MSR LEATHERSversusS. PALANIAPPAN & ANR.

                   [2013] 10 S.C.R. 81


                    MSR LEATHERS                              A
                            v.
                S. PALANIAPPAN & ANR.
         (Criminal Appeal Nos. 261-264 of 2002)
                 SEPTEMBER 10, 2013
                                                              B
   [K.S. RADHAKRISHNAN AND PINAKI CHANDRA
                  GHOSE, JJ.]

    Negotiable Instruments Act, 1881 - ss.138 & 142 -
Prosecution based on second or successive dishonour of the    C
cheque - Held: Is permissible so long as it satisfies the
requirements stipulated under the proviso to s. 138.

    The respondent issued four cheques to the
appellant. The appellant presented those four cheques on      0
21st November, 1996 and on presentation, those cheques
were dishonoured. On 8th January, 1997, the appellant
sent a notice to the respondent under section 138(b) of
the Negotiable Instruments Act, 1881. The respondent
duly received the said notice. Subsequent thereto, those      E
cheques were again presented before the Bank on 21st
January, 1997 by the appellant. On presentation, the said
cheques were again dishonoured. On 28th January, 1997
the appellant sent a notice under Section 138(b) of the Act
While the first notice dated 8th. January, 1997 Was beyond
the limitatiorf period, as required under Section 138(b) of   F
the Act, the second notice sent by the appellant under the
Act was within the limitation period from the date the
Bank informed the appellant on the second occasion, i.e.,
on 28th January, 1997.
                                                              G
     Thereafter, the appellant filed a complaint before the
Trial Court. In the circumstances, question arose for
consideration before this Court as to whether the action

                            81                                H
    82      SUPREME COURT REPORTS             [2013] 10 S.C.R.


A of the appellant was time-barred under Section 138(b) of
  the Negotiable Instruments Act, 1881 or not.
       The Division Bench of the Supreme Court since
  expressed reservation about the correctness of the law
B laid down in Sadanandan Bhadran case and felt that it
  requires to be considered by a larger Bench and
  accordingly, the matter was placed before a larger Bench.

         Allowing the instant appeals, the Court
c        HELD: 1. The larger Bench, while deciding the
    question, noticed that proviso to Section 138 of the
    Negotiable Instruments Act, 1881, stipulates three distinct
    conditions precedent, which must be satisfied before
    dishonour of the cheque can constitute an offence and
0   becomes punishable; and that fulfilment of those three
    conditions constitutes an offence under Section 138 and
    it can then be said that an offence under the said section
    has been committed by the person issuing the cheque.
    Their Lordships further noticed that no court shall take
E   cognizance of any offence punishable under Section 138
    except when a complaint in writing is made by the payee
    or by the holder in due course and such complaint has
    to be made within one month from the date on which the
    cause of action arises under clause (b) of the proviso to
F   Section 138. It was also noticed by their Lordships that
    neither Section 138 nor Section 142 of the Act or any
    other provision contained in the said Act prevents the
    holder or the payee of the cheque from presenting the
    cheque for encashment for any number of occasions
    within a period of six months from the date of its issuance
G   or within a period of its validity, whichever is earlier.
    Therefore, It appears that the payee or the holder has a
    right to present the same as many number of times for
    encashment within a period of six months or within its
    validity period, whichever is earlier. After analysing
H   Sections 138 and 142 of the Act, their Lordships found it
    MSR LEATHERS v. S. PALANIAPPAN & ANR.                  83

"difficult to hold that the payee would lose his right to        A
institute such proceedings on a subsequent default that
satisfies all the three requirements of Section 138." In the
result, their Lordships overruled the decision in
Sadanandan Bhadran's case and held that the
prosecution based on second or successive dishonour              B
of the cheque is also permissible so long as it satisfies
the requirements stipulated under the proviso to Section
138 of the Act. In the light of the said decision, the
impugned order passed by the High Court is set aside.
[Para 6, 7, 8, 10 & 11] [85-A-B, E-H; 86-A-C; 88-F-G]            C

     Sadanandan Bhadran vs. Madhavan Sunil Kumar 1998
(6) sec 514:1998 (1) Suppl. SCR 178 - held overruled.
                     Case Law Reference:
    1998 (1) Suppl. SCR 178         held overruled     Para 5    D
    CRIMINAL AP PELLATE JURISDICTION : Criminal Appeal
Nos. 261-264 of 2002.

    From the. Judgment & Order dated 19.01.2001 of the High      E
Court of Madras in Criminal Revision Petitions No. 618, 624,
664 and 665 of 2000.

    Danish Zubair Khan (for Arputham, Aruna & Co.) for the
Appellant.
                                                                 F
    Abhishek Krishna (for K.K. Mani) for the Respondents

    The Judgment of the Court was delivered by

     PINAKI CHANDRA GHOSE, J. 1. This matter was
referred before the larger Bench by order dated 25th March,      G
2009. The question referred to the larger Bench was : "whether
the action of the appellant was time-barred under Section
138(b) of the Negotiable Instruments Act or not?"

    2. The facts of the case, briefly stated, are that the       H
    84      SUPREME COURT REPORTS                [2013) 10 S.C.R.


A respondent issued four cheques to the appellant on 14th
  August, 1996. The appellant presented those four cheques on
  21st November, 1996 and on presentation, those cheques were
  returned by the Bank with an endorsement "not arranged funds
  for". At the request of the respondent, the appellant did not
B present the said cheques since the respondent agreed to settle
  the dispute. However, the respondent failed to settle the dispute
  subsequently. In these circumstances, on 8th January, 1997, the
  appellant sent a notice (to the respondent) under section 138(b)
  of the Negotiable Instruments Act, 1881 (hereinafter referred
c to as 'the Act'). The respondent duly received the said notice.
  Subsequent thereto, those cheques were again presented
  before the Bank on 21st January, 1997 by the appellant. On
  presentation, the said cheques were dishonoured for want of
  sufficient funds.

D       3. On 28th January, 1997 the appellant sent a notice under
    Section 138(b) of the Act and called upon the respondent to
    pay the said amount with interest within 15 days. The
    respondent duly received the said notice on 3rd February, 1997.

E      4. From the said facts, it appears that while the first notice
  dated 8th January, 1997 was beyond the limitation period, as
  required under Section 138(b) of the Act, the second notice
  sent by the appellant under the Act was within the limitation
  period from the date the Bank informed the appellant on the
F second occasion, i.e., on 28th January, 1997. Thereafter, the
  appellant filed a complaint before the Trial Court on 4th March,
  1997. In the circumstances, the question arises whether the
  action of the appellant was time-barred under Section 138(b)
  of the Act or not.

G      5. The Division Bench· since expressed their Lordships'
  reservation about the correctness of the law laid down in
  Sadanandan Bhadran vs. Madhavan Sunil Kumar [1998 (6)
  sec 514] and felt that it requires to be considered by a larger
  Bench and the matter was placed before the Hon'ble Chief
H Justice for consideration.
     MSR LEATHERS v. S. PALANIAPPAN & ANR.                      85
          [PINAKI CHANDRA GHOSE, J.]
      6. Accordingly, the matter was placed before a larger           A
 Bench. Their Lordships, while deciding the said question,
 noticed that proviso to Section 138 stipulates following three
 distinct conditions precedent, which must be satisfied before
 dishonour of the cheque can constitute an offence and becomes
 punishable.                                                          B

      " ... The first condition is that the cheque ought to have
      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. The second condition is
      that the payee or the holder in due course of the cheque, C
      as the case may be, ought to make a demand for the
      payment of the said amount of money by giving a notice
      in writing, to the drawer of the cheque, within thirty days
      of the receipt of information by him from the bank
      regarding the return of the cheque as unpaid. The third D
      condition is that the drawer of such a cheque should have
      failed to make 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 .... "                                      E

      Fulfilment of those three conditions constitutes an offence
 under Section 138 and it can then be said that an offence under
 the said section has been committed by the person issuing the
 cheque.
                                                                      F
       7. Their Lordships further noticed that no court shall take
  cognizance of any offence punishable under Section 138
  except when a complaint in writing is made by the payee or by
. the holqer in due course and such complaint has to be made
  within one month from the date on which the cause of action         G
  arises under clause (b) of the proviso to Section 138. It is also
  noticed by their Lordships that neither Section 138 nor Section
  142 of the Act or any other provision contained in the said Act
  prevents the holder or the payee of the cheque from presenting
  the cheque for encashment for any number of occasions within        H
    86       SUPREME COURT REPORTS                   [2013] 10 S.C.R.


A· a period of six months from the date of its issuance or within a
   period of its validity, whichever is earlier. Therefore, it appears
   that the payee or the holder has a right to present the same as
   many number of times for encashment within a period of six
   months or within its validity period, whichever is earlier.
B       8. After analysing Sections 138 and 142 of the Act, their
    Lordships held that " ... we find it difficult to hold that the payee
    would lose his right to institute such proceedings on a
    subsequent default that satisfies all the three requirements of
    Section 138." Accordingly, their Lordships held as follows :
c
         "23. Coming then to the question whether there is
         anything in Section 142(b) to suggest that prosecution
         based on subsequent or successive dishonour is
         impermissible, we need only mention that the limitation
D        which Sadanandan Bhadran's case (supra) reads into
         that provision does not appear to us to arise. We say so
         because while a complaint based on a default and notice
         to pay must be filed within a period of one month from
         the date the cause of action accrues, which implies the
E        date on which the period of 15 .days granted to the drawer
         to arrange the payment expires, there is nothing in
         Section 142 to suggest that expiry of any such limitation
         would absolve him of his criminal liability should the
         cheque continue to get dishonoured by the bank on
         subsequent presentations. So long as the cheque is valid
F
         and so long as it is dishonoured upon presentation to the
         bank, the holder's right to prosecute the drawer for the
         default committed by him remains valid and exercisable.
         The argument that the holder takes advantage by not
         filing a prosecution against the drawer has not impressed
G        us. By reason of a fresh presentation of a cheque followed
         by a fresh notice in terms of Section 138, proviso (b), the
         drawer gets an extended period to make the payment and
         thereby benefits in terms of further opportunity to pay to
         avoid prosecution. Such fresh opportunity cannot held the
                                /
H
            "



MSR LEATHERS v. S. PALANIAPPAN & ANR.                87
     [PINAKI CHANDRA GHOSE, J.]
defaulter on any juristic principle, to get a complete     A
absolution from prosecution."

9. It was further held as follows :

"31. Applying the above rule of interpretation and the
provisions of Section 138, we have no hesitation in B
holding that a prosecution based on a second or
successive default in payment of the cheque amount
should not be impermissible simply because no
prosecution based on the first default which was followed
by a statutory notice and a failure to pay had not been C
launched. If the entire purpose underlying Section 138
of the Negotiable Instruments Act is to compel the
drawers to honour their commitments made in the course
of their business or other affairs, there is no reason why
a person who has issued a cheque which is dishonoured D
and who fails to make payment despite statutory notice
served upon him should be immune to prosecution
simply because the holder of the cheque has not rushed
to the court with a complaint based on such default or
simply because the drawer has made the holder defer E
prosecution promising to make arrangements for funds
or for any other similar reason. There is in our opinion
no real or qualitative difference between a case where
default is committed and prosecution immediately
launched and another where the prosecution is deferred F
till the cheque presented again gets dishonoured for the
second or successive time.

32. The controversy, in our opinion, can be seen from
another angle also. If the decision in Sadanandan
Bhadran's case (supra) is correct, there is no option for G
the holder to defer institution ofjudicial proceedings even
when he may like to do so for so simple and innocuous
a reason as to extend certain accommodation to the
drawer to arrange the payment of the amount. Apart from
the fact that an interpretation which curtails the right of H
    88       SUPREME COURT REPORTS                [2013] 10 S.C.R.


A        the parties to negotiate a possible settlement without
         prejudice to the right of holder to institute proceedings
         within the outer period of limitation stipulated by law
         should be avoided we see no reason why parties should,
         by a process of interpretation, be forced to launch
B        complaints where they can or may like to defer such
         action for good and valid reasons. After all, neither the
         courts nor the parties stand to gain by institution of
         proceedings which may become unnecessary if cheque
         amount is paid by the drawer. The magistracy in this
c        country is over-burdened by an avalanche of cases
         under Section 138 of Negotiable Instruments Act. If the
         first default itself must in terms of the decision in
         Sadanandan Bhadran's case (supra) result in filing of
         prosecution, avoidable litigation would become an
         inevitable bane of the legislation that was intended only
D
         to bring solemnity to cheques without forcing parties to
         resort to proceedings in the courts of law. While there is
         no empirical data to suggest that the problems of
         overburdened magistracy and judicial system at the
         district level is entirely because of the compulsions
E        arising out of the decisions in Sadanandan Bhadran's
         case (supra), it is difficult to say that the law declared in
         that decision has not added to court congestion."

         10. In the result, their Lordships overruled the decision in
F   Sadanandan Bhadran's case (supra) and held that the
    prosecution based on second or successive dishonour of the
    cheque is also permissible so long as it satisfies the
    requirements stipulated under the proviso to Section 138 of the
    Act.
G
        11. In.the light of the said decision, we set aside the order
    passed by the High Court and allow these appeals.

    B.8.8.                                        Appeals allowed.