Holding

A cheque returned on the bank's instruction to stop payment is deemed dishonoured under Section 138, and the High Court's quashing of the complaint was illegal.

Summary

The appellant filed a complaint under Section 138 of the Negotiable Instruments Act, 1881 alleging that a cheque dated 30‑06‑1990 was dishonoured due to insufficient funds and that the drawer had instructed the bank to stop payment, as indicated by the bank’s endorsement. A notice demanding payment was sent to the drawer on 6‑12‑1990, but the drawer failed to pay within the prescribed 15‑day period. The High Court quashed the complaint, holding that the ingredients of Section 138 were not prima facie established. On appeal, the Supreme Court held that a bank’s endorsement indicating "instructions for stoppage of payment" constitutes dishonour within the meaning of Section 138, thereby satisfying all statutory requirements. Consequently, the High Court’s order was set aside and the trial court was directed to dispose of the case expeditiously, without expressing any view on the merits.

Issues considered

Whether a cheque returned by the bank with an endorsement indicating 'instructions for stoppage of payment' amounts to dishonour under Section 138 of the Negotiable Instruments Act, 1881.

Legislation cited

Negotiable Instruments Act, 1881s. 138

Subjects

Section 138cheque dishonourstoppage of paymentnegotiable instrumentspresumption of dishonestycriminal liabilitycheque bounce

Judgment

{

MIS ELECTRONICS TRADE AND TECHNOLOGY A
DEVELOPMENT CORPN., LTD., SECUNDERABAD
v.
MIS. INDIAN TECHNOLOGISTS AND ENGINEERS
(ELECTRONICS) PVT. LTD. ANR.
B
JANUARY 22, 1996

[K. RAMASWAMY AND G.B. PATTANAIK, J.J.]

Negotiable Instmments Act, 1881 :

S. 13&-Stoppage of payment by Bank due to inst1uction-Notice given
c
by drawe,,_complaint filed-High Court coming to conclusion that the in-
gredients of S. 138 not prima facie made out and quashing the com-
plaint-Held; Ingredients of S. 138 satisfied-High Court's order set
aside-Trial Cowt directed to dispose of the matter expeditiously--On merits,
no opinion expressed. D
••
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
124 of 1996 Etc.

From the Judgment and Order dated 29.1.1992 of the Andhra
Pradesh High Court in Cr!. P. No. 1358 of 1991. E
Dr. V. Gourishenkar, G. Saikumar and S. Rajappa for the Appellant.
)
L. Nageshwer Rao and S. U .K. Sagar for the Respondents.

The following Order of the Court was delivered : F
Leave granted.

We have heard the counsel on both sides.

The appellant laid the complaints under Section 138 of the Nego- G
liable Instruments Act, 1881 (for short, 'the Act') for dishonour of cheque
for insufficiency of the funds in the accounts of the accused. The complaint
of the appellant read thus :

"The above cheque was presented by the complainant on
28.11.1990, through their Bankers Mis. Hyderabad Bank, Sarojini H
843
844 SUPREME COURT REPORTS [1996] 1 S.C.R.

A Devi Road, Secunderabad for realisation, with the promise by the
accused, that the same will be honour~d when presented. However,
the said cheque was dishonoured with the Banker's endorsement
dated 29.11.1990. "l. referred to drawer. 2. instructions for stopping
payment and stamped. 3. exceeds arrangements". It is evident from
the Banker's memo dated 29.11.1990 that the said cheque was
B dishonoured by the Bank for wants of funds only.

On receipt of the intimation dated 29.11.1990 from the Bank, the
complainant has issued a notice on 6.12.1990 to the accused by
Registered Post Acknowledgment Due, informing him that the
c cheque dated 30.6.1990 was dishonoured by their bankers and
demanded payment within 15 days from the date of receipt of the
said notice. The said notice was received and acknowledged by the
accused. No payment has been made by the accused as required
under Section 138(C) of the Negotiable Instruments Act. The
accused 2 also stood as a guarantor to the payment of the com-
D plainant, as the proprietor of M/s V.V. Rama Rao and Co., ••
Saleemnagar Colony Hyderabad.

The accused 2 has issued the cheque knowing fully well that he
has no Bank balance to their credit and he cannot honour the
E cheque for want of funds alone. He has not taken any steps to
honour cheque and arrange payment as required under Section
138(C) of the Negotiable Instruments Act. The accused has there-
by committed the offence under Section 138 of the Negotiable
Instruments Act. The dishonesty intention of the accused in in-
F structing the Bank to stop payment in evident from the conduct of
the accused. He has instructed their Bank to stop payment only
with the malafide intention of escaping from the liability under
Section 138 of the Negotiable Instruments Act. He has so in-
structed their Bank so he has no funds to their credit. Hence the
accused is liable for the offence Under Section 138 of the Nego-
G tiable Instruments Act."

Section 138 of the Act was brought on statute by Central Act 66 of
1988 w.e.f. April 1, 1989 with a view to penalise the accused in cases of
dishonour of certain cheques for insufficiency of funds in the accounts of
H the accused. It reads thus :
'IRADE&TECH. DEVELOPMENT CORP."· INDIAN TECHNOLOGISTS &ENG. (ELECT.) P.LTD. 845

. "138. Dishonour of cheque for insufficiency, etc., of funds in the A
accounts. 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 dis-
charge, in whole or in part, of any debt or other liability, is returned
by the bank unpaid, either because of the amount of money
B
standing to the credit of that account is insufficient 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 c
with imprisonment for a term which may extend to one, 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:
D
(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 E
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
F
(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 G
liability" means a legally enforceable debt or other liability."

Explanation to Section 138 amplifies that for the purpose of the
Section, "debt or other liability" means a legally enforceable debt or other
liability. H
846 SUPREME COURT REPORTS [1996] 1 S.C.R.

A It would thus be clear that when a cheque is drawn by a person on
an account maintained by him with the banker for payment of any amount
of money to another person out of the account for the discharge of the
debt in whole or in part or other liability is returned by the bank with the
endorsement like (1) in this case, "I refer to the drawer" (2) "instructions
B for stoppage of payment" and (3) "stamp exceeds arrangement", it amounts
to dishonour within the meaning of Section 138 of the Act. On issuance of
the notice by the payee or the holder in due course after dishonour, to the
drawer demanding payment within 15 days from the date of the receipt of
such a notice, if he does not pay the same, the statutory presumption of
C dishonest intention, subject to any other liability, stands satisfied.

Shri Nageswara Rao, learned counsel appearing for the respondents,
contended that stoppage of payment dne to instructions does not amount
to an offence under Section 138 and that, therefore, the ingredients in
Section 138 have not been satisfied. We find no force in the contention.
D The object of bringing Section 138 on statute appears to be to inculcate
faith in the efficacy of banking operations and credibility in transacting
business on negotiable instruments. Despite civil remedy, Section 138
intended to prevent dishonesty on the part of the drawer of negotiable
instrument to draw a cheque without sufficient funds in his account main-
E tained by him in a bank and induce the payee or holder in due course to
act upon it. Section 138 draws 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
F
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
G 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
H prima facie made out in the complaint. The High Court, therefore, was
TRADE& TECH. DEVELOPMENT CORP. v. JNDIANTECHNOLOGJSTS &ENG. (ELECT.) P. LID. 847

wholly incorrect in its conclusion that the ingredients have not been made A
out in the complaint. The orders of the High Court quashing the com-
plaints are illegal. They are accordingly set aside and the trial Court is
directed to disposed of the matters as expeditiously as possible. It is made
clear that we do not intend to express any opinion on merits.

The appeals are allowed. B

G.N . Appeals allowed.

.,