dishonour of a cheque And Sec 138 Of NI Act- SC Judgement

IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NOS. 1870-1909 OF 2012
(Arising out of S.L.P. (Crl.) No.1740-1779/2001)
M/S. LAXMI DYECHEM .. Appellant
Versus
STATE OF GUJARAT & ORS. .. Respondents
WITH
CRL.APPEAL NOS. 1910-1949 of 2012
(Arising out of SLP (Crl.) Nos.1780-1819/11
J U D G E M E N T
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 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 concerned as 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 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:-
“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.”
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 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 in the matter of M.M.T.C.
Ltd. And Anr vs. Medchl Chemical and Pharma (P) Ltd. And Anr.[1] 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 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 liability for the stop payment instruction to
the bank. The specific observations of the Court in this
regard may be quoted for ready 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 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 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
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.”
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
D’Souza And Anr.[2] 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, 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 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 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 payment instructions
were issued to the bank. Hence, in Goaplast 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 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
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 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 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 bouncing of
a cheque is largely in the nature of a civil wrong 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 proof”.

The 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
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 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 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 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 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 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 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
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 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 post-dated cheque towards full and final payment
to a builder after which the apartment owner might 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 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 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 Section 138 of the NI Act is rebuttable.
Similarly, there may be innumerable situations where the drawer of the
cheque for 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 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 a lawful debt, the offence would be made out. Therefore,
the cases arising out of stop payment situation 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 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” 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 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 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
not make the said payment even within the statutory time 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 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.
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 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
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, 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 ‘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 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 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 Section 139 of the Act.

I, therefore, concur with the
judgment and order of learned Brother Justice 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 account 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 under Section 139 of the NI Act has been held by the
NI Act as also by this Court to be a rebuttable presumption 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 whether a prima facie case has been made out
or not against the drawer of the cheque.
………..……………..J
(Gyan Sudha Misra)
New Delhi;
November 27, 2012
———————–
[1] (2002) 1 SCC 234
[2] (2003) 3 SCC 232 = (2004) Crl.L.J. 664
[3] (2010) 11 SCC 441