act. According to the drawer the cheques        A
were drawn in March, 1990 when they were written and handed over to the
payee. The cheques were post-dated and bore the dates mentioned hereinbefore.
Proviso (a) to Section 138 uses the words "the date on which it is drawn".
The cheques were drawn in March, 1990 and were presented for encashment
in .the year 1991 which was beyond the period of six months provided in           B
proviso (a) to Section 138 and therefore, no offence was said to be made out
under Section 138. Keeping in view the object of Section 138 i.e. to enhance
the acceptability of cheques by making the drawer liable for penalty in case
the cheque is dishonoured, it was felt that drawer of a post-dated cheque
could defeat Section 138 of the Act by showing a date beyond six months of
its delivery. An interpretation which supports the object of the provision had    C
to be adopted. Therefore, it was held that a post dated cheque for purpose of
clause (a) of the provision to section 138 has to be considered to have been
drawn on the date it bears. On the basis of Sections 5 and 6 of the Act, it was
observed that "post-dated cheque is only a bill of exchange when it is written
or drawn, it becomes a cheque when it is payable on demand. The post-dated
cheque is not payable till the date which is shown on the face of the document.   D
It will only become cheque on the date shown on it and prior to that it
remains a bill of exchange under Section 5 of the Act. As a bill of exchange
a post-dated cheque remains negotiable but it will not become a cheque till
the date when it becomes payable on demand." The ratio of the decision in
Sawhney 's case is found in the following words:                                  E
       "One of the main ingredients of the offence under Section 138 of the
       Act is, the return of the cheque by the bank unpaid. Till the time the
       cheque is returned by the bank unpaid, no offence under Section 138
        is made out. A postdated cheque cannot be presented before the bank
       and as such the question of its return would not arise. It is only when    F
       the postdated cheque becomes a "cheque", with effect from the date
       shown on the face of the said cheque, the provisions of Section 138
       come into play. The net result is that a postdated cheque remains a
       bill of exchange till the date written on it. With effect from the date
       shown on the face of the said cheque it becomes a "cheque" under           G
       the Act and the provisions of Section 138(a) would squarely be
       attracted. In the present case the postdated cheques were drawn in
       March 1990 but they became "cheques" in the year 1991 on the dates
       shown therein. The period of six months, therefore, has to be reckoned
       from the dates mentioned on the face of the cheques."
                                                                                  H
    718                     SUPREME COURT REPORTS                . [2003] 2 S.C.R.

A         From the above it will be seen that in Sawhney 's case the point for
    consideration was the date from which the period of six months provided in
    proviso (a) to Section 138 should be counted. The Court clearly held that a
    post-dated cheque becomes a cheque only on the date it bears when it becomes
    payable on demand, and therefore, limitation will start from that date.

B         In the present case the issue is very different. The issue is regarding
  payment of a post-dated cheque being countermanded before the date
                                                                                     ~'
  mentioned on the face of the cheque. For purpose of considering the issue,
  it is relevant to see Section 139 of the Act which creates a presumption in
  favour of the holder of a cheque. The said Section provides that "it shall be
C presumed that, 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, or any debt or other liability". Thus 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
D coupled with the object of Chapter XVII of the Act which is to promote the
  efficacy of banking operation and to ensure credibility in business transactions
  through banks persuades us to take a view that by countermanding payment
  of post-dated cheque, a party should not be allowed to get away from the
  penal provision of Section 13 8 of the Act. A contrary view would render
E 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.
  If we hold otherwise, by giving instructions to bauks to stop payment of a
  cheque after issuing the same against a debt or liability, a drawer will easily
  avoid penal consequences under Section 138. Once a cheque is issued by a
F drawer, a presumption under Section 139 must follow and merely because
  the drawer issued notice to the drawee or to the bank for stoppage of payment
   it will not preclude an action under Section 138 of the Act by the drawee or
  the holder of the cheque in due course. This was the view taken by this Court
  in Modi Cements Ltd v. Kuchil Kumar Nandi, (1998] 3 SCC 249. On same
G facts is the decision of this Court in Ashok Yeshwant Badave v. Surendra
  Madhavrao Nighojakar and Anr., (2001] 3 SCC 726. The decision in Modi's
  case overruled an earlier decision of this Court in Electronics Trade &
   Technology Development Corpon. Ltd. v. Indian Technologists & Engineers,
  AIR (1996) SC 2339 which had taken a contrary view. We are in respectful
   agreement with the view taken in Modi 's case. The said view is in consonance
H with the object of the legislation. On the faith of payment by way of a post-
     GOAPLAST PVT. LTD. v. SHRI CHICO URSULA D'SOUZA [ARUN KUMAR, ll        7 J9

dated cheque, the payee alters his position by accepting the cheque. If stoppage   A   I
of payment before the due date of the cheque is allowed to take the transaction
out of the purview of Section 138 of the Act, it will shake the confidence
which a cheque is otherwise intended to inspire regarding payment being
available on the due date.

      NEPC Micon ltd. and Ors. v. Magma leasing ltd., (1999] 4 SCC 253             B
was a case in which the drawer of the cheque closed the account in the Bank
before presentation of the cheque and the cheque when presented was returned
by the Bank with the remark "account closed". The question arose whether
in this situation Section 138 of the Act would be attracted. It was contended
on behalf of the appellant that Section 138 being a penal provision it should      C
be strictly interpreted. Section 138 according to the appellant applied only in
two situations i.e. either because the money standing to the credit of the
account of the drawer is insufficient to honour the cheque or it exceeds the
amount arranged to be paid from that account by an agreement made with the
bank. Rejecting the contentions raised on behalf of the accused this Court
held that return of a cheque on account of being closed would be similar to        D
a situation where the cheque is returned on account of insufficiency of funds
in the account of the drawer of the cheque. Before one closes his account in
the Bank he withdraws the entire amount standing to credit in the account.
Withdrawal of the entire amount would therefore mean that there were no
funds in the account to honour the cheque which squarely brings the case           E
within Section 138 of the Act. On the question of strict interpretation of penal
provisions raised on behalf of the accused it was observed: "If the
interpretation, which is sought for, were given, then it would only encourage,
dishonest persons to issue cheques and before presentation of the cheques,
close the account and thereby escape from the penal consequences of Section
 138." Any interpretation which withdraws the life and blood of the provision      F
and makes it ineffective and a dead letter, should be averted. It is the duty
of the court to interpret the provision consistent with the legislative int.en!
and purpose so as to suppress the mischief and advance the remedy. The
legislative purpose is to permit the efficacy of banking and of ensuring that
in commercial or contractual transactions, cheques are not dishonoured and         G
credibility in transacting business through banks is maintained. The Court
relied upon its earlier judgment in Modi Cement ltd. (supra). We would like
to quote the following observations contained in NEPC Micon ltd. and Ors.
v. Magma leasing Ltd., (supra).

        15. " Jn view of the aforesaid discussion we are of the opinion that       H
    720                      SUPREME COURT REPORTS                   [2003) 2 S.C.R.

A            even though section 138 is a penal statute, it is the duty of the court
             to interpret it consistent with the legislative intent and purpose so as
             to suppress the mischief and advance the remedy. As stated above,
             Section 138 of the Act has created a contractual breach as an offence
             and the legislative purpose is to promote efficacy of banking and of
             ensuring that in commercial or contractual transactions cheques are
B            not dishonoured and credibility in transacting business through cheques
              is maintained. The above interpretation would be in accordance with
             the principle of interpretation quoted above "brush away the cobweb
             varnish, and show the transactions in their true light" (Wilmot, CJ.)
             or, (by Maxwell) "to carry out effectively the breach of the statute,
c             it must be so construed as to defeat all attempts to do, or avoid doing,
              in an indirect or circuitous manner that'Which it has prohibited."
              Hence, when the cheque is returned by a bank with an endorsement
              "account closed", it would amount to returning· the cheque unpaid
              because "the amount of money standing to the credit of that account
              is insufficient to honour the cheque" as envisaged in Section 138 of
D             the Act."

           We are unable to agree with the reasoning adopted by the courts below.
    The impugned judgments of the High Court and the Judicial Magistrate, Ist
    Class, Panaji, Goa are set aside. We hold that Section 138 of the Negotiable
E   Instruments Act will be attracted in the facts of the case. However, whether
    a case for punishment under that provision is made out, will depend on
    outcome of the trial. The cases are remanded to the concerned Judicial
    Magistrate for deciding the complaints filed by the appellant herein on merits
    in accordance with law. All the appeals are allowed. Nothing contained in
    this judgment be taken as expression of opinion on merits.
F
    K.K.T.                                                         Appeals allowed.