“Whether payee or holder of cheque can initiate proceeding of prosecution under Section 138 of Negotiable Instrument Act, 1881 for the second time if he has not initiated any action on earlier cause of action?”

R.M. LODHA, T.S. THAKUR AND ANIL R. DAVE, JJ.

September 26, 2012

CRIMINAL APPEAL NOS.261-264 OF 2002

MSR Leathers …Appellant

Versus

S. Palaniappan & Anr. …Respondents

Head Note:-

Negotiable Instrument Act, 1881 - Section 138 - Prosecution based upon second or successive dishonour of the cheque is also permissible so long as the same satisfies the requirements stipulated in the proviso.

Overruled:- Sadanandan Bhadran v. Madhavan Sunil Kumar (1998) 6 SCC 514

                               J U D G M E N T

1.    In Sadanandan Bhadran v. Madhavan Sunil Kumar (1998) 6 SCC  514,  this

Court  was  dealing  with  a  case  under  Section  138  of  the  Negotiable

Instrument Act, 1881 (hereinafter referred to as ‘the  Act’)  in  which  the

complainant had, after dishonour of a cheque issued  in  his  favour,  taken

steps to serve upon the accused-drawer of the cheque a notice  under  clause

(b) of proviso to Section 138 of the Act. No complaint was,  however,  filed

by the complainant despite failure of the accused to arrange the payment  of

the amount covered by the cheque.  Instead,  the  complainant-payee  of  the

cheque had presented  the  cheque  for  collection  once  again,  which  was

dishonoured a second time for want of sufficient funds. Another  notice  was

served on the drawer of the cheque to arrange payment  within  fifteen  days

of receipt of said notice. Only after failure of drawer to  do  so  did  the

payee file a complaint against the former under Section 138 of the Act.

2.    After entering appearance, the drawer  filed  an  application  seeking

discharge on the ground that the payee could not create more than one  cause

of action in respect of a  single  cheque  and  the  complaint  in  question

having been filed on the basis of  the  second  presentation  and  resultant

second cause of action was not maintainable. The  Magistrate  accepted  that

contention relying upon a Division Bench decision of Kerala  High  Court  in

Kumaresan v. Ameerappa (1991) 1 Ker L.T. 893 and  dismissed  the  complaint.

The order passed by the Magistrate  was  then  questioned  before  the  High

Court of Kerala who relying upon Kumaresan’s case (supra) upheld  the  order

passed by the Magistrate.  The matter was  eventually  brought  up  to  this

Court by special leave. This Court formulated  the  following  question  for

determination:

         “Whether payee or holder  of  cheque  can  initiate  proceeding  of

         prosecution under Section 138 of Negotiable  Instrument  Act,  1881

         for the second time if he has not initiated any action  on  earlier

         cause of action?”

3.    Answering the  question  in  the  negative  this  Court  held  that  a

combined reading of Sections 138 and 142 of the Act left no room  for  doubt

that cause  of  action  under  Section  142(b)  can  arise  only  once.  The

conclusion observed by the court is supported not only by Sections  138  and

142 but also by the fact that the dishonour of  cheque  gives  rise  to  the

commission of offence only on the failure to pay  money  when  a  notice  is

served upon the drawer in accordance with  clause  (b)  of  the  proviso  to

Section 138.  The Court further held  that  if  the  concept  of  successive

causes of action were to be accepted the  same  would  make  the  limitation

under Section 142(b) otiose. The Court observed:

         “7. Besides the language of Sections  138  and  142  which  clearly

         postulates only one cause of action,  there  are  other  formidable

         impediments which  negate  the  concept  of  successive  causes  of

         action. One of them is that for dishonour of one cheque, there  can

         be only one offence and such offence is  committed  by  the  drawer

         immediately on his failure to make the payment within fifteen  days

         of the receipt of the notice served in accordance with  clause  (b)

         of the proviso to Section 138.  That  necessarily  means  that  for

         similar  failure  after  service  of  fresh  notice  on  subsequent

         dishonour, the drawer cannot be liable for any offence nor can  the

         first offence be treated as non est so as to give the payee a right

         to file a complaint treating the second offence as the  first  one.

         At that stage, it will not be a question of waiver of the right  of

         the payee to prosecute the drawer but of absolution of  the  drawer

         of an offence, which stands already  committed  by  him  and  which

         cannot be committed by him again.

         8. The other  impediment  to  the  acceptance  of  the  concept  of

         successive causes of action is that it  will  make  the  period  of

         limitation under clause (c) of Section 142 otiose, for, a payee who

         failed to file his complaint within one month and thereby forfeited

         his right  to  prosecute  the  drawer,  can  circumvent  the  above

         limitative clause by filing a complaint on the  basis  of  a  fresh

         presentation  of  the  cheque  and  its  dishonour.  Since  in  the

         interpretation of statutes, the  court  always  presumes  that  the

         legislature inserted every part  thereof  for  a  purpose  and  the

         legislative intention is that every part should  have  effect,  the

         above conclusion cannot be drawn for that will make  the  provision

         for limiting the period of making the complaint nugatory.”

4.     The  Court  then  tried  to  reconcile  the  apparently   conflicting

provisions of the Act - one enabling the payee to  present  the  cheque  and

the other giving him opportunity to file a complaint within  one  month  and

observed:

         “…..Having given our anxious consideration to this question, we are

         of the opinion that the above two  provisions  can  be  harmonised,

         with the interpretation that on each presentation of the cheque and

         its dishonour, a fresh right — and not cause of action — accrues in

         his favour. He may, therefore, without taking pre-emptory action in

         exercise of his such right under clause (b) of Section 138,  go  on

         presenting the cheque so as to enable him to exercise such right at

         any point of time during the validity of the cheque.  But  once  he

         gives a notice under clause (b) of Section 138,  he  forfeits  such

         right for in case of failure of the drawer to pay the money  within

         the stipulated time, he would be liable for offence and  the  cause

         of action for filing the complaint will arise. Needless to say, the

         period of one month for filing the complaint will be reckoned  from

         the day immediately following  the  day  on  which  the  period  of

         fifteen days from the date of the receipt  of  the  notice  by  the

         drawer expires.”

5.    The  Court  accordingly  dismissed  the  appeal  while  affirming  the

decision of the Kerala High Court in Kumaresan’s  case  (supra),  no  matter

the same had been in the meantime overruled by a decision of the Full  Bench

of that Court in S.K.D. Lakshmanan Fireworks  Industries  v.  K.V.  Sivarama

Krishnan (1995) Cri L J 1384 (Ker).

6.    When the present appeal first came  up  for  hearing  before  a  bench

comprising Markandey Katju and B. Sudershan Reddy, JJ., reliance  on  behalf

of respondents was placed upon the decision  of  this  Court  in  Sadanandan

Bhadran’s case (supra) to argue that the complaint in the instant  case  had

also been filed on the basis of the second dishonour of a cheque  after  the

payee of the cheque had issued a notice to the drawer under  clause  (b)  of

the proviso to Section 138 of the Act based on an earlier dishonour. On  the

ratio of  Sadanandan  Bhadran’s  case  (supra)  such  a  complaint  was  not

maintainable, argued the respondents.  The  Court,  however,  expressed  its

reservation about the correctness of the view taken in Sadanandan  Bhadran’s

case (supra) especially in para  9  thereof  and  accordingly  referred  the

matter to a larger Bench.  That is precisely  how  the  present  appeal  has

come up for hearing before us.   It is, therefore, evident that  this  Court

has  repeatedly  followed  the  view  taken  in  Sadanandan  Bhadran’s  case

(supra).  But a careful reading of these decisions  reveals  that  in  these

subsequent decisions there had been no addition to the ratio underlying  the

conclusion in Sadanandan Bhadran’s case (supra).

7.    Before adverting to the submissions that were urged at the Bar we  may

briefly summarise the facts in the backdrop of which the  issue  arises  for

our determination.  Four cheques for a total sum of rupees  ten  lakhs  were

issued by the respondent-company on 14th  August,  1996  in  favour  of  the

appellant which were presented to the bank for collection on 21st  November,

1996. The cheques were dishonoured in terms of  memo  dated  22nd  November,

1996 for insufficiency of funds.  A notice under clause (b)  of  proviso  to

Section 138 was then issued by  the  appellant  to  the  respondent  on  8th

January, 1997 demanding payment  of  the  amount  covered  by  the  cheques.

Despite receipt of  the  notice  by  the  respondent  the  payment  was  not

arranged. The appellant’s case is that the respondent assured the  appellant

that the funds necessary for the encashment of the  cheques  shall  be  made

available by  the  respondent,  for  which  purpose  the  cheques  could  be

presented again  to  the  bank  concerned.   The  cheques  were  accordingly

presented for the second time to the bank on 21st  January,  1997  and  were

dishonoured for a second time in terms of a memo dated  22nd  January,  1997

once again on the ground of insufficiency  of  funds.   A  statutory  notice

issued by the appellant under clause (b) of proviso to Section  138  of  the

Act on 28th January, 1997 called upon the respondent-drawer of  the  cheques

to arrange payment of the amount within 15 days.   Despite  receipt  of  the

said notice on 3rd February, 1997, no payment was arranged which led to  the

filing of Complaint Case No.1556-1557/1997 by the appellant  before  the  II

Metropolitan Magistrate, Madras for the  offence  punishable  under  Section

138 read with Section 142 of the Act.  The Magistrate  took  cognizance  and

issued summons to  the  respondents  in  response  whereto  the  respondents

entered appearance and sought discharge primarily on  the  ground  that  the

complaint had not been filed within 30 days of  the  expiry  of  the  notice

based on the first dishonour of the cheque.  It was also  alleged  that  the

statutory notice which formed the  basis  of  the  complaint  had  not  been

served  upon  the  accused  persons.  The  Magistrate   upon   consideration

dismissed the applications for discharge which order was  then  assailed  by

the respondents before the High Court of  Madras  in  Criminal  Appeal  Nos.

618, 624, 664, 665/2000.

8.    The High Court has, by the order impugned in this appeal, allowed  the

revision and quashed the orders passed by the Magistrate  relying  upon  the

decision of this Court in Sadanandan Bhadran’s  case  (supra)  according  to

which a complaint based on a second or successive dishonour  of  the  cheque

was not  maintainable  if  no  complaint  based  on  an  earlier  dishonour,

followed by the statutory notice issued  on  the  basis  thereof,  had  been

filed.

9.    Section 138 of the  Negotiable  Instruments  Act,  1881,  constituting

Chapter XVII of the Act which was introduced by Act 66 of 1988, inter  alia,

provides:

         “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 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 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  for  a

         term which may extend to two year, or with fine which may extend to

         twice the amount of the cheque, or with both”

10.   Proviso to Section 138,  however,  is  all  important  and  stipulates

three distinct conditions precedent, which  must  be  satisfied  before  the

dishonour of a cheque can constitute an offence and become punishable.   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, 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 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. It is only  upon  the

satisfaction of all the three  conditions  mentioned  above  and  enumerated

under the proviso to Section 138 as clauses (a), (b) and  (c)  thereof  that

an offence under Section 138 can be said  to  have  been  committed  by  the

person issuing the cheque.

11.   Section 142 of  the  Negotiable  Instruments  Act  governs  taking  of

cognizance of  the  offence  and  starts  with  a  non-obstante  clause.  It

provides that no court shall  take  cognizance  of  any  offence  punishable

under Section 138 except upon a complaint, in writing,  made  by  the  payee

or, as the case may be, by the holder in due course and  such  complaint  is

made within one month of the date on which the cause of action arises  under

clause (c) of the proviso to Section 138.  In terms of  sub-section  (c)  to

Section 142, no court inferior to that of a  Metropolitan  Magistrate  or  a

Judicial Magistrate of the first class  is  competent  to  try  any  offence

punishable under Section 138.

12.   A careful reading of the above provisions makes  it  manifest  that  a

complaint under Section 138  can be filed only after cause of action  to  do

so has accrued in terms of clause (c) of proviso to Section  138  which,  as

noticed earlier, happens no sooner than when the drawer of the cheque  fails

to make the payment of the cheque amount to the payee or the holder  of  the

cheque within 15 days of the receipt of the notice required to  be  sent  in

terms of clause (b) of proviso to Section 138 of the Act.

13.   What is important is that neither Section 138 nor Section 142  or  any

other provision contained in the Act forbids the  holder  or  payee  of  the

cheque from presenting the cheque for encashment on any number of  occasions

within a period of six months of its issue  or  within  the  period  of  its

validity, whichever is earlier. That such  presentation  will  be  perfectly

legal and justified was not disputed before us even at the  Bar  by  learned

counsel appearing for the parties and rightly so in light  of  the  judicial

pronouncements on that question which are all  unanimous.   Even  Sadanandan

Bhadran’s case (supra) the correctness whereof we are examining,  recognized

that the holder or the payee of the cheque has  the  right  to  present  the

same any number of times for encashment during the period of six  months  or

during the period of its validity, whichever is earlier.

14.   Presentation of the cheque and dishonour thereof within the period  of

its  validity  or  a  period  of  six  months  is  just  one  of  the  three

requirements that constitutes  ‘cause  of  action’  within  the  meaning  of

Sections 138 and 142(b) of the Act, an  expression  that  is  more  commonly

used in civil law than in penal statutes.   For  a  dishonour  to  culminate

into the commission of an offence of which  a  court  may  take  cognizance,

there are two other requirements, namely, (a) service of a notice  upon  the

drawer of the cheque to make payment of the amount  covered  by  the  cheque

and (b)  failure  of  the  drawer  to  make  any  such  payment  within  the

stipulated period of 15 days of the receipt of such a notice.   It  is  only

when the said two conditions are superadded to the dishonour of  the  cheque

that the  holder/payee  of  the  cheque  acquires  the  right  to  institute

proceedings for prosecution under  Section  138  of  the  Act,  which  right

remains legally enforceable for a period of 30 days counted  from  the  date

on which the cause of action accrued to him.  There is, however, nothing  in

the proviso to Section 138 or Section 142 for that  matter,  to  oblige  the

holder/payee of a dishonoured cheque to necessarily file  a  complaint  even

when he has acquired an indefeasible right to  do  so.   The  fact  that  an

offence is complete need not  necessarily  lead  to  launch  of  prosecution

especially when the offence is not a cognizable one.  It  follows  that  the

complainant may, even when he has the immediate right to institute  criminal

proceedings against the drawer of the cheque, either at the request  of  the

holder/payee of the cheque or on his own volition, refrain from  instituting

the proceedings based on the cause of action that has accrued to  him.  Such

a decision to defer prosecution may be impelled  by  several  considerations

but more importantly it may be induced by  an  assurance  which  the  drawer

extends to the holder of  the  cheque  that  given  some  time  the  payment

covered by the cheques would be arranged, in the process  rendering  a  time

consuming and generally expensive legal recourse unnecessary.  It  may  also

be induced by a belief that a fresh presentation of the  cheque  may  result

in encashment for a variety of reasons including the vicissitudes  of  trade

and business dealings where financial accommodation given by the parties  to

each other is not an unknown phenomenon.  Suffice it to say  that  there  is

nothing in the provisions of the Act that forbids the  holder/payee  of  the

cheque to demand by service of a fresh notice under clause  (b)  of  proviso

to Section 138 of the Act, the amount covered by the  cheque,  should  there

be a second or a successive dishonour of the cheque on its presentation.

15.   Sadanandan Bhadran’s  case  (supra)  holds  that  while  a  second  or

successive presentation of the cheque is  legally  permissible  so  long  as

such presentation is within the period of six months or the validity of  the

cheque whichever is earlier, the  second  or  subsequent  dishonour  of  the

cheque would not entitle the holder/payee to issue  a  statutory  notice  to

the drawer nor would it entitle him to institute legal  proceedings  against

the drawer in the event he fails  to  arrange  the  payment.   The  decision

gives three distinct reasons why that  should  be  so.  The  first  and  the

foremost of these reasons is the use of the expression “cause of action”  in

Section 142(b) of the Act which according to the Court has been  used  in  a

restrictive sense and must therefore be understood to  mean  that  cause  of

action under Section 142(b) can arise but once.   The  second  reason  cited

for the view  taken  in  the  Sadanandan  Bhadran’s  case  (supra)  is  that

dishonour of a cheque will lead to commission of only one offence  and  that

the offence is complete no sooner the drawer fails to make  the  payment  of

the cheque amount within a period of 15 days of the receipt  of  the  notice

served upon him. The Court has not pressed  into  service  the  doctrine  of

“waiver of the right to prosecute” but held that the failure of  the  holder

to institute proceedings would tantamount to “absolution” of the  drawer  of

the offence committed by him.  The third and the only other reason  is  that

successive causes of action will militate against the provisions of  Section

142(b)  and  make  the  said  provision  otiose.  The  Court  in  Sadanandan

Bhadran’s case (supra) held that the failure of the drawer/payee to  file  a

complaint within one month  resulted  in  forfeiture  of  the  complainant’s

right to prosecute the drawer/payee which forfeiture cannot be  circumvented

by him by presenting the cheque  afresh  and  inviting  a  dishonour  to  be

followed by a fresh notice and a delayed complaint on the basis thereof.

16.   With utmost respect to the Judges  who  decided  Sadanandan  Bhadran’s

case (supra) we regret our inability to fall in line with the above line  of

reasoning to hold that while a cheque  is  presented  afresh  the  right  to

prosecute the drawer, if  the  cheque  is  dishonoured,  is  forfeited  only

because the previous dishonour had not resulted in immediate prosecution  of

the offender even when a notice under clause (b) of proviso to  Section  138

had been served  upon  the  drawer.  We  are  conscious  of  the  fact  that

Sadanandan Bhadran’s case (supra) has been followed  in  several  subsequent

decisions of this Court such as in  Sil  Import,  USA  v.  Exim  Aides  Silk

Exporters, Bangalore, (1999) 4 SCC 567,  Uniplas  India  Ltd.  and  Ors.  v.

State (Govt. of NCT  Delhi)  and  Anr.,  (2001)  6  SCC  8,   Dalmia  Cement

(Bharat) Ltd. v. Galaxy Traders & Agencies Ltd. and Anr., (2001) 6 SCC  463,

Prem Chand Vijay Kumar v. Yashpal Singh and Anr., (2005)  4  SCC  417,  S.L.

Constructions and Anr. v. Alapati Srinivasa Rao and Anr., (2009) 1 SCC  500,

Tameshwar Vaishnav v. Ramvishal Gupta, (2010) 2 SCC 329.

17.   All these decisions have without disturbing or making any addition  to

the rationale behind the  decision  in  Sadanandan  Bhadran’s  case  (supra)

followed the conclusion drawn in the same.  We, therefore, propose  to  deal

with the three dimensions that have been  highlighted  in  that  case  while

holding that successive causes of action are not  within  the  comprehension

of Sections 138 and 142 of the Act.

18.    The  expression  ‘cause  of  action’  is  more  commonly  and  easily

understood in the realm of  civil  laws.   The  expression  is  not  defined

anywhere in the  Code  of  Civil  Procedure  to  which  it  generally  bears

relevance but has been universally understood to mean the  bundle  of  facts

which the plaintiff must prove in order to entitle him  to  succeed  in  the

suit. (See State of Madras v. C.P. Agencies  AIR  1960  SC  1309;  Rajasthan

High Court Advocates Association v. U.O.I.  &  Ors.  AIR  2001  SC  416  and

Mohamed Khaleel Khan v. Mahaboob Ali Mia AIR 1949 PC 78).

19.   Section 142 of the Negotiable Instruments  Act  is  perhaps  the  only

penal provision in a statute which uses the expression ‘cause of action’  in

relation to the commission of an offence or the institution of  a  complaint

for the prosecution of the offender. A careful reading of Sections  138  and

142, as noticed above, makes it abundantly clear that the  cause  of  action

to  institute  a   complaint   comprises   the   three   different   factual

prerequisites for the institution of a complaint to which  we  have  already

referred in the earlier part of this order.   None  of  these  prerequisites

is in itself sufficient to constitute a complete  cause  of  action  for  an

offence under Section 138.  For  instance  if  a  cheque  is  not  presented

within a period of six months from the date on which it is drawn  or  within

the period of its validity, whichever is earlier, no cause of  action  would

accrue  to  the  holder  of  the  cheque  even  when   the   remaining   two

requirements, namely service of a notice and failure of the drawer  to  make

the payment  of  the  cheque  amount  are  established  on  facts.  So  also

presentation of the cheque within the stipulated period without  service  of

a notice in terms of Section 138 proviso (b) would give no cause  of  action

to the holder to prosecute the drawer just as the failure of the  drawer  to

make the payment demanded on the basis of a notice  that  does  not  satisfy

the requirements  of  clause  (b)  of  proviso  to  Section  138  would  not

constitute a complete cause of action.

20.   The expression ‘cause of action’ appearing in Section 142 (b)  of  the

Act cannot therefore be understood to be limited to  any  given  requirement

out  of  the  three  requirements  that  are  mandatory  for   launching   a

prosecution on the basis of a dishonoured cheque.  Having said  that,  every

time a cheque is presented in the manner  and  within  the  time  stipulated

under the proviso to Section 138 followed by a notice within the meaning  of

clause (b) of proviso to Section 138  and  the  drawer  fails  to  make  the

payment of the amount within the stipulated period  of  fifteen  days  after

the date of receipt of such notice, a cause of action accrues to the  holder

of the cheque to institute proceedings for prosecution of the drawer.

21.   There is, in our view, nothing either in Section 138  or  Section  142

to curtail the said right of the payee, leave  alone  a  forfeiture  of  the

said right for no better reason than  the  failure  of  the  holder  of  the

cheque to institute prosecution against the drawer when the cause of  action

to do so had first arisen.  Simply because the prosecution  for  an  offence

under Section 138 must on the language of Section 142 be  instituted  within

one month from the date of the failure of the drawer  to  make  the  payment

does not in our view militate against the  accrual  of  multiple  causes  of

action to the holder of the cheque upon failure of the drawer  to  make  the

payment of the cheque amount.  In the absence of any juristic  principle  on

which such failure to prosecute  on  the  basis  of  the  first  default  in

payment should result in forfeiture, 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.

22.   That brings us to the question whether  an  offence  punishable  under

Section 138 can be committed only once as held by this Court  in  Sadanandan

Bhadran’s case (supra).  The holder of a cheque as seen earlier can  present

it before a bank any number of times within the  period  of  six  months  or

during the period of its validity, whichever is earlier.  This right of  the

holder to present the cheque for encashment carries with it a  corresponding

obligation on the part of the drawer to ensure that the cheque drawn by  him

is honoured by the bank who stands in  the  capacity  of  an  agent  of  the

drawer vis-à-vis the holder of the cheque.  If the holder of the cheque  has

a right, as indeed is in the unanimous opinion expressed  in  the  decisions

on the subject, there is no reason why the corresponding obligation  of  the

drawer should also not continue every  time  the  cheque  is  presented  for

encashment if it satisfies the requirements stipulated in  that  clause  (a)

to the proviso to Section 138. There is nothing  in  that  proviso  to  even

remotely suggest that clause (a) would  have  no  application  to  a  cheque

presented for the second time if  the  same  has  already  been  dishonoured

once.  Indeed if the legislative intent was to restrict prosecution only  to

cases arising out of the first dishonour of a cheque  nothing  prevented  it

from stipulating so in clause (a)  itself.   In  the  absence  of  any  such

provision  a  dishonour  whether  based  on  a  second  or  any   successive

presentation of a cheque for encashment would  be  a  dishonour  within  the

meaning of Section  138  and  clause  (a)  to  proviso  thereof.   We  have,

therefore,  no manner of doubt that so long as the cheque remains unpaid  it

is the continuing obligation of the drawer to make good the same  by  either

arranging the funds  in  the  account  on  which  the  cheque  is  drawn  or

liquidating the liability otherwise.  It is true that  a  dishonour  of  the

cheque can be made a basis for prosecution of the  offender  but  once,  but

that is far from saying that the holder of the  cheque  does  not  have  the

discretion to choose out of several such defaults, one default, on which  to

launch such a prosecution. The omission or the  failure  of  the  holder  to

institute prosecution does not, therefore, give any immunity to  the  drawer

so long as the cheque is dishonoured within  its  validity  period  and  the

conditions precedent for prosecution in terms of the proviso to Section  138

are satisfied.

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  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 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  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 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 help the defaulter  on  any

juristic principle, to get a complete absolution from prosecution.

24.   Absolution is, at any rate, a theological  concept  which  implies  an

act of forgiving the sinner of his sins upon confession. The expression  has

no doubt been used in some judicial pronouncements, but the same stop  short

of recognizing absolution as a juristic concept.  It has  always  been  used

or understood in common parlance to convey  “setting  free  from  guilt”  or

“release from  a  penalty”.  The  use  of  the  expression  “absolution”  in

Sadanandan Bhadran’s case (supra) at any rate came at a  time  when  proviso

to Section 142(b) had not found a place on the statute  book.  That  proviso

was  added  by  the  Negotiable  Instruments  (Amendment  and  Miscellaneous

Provisions) Act, 2002 which read as under:

         “Provided that the cognizance of a complaint may be  taken  by  the

         Court after the prescribed period, if the complainant satisfies the

         Court that he had sufficient  cause  for  not  making  a  complaint

         within such period.”

25.   The Statement of Objects and Reasons appended to the  Amendment  Bill,

2002 suggests that the introduction of this proviso was recommended  by  the

Standing Committee on Finance and other representatives  so  as  to  provide

discretion to the Court to waive the period of one  month,  which  has  been

prescribed for taking cognizance of a  case  under  the  Act.  This  was  so

recognised  judicially  also  by  this  Court  in  Subodh  S.  Salaskar   v.

Jayprakash M. Shah & Anr. (2008) 13 SCC 689 where this Court observed:

         “11. The [Negotiable Instruments] Act was amended in the year  2002

         whereby additional powers have been conferred  upon  the  court  to

         take cognizance even after expiry of the period  of  limitation  by

         conferring on it a discretion to waive the period of one month.

         xx xx xx xx

         24...The provisions of the Act being special in nature,  in  terms

         thereof the jurisdiction of the court to  take  cognizance  of  an

         offence under Section 138 of the Act was limited to the period  of

         thirty  days  in  terms  of  the  proviso  appended  thereto.  The

         Parliament  only  with  a  view  to  obviate  the   aforementioned

         difficulties on the part of the complainant  inserted  proviso  to

         Clause (b) of Section  142 of  the  Act  in  2002.  It  confers  a

         jurisdiction upon the court to condone the delay...”

26.   The proviso referred to above  now  permits  the  payee  to  institute

prosecution proceedings against a defaulting drawer even  after  the  expiry

of the period of one month. If a failure of the payee to  file  a  complaint

within a period of one month from the date of expiry of  the  period  of  15

days allowed for this purpose was to result  in  ‘absolution’,  the  proviso

would not have been added to negate that consequence.   The  statute  as  it

exists today, therefore, does not provide for  ‘absolution’  simply  because

the period of 30 days has expired or the payee has for  some  other  reasons

deferred the filing of the complaint against the defaulter.

27.   It is trite that the object underlying Section 138 of the  Act  is  to

promote and inculcate faith in  the  efficacy  of  banking  system  and  its

operations,  giving  credibility  to  Negotiable  Instruments  in   business

transactions  and  to  create  an  atmosphere  of  faith  and  reliance   by

discouraging people from dishonouring their commitments which  are  implicit

when they pay their dues through cheques.  The  provision  was  intended  to

punish those unscrupulous persons who issued cheques for  discharging  their

liabilities without really intending to honour the promise  that  goes  with

the drawing up of  such  a  negotiable  instrument.    It  was  intended  to

enhance the acceptability of cheques in settlement of liabilities by  making

the drawer liable for penalties in case the cheque was  dishonoured  and  to

safeguard and prevent harassment of honest drawers.   (See  Mosaraf  Hossain

Khan v. Bhagheeratha Engg. Ltd. (2006)  3  SCC  658,   C.C.  Alavi  Haji  v.

Palapetty Muhammed & Anr. (2007) 6 SCC 555 and Damodar S.  Prabhu  v.  Sayed

Babulal H. (2010) 5 SCC 663).  Having said that, we must  add  that  one  of

the salutary principles  of  interpretation  of  statutes  is  to  adopt  an

interpretation which promotes and advances the object sought to be  achieved

by the legislation, in preference to an interpretation  which  defeats  such

object. This Court has in a long  line  of  decisions  recognized  purposive

interpretation  as  a  sound  principle  for  the  Courts  to  adopt   while

interpreting statutory provisions.  We may only refer to  the  decisions  of

this Court in New India Sugar Mills  Ltd.  v.  Commissioner  of  Sales  Tax,

Bihar (AIR 1963 SC 1207), where this Court observed:

        “It  is  a  recognised  rule  of  interpretation  of  statutes  that

        expressions used therein should ordinarily be understood in a  sense

        in which they best harmonise with the object  of  the  statute,  and

        which effectuate the object of the Legislature. If an expression  is

        susceptible of a narrow or technical meaning, as well as  a  popular

        meaning,  the  Court  would  be  justified  in  assuming  that   the

        Legislature used the expression in the sense which would  carry  out

        its object and reject that which renders the exercise of  its  power

        invalid.”

28.   Reference may also be made to the decision of  this  Court  in  Deputy

Custodian, Evacuee Property v. Official Receiver (AIR 1965  SC  951),  where

this Court observed:

         “The rules of grammar may suggest that when the section  says  that

         the property is evacuee property, it prima facie indicates that the

         property should bear that character at the time when the opinion is

         formed. But Mr. Ganapathy Iyer for the appellants  has  strenuously

         contended that the construction  of  s. 7(1) should  not  be  based

         solely or primarily on the mechanical application of the  rules  of

         grammar. He urges  that  the  construction  for  which  Mr.  Pathak

         contents and which, in substance, has been  accepted  by  the  High

         Court, would lead to very anomalous results; and his  arguments  is

         that it is open to the Court to take into account the  obvious  aim

         and object of the statutory provision when attempting the  task  of

         construing its words. If it appears that the obvious aim and object

         of the statutory provisions would be frustrated  by  accepting  the

         literal construction suggested by the respondent, then  it  may  be

         open to the Court to enquire whether  an  alternative  construction

         which would serve the purpose of achieving the aim  and  object  of

         the Act, is reasonably possible.”

29.   The decision of this Court in Nathi Devi v. Radha Devi  (2005)  2  SCC

271, reiterates the rule of purposive construction in the following words:

         “Even if there exists some ambiguity in the language or the same is

         capable of two interpretations,  it  is  trite  the  interpretation

         which serves the object and purport of the Act must be given effect

         to. In such a case the doctrine of purposive construction should be

         adopted.”

30.   To the same effect is the decision of  this  Court  in  S.P.  Jain  v.

Krishan Mohan Gupta (1987) 1 SCC 191, where this Court observed:

         “We are of the opinion that law should take a pragmatic view of the

         matter and respond to the purpose for which it was  made  and  also

         take cognizance of the current capabilities of technology and life-

         style of the community. It is well settled that the purpose of  law

         provides a good guide to the interpretation of the meaning  of  the

         Act. We agree with the views of Justice Krishna  Iyer  in  Busching

         Schmitz Private Ltd’s case (supra) that legislative futility is  to

         be ruled out so long as interpretative possibility permits.”

31. Applying the above rule of interpretation and the provisions of
Section 138, we have no hesitation in 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
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 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 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 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 the holder to defer institution of judicial 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 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 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 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 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 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.
33. In the result, we overrule the decision in Sadanandan Bhadran’s case
(supra) and hold that prosecution based upon second or successive dishonour
of the cheque is also permissible so long as the same satisfies the
requirements stipulated in the proviso to Section 138 of the Negotiable
Instruments Act. The reference is answered accordingly. The appeals shall
now be listed before the regular Bench for hearing and disposal in light of
the observations made above.
………….………………….…..……….J.
(R.M. LODHA)

………….……………………..…….…J.
(T.S. THAKUR)

………….………………….…..……….J.
(ANIL R. DAVE)

New Delhi
September 26, 2012