Supreme Court of India
M/S. LAXMI DYECHEMversusSTATE OF GUJARAT & ORS.
- Citation
- 2012 INSC 546
- Decided
- 27 November 2012
- Disposal
- Appeal(s) allowed
- Bench
- T S THAKUR
Holding
Dishonour of a cheque due to signature mismatch or stop‑payment, when intended to prevent payment, constitutes an offence under Section 138 of the Negotiable Instruments Act and, subject to the rebuttable presumption of Section 139, the prosecution may proceed.
Summary
The appellant, a chemical supplier, filed forty complaints under Section 138 of the Negotiable Instruments Act alleging that the respondent company’s post‑dated cheques were dishonoured because the signatures did not match the specimen signatures on file. The High Court quashed the complaints, holding that a signature mismatch does not fall within the two contingencies of Section 138. The Supreme Court held that such a dishonour is a species of the "insufficient funds" contingency and therefore attracts Section 138, subject to the rebuttable presumption of Section 139 that the cheque was issued for a lawful debt. The Court emphasized that Sections 138 and 139 must be read harmoniously and that the High Court’s order was erroneous. Consequently, the appeals were allowed and the trial court was directed to proceed with the cases. The Court also clarified that allegations of fraud are matters for trial and not for dismissal under Section 482 of the CrPC.
Issues considered
- Whether dishonour of a cheque on the ground of mismatching signatures or "no image found" falls within Section 138 of the Negotiable Instruments Act.
- Whether Section 138 must be interpreted strictly to the two enumerated contingencies or broadly to include other forms of dishonour such as account closure, stop‑payment, or signature mismatch.
- How Section 139's rebuttable presumption in favour of the holder interacts with Section 138 in cases of cheque dishonour.
- Whether the High Court was correct in quashing the complaints under Section 138 on the basis of signature mismatch.
- Whether allegations of fraud can be investigated and dismissed under Section 482 of the Criminal Procedure Code.
Legislation cited
Subjects
Negotiable Instruments ActSection 138Section 139Cheque dishonourSignature mismatchStop paymentRebuttable presumptionCriminal Procedure CodeSection 482Commercial disputeLiability of signatories
Judgment
(2012] 11 S.C.R. 466
A MIS. LAXMI DYECHEM
v.
STATE OF GUJARAT & ORS.
(Criminal Appeal Nos. 1870-1909 of 2012 etc.)
NOVEMBER 27, 2012
B
[T.S. THAKUR AND GYAN SUDHA MISRA, JJ.]
Negotiable Instruments Act, 1881:
c ss. 138 and 139 - Dishonour of cheques for
mismatching of signatures - Held: Just as dishonour of a
cheque on the ground that the account has been closed is a
dishonour falling in the first contingency referred to in s. 138,
so also dishonour on the ground that the "signatures do not
match" or that the "image is not found'; which too implies that
0
the specimen signatures do not match the signatures on the
cheque, would constitute a dishonour within the meaning of
s. 138 - So long as the change is brought about with a view
to preventing the cheque being honoured the dishonour would
become an offence uls. 138 subject to other conditions
E prescribed being satisfied - Allegations of fraud and the like
are matters that cannot be investigated by a court uls 482
Cr.P. C. and s/1all have to be left to be determined at the trial
after the evidence is adduced by the parties - Code of
Criminal Procedure, 1973 - s.482.
F
ss. 138 and 139 - Dishonour of cheque - Presumption
in favour of holder - Held: Is rebuttable - Return of cheque
by bank on ground of 'stop payment' although has been held
to constitute an offence, s. 138 cannot be applied in isolation
G ignoring s. 139 - The category of cases of 'stop payment'
instructions where the account holder has sufficient funds in
his account to discharge the debt, would be subject to rebuttal
and the accused can show that the stop payment instructions
were not issued because of insufficiency or paucity of funds,
H 466
LAXMI DYECHEM v. STATE OF GUJARAT & ORS. 467
but for other valid causes including the reason that there was A
no existing debt or liability in view of bonafide dispute between
the drawer and drawee of the cheque - If that be so, then
offence u/s 138 although would be made out, the same will
attract s.139 leaving the burden of proof of rebuttal on the
drawer of the cheque - Thus, in cases arising out of 'stop B
payment' situation, ss. 138 and 139 will have to be given a
harmonious construction, otherwise s. 139 would be rendered
nugatory.
The instant appeals were filed by the payee firm,
challenging the orders of the High Court whereby it C
quashed the criminal proceeiiings holding that
dishonour of a cheque on the ground that the signature
of the drawer of the cheque did not match the specimen
signatures available with the bank, would not attract the
penal provisions of s.138 of the Negotiable Instruments D
Act, 1881. The question for consideration before the
Court was: "whether disho.nour of a cheque would
constitute an offence only in one of the two contingencies
envisaged uls 138 of the Act, namely, "either because of
the amount of money standing to the credit of that E
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"?
Allowing the appeals, the Court F
HELD: (Per T.S. Thakur. J.l
1.1. Chapter XVII comprising ss. 138 to 142 of the
Negotiable Instruments Act, 1881 was introduced in the
statute by Act 66 of 1988. The object underlying the G
provision contained in the said Chapter was aimed at
inculcating faith in the efficacy of banking operations and
giving credibility to negotiable instruments in business
and day to day transactions by making dishonour of
such instruments an offence. A negotiable instrument H
468 SUPREME COURT REPORTS [2012] 11 S.C.R.
A whether the same is in the form of a promissory note or
a cheque is by its very nature a solemn document that
carries with it not only a representation to the holder in
due course of any such instrument but also a promise
that the same shall be honoured for payment. To that end
B s. 139 of the Act raises a statutory presumption that the
cheque is issued in discharge of a lawfully recoverable
debt or other liability. This presumption is no doubt
rebuttable at trial but there is no gainsaying that the same
favours the complainant and shifts the burden to the
c drawer of the instrument (in case the same is
dishonoured) to prove that the instrument was without
any lawful consideration. It is also noteworthy that s.138
while making dishonour of a cheque an offence
punishable with imprisonment and fine also provides for
safeguards to protect drawers of such instruments where
0
dishonour may take place for reasons other than those
arising out of dishonest intentions. It envisages service
of a notice upon the drawer of the instrument calling
upon him to make the payment covered by the cheque
E and permits prosecution only after the expiry of the
statutory period and upon failure of the drawer to make
the payment within the said period. [Para 6) [480-F-H; 481-
A-D]
1.2 There is no room for holding that the two
F contingencies envisaged u/s 138 of the Act must be
interpreted strictly or literally. In NEPC Micon Ltd.* this
Court has held that the expression "amount of money is
insufficient" appearing in s.138 of the Act is a genus and
dishonour for reasons such as "account closed",
G "payment stopped", "referred to the drawer" are only
species of that genus. Just as dishonour of a cheque on
the ground that the account has been closed is a
dishonour falling in the first contingency referred to in
s.138, so also dishonour on the ground that the
H "signatures do not match" or that the "image is not
LAXMI DYECHEM v. STATE OF GUJARAT & ORS. 469
found", which too implies that the specimen signatures A
do not match the signatures on the cheque would
constitute a dishonour within the meaning of s.138 of the
Act. There is no qualitative difference between a situation
where the dishonour takes place on account of the
substitution by a new set of authorised signatories B
resulting in the dishonour of the cheques already issued
and another situation in which the drawer of the cheque
changes his own signatures or closes the account or
issues instructions to the bank not to make the payment.
So long as the change is brought about with a view to c
preventing the cheque being honoured the dishonour
would become an offence u/s.138 subject to other
conditions prescribed being satisfied. [Para 15] [487-G-
H; 488-A-C-F-G]
*NEPC Micon Ltd. v. Magma Leasing Ltd. 1999 (2) SCR D
932 =(1999) 4 sec 253 - relied on
Kanwar Singh v. Delhi Administration 1965 SCR 7 AIR =
1965 SC 871; Swantraj v. State of Maharashtra 1974 (3)
=
SCR 287 (1975) 3 SCC 322; State of Tamil Nadu v. M.K. E
=
Kandaswami 1976 (1) SCR 38 (1975) 4 SCC 745; M.M. T.C.
Ltd. and Anr. v. Medchl Chemicals and Pharma (P) Ltd. and
Anr. 2001 (5) Suppl. SCR 265 = (2002) 1 sec 234;
Goaplast (P) Ltd. v. Chico Ursula D'souza and Anr. 2003 (2)
=
SCR 712 (2003) 3 SCC 232; Rangappa v. Sri Mohan 2010 F
(6) SCR 507 =(2010) 11 SCC 441 - referred to
Seaford Court Estates Ltd. v. Asher (1949 2 All E.R. 155)
- referred to.
1.3. There may indeed be situations where a G
mismatch between the signatories on the cheque drawn
by the drawer and the specimen available with the bank
may result in dishonour of the cheque even when the
drawer never inten~ed to invite such a dishonour. It is
only when the drawer despite receipt of a statutory notice H
470 SUPREME COURT REPORTS (2012] 11 S.C.R.
A and despite the opportunity to make the payment within
the time stipulated under the statute does not pay the
amount that the dishonour would be considered a
dishonour constituting an offence. Even in such cases,
the question whether or not there was a lawfully
B recoverable debt or liability for discharge whereof the
cheque was issued would be a matter that the trial court
will examine having regard to the evidence adduced
before it and keeping in view the statutory presumption
that unless rebutted the cheque is presumed to have
c been issued for a valid consideration. [Para 15] [488-H;
489-A-C-E]
1.4. Dishonour on the ground that the payment has
been stopped, regardless whether such stoppage is with
or without notice to the holder, and regardless whether
D ~he stoppage of payment is on the ground that the
amount lying in the account was not sufficient to meet
the requirement of the cheque, would attract the
provisions of s.138. [Para 16] [489-H; 490-A]
E Modi Cements Ltd. v. Kuch ii Kumar Nandi 1998 (1)
SCR 192 =(1998) 3 sec 249 - relied on.
Electronics Trade & Technology Development
Corporation Ltd. v. Indian Technologists and Engineers
=
F (Electronics) (P) Ltd. 1996 (1) SCR 843 (1996) 2 SCC 739
- stood overruled.
K.K Sidharthan v. T.P. Praveena Chandran 1996 (7)
=
Suppl. SCR 248 (1996) 6 SCC 369 and Vinod Tanna &
Anr. v. Zaher Siddiqui & Ors. (2002) 7 SCC 541; and Mustafa
G Surka v. Mis. Jay Ambe Enterprise & Anr. 2010 (1) Bombay
Cases Reporter (Crl.) 758 - referred to.
2.1. As regards the plea that the respondent-
company had offered to issue new cheques to the
H appellant upon settlement of the accounts and that a
LAXMI DYECHEM v. STATE OF GUJARAT & ORS. 471
substantial payment has been made towards the A
outstanding amount, it cannot be said that such an offer
would render illegal a prosecution that is otherwise
lawful. The offer made by the respondent-company was
in any case conditional and subject to the settlement of
accounts. So also whether the cheques were issued B
fraudulently by the authorised signatory for amounts in
excess of what was actually payable to the appellant is
a matter for examination at the trial. That the cheques
were issued under the signatures of the persons who
were authorised to do so on behalf of the respondent- c
company being admitted would give rise to a presumption
that they were meant to discharge a lawful debt or liability.
Allegations of fraud and the like are matters that cannot
be investigated by a court uls 482 Cr.P.C. and shall have
to be left to be determined at the trial after the evidence
0
is adduced by the parties. [Para 17) [490-8-E)
2.2. The signatories of the cheques dishonoured
cannot say that the dishonour took place after they had
resigned from their positions and that the failure of the
company to honour the commitment implicit in the E
cheques cannot be construed an act of dishonesty on
the part of the signatories of the cheques. Just because
the authorised signatories of the cheques have taken a
different line of defence than the one taken by the
company does not justify quashing of the proceedings F
against them. [Para 18) [490-F-G]
National Small Industries Corporation Limited v. Harrneet
Singh Paintal and Anr. 2010 (2) SCR 805 = (2010) 3 SCC
330 and S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr. G
2005 (3) Suppl. SCR 371= (2005) 8 SCC 89 - relied on.
2.3. The judgments and orders passed by the High
Court are set aside. The trial court shall proceed with the
trial of the complaints filed by the appellants
expeditiously. [Para 19] [491-E-F] H
472 SUPREME COURT REPORTS [2012] 11 S.C.R.
A Per Gyan Sudha Misra, J. (Concurring):
1.1. It is significant to note that the Legislature while
incorporating the provisions of Chapter XVII, ss.138 to
142 inserted in the NI Act (Amendment Act 1988) intends
to punish only those who know fully well that they have
6
no amount in the bank and yet issue a cheque in
discharge of debt or liability already borrowed/incurred -
which amounts to cheating, and not to punish those who
refused to discharge the debt for bona fide and
C sustainable reason. [Para 2] [492-D-F]
1.2. Section 138 of the NI Act cannot be applied in
isolation ignoring s.139 which envisages a right of
rebuttal before an offence could be made out u/s 138 of
the Act as the Legislature already incorporates the
D expression "unless the contrary is proved" which means
that the presumption of law shall stand and unless it is
rebutted or disproved, the holder of a cheque shall be
presumed to have received the cheque of the nature
referred to in s.138 for the discharge of a debt or other
E liability. Therefore, unless the contrary is proved, the
presumption shall be made that the holder of a negotiable
instrument is holder in due course. [Para 8] [497-D-F]
1.3. If the accused is able to establish a probable
defence which creates doubt about the existence of a
F legally enforceable debt or liability, the prosecution can
fail. The accused can rely on the materials submitted by
the complainant in order to raise such a defence and it
is inconceivable that in some cases the accused may not
need to adduce the evidence of his/her own. If however,
G the accused/drawer of a cheque in question neither raises
a probable defence nor is able to contest existence of a
legally enforceable debt or liability, obviously statutory
presumption u/s 139 of the NI Act regarding commission
of the offence comes into play if the same is not rebutted
H
LAXMI DYECHEM v. STATE OF GUJARAT & ORS. 473
with regard to the materials submitted by the complainant. A
[para 5] [495-C-E]
1.4. Dishonour of a cheque due to the return of the
same by the bank to its drawee/holder on the ground of
'stop payment' although has been held to constitute an 8
offence within the meaning of ss. 118 and 138 of the NI
Act, the presumption is a 'rebuttable presumption' u/s 139
of the NI Act itself since the accused issuing the cheque
is at liberty to prove to the contrary. The cases arising out
of stop payment situation where the drawer of cheques C
has sufficient funds in his account and yet stops payment
for bona fide reasons, the same cannot be put on par with
other variety of cases where the cheque has bounced on
account of insufficiency of funds or where it exceeds the
amount arranged to be paid from that account. However,
in order to escape liability under s.139, the accused has D
to show that dishonour was not due to insufficiency of
funds but there was valid cause, including absence of
any debt or liability for the stop payment instruction to
the bank. Therefore, complaint filed in such a case
although might not be quashed at the threshold before E
trial, heavy onus lies on the court issuing summons in
such cases as the trial is summary in nature. [Para 1, 2
and 8] [492-A-C, G-H; 493-E-F; 494-C-D]
1.5. In view of s.139, it has to be presumed that a F
cheque is issued in discharge of any debt or other
liability. But the presumption can be rebutted by
adducing evidence and the burden of proof is on the
person who wants to rebut the presumption. However,
this presumption coupled with the object of Chapter XVII G
of the Act lecids to the conclusion that by counter-
manding payment of post-dated cheque, a party should
not be allowed to get away from the penal provision of
s.138 of the Act. Therefpre, in order to hold that the stop
payment instruction to the bank would not constitute an H
•
474 SUPREME COURT REPORTS [2012) 11 S.C.R.
A offence, it is essential that there must have been sufficient
funds in the accounts in the first place on the date of
signing of the cheque, the date of presentation of the
cheque, the date on which stop payment instructions
were issued to the bank. [Para 3) [493-G-H; 494-A-C]
B
M.M. T.C. Ltd. And Anr vs. Medchl Chemical and Pharma
=
(P) Ltd. And Anr. 2001 (5) Suppl. SCR 265 (2002) 1 SCC
234; Rangappa vs. Sri Mohan 2010 (6) SCR 507 (2010) =
11 SCC 441; Goaplast (P) Ltd. vs. Chico Ursula D'Souza
=
C And Anr. 2003 (2) SCR 712 (2003) 3 sec 232 - relied on.
1.6. Thus, although a petition u/s 482 of the Cr.P.C.
may not be entertained by the High Court for quashing
such proceedings, yet the judicious use of discretion by
the trial judge whether to proceed in the matter or not
D would be enormous in view of s.139 of the NI Act; and if
the drawer of the cheque discharges the burden even at
the stage of enquiry that he had bona fide reasons to
stop the payment and not make the said payment even
within the statutory time of 15 days provided under the
E NI Act, the trial court might be justified in refusing to
issue summons to the drawer of the cheque by holding
that ingredients to constitute offence u/s 138 of the NI Act
are missing where the account holder has sufficient
funds to discharge the debt. Thus, the category of 'stop
F payment cheques' would be a category which is subject
to rebuttal and, therefore, would be an offence only if the
drawer of the cheque fails to discharge the burden of
rebuttal. [Para 9] [497-G-H; 498-A-C]
1.7. The accused can show that the stop payment
G instructions were not issued because of insufficiency or
paucity of funds, but for other valid causes including the
reason that there was no existing debt or liability in view
of bonafide dispute between the drawer and drawee of
the cheque. If that be so, then offence u/s 138 although
H
•
LAX.Ml DYECHEM v. STATE OF GUJARAT & ORS. 475
would be made out, the same will attract s.139 leaving the A
burden of proof of rebuttal by the drawer of the cheque.
Thus, in cases arising out of 'stop payment' situation, ss.
138 and 139 will have to be given a harmonious
construction as in that event s.139 would be rendered
nugatory. [Para 10] [498-D-F] B
1.8. The instant matter however does not relate to a
case of 'stop payment' instruction to the bank as the
cheque in question had been returned due to
mismatching of the signatures but more than that the
petitioner having neither raised nor proved to the C
contrary as envisaged u/s 139 of the NI Act that the
cheques were not for the discharge of a lawful debt nor
making the payment within fifteen days of the notice
assigning any reason as to why the cheques had at all
been issued if the amount had not been settled, obviously D
the plea of rebuttal envisaged u/s 139 does not come to
his rescue so as to hold that the same would fall within
the realm of rebuttable presumption envisaged u/s 139 of
the Act. [Para 11] [498-G-H; 499-A-B]
E
1.9. Presumption u/s 139 of the NI Act in favour of the
holder of a cheque has been held by the NI Act as also
by this Court to be a rebuttable presumption which may
be discharged by the accused/drawer of the cheque even
at the threshold where the magistrate examines a case F
at the stage of taking cognizance as to whether a prima
facie case has been made out or not against the drawer
of the cheque. [Para 11] [499-C-D]
Case Law Reference:
G
Per T.S. Thakur, J.
(2002) 1 sec 541 referred to para 2
2010 (1) Bombay Cases
H
476 SUPREME COURT REPORTS [2012) 11 S.C.R.
A Reporter (Crl.) 758 referred to para 5
1965 SCR 7 referred to para 9
1974 (3) SCR 287 referred to para 9
1976 (1) SCR 38 r"ferred to para 9
B
1999 (2) SCR 932 relied on para 9
(1949 2 All E.R. 155) referred to para 9
1998 (1) SCR 192 relied on para 10
c •
1996 (1) SCR 843 stood overruled para 11
1996 (7) Suppl. SCR 248 referred to para 11
2001 (5) Suppl. SCR 265 relied on para 12
D 2010 (6) SCR 507 relied on para 14
2003 (2) SCR 712 relied on para 13
2010 (2) SCR 805 relied on para 18
E 2005 (3) Suppl. SCR 371 relied on para 18
As per Gyan Sudha Misra, J.
2001 (5) Suppl. SCR 265 relied on para 2
2003 (2) SCR 712 relied on para 3
F
2010 (6) SCR ~07 relied on para 4
CRIMINAL APPELLATE JURISDICTION : Criminal Appeal
No. 1870-1909 of 2012.
G From the Judgment & Order dated 27.08.2010 of the High
Court of Gujarat at Ahmedabad in SCRLA Nos. 896, 897, 898,
899, 900, 901, 902, 903, 904, 905, 906, 907, 908, 909, 910,
911, 912, 913, 914, 915, 916, 917, 918, 919, 920, 921, 922,
923, 924, 925, 926, 927, 928, 929, 930, 931, 932, 933, 934
H & 935 of 2010.
LAX.Ml DYECHEM v. STATE OF GUJARAT & ORS. 4 77
WITH A
Crl. A. Nos. 1910-1949 of 2012.
Pallav Shishodia, Nikhil Goel, Marsook Bafaki, Naveen
Goel, A.V. Balan, H. Chandra Sekhar for the Appellant.
B
A. Sharan, Swaraj Kaushal, Hemantika Wahi, Rojalin
Pradhan, P.M. Rustom Khan, Shirin Khajuria, V. Madhukar,
Bansuri Swaraj, Paritosh Anil, Saurabh Ajay Gupta for the
Respondents.
The Judgments of the Court was delivered by c
T.S. THAKUR, J. 1. Leave granted.
2. These appeals are directed against orders dated 19th
April, 2010 and 27th August, 2010 passed by the High Court
0
of Gujarat at Ahmedabad whereby the High Court has quashed
40 different complaints under Section 138 of the Negotiable
Instruments Act, 1881 filed by the appellant against the
respondents. Relying upon the decision of this Court in Vinod
Tanna & Anr. v. Zaher Siddiqui & Ors. (2002) 7 SCC 541, the
High Court has taken the view that dishonour of a cheque on E
the ground that the signatures of the drawer of the cheque do
not match the specimen signatures available with the bank,
would not attract the penal provisions of Section 138 of the
Negotiable Instruments Act. According to the High Court, the
provisions of Section 138 are attracted only in cases where a F
cheque is dishonoured either because the amount of money
standing to the credit to the account maintained by the drawer
is insufficient to pay the cheque amount or the cheque amount
exceeds the amount arranged to be paid from account
maintained by the drawer by an agreement made with the bank. G
Dishonour of a cheque on the ground that the signatures of the
drawer do not match the specimen signatures available with
the bank does not, according to the High Court, fall in either of
these two contingencies, thereby rendering the prosecution of
H
478 SUPREME COURT REPORTS [2012] 11 S.C.R.
A the respondents legally impermissible. Before we advert to the
merits of the contentions urged at the Bar by the learned
counsels for the parties, we may briefly set out the factual
backdrop in which the controversy arises.
3. The appellant is a proprietorship firm engaged in the
8
sale of chemicals. It has over the past few years supplied
Naphthalene Chemicals to the respondent-company against
various invoices and bills issued in that regard. The appellant's
case is that a running account was opened in the books of
account of the appellant in the name of the respondent-
C company in which the value of the goods supplied was debited
from time to time as per the standard accounting practice. A
sum of Rs.4,91,91,035/- (Rupees Four Crore Ninety One Lac
Ninety One Thousand Thirty Five only) was according to the
appellant outstanding against the respondent-company in the
D farmer's books o'f accounts towards the supplies made to the
latter. The appellant's further case is that the respondent-
company issued under the signatures of its authorised
signatories several post dated cheques towards the payment
of the amount aforementioned. Several of these cheques (one
E hundred and seventeen to be precise) when presented were
dishonoured by the bank on which the same were drawn, on
the ground that the drawers' signatures were incomplete or that
no image was found or that the signatures did not match. The
appellant informed the respondents about the dishonour in
F terms of a statutory notice sent under Section 138 and called
upon them to pay the amount covered by the cheques. It is
common ground that the amount covered by the cheques was
not paid by the respondents although according to the
respondents the company had by a letter dated 30.12.2008,
G informed the appellant about the change of the mandate and
requested the appellant to return the cheques in exchange of
fresh cheques. It is also not in dispute that fresh cheques
signed by the authorised signatories, according to the new
mandate to the Bank, were never issued to the appellant
H ostensibly because the offer to issue such cheques was subject
LAXMI DYECHEM v. STATE OF GUJARAT & ORS. 479
[T.S. THAKUR, J.]
to settlement of accounts, which had according to the A
respondent been bungled by the outgoing authorised
signatories. The long and short of the matter is that the cheques
remained unpaid despite notice served upon the respondents
that culminated in the filing of forty different complaints against
the respondents under Section 138 of the Negotiable B
Instruments Act before the learned trial court who took
cognizance of the offence and directed issue of summons to
the respondents for their appearance. It was at this stage that
Special Criminal Applications No.2118 to 2143 of 2009 were
filed by Shri Mustafa Surka accused No.5 who happened to be c
one of the signatories to the cheques in question. The principal
contention urged before the High Court in support of the prayer
for quashing of the proceedings against the signatory to the
cheques was that the dishonour of cheques on account of the
signatures 'not being complete' or 'no image found' was not a
0
dishonour that could constitute an offence under Section 138
of the Negotiable Instrument Act.
4. By a common order dated 19th April, 2010, the High
Court allowed the said petitions, relying upon the decision of
this Court in Vinod Tanna's case (supra) and a decision E
delivered by a Single Judge Bench of the High Court of
Judicature at Bombay in Criminal Application No.4434 of 2009
and connected matters. The Court observed:
"In the instant case, there is no dispute about the F
endorsement that "drawers signature differs from the
specimen supplied" and/or "no image found-signature"
and/or "incomplete signature/illegible" and for return/
dishonour of cheque on the above endorsement will not
attract ingredients of Section 138 of the Act and G
insufficient fund as a ground for dishonouring cheque
cannot be extended so as to cover the endorsement
"signature differed from the specimen supplied" or
likewise. If the cheque is returned/bounced/dishonoured on
the endorsement of "drawers signature differs from the H
480 SUPREME COURT REPORTS [2012) 11 S.C.R.
A specimen supplied" and/or "no image found-signature"
and/or "incomplete signature I illegible", the complaint filed
under Section 138 of the Act is not maintainable. Hence,
a case is made out to exercise powers under Section 482
of the Code of Criminal Procedure, 1973 in favour of the
B petitioner".
5. Special Criminal Applications No.896 to 935 of 2010
were then filed by the remaining accused persons challenging
the proceedings initiated against them in the complaints filed
by the petitioner on the very same ground as was taken by
C Mustafa Surka. Reliance was placed by the petitioners in the
said petitions also upon the decision of this Court in Vinod
Tanna's case (supra) and the decision of the Single Judge
Bench of High Court of Bombay in Mustafa Surka v. Mis. Jay
Ambe Enterprise & Anr. [2010 (1) Bombay Cases Reporter
D (Crl.) 758). The High Court has, on the analogy of its order
dated 19th April, 2010 passed in the earlier batch of cases
which order is the subject matter of SLP Nos.1780-1819 of
2011, quashed the proceedings and the complaints even qua
the remaining accused persons, respondents herein. The
E present appeals, as noticed above, assail the correctness of
both the orders passed by the High Court in the two batch of
cases referred toabove.
6. Chapter XVII comprising Sections 138 to 142 of the
F Negotiable Instruments Act was introduced in the statute by Act
66 of 1988. The object underlying the provision contained in
the said Chapter was aimed at inculcating faith in the efficacy
of banking operations and giving credibility to negotiable
instruments in business and day to day transactions by making
G dishonour of such instruments an offence. A negotiable
instrument whether the same is in the form of a promissory note
or a cheque is by its very nature a solemn document that
carries with it not only a representation to the holder in due
course of any such instrument but also a promise that the same
H shall be honoured for payment. To that end Section 139 of the
LAXMI DYECHEM v. STATE OF GUJARAT & ORS. 481
[T.S. THAKUR, J.]
Act raises a statutory presumption that the cheque is issued in A
discharge of a lawfully recoverable debt or other liability. This
presumption is no doubt rebuttable at trial but there is no
gainsaying that the same favours the complainant and shifts the
burden to the drawer of the instrument (in case the same is
dishonoured) to prove that the instrument was without any lawful B
consideration. It is also noteworthy that Section 138 while
making dishonour of a cheque an offence punishable with
imprisonment and fine also provides for safeguards to protect
drawers of such instruments where dishonour may take place
for reasons other than those arising out of dishonest intentions. c
It envisages service of a notice upon the drawer of the
instrument calling upon him to make the payment covered by
the cheque and permits prosecution only after the expiry of the
statutory period and upon failure of the drawer to make the
payment within the said period. D
7. The question that falls for our determination is whether
dishonour of a cheque would constitute an offence only in one
of the two contingencies envisaged under Section 138 of the
Act, which to the extent the same is relevant for our purposes
reads as under: E
"138. 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 F
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 G
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 of a term which may extend
to one year, or with fine which may extend to twice the H
amount of the cheque, or with both."
482 SUPREME COURT REPORTS (2012) 11 S.C.R.
A 8. From the above, it is manifest that a dishonour would
constitute an offence only if the cheque is retuned by the bank
'unpaid' either because the amount of money standing to the
credit of the drawer's account is insufficient to honour the
cheque or that the amount exceeds the amount arranged to be
B paid from that account by an agreement with that bank. The High
Court was of the view and so was the submission made on
behalf of the respondent before us that the dishonour would
constitute an offence only in the two contingencies referred to
in Section 138 and none else. The contention was that Section
c 138 being a penal provision has to be construed strictly. When
so construed, the dishonour must necessarily be for one of the
two reasons stipulated under Section 138 & none else. The
argument no doubt sounds attractive on the first blush but does
not survive closer scrutiny. At any rate, there is nothing new or
ingenious about the submission, for the same has been noticed
0
in several cases and repelled in numerous decisions delivered
by this Court over the past more than a decade. We need not
burden this judgment by referring to all those pronouncements.
Reference to only some of the said decisions should, in our
E opinion, suffice.
9. In NEPC Micon Ltd. v. Magma Leasing Ltd. (1999) 4
sec 253, the cheques issued by the appellant-company in
discharge of its liability were retuned by the company with the
comments 'account closed'. The question was whether a
F dishonour on that ground for that reason was culpable under
Section 138 of the Negotiable Instruments Act. The contention
of the company that issued the cheque was that Section 138
being a penal provision ought to be strictly construed and when
so interpreted, dishonour of a cheque on ground that the
G account was closed was not punishable as the same did not
fall in any of the two contingencies referred to in Section 138.
This Court noticed the prevalent cleavage in the judicial opinion,
expressed by different High Courts in the country and rejected
the contention that Section 138 must be interpreted strictly or
H in disregard of the object sought to be achieved by the statute.
LAX.Ml DYECHEM v. STATE OF GUJARAT & ORS. 483
[T.S. THAKUR, J.]
Relying upon the decision of this Court in Kanwar Singh v. A
Delhi Administration (AIR 1965 SC 871), and Swantraj v. State
of Maharashtra (1975) 3 SCC 322 this Court held that a narrow
interpretation of Section 138 as suggested by the drawer of the
cheque would defeat the legislative intent underlying the
provision. Relying upon the decision in State of Tamil Nadu v. B
M.K. Kandaswami (1975) 4 SCC 745, this Court declared that
while interpreting a penal provision which is also remedial in
nature a construction that would defeat its purpose or have the
effect of obliterating it from the statute book should be
eschewed and that if more than one constructions are possible c
the Court ought to choose a construction that would preserve
the workability and efficacy of the statute rather than an
interpretation that would render the law otiose or sterile. The
Court relied upon the much quoted passage from the Seaford
Court Estates Ltd. v. Asher (1949 2 All E.R. 155) wherein Lord
0
Denning, L.J. observed:
"The English language is not an instrument of
mathematical precision. Our literature would be much
poorer if it were. This is where the draftsmen of Acts of
Parliament have often been unfairly criticised. A judge, E
believing himself to be fettered by the supposed rule that
he must look to the language and nothing else, laments
that the draftsmen have not provided for this or that, or have
been guilty of some or other ambiguity. It would certainly
save the judges trouble if Acts of Parliament were drafted F
with divine prescience and perfect clarity. In the absence
of it, when a defect appears a judge cannot simply fold his
hands and blame the draftsman. He must set to work on
the constructive task of finding the intention of Parliament,
and he must do this not only from the language of the G
statute, but also from a consideration of the social
conditions which gave rise to it and of the mischief which
it was passed to remedy, and then he must supplement
the written word so as to give 'force and life' to the intention
of the legislature .... A judge should ask himself the H
484 SUPREME COURT REPORTS (2012] 11 S.C.R.
A question how, if the makers of the Act had themselves
come across this ruck in the texture of it, they would have
straightened it out? He must then do so as they would have
done. A judge must not alter the material of which the Act
is woven, but he can and should iron out the creases."
B
10. Relying upon a three-Judge Bench decision of this
Court in Modi Cements Ltd. v. Kuchil Kumar Nandi (1998) 3
SCC 249, this Court held that the expression "the amount of
money ............. is insufficient to honour the cheque" is a
genus of which the expression 'account being closed' is a
C specie.
11. In Modi Cements Ltd. (supra) a similar question had
arisen for the consideration of this Court. The question was
whether dishonour of a cheque on the ground that the drawer
D had stopped payment was a dishonour punishable under
Section 138 of the Act. Relying upon two earlier decisions of
this Court in Electronics Trade & Technology Development
Corporation Ltd. v. Indian Technologists and Engineers
(Electronics) (P) Ltd. (1996) 2 SCC 739 and K.K Sidharthan
E v. T.P. Praveena Chandran (1996) 6 SCC 369, it was
contended by the drawer of the cheque that if the payment was
stopped by the drawer, the dishonour of the cheque could not
constitute an offence under Section 138 of the Act. That
contention was specifically rejected by this Court. Not only that,
F the decision in Electronics Trade & Technology Development
Corporation Ltd. (supra) to the extent the same held that
dishonour of the cheque by the bank after the drawer had
issued a notice to the holder not to present the same would not
constitute an offence, was overruled. This Court observed:
G "18. The aforesaid propositions in both these reported
judgments, in our considered view, with great respect are
contrary to the spirit and object of Sections 138 and 139
of the Act. If we are to accept this proposition it will make
Section 138 a dead letter, for, by giving instructions to the
H bank to stop payment immediately after issuing a cheque
LAXMI DYECHEM v. STATE OF GUJARAT & ORS. 485
[T.S. THAKUR, J.]
against a debt or liability the drawer can easily get rid of A
the penal consequences notwithstanding the fact that a
deemed offence was committed. Further the following
observations in Electronics Trade & Technology
Development Corpn. ltd. "Section 138 intended to prevent
dishonesty on the part of the drawer of negotiable B
instrument to draw a cheque without sufficient funds in his
account maintained 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'' (emphasis supplied) in our opinion, c
do not also lay down the law correctly.
20. On a careful reading of Section 138 of the Act, we are
unable to subscribe to the view that Section 138 of the Act
draws presumption of dishonesty against drawer of the
cheque if he without sufficient funds to his credit in his bank D
account to honour the cheque issues the same and,
therefore, this amounts to an offence under Section 138
of the Act. For the reasons stated hereinabove, we are
unable to share the viewsPage 12 expressed by this Court
in the above two cases and we respectfully differ with the E
same regarding interpretation of Section 138 of the Act
to the limited extent as indicated above."
12. We may also at this stage refer to the decisions of this
Court in M.M. T.C. Ltd. and Anr. v. Medchl Chemicals and F
Pharma (P) Ltd. and Anr. (2002) 1 SCC 234, where too this
Court considering an analogous question held that even in
cases where the dishonour was on account of "stop payment"
instructions of the drawer, a presumption regarding the cheque
being for consideration would arise under Section 139 of the G
Act. The Court observed:
"19. Just such a contention has been negatived by this
Court in the case bf Modi Cements Ltd. v. Kuchi/ Kumar
Nandi. It has been held that even though the cheque is
H
486 SUPREME COURT REPORTS (2012] 11 S.C.R.
A dishonoured by reason of "stop-payment" instruciion an
offence under Section 138 could still be made out. It is held
that the presumption under Section 139 is attracted in such
a case also. The authority shows that even when the
cheque is dishonoured by reason of stop-payment
B instructions by virtue of Section 139 the court has to
presume that the cheque was received by the holder for
the discharge, in whole or in part, of any debt or liability.
Of course this is a rebuttable presumption. The accused
can thus show that the "stop-payment" instructions were not
c issued because of insufficiency or paucity of funds. If the
accused shows that in his account there were sufficient
funds to clear the amount of the cheque at the time of
presentation of the cheque for encashment at the drawer
bank and that the stop-payment notice had been issued
because of other valid causes including that there was no
D
existing debt or liability at the time of presentation of cheque
for encashment, then offence under Section 138 would not
be made out. The important thing is that the burden of so
proving would be on the accused. Thus a court cannot
quash a complaint on this ground."
E
13. To the same effect is the decision of this Court in
Goap/ast (P) Ltd. v. Chico Ursula D'souza and Anr. (2003) 3
SCC 232, where this Court held.that 'stop payment instructions'
and consequent dishonour of the cheque of a post-dated
F cheque attracts provision of Section 138. This Court observed:
"Chapter XVII containing Sections 138 to 142 was
introduced in the Act by Act 66 of 1988 with the object of
inculcating faith in the efficacy of banking operations and
giving credibility to negotiable instruments in business
G
transactions. The said provisions were intended to
discourage people from not honouring their commitments
by way of payment through cheques. The court should lean
in favour of an interpretation which serves the object of the
statute. A post-dated cheque will lose its credibilitv and
H
LAX.Ml DYECHEM v. STATE OF GUJARAT & ORS. 487
[T.S. THAKUR, J.)
acceptability if its payment can be stopped routinely. The A
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 of the cheque
should not be allowed to abuse the accommodation given
to him by a creditor by way of acceptance of a postdated B
cheque.
In view of Section 139, 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 C.
the presumption. This presumption coupled with the object
of Chapter XVII of the Act leads to the conclusion that by
countermanding payment of post-dated cheque, a party
should not be allowed to get away from the penal provision
of Section 138 of the Act. A contrary view would render D
Section 138 a dead letter and will provide a handle to
persons Irving 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." E
(emphasis supplied)
14. A three-Judge Bench of this Court in Rangappa v. Sri
Mohan (2010) 11 SCC 441 has approved the above decision
and held that failure of the drawer of the cheque to put up a
F
probable defence for rebutting the presumption that arises
under Section 139 would justify conviction even when the
appellant drawer may have alleged that the cheque in question
had been lost and was being misused by the complainant.
G
15. The above line of decisions leaves no room for holding
that the two contingencies envisaged under Section 138 of the
Act must be interpreted strictly or literally. We find ourselves in
respectful agreement with the decision in NEPC Micon Ltd.
(supra) that the expression "amount of money ............. is H
488 SUPREME COURT REPORTS [2012] 11 S.C.R.
A insufficient" appearing in Section 138 of the Act is a genus and
dishonour for reasons such "as account closed", "payment
stopped", "referred to the drawer" are only species of that
genus. Just as dishonour of a cheque on the ground that the
account has been closed is a dishonour falling in the first
s contingency referred to in Section 138, so also dishonour on
the ground that the "signatures do not match" or that the "image
is not found", which too implies that the specimen signatures
do not match the signatures on the cheque would constitute a
dishonour within the meaning of Section 138 of the Act. This
•
c Court has in the decisions referred to above taken note of
situations and contingencies arising out of deliberate acts of
omission or commission on the part of the drawers of the
cheques which would inevitably result in the dishonour of the
cheque issued by them. For instance this Court has held that if
after issue of the cheque the drawer closes the account it must
0
be presumed that the amount in the account was nil hence
insufficient to meet the demand of the cheque. A similar result
can be brought about by the drawer changing his specimen
signature given to the bank or in the case of a company by the
company changing the mandate of those authorised to sign the
E cheques on its behalf. Such changes or alteration in the
mandate may be dishonest or fraudulent and that would
inevitably result in dishonour of all cheques signed by the
previously authorised signatories. There is in our view no
qualitative difference between a situation where the
F dishonour takes place on account of the substitution by a new
set of authorised signatories resulting in the dishonour of the
cheques already issued and another situation in which the
drawer of the cheque changes his own signatures or closes the
account or issues instructions to the bank not to make the
G payment. So long as the change is brought about with a view
to preventing the cheque being honoured the dishonour would
become an offence under Section 138 subject to other
conditions prescribed being satisfied. There may indeed be
situations where a mismatch between the signatories on the
H cheque drawn by the drawer and the specimen available with
LAXMI DYECHEM v. STATE OF GUJARAT & ORS. 489
[T.S. THAKUR, J.]
the bank may result in dishonour of the cheque even when the A
drawer never intended to invite such a dishonour. We are also
conscious of the fact that an authorised signatory may in the
ordinary course of business be replaced by a new signatory
ending the earlier mandate to the bank. Dishonour on account
of such changes that may occur in the course of ordinary B
business of a company, partnership or an individual may not
constitute an offence by itself because such a dishonour in order
to qualify for prosecution under Section 138 shall have to be
preceded by a statutory notice where the drawer is called upon
and has the opportunity to arrange the payment of the amount c
covered by the cheque. It is only when the drawer despite
receipt of such a notice and despite the opportunity to make
the payment within the time stipulated under the statute does
not pay the amount that the dishonour would be considered a
dishonour constituting an offence, hence punishable. Even in
0
such cases, the question whether or not there was a lawfully
recoverable debt or liability for discharge whereof the cheque
was issued would be a matter that the trial Court will examine
having regard to the evidence adduced before it and keeping
in view the statutory presumption that unless rebutted the E
cheque is presumed to have been issued for a valid
consideration.
16. In the case at hand, the High Court relied upon a
decision of this Court in Vinod Tanna's case (supra) in support
of its view. We have carefully gone through the said decision F
which relies upon the decision of this Court in Electronics
Trade & Technology Development Corporation Ltd. (supra).
The view expressed by this Court in Electronics Trade &
Technology Development Corporation Ltd. (supra) that a
dishonour of the cheque by the drawer after issue of a notice G
to the holder asking him not to present a cheque would not
attract Section 138 has been specifically overruled in Modi
Cements Ltd. case (supra). The net effect is that dishonour on
the ground that the payment has been stopped, regardless
whether such stoppage is with or without notice to the drawer, H
490 SUPREME COURT REPORTS [2012] 11 S.C.R.
A and regardless whether the stoppage of payment is on the
ground that the amount lying in the account was not sufficient
to meet the requirement of the cheque, would attract the
provisions of Section 138.
17. It was contended by learned counsel for the respondent
8
that the respondent-company had offered to issue new cheques
to the appellant upon settlement of the accounts and that a
substantial payment has been made towards the outstanding
amount. We do not think that such an offer would render illegal
a prosecution that is otherwise lawful. The offer made by the
C respondent-company was in any case conditional and subject
to the settlement of accounts. So also whether the cheques
were issued fraudulently by the authorised signatory for
amounts in excess of what was actually payable to the appellant
is a matter for examination at the trial. That the cheques were
D issued under the signature of the persons who were authorised
to do so on behalf of the respondent-company being admitted
would give rise to a presumption that they were meant to
discharge a lawful debt or liability. Allegations offraud and the
like are matters that cannot be investigated by a Court under
E Section 482 Cr.P.C. and shall have to be left to be determined
at the trial after the evidence is adduced by the parties.
18. On behalf of the signatories of the cheques
dishonoured it was argued that the dishonour had taken place
F after they had resigned from their positions and that the failure
of the company to honour the commitment implicit in the
cheques cannot be construed an act of dishonesty on the part
of the signatories of the cheques. We do not think so. Just
because the authorised signatories of the cheques have taken
G a different line of defence than the one taken by by the
company does not in our view justify quashing of the
proceedings against them. The decisions of this Court in
National Small Industries Corporation Limited v. Harmeet
Singh Paintal and Anr. (2010) 3 SCC 330 and S. M. S.
H Pharmaceuticals Ltd. v. Neeta Bhalla & Anr. (2005) 8 SCC
LAX.Ml DYECHEM v. STATE OF GUJARAT & ORS. 491
89 render the authorised signatory liable to be prosecuted A
along with the company. In the National Small Industries
Corporation Limited's case (supra) this Court observed:
"19. )()()()(
(c) The answer to Question (c) has to be in the affirmative. B
The question notes that the managing director or joint
managing director would be admittedly in charge of the
company and responsible to the company for the conduct
of its business. When that is so, holders of such positions
in a company become liable under Section 141 of the Act. C
By virtue of the office they hold as managing director or
joint managing director, these persons are in charge of
and responsible for the conduct of business of the
company. Therefore, they get covered under Section 141.
So far as the signatory of a cheque which is dishonoured D
is concerned, he is clearly responsible for the incriminating
act and will be covered under sub-section (2) of Section
141."
19. In the result, we allow these appeals, set aside the E
judgment and orders passed by the High Court and dismiss
the special criminal applications filed by the respondents. The
trial Court shall now proceed with the trial of the complaints filed
by the appellants expeditiously. We make it clear that nothing
said in this judgment shall be taken as an expression of any
final opinion on the merits of the case which the trial Court shall F
be free to examine on its own. No costs.
GYAN SUDHA MISRA, J. 1. I endorse and substantially
agree with the views expressed in the judgment and order of
learned Brother Justice Thakur. However, I propose to highlight G
a specific aspect relating to dishonour of cheques which
constitute an offence under Section 138 as introduced by the
Banking, Public Financial Institutions and Negotiable
Instruments Laws (Amendment) Act, 1988 by adding that in so
far as the category of 'stop payment of cheques' is concernedas H
492 SUPREME COURT REPORTS
A to whether they constitute an offence within the meaning of
Section 138 of the 'NI Act'. due to the return of a cheque by
the bank to the drawee/holder of the cheque on the ground of
'stop payment' although has been held to constitute an offence
within the meaning of Sections 118 and 138 of the NI Act, and
B the same is now no longer res integra, the said presumption
is a 'rebuttable presumption' under Section 139 of the NI Act
itself since the accused issuing the cheque is at liberty to prove
to the contrary. This is already reflected under Section 139 of
the NI Act when it lays down as follows:-
c "139. Presumption in favour of holder.-- It shall be
presumed, 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, of
any debt or other liability."
D
2. We have to bear in mind that the Legislature while
incorporating the provisions of Chapter XVII, Sections 138 to
142 inserted in the NI Act (Amendment Act 1988) intends to
punish only those who know fully well that they have no amount
E in the bank and yet issue a cheque in discharge of debt or
liability already borrowed/incurred -which amounts to cheating,
and not to punish those who refused to discharge the debt for
bona fide and sustainable reason. It is in this context that this
Hon'ble Court inthe matter of M.M. T. C. Ltd. and Anr vs. Medchl
F Chemical and Pharma (P) Ltd. and Anr1• was pleased to hold
that cheque dishonour on account of drawer's stop payment
instruction constitutes an offence under Section 138 of the NI
Act but it is subject to the rebuttable presumption under Section
139 of the NI Act as the same can be rebutted by the drawer
G even at the first instance. It was held therein that in order to
escape liability under Section 139, the accused has to show
that dishonour was not due to insufficiency of funds but there
was valid cause, including absence of any debt or iiability for
the stop payment instruction to the bank. The specific
H 1. c2002i 1 sec 234.
LAXMI DYECHEM v. STATE OF GUJARAT & ORS. 493
[GYAN SUDHA MISRA, J.]
observations of the Court in this regard may be quoted for ready A
reference which are as follows:
"The authority shows that even when the cheque is
dishonoured by reason of stop-payment instructions by
virtue of Section 139 the court has to presume that the B
cheque was received by the holder for the discharge, in
whole or in part, of any debt or liability. Of course this is
a rebuttable presumption. The accused can thus show
that the "stoppayment" instructions were not issued
because of insufficiency or paucity of funds. If the C
accused shows that in his account there were sufficient
funds to clear the amount of the cheque at the time of
presentation of the cheque for encashment at the drawer
bank and that the stop-payment notice had been issued
because of other valid causes including that there was
no existing debt or liability at the time of presentation of D
cheque for encashment, then offence under Section 138
would not be made out. The important thing is that the
burden of so proving would be on the accused. Thus a
court cannot quash a complaint on this ground."
E
Therefore, complaint filed in such a case although might
not be quashed at the threshold before trial, heavy onus lies
on the court issuing summons in such cases as the trial is
summary in nature.
3. In the matter of Goaplast (P) Ltd. vs. Chico Ursula F
D'Souza and Anf'l. also this Court had held that ordinarily the
stop payment instruction is issued to the bank by the account
holder when there is no sufficient amount in the account. But, it
was also observed therein that the reasons for stopping the
payment can be manifold which cannot be overlooked. Hence, G
in view of Section 139, it has to be presumed that a cheque is
issued in discharge of any debt or other liability. But the
presumption can be rebutted by adducing evidence and the
2. (2003) 3 sec 232 = (2004) c~.LJ. 664. H
494 SUPREME COURT REPORTS [2012] 11 S.C.R.
A burden of proof is on the person who wants to rebut the
presumption. However, this presumption coupled with the object
of Chapter XVII of the Act leads to the conclusion that by
countermanding payment of post-dated cheque, a party should
not be allowed to get away from the penal provision of Section
B 138 of the Act. Therefore, in order to hold that the stop payment
instruction to the bank would not constitute an offence, it is
essential that there must have been sufficient funds in the
accounts in the first place on the date of signing of the cheque,
the date of presentation of the cheque, the date on which stop
c payment instructions were issued to the bank. Hence, in
Goap/ast matter (supra), when the magistrate had disallowed
the application in a case of 'stop payment' to the bank without
hearing the matter merely on the ground that there was no
dispute about the dishonour of the cheque issued by the
accused, since the signature was admitted and therefore held
0
that no purpose would be served in examining the bank
manager since the dishonour was not in issue, this Court held
that examination of the bank manager would have enabled the
Court to know on what date stop payment order was sent by
E the drawer to the bank clearly leading to the obvious inference
that stop payment although by itself would be an offence, the
same is subject to rebuttal provided there was sufficient funds
in the account of the drawer of the cheque.
4. Further, a three judge Bench of this Court in the matter
F of Rangappa vs. Sri Mohan 3 held that Section 139 is an
example of a reverse onus clause that has been included in
furtherance of the legislative objective of improving the credibility
of negotiable instruments. While Section 138 of the Act
specifies the strong criminal remedy in relation to the dishonour
G of the cheques, the rebuttable presumption under Section 139
is a device to prevent undue delay in the course of litigation.
The Court however, further observed that it must be
remembered that the offence made punishable by Section 138
can be better described as a regulatory offence since the
H 3. c2010) 11 sec 441.
LAXMI DYECHEM v. STATE OF GUJARAT & ORS. 495
[GYAN SUDHA MISRA, J.]
bouncing of a cheque is largely in the nature of a civil wrong A
whose money is usually confined to the private parties involved
in commercial transactions. In such a scenario, the test of
proportionality should guide the construction and interpretation
of reverse onus clauses and the defendant accused cannot be
expected to discharge an unduly high standard of proor. The B
Court further observed that it is a settled position that when an
accused has to rebut the presumption under Section 139, the
standard of proof for doing so is all preponderance of
probabilities.
5. Therefore, if the accused is able to establish a probable C
defence which creates doubt about the existence of a legally
enforceable debt or liability, the prosecution can fail. The
accused can rely on the materials submitted by the complainant
in order to raise such a defence and it is inconceivable that in
some cases the accused may not need to adduce the evidence D
of his/her own. If however, the accused/drawer of a cheque in
question neither raises a probable defence nor able to contest
existence of a legally enforceable debt or liability, obviously
statutory presumption under Section 139 of the NI Act regarding
commission of the offence comes into play if the same is not E
rebutted with regard to the materials submitted by the
complainant.
6. It is no doubt true that the dishonour of cheques in order
to qualify for prosecution under Section 138 of the NI Act F
precedes a statutory notice where the drawer is called upon
by allowing him to avail the opportunity to arrange the payment
of the amount covered by the cheque and it is only when the
drawer despite the receipt of such a notice and despite the
opportunity to make the payment within the time stipulated under G
the statute does not pay the amount, that the said default would
be considered a dishonour constituting an offence, hence
punishable. But even in such cases, the question whether or
not there was lawfully recoverable debt or liability for discharge
whereof the cheque was issued, would be a matter that the trial H
496 SUPREME COURT REPORTS (2012] 11 S.C.R.
A court will have to examine having regard to the evidence
adduced before it keeping in view the statutory presumption
that unless rebutted, the" cheque is presumed to have been
issued for a valid consideration. In view of this the responsibility
of the trial judge while issuing summons to conduct the trial in
B matters where there has been instruction to stop payment
despite sufficiency of funds and whether the same would be a
sufficient ground to proceed in the matter, would be extremely
heavy.
7. As already noted, the Legislature intends to punish only
C those who are well aware that they have no amount in the bank
and yet issue a cheque in discharge of debt or liability which
amounts to cheating and not to punish those who bona fide
issues the cheque and in return gets cheated giving rise to
disputes emerging from breach of agreement and hence
D contractual violation. To illustrate this, there may be a situation
where the cheque is issued in favour of a supplier who delivers
the goods which is found defective by the consignee before the
cheque is encashed or a postdated cheque towards full and
final payment to a builder after which the apartment owner might
E notice breach of agreement for several reasons. It is not
uncommon that in that event the payment might be stopped
bona fide by the drawer of the cheque which becomes the
contentious issue relating to breach of contract and hence the
question whether that would constitute an offence under the NI
F Act. There may be yet another example where a cheque is
issued in favour of a hospital which undertakes to treat the
patient by operating the patient or any other method of
treatment and the doctor fails to turn up and operate and in the
process the patient expires even before the treatment is
G administered. Thereafter, if the payment is stopped by the
drawer of the cheque, the obvious question would arise as to
whether that would amount to an offence under Section 138 of
the NI Act by stopping the payment ignoring Section 139 which
makes it mandatory by incorporating that the offence under
H Section 138 of the NI Act is rebuttable. Similarly, there may be
LAXMI DYECHEM v. STATE OF GUJARAT & ORS. 497
[GYAN SUDHA MISRA. J.]
innumerable situations where the drawer of the cheque for A
bonafide reasons might issue instruction of 'stop payment' to
the bank in spite of sufficiency of funds in his account.
8. What is wished to be emphasized is that matters arising
out of 'stop payment' instruction to the bank although would 8
constitute an offence under Section 138 of the NI Act since this
is no longer res-integra, the same is an offence subject to the
provision of Section 139 of the Act and hence, where the
accused fails to discharge his burden of rebuttal by proving that
the cheque could be held to be a cheque only for discharge of C
a lawful debt, the offence would be made out. Therefore, the
cases arising out of stop payment situati~n where the drawer
of cheques has sufficient funds in his account and yet stops
payment for bona fide reasons, the same cannot be put on par
with other variety of cases where the cheque has bounced on
account of insufficiency of funds or where it exceeds the amount D
arranged to be paid from that account, since Section 138
cannot be applied in isolation ignoring Section 139 which
envisages a right of rebuttal before an offence could be made
out under Section 138 of the Act as the Legislature already
incorporates the expression "unless the contrary is proved" E
which means that the presumption of law shall stand and unless
it is rebutted or disproved, the holder of a cheque shall be
presumed to have received the cheque of the nature referred
to in Section 138 of the NI Act, for the discharge of a debt or
other liability. Hence, unless the contrary is proved, the F
presumption shall be made that the holder of a negotiable
instrument is holder in due course.
9. Thus although a petition under Section 482 of the
Cr.P.C. may not be entertained by the High Court for quashing G
such proceedings, yet the judicious use of discretion by the trial
judge whether to proceed in the matter or not would be
enormous in view of Section 139 of the NI Act and if the drawer
of the cheque discharges the burden even at the stage of
enquiry that he had bona fide reasons to stop the payment and
H
498 SUPREME COURT REPORTS (2012] 11 S.C.R.
A not make the said payment even within the statutory lime of 15
days provided under the NI Act, the trial court might be justified
in refusing to issue summons to the drawer of the cheque by
holding that ingredients to constitute offence under Section 138
of the NI Act is missing where the account holder has sufficient
B funds to discharge the debt. Thus the category of 'stop payment
cheques' would be a category which is subject to rebuttal and
hence would be an offence only if the drawer of the cheque fails
to discharge the burden of rebuttal.
C 10. Thus, dishonour of cheques simpliciter for the reasons
stated in Section 138 of the NI Act although is sufficient for
commission of offence since the presumption of law on this
point is no longer res integra, the category of 'stop payment'
instruction to the bank where the account holder has sufficient
funds in his account to discharge the debt for which the cheque
D was issued, the said category of cases would be subject to
rebuttal as this question being rebuttable, the accused can show
that the stop payment instructions were not issued because of
insufficiency or paucity of funds, but stop payment instruction
had been issued to the bank for other valid causes including
E the reason that there was no existing debt or liability in view of
bonafide dispute between the drawer and drawee of the
cheque. If that be so, then offence under Section 138 although
would be made out, the same will attract Section 139 leaving
the burden of proof of rebuttal by the drawer of the cheque. Thus,
F in cases arising out of 'stop payment' situation, Sections 138
and 139 will have to be given a harmonious construction as in
that event Section 139 would be rendered nugatory.
11. The instant matter however do not relate to a case of
G 'stop payment' instruction to the bank as the cheque in question
had been returned due to mismatching of the signatures but
more than that the petitioner having neither raised nor proved
to the contrary as envisaged under Section 139 of the NI Act
that the cheques were not for the discharge of a lawful debt nor
H making the payment within fifteen days of the notice assigning
LAXMI DYECHEM v. STATE OF GUJARAT & ORS. 499
[GYAN SUDHA MISRA, J.]
any reason as to why the cheques had at all been issued if the A
amount had not been settled, obviously the plea of rebuttal
envisaged under Section 139 does not come to his rescue so
as to hold that the same would fall within the realm of rebuttable
presumption envisaged under Section139 of the Act. I, therefore,
concur with the judgment and order of learned Brother Justice B
Thakur subject to my views on the dishonour of cheques arising
out of cases of 'stop payment' instruction to the bank in spite
of sufficiency of funds on accoimt-of bonafide dispute between
the drawer and drawee of the cheque. This is in view of the legal
position that presumption in favour of the holder of a cheque c
under Section 139 of the NI Act has been held by the NI Act as
also by this Court to be a rebuttable presumplion to be
discharged by the accused/drawee of the cheque which may
be discharged even at the threshold where the magistrate
examines a case at the stage of taking cognizance as to
0
whether a prima facie case has been made out or not against
the drawer of the cheque.
R.P. Appeals allowed.
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