RAJNEESH AGGARWALversusAMIT J. BHALLA

A                            RAJNEESH AGGARWAL
                                          1~

                                 AMIT J. BHALLA

                                 JANUARY 4, 2001

B                [G.B. PATTANAIK AND U.C. BANERJEE, JJ.]


          Negotiable Instruments Act, 1881: Sections 138 and 141.

          Dishonour ofcheque-Notice-Issuance of-Cheque issued by company
C and signed by its Direclor-Notice issued to Director in his individual capacif)'
  and no! to !he compan)~l'a/idi!y of-Held: No/ice cannot be construed in
  a narrow and Jee/mica/ way wilhoul examining the maller-11 is sufficienl
  if pa)·ee se/'Ves due no/ice Jo !he person who has signed !he cheque-Hence,
  High Court erred in quashing the complaint for want of notice to the
D company: Dishonour of cheque-Cause of action-Arising of-Held: Mere
  dishonour of cheque does not raise a cause of action-Cause of action
  arises when payee makes a demand for payment and the dra11'er fails to
  make it.

        Dishonour of cheque-Criminal complainl-Pendency of-Deposit of                -*. _
E entire money represenling the cheque in courl-Effecl of-Held: Once lhe
  offence is commil!ed subsequenl deposil of amounl is of no consequence-
  Such deposil does not absolve the accl/sed of criminal liability-However,
  such deposit may have some effect in the maller of awarding of sentence.

          The respondent issued three cheques to the appellant, which were
F   dishonoured. The appellant, therefore, served a notice on the respondents        ~-
    calling upon him to pay the amount of cheques within 15 days of the
    receipt of the notice. Since the respondent failed to pay the amount, the
    appellant filed a complaint under Section 138 of the Negotiable Instruments
    Act, 1881. But the High Court quashed the complaint on the ground that the
    appellant issued the notice to the respondent in his individual capacity and
G   not to the drawer of the cheque i.e. the company of which the respondent was
    the Director. Hence this appeal.

         On behalf of the respondent it was contended that the entire amount
    involved in their three cheques having been deposited in this Court, the
H   criminal proceeding should not be allowed to continue.
                                         54
                        RAJNEESH AGGARWAL v. A.J. BHALLA                         55
             Allowing the appeal, the Court                                            A
   \         HELD : l. l. Mere dishonour of a cheque would not raise a cause of
       action unless the payee makes a demand in writing to the drawer of the
       cheque for the payment and the drawer fails to make the payment of the said
       amount of money to the payee. The object of issuing notice indicating the
       factum of dishonour of the cheques is to give an opportunity to the drawer B
       to make the payment within 15 days, so that it will not be necessary for the
  x    payee to proceed against the drawer in any criminal action, even though the
       bank dishonoured the cheques. Bearing in mind the object of issuance of
       such notice, it most be held that the notices cannot be construed in a narrow
       technical way without examining the substance of the matter.                  C
                                                                      159-H; 60-B-DI

             1.2. After the cheques were dishonoured by the bank the payee had
       served due notice and yet there was failure on the part of the accused to pay
       the money, who had signed the cheques, as the Director of the company. The
       impugned order of the High Court, therefore, is liable to be quashed;(60-Fl     D
             Bilakchand Gyanchand Co. v. A. Chinaswami, (1999( SCALE 250,
       relied on.

---·         Modi Cements ltd v. Kuchi/ Kumar Nandi, JT 119981 2 SC 198,
       referred to.                                                                    E
             2. So far as the criminal complaint is concerned, once the offence is
       committed, any payment made subsequent thereto will not absolve the accused
       of the liability of criminal offence, though in the matter of awarding of
       sentence, it may have some effect on the Court trying the offence. But by no
       stretch of imagination, a criminal proceeding could be quashed on account       F
       of deposit of money in the Court or that an order of quashing of criminal
       proceeding, which is otherwise unsustainable in law, could be sustained
       because of the deposit of money in this Court. Therefore, the so-called
       deposit of money by the respondent in this Court is of no consequence.
                                                                      (60-H; 61-AJ     G
            CRIMINAL APPELLATE JURISDICTION : Criminal Appeal
       Nos. 10-12 of2001.

            From the Judgment and Order dated 13.8.99 of the Himachal Pradesh
       High Court in Crl. M.P. (M) Nos. 55, 57 and 58 of 1999.                         H
     56                    SUPREME COURT REPORTS                    [2001) I S.C.R.

A         D.A. Dave, Gourab Banerjee, R.N. Karanjawala, Arunabh Choudhary
     and Mrs. Manik Karanjawala for the Appellant.

          G.L. Sanghi, R.K. Sanghi, N.M. Sharma and Rajesh Prasad Singh for the
     Respondent.

B         The Judgment of the Court was delivered by

          PAITANAIK, J. Leave Granted.

          The complainant is the appellant against the impugned orders dated 13
C August, 1999 of a learned Single Judge of the Himachal Pradesh High Court
   in three criminal miscellaneous petitions filed under Section 482 of the Code
  of Criminal Procedure. By the impugned orders, the learned Judge quashed
   three criminal complaints filed under Section 138 read with Section 141 of the
  Negotiable Instruments Act. Admittedly, three cheques had been given to th,,
  appellant, drawn on Bank of Baroda, Parliament Street New Delhi, representing
D different amounts, amounting to Rs. 2,32,600 in all. These cheques were
  presented by the appellant for encashment, but the same were returned with
  the endorsement "Payment stopped by the drawer". The appellant, therefore,
  served notices on the respondent, calling upon him to pay the amount of
  cheques within 15 days of the receipt of the notice. Since the respondent           ....
E failed to pay the amount, the complaints were filled in the Court of Chief
  Judicial Magistrate, Kullu. The learned Magistrate proceeded to hold inquiry
  under Section 202 of the Code of Criminal Procedure and thereafter took
  cognizance of the offence and directed issuance of process. The accused
  respondent challenged the order of the Magistrate, issuing process by filing
  application under Section 482 inter alia on the ground that the stoppage of
F payment by the drawer does not constitute an offence under Section 138 of
  the Negotiable Instruments Act and service of notice, as contemplated under
  proviso (b) to Section 138 of the Act has not been proved. Those petitions
  however were dismissed by the High Court by order dated 25.3.1998. It was
  held by the High Court that in view of the Judgment of the Supreme Court
G in Mis Modi Cements Limited v. Shri Kuchil Kumar Nandi, JT (1998) 2 SC
   198, there is no merit in any of the petitions and the same accordingly stand
  rejected. It was, however observed that the accused shall be at liberty to raise
  all such points, as may be available to him during the trial of the case before
  the trial Court. After dismissal of respondent's application filed under Section
  482 of the Code of Criminal Procedure, the respondent filed application before
H the Magistrate for recalling the issuance of process. The Magistrate however
        RAJNEESHAGGARWAL v. A.J. BHALLA [PATTANAIK, J.]                        57

dismissed.those applications. The accused, therefore, filed the petitions before      A
the High Court again under Section 482. The High Court having allowed the
application filed under Section 482 by the impugned orders dated I .2.1999, the
complainant has preferred these appeals against the same. Two contentions
had been raised before the High Court by the accused :

        (I)   Cheques had been issued in the capacity of the Director of the          B
              company to whom the watches were supplied, but the complaint
              has been filed without impleading the company as accused and
              as such the same is not maintainable; and

        (2)   In the absence of notice, as contemplated by clause (b) of the C
              proviso to Section 138 of the Negotiable Instruments Act,
              criminal proceedings cannot l:e proceeded with.                "

      The High Court rejected the first contention and held that the criminal
prosecution would lie under Section 138 of the Negotiable Instruments Act,
without imp leading the company of which the accused is the Director as the           D
party. But so far as the second contention is concerned, the High Court came
to the conclusion that the notice that was issued by the complainant on
account of dishonour of the cheques having been issued to the accused in
his individual capacity and not having been issued to the drawer thereof, no
offence can be said to have been committed by the company M/s. Bhalla
Techtran Industries Limited, and, therefore, the criminal proceedings cannot          E
be proceeded against by taking recourse to Section 141 of the Act. It is this
conclusion of the High Court, which is the subject matter of challenge in
these appeals.

       In may be stated at this stage that in the earlier round of litigation, when
the accused has filed application under Section 482 of the Code of Criminal           F
Procedure, it had been urged that the service of notice, as contemplated under
proviso (b) to Section 138 of the Act, has not been proved, but yet the Court
refused to exercise jurisdiction under Section 482 and refused to quash the
proceedings. The learned Judge after analyzing the provisions of Section 138
of the Negotiable Instruments Act, came to hold that befo1 e an offence under         G
the said provision can be said to have been made out, it must be shown that
the cheque was presented to the bank for encashment within a period of six
months from the date on which it was drawn or within the period of its
validity, whichever is earlier; the payee or holder in due course of the cheque
makes demand for the payment of the amount of money under the cheque by
giving a notice in writing to the drawer of the cheque within 15 days of              H
    58                     SUPREME COURT REPORTS                     [200 I) I S.C.R.

A    infonnation received by him from the bank regarding dishonour of the cheque;
     and the drawer of the cheque fails to make payment of the amount of money
    within 15 days of the receipt of notice. The High Court, however construed,
    the notices issued to the accused respondent, as a notice in his individual
    capacity and not to the company Mis Bhalla Techtran Industries Ltd.,
    notwithstanding the fact that the notice was addressed to "Shri Amit J.
B   Bhalla, Bhalla a Techtran Industries Ltd., 116-Jor Bagh, New Delhi- I I 0 003"
    and, therefore, it was not a notice to the drawer. The High Court further held
    that the judgment of this Court in Mis Bilakchand Gyanchand Co. v. A.
    Chinnaswami, (I 999) 2 SCALE 250, will have no application to the facts of
    this case. It ultimately came to the conclusion that in the absence of requisite
C   notice to the drawer of the cheque, no offence can be said to have been
    committed by the company within the meaning of Section 141 of the Act.

           Mr. D.A. Dave, the learned senior counsel, appearing for the appellant
    contended before us that on the self-same ground, the High Court having
    earlier dismissed the application, filed under Section 482, could not have re-
D   examined the matter when fresh applications were filed under Section 482 and
    could not have allowed the same. He also further urged that the very
    construction of the notice and the conclusion of the High Court on that score
    is erroneous and further, the High Court committed error in not following the
    judgment of this Court in Bilakchand Gyanchand, [1999) 5 SCC 693.
E
            Mr. G.L. Sanghi, the learned counsel, appearing for the respondent,
    referred to the evidence of the complainant before issuance of summons and
    submitted that on the face of the said evidence, the High Court was fully
    justified in coming to the conclusion that there has been no service of notice
    to the drawer, which is sine qua non for completion of offence under Section
F    138 read with Section 141 of the Act, and, therefore, the conclusion of the
    High Court is unassailable. Mr. Sanghi further urged that the conclusion of
    the High Court to the effect that supply of watches made by the respondent
    to the company Mis Bhalla Techtran Industries Ltd. and cheques involved
     in the case were also issued by the said company through its Director that
G    is the petitioner and in view of such admitted facts, the petitioner cannot be
    proceeded against for the offence under Section 138 of the Act in his individual
    capacity, is the only conclusion pennissible under the facts and circumstances
    of the case and, therefore, the order quashing the criminal proceedings should
    not be interfered with. According to Mr. Sanghi, the complainant has been
    prosecuting the accused Amit Bhalla in his individual capacity, though
H   categorically in the complaint petition, it has been stated that the cheques had
         RAJNEESHAGGARWALv. A.J. BHALLA [PATTANAIK,J.]                        59
been issued by Mis Bhalla Techtran Industries Ltd., through Mr. Amit J.             A
Bhalla as a Director and consequently, so far as the company is concerned,
who is the real drawer of the cheque, no notice can be said to have been
issued, and, therefore, criminal proceeding has rightly been quashed. Mr.
Sanghi urged that the respondent not being the drawer of the cheque, could
not have been prosecuted in his individual capacity inasmuch as there is no
vicarious liability of a Director in the criminal matters. Mr. Sanghi also          B
contended that the ultimate decision of quashing of criminal proceeding can
be supported on the further ground that the complaint is purely one of civil
nature and the complainant has abused the process of law by initiating
criminal prosecution as an arm twisting device and in this view of the matter,
the case does not warrant interference by this Court in exercise of jurisdiction    C
under Article 136 of the Constitution. Mr. Sanghi also urged that in course
of the proceedings, the entire amount involved in the three cheques having
been deposited, the criminal proceedings should not be allowed to be continued
and the order, quashing the criminal proceedings should not be interfered
with.
                                                                                    D
     Having regard to the contentions raised by the counsel for the parties,
two questions really arise for our consideration :

        (I)   Was the High Court justified in coming to the conclusion that
              the drawer has not been duly served with notke for payment?           E
        (2)   Whether deposit of the entire amount covered by three cheques,
              while the matter is pending in this Court, would make any
              difference?

      So for as the first question is concerned, it is no doubt true that all the
three requirements under clauses (a), (b) and (c) must be complied with before      F
the offence under Section 138 of the Negotiable Instruments Act, can be said
to have been committed and Section 141 indicates as to who would be the
persons, liable in the event the offence is committed by a company. The High
Court itself on facts, has recorded the findings that conditions (a) and (b)
under Section 138 having been duly complied with and, therefore, the only           G
question is whether the conclusion of the High Court that condition (c) has
not been complied with, can be said to be in accordance with law. Mere
dishonour of a cheque would not raise to a course of action unless the payee
makes a demand in writing to the drawer of the cheque for the payment and
the drawer fails to make the payment of the said amount of money to the
payee. The cheques had been issued by Mis Bhalla Techtran Industries                H
    60                     SUPREME COURT REPORTS                     [2001] 1 S.C.R.

A Limited, through its Director Shri Amit Bhalla. The appellant had issued notice
    to said Shri Amit J. Bhalla, Director of Mis Bhalla Techtran Industries Limited.
    Notwithstanding the service of the notice, the amount in question was not
    paid. The object of issuing notice indicating the factum of dishonour of the
    cheques is to give an opportunity to the drawer to make payment within I5
    days, so that it will not be necessary for the payee to proceed against in any
B   criminal action, even though the bank dishonoured the cheques. It is Amit
    Bhalla, who had signed the cheques as the Director of Mis Bhalla Techtran
    Industries Ltd. When the notice was issued to said Shri Amit Bhalla, Director
    of Mis Bhalla Techtran Industries Ltd., it was incumbent upon Shri Bhalla to
    see that the payments are made within the stipulated period of 15 days. It is
C   not disputed that Shri Bhalla has not signed the cheques, nor is it disputed
    that Shri Bhalla has not signed the cheques, nor is it disputed that Shri Bhalla
    was not the Director of the company. Bearing in mind the object of issuance
    of such notice, it must be held that the notices cannot be construed in a
    narrow technical way without examining the substance of the matter. We
    really fail to understand as to why the judgment of this court in Bilakchand
D   Gyanchand Co., [1999] 5 sec 693, will have no application. In that case also
    criminal proceedings had been initiated against A. Chinnaswami, who was the
    Managing Director of the company and the cheques in question had been
    signed by him. In the aforesaid premises, we have no hesitation to come to
    the conclusion that the High Court committed error in recording a finding that
E   there was no notice to the drawer of the cheque, as required under Section
    138 of the Negotiable Instruments Act. In our opinion, after the cheques were
    dishonoured by the bank the payee had served due notice and yet there was
    failure on the part of the accused to pay the money, who had signed the
    cheques, as the Director of the company. The impugned order of the High
    Court, therefore, is liable to be quashed.
F
        So far as the question of deposit of the money during the pendency of
  these appeals is concerned, we may state that in course of hearing the parties
  wanted to settle the matter in Court and it is in that connection, to prove the
  bona fide, the respondent deposited the amount covered under all the three
G cheques in the Court, but the complainant's counsel insisted that if there is
  going to be a settlement, then all the pending cases between the parties
  should be settled, which was, however, not agreed to by the respondent and,
  therefore, the matter could not be settled. So far as the criminal complaint is
  concerned, once the offence is committed, any payment made subsequent
  thereto will not absolve the accused of the liability of criminal offence, though
H in the matter of awarding of sentence, it may have some effect on the Courts
                 RA.INEESll AGGARWAL v. A.J. BHALLA [PATTANAIK. J.)             61

        trying the offence. But by no stretch of "inmgination, a criminal proceeding A
        could be quashed on account of deposit of money in the Court or that an
        order of quashing of criminal proceeding, which is otherwise unsustainable
        in law, could be sustained because of the deposit of money in this Court. In
.....   this view of the matter, the so-called deposit of money by the respondent in
        this Court is of no consequence.
                                                                                     B
              In the aforesaid premises, we set aside the impugned orders of the High
        Court and allow these appeals and direct that the criminal proceedings
        would be continued. The money which had been deposited by the accused
        in thts Court, may be refunded to the accused through his counsel. The
        Magistrate is directed to dispose of the proceedings at an early date.        C

        v.s.s.                                                   Appeals allowed.