Negotiable Instruments Act Archives - Tax Heal

Notice sent by registered post is deemed to be served if it was returned back with postal endorsement

CA Satbir Singh — Mon, 17 Apr 2017 12:32:04 +0000

This Court in catena of cases has held that when a notice is sent by registered post and is returned with postal endorsement “refused” or “not available in the house” or “house locked” or “shop closed” or “addressee not in station”, due service has to be presumed Jagdish Singh v. Natthu Singh [1992] 1 SCC 647; State of M.P. v. Hiralal [1996] 7 SCC 523 and V. Raja Kumari v. P. Subbarama Naidu [2004] 8 SCC 774. Though in process of interpretation right of an honest lender cannot be defeated as has happened in this case. From the perusal of relevant sections it is clear that generally there is no bar under the N.I. Act to send a reminder notice to the drawer of the cheque and usually such notice cannot be construed as an admission of non-service of the first notice by the appellant as has happened in this case.

SUPREME COURT OF INDIA

N. Paraeswaran Unni

G. Kannan

N.V. RAMANA AND PRAFULLA C. PANT, JJ.

CRIMINAL APPEAL NO. 455 OF 2006

MARCH 1, 2017

M. Gireesh Kumar, Sriram P. and Ms. Athira G. Nair Advs. for the Appellant. C.K. Sasi, Manu Krishnan G. and P.V. Dinesh, Advs. for the Respondent.

JUDGMENT

N.V. Ramana, J. – This appeal arises out of the judgment and order dated 06-10-2003 passed by the High Court of Kerala at Ernakulam in Criminal Revision Petition No. 644 of 1995 whereby the High Court allowed the criminal revision of the first respondent by setting aside the concurrent judgments of Trial Court and Appellate Court, that first respondent cannot be convicted under Section 138 of the Negotiable Instruments Act, 1881 (in short “N.I. Act”) as the procedure prescribed under this section was not satisfied in the instant case.

2. Brief facts leading to this criminal appeal, as per the prosecution case, are that the first respondent/accused borrowed Rs. 64,000/- on 13-10-1990 from the appellant/complainant. In lieu of the borrowed amount, first respondent issued two cheques dated 13-10-1990 for Rs. 10,000/- and Rs. 25,000/- respectively both drawn on State Bank of India, Alappuzha Branch. Another cheque for Rs. 29,000/- dated 08-10-1990 was also given to the appellant by first respondent, which was issued by one K Rajesh, Development Officer, LIC drawn on State Bank of Travancore, Vadai Canal branch, Alappuzha.

3. Appellant presented first-two cheques dated 13-10-1990 on 04-04-1991 to his bank, State Bank of Travancore, Main branch, Alappuzha. First respondent’s bank returned the said two cheques on 05-04-1991 with an endorsement “Refer to drawer.” Appellant received intimation memo dated 05-04-1991 from his bank on 08-04-1991.

4. Appellant got issued a legal notice on 12-04-1991 to the first respondent, which was returned with postal endorsement “intimation served, addressee absent” on 20-04-1991. The same was received by the appellant’s advocate on 25-04-1991. Appellant again sent the legal notice on 04-05-1991. The second notice sent to first respondent’s address was returned with postal endorsement “Refused, returned to sender.” Thus, according to the appellant, first respondent failed to return the borrowed amount Rs. 64,000/- for which statutory notice under proviso (b) of Section 138 of N.I. Act was issued to him to make good the dishonoured cheques due to insufficiency of funds in his bank account.

5. On 23.05.1991 appellant lodged a private complaint before the Judicial First Class Magistrate-II, Alappuzha for the alleged offence under Section 138 of the N.I. Act, which was numbered as Summary Trial No. 34/92. After a full fledged trial and upon appreciating the documentary evidence adduced on behalf of the parties, the Trial Court allowed the complaint as the appellant was successful in proving, the case beyond reasonable doubt that first respondent committed an offence punishable under Section 138 of the N.I. Act. Accordingly, the Trial Court by judgment dated 29-07-1993 convicted and sentenced the first respondent to undergo simple imprisonment of three months.

6. Aggrieved by the conviction and sentence, first respondent preferred Criminal Appeal No 104 of 1993 before Addl. Sessions Judge at Alappuzha. The Ld. Judge, after perusing the records and on elaborate hearing, by its judgment dated 07-07-1995 dismissed the appeal by upholding and confirming the judgment of the Trial Court.

7. Against the said order, respondent preferred Criminal Revision no 644 of 1995 before the High Court of Kerala. The only ground raised before the High Court was that the provisions of Section 138 of the N.I. Act cannot be invoked as the appellant had not complied with the conditions in Clause (b) of the proviso to the said section. Notice demanding payment of the amount arising from the two dishonoured cheques in question was on 04-05-1991, whereas the intimation regarding dishonour of the said cheques was given by the appellant’s bank on 08-04-1991. Therefore, the notice was beyond 15 days. Hence, in such circumstances Section 138 of the N.I. Act was not attracted and no offence was made out.

8. The High Court by its judgment dated 06-10-2003 had allowed the revision by reversing the concurrent findings of the two Courts below holding that the statutory notice was beyond the prescribed limitation period as mentioned under Section 138 of the N.I. Act.

9. Now the issue before us is even though the first notice was issued by the appellant within time to the correct address of the first respondent, whether the High Court was right in rejecting the case of the appellant herein on the ground that second notice was issued beyond the period of limitation i.e. 15 days from the date of receiving dishonour intimation from the bank under Clause (b) of the proviso to Section 138 of the N.I. Act.

10. Before delving into the issue, it would be appropriate to reproduce Section 138 of the Act, as it then stood.

“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 years, or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless-

(a)		the cheque has 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;
(b)		the payee or the holder in due course of the cheque as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c)		the drawer of such cheque fails to make the 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.

Explanation.-For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.”

11. A bare reading of Section 138 of the N.I. Act, indicates that the purport of Section 138 is to prevent and punish the dishonest drawers of cheques who evade and avoid their liability. As explained in Clause (b) of the proviso, the payee or the holder of the cheque in due course is necessarily required to serve a written notice on the drawer of the cheque within fifteen days from the date of intimation received from the bank about dishonour.

12. It is explicitly made clear under Clause (c) of Section 138 of N.I. Act, that this gives an opportunity to a drawer of the cheque to make payment within fifteen days of receipt of such notice sent by the drawee. It is manifest that the object of providing Clause (c) is to avoid unnecessary hardship. Even if the drawer has failed to make payment within fifteen days of receipt of such notice as provided under Clause (c), the drawer shall be deemed to have committed an offence under the Act and thereafter the drawee would be competent to file complaint against the drawer by following the procedure prescribed under Section 142 of the Act.

13. It is clear from Section 27 of the General Clauses Act, 1897 and Section 114 of the Indian Evidence Act, 1972, that once notice is sent by registered post by correctly addressing to the drawer of the cheque, the service of notice is deemed to have been effected. Then requirements under proviso (b) of Section 138 stands complied, if notice is sent in the prescribed manner. However, the drawer is at liberty to rebut this presumption.

14. It is well settled that interpretation of a Statute should be based on the object which the intended legislation sought to achieve.

“It is a recognized rule of interpretation of statutes that expressions used therein should ordinarily be understood in a sense in which they best harmonize 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 [New India Sugar Mills Ltd. v. Commissioner of Sales Tax AIR 1963 SC 1207]”.

15. This Court in catena of cases has held that when a notice is sent by registered post and is returned with postal endorsement “refused” or “not available in the house” or “house locked” or “shop closed” or “addressee not in station”, due service has to be presumed Jagdish Singh v. Natthu Singh [1992] 1 SCC 647; State of M.P. v. Hiralal [1996] 7 SCC 523 and V. Raja Kumari v. P. Subbarama Naidu [2004] 8 SCC 774. Though in process of interpretation right of an honest lender cannot be defeated as has happened in this case. From the perusal of relevant sections it is clear that generally there is no bar under the N.I. Act to send a reminder notice to the drawer of the cheque and usually such notice cannot be construed as an admission of non-service of the first notice by the appellant as has happened in this case.

16. Moreover the first notice sent by appellant on 12-04-1991 was effective and notice was deemed to have been served on the first respondent. Further, it is clear that the second notice has no relevance at all in this case at hand. Second notice could be construed as a reminder of respondent’s obligation to discharge his liability. As the complaint, was filed within the stipulated time contemplated under Clause (b) of Section 142 of the N.I. Act, therefore Section 138 r/w 142 of N.I. Act is attracted. In the view of the matter, we set aside the impugned judgment of the High Court.

17. However, during the course of hearing, learned counsel for first respondent, as agreed by appellant herein, submitted that first respondent was willing to pay Rs. 2,00,000/- (Rupees two lakhs only) in lieu of suffering simple imprisonment of three months as imposed by the Trial Court, as confirmed by the first Appellate Court, and endorsed by this Court.

18. In view of the undertaking given by the learned counsel, we direct the first respondent to deposit the said amount of Rs. 2,00,000/- (Rupees two lakhs only) before the Judicial First Class Magistrate-II at Alappuzha on or before 30.04.2017. Out of the said amount of Rs. 2,00,000/- (two lakhs only) so deposited, Rs.1,30,000/- (one lakh thirty thousand) shall be paid to the appellant as compensation.

19. In the event, first respondent fails to deposit the said amount of Rs.2,00,000/- within the stipulated period as indicated above, the conviction and sentence of three months awarded by the Ld. Trial Court and affirmed by the Appellate Court shall stand restored and bail granted to the first respondent shall stand cancelled.

20. The appeal is accordingly disposed of in the aforesaid terms.

Dishonour of post-dated cheques covered by section 138 of Negotiable Instruments Act

CA Satbir Singh — Fri, 28 Oct 2016 04:58:19 +0000

whether in the facts of the present case, the dishonour of a post-dated cheque given for repayment of loan installment which is also described as “security” in the loan agreement is covered by Section 138 of the Negotiable Instruments Act, 1881 (“the Act”).

Held

Dishonour of cheque in the present case being for discharge of existing liability is covered by Section 138 of the Act, as rightly held by the High Court.

SUPREME COURT OF INDIA

Sampelly Satyanarayana Rao

Indian Renewable Energy Development Agency Ltd.

DIPAK MISRA AND ADARSH KUMAR GOEL, JJ.

CRIMINAL APPEAL NO. 867 OF 2016

SEPTEMBER 19, 2016

Lakshmi Raman Singh, Adv. for the Appellant. Annam D.N. Rao, Adv. for the Respondent.

JUDGMENT

Adarsh Kumar Goel, J. – This appeal has been preferred against the judgment and order dated 8th May, 2014 passed by the High Court of Delhi at New Delhi in Writ Petition (Criminal) No.1170 of 2011.

2. Question for consideration is whether in the facts of the present case, the dishonour of a post-dated cheque given for repayment of loaninstallment which is also described as “security” in the loan agreement is covered by Section 138 of the Negotiable Instruments Act, 1881 (“the Act”).

3. The appellant is Director of the company whose cheques have been dishonoured and who is also the co-accused. The company is engaged in the field of power generation. The respondent is engaged in development of renewable energy and is a Government of India enterprise. Vide the loan agreement dated 15th March, 2001, the respondent agreed to advance loan of Rs.11.50 crores for setting up of 4.00 MW Biomass based Power Project in the State of Andhra Pradesh. The agreement recorded that post-dated cheques towards payment of installment of loan (principal and interest) were given by way of security. The text of this part of the agreement is quoted in the later part of this order. The cheques carried different dates depending on the dates when the installments were due and upon dishonour thereof, complaints including the one dated 27th September, 2002 were filed by the respondent in the court of the concerned Magistrate at New Delhi.

4. The appellant approached the High Court to seek quashing of the complaints arising out of 18 cheques of the value of about Rs.10.3 crores. Contention of the appellant in support of his case was that the cheques were given by way of security as mentioned in the agreement and that on the date the cheques were issued, no debt or liability was due. Thus, dishonour of post-dated cheques given by way of security did not fall under Section 138 of the Act. Reliance was placed on clause 3.1 (iii) of the agreement to the effect that deposit of post-dated cheques toward repayment of installments was by way of “security”. Even the first installment as per the agreement became due subsequent to the handing over of the post-dated cheque. Thus, contended the appellant, it was not towards discharge of debt or liability in presenti but for the amount payable in future.

5. The High Court did not accept the above contention and held :—

“10. In the present case when the post-dated cheques were issued, the loan had been sanctioned and hence the same fall in the first category that is they were cheque issued for a debt in present but payable in future. Hence, I find no reason to quash the complaints. However, these observations are only prima facie in nature and it will be open for the party to prove to the contrary during trial.”

6. We have heard learned counsel for the parties.

7. It will be appropriate to reproduce the statutory provision in question which is as follows :—

“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 provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless –

(a)		the cheque has 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;
(b)		the payee or the holder in due course of the cheque, as the case may be, makes 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; and
(c)		the drawer of such cheque fails to make the 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.

Explanation. – For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability. ”

8. Clause 3.1(iii) of the agreement may also be noted :—

“3.1 SECURITY FOR THE LOAN

The loan together with the interest, interest tax, liquidated damages, commitment fee, up front fee prima on repayment or on redemption, costs, expenses and other monies shall be secured by ;

(i) **

(ii) **

(iii) Deposit of Post dated cheques towards repayment of installments of principal of loan amount in accordance with agreed repayment schedule and installments of interest payable thereon.”

9. Reference may now be made to the decision of this Court in Indus Airways (P.) Ltd. v. Magnum Aviation (P.) Ltd. [2014] 12 SCC 539, on which strong reliance has been placed by learned counsel for the appellant. The question therein was whether post-dated cheque issued by way of advance payment for a purchase order could be considered for discharge of legally enforceable debt. The cheque was issued by way of advance payment for the purchase order but the purchase order was cancelled and payment of the cheque was stopped. This Court held that while the purchaser may be liable for breach of the contract, when a contract provides that the purchaser has to pay in advance and cheque towards advance payment is dishonoured, it will not give rise to criminal liability under Section 138 of the Act. Issuance of cheque towards advance payment could not be considered as discharge of any subsisting liability. View to this effect of the Andhra Pradesh High Court in Swastik Coaters (P) Ltd. v. Deepak Bros. [1997] Cr. LJ 1942 (AP), Madras High Court in Balaji Seafoods Exports (India) Ltd. v.Mac Industries Ltd. [1999] 1 CTC 6 (Mad.), Gujarat High Court in Shanku Concretes (P.) Ltd. v. State of Gujarat [2000] Crl LJ 1988 (Guj.) and Kerala High Court in Supply House v. Ullas [2006] Crl. LJ 4330 (Ker.) was held to be correct view as against the view of Delhi High Court in Magnum Aviation (P.) Ltd. v. State [2010] 172 DLT 91 and Mojj Engg. Systems Ltd. v. A.B. Sugars Ltd. [2008] 159 DLT 579 which was disapproved.

10. We have given due consideration to the submission advanced on behalf of the appellant as well as the observations of this Court in Indus Airways (supra) with reference to the explanation to Section 138 of the Act and the expression “for discharge of any debt or other liability” occurring in Section 138 of the Act. We are of the view that the question whether a post-dated cheque is for “discharge of debt or liability” depends on the nature of the transaction. If on the date of the cheque liability or debt exists or the amount has become legally recoverable, the Section is attracted and not otherwise.

11. Reference to the facts of the present case clearly shows that though the word “security” is used in clause 3.1(iii) of the agreement, the said expression refers to the cheques being towards repayment of installments. The repayment becomes due under the agreement, the moment the loan is advanced and the installment falls due. It is undisputed that the loan was duly disbursed on 28th February, 2002 which was prior to the date of the cheques. Once the loan was disbursed and installments have fallen due on the date of the cheque as per the agreement, dishonour of such cheques would fall under Section 138 of the Act. The cheques undoubtedly represent the outstanding liability.

12. Judgment in Indus Airways (P.) Ltd. (supra)is clearly distinguishable. As already noted, it was held therein that liability arising out of claim for breach of contract under Section 138, which arises on account of dishonour of cheque issued was not by itself at par with criminal liability towards discharge of acknowledged and admitted debt under a loan transaction. Dishonour of cheque issued for discharge of later liability is clearly covered by the statute in question. Admittedly, on the date of the cheque there was a debt/liability in presenti in terms of the loan agreement, as against the case of Indus Airways (P.) Ltd. (supra) where the purchase order had been cancelled and cheque issued towards advance payment for the purchase order was dishonoured. In that case, it was found that the cheque had not been issued for discharge of liability but as advance for the purchase order which was cancelled. Keeping in mind this fine but real distinction, the said judgment cannot be applied to a case of present nature where the cheque was for repayment of loan installment which had fallen due though such deposit of cheques towards repayment of installments was also described as “security” in the loan agreement. In applying the judgment in Indus Airways (P.) Ltd. (supra), one cannot lose sight of the difference between a transaction of purchase order which is cancelled and that of a loan transaction where loan has actually been advanced and its repayment is due on the date of the cheque. .

13. Crucial question to determine applicability of Section 138 of the Act is whether the cheque represents discharge of existing enforceable debt or liability or whether it represents advance payment without there being subsisting debt or liability. While approving the views of different High Courts noted earlier, this is the underlying principle as can be discerned from discussion of the said cases in the judgment of this Court.

14. In Balaji Seafoods (supra), the High Court noted that the cheque was not handed over with the intention of discharging the subsisting liability or debt. There is, thus, no similarity in the facts of that case simply because in that case also loan was advanced. It was noticed specifcally therein – as was the admitted case of the parties – that the cheque was issued as “security” for the advance and was not intended to be in discharge of the liability, as in the present case.

15. In HMT Watches Ltd. v. M.A. Abida [2015] 130 SCL 511 (SC), relied upon on behalf of the respondent, this Court dealt with the contention that the proceedings under Section 138 were liable to be quashed as the cheques were given as “security” as per defence of the accused. Negativing the contention, this Court held :-

’10. Having heard the learned counsel for the parties, we are of the view that the accused (Respondent 1) challenged the proceedings of criminal complaint cases before the High Court, taking factual defences. Whether the cheques were given as security or not, or whether there was outstanding liability or not is a question of fact which could have been determined only by the trial court after recording evidence of the parties. In our opinion, the High Court should not have expressed its view on the disputed questions of fact in a petition under Section 482 of the Code of Criminal Procedure, to come to a conclusion that the offence is not made out. The High Court has erred in law in going into the factual aspects of the matter which were not admitted between the parties. The High Court further erred in observing that Section 138(b) of the NI Act stood uncomplied with, even though Respondent 1 (accused) had admitted that he replied to the notice issued by the complainant. Also, the fact, as to whether the signatory of demand notice was authorised by the complainant company or not, could not have been examined by the High Court in its jurisdiction under Section 482 of the Code of Criminal Procedure when such plea was controverted by the complainant before it.

11. In Suryalakshmi Cotton Mills Ltd. v. Rajvir Industries Ltd. [2008] 13 SCC 678, this Court has made the following observations explaining the parameters of jurisdiction of the High Court in exercising its jurisdiction under Section 482 of the Code of Criminal Procedure: (SCC pp. 685-87, paras 17 & 22)

17. The parameters of jurisdiction of the High Court in exercising its jurisdiction under Section 482 of the Code of Criminal Procedure is now well settled. Although it is of wide amplitude, a great deal of caution is also required in its exercise. What is required is application of the well-known legal principles involved in the matter.

22. Ordinarily, a defence of an accused although appears to be plausible should not be taken into consideration for exercise of the said jurisdiction. Yet again, the High Court at that stage would not ordinarily enter into a disputed question of fact. It, however, does not mean that documents of unimpeachable character should not be taken into consideration at any cost for the purpose of finding out as to whether continuance of the criminal proceedings would amount to an abuse of process of court or that the complaint petition is filed for causing mere harassment to the accused. While we are not oblivious of the fact that although a large number of disputes should ordinarily be determined only by the civil courts, but criminal cases are filed only for achieving the ultimate goal, namely, to force the accused to pay the amount due to the complainant immediately. The courts on the one hand should not encourage such a practice; but, on the other, cannot also travel beyond its jurisdiction to interfere with the proceeding which is otherwise genuine. The courts cannot also lose sight of the fact that in certain matters, both civil proceedings and criminal proceedings would be maintainable.”

12. In Rallis India Ltd. v. Poduru Vidya Bhushan [2011] 13 SCC 88, this Court expressed its views on this point as under: (SCC p. 93, para 12)

“12. At the threshold, the High Court should not have interfered with the cognizance of the complaints having been taken by the trial court. The High Court could not have discharged the respondents of the said liability at the threshold. Unless the parties are given opportunity to lead evidence, it is not possible to come to a definite conclusion as to what was the date when the earlier partnership was dissolved and since what date the respondents ceased to be the partners of the firm.”‘

16. We are in respectful agreement with the above observations. In the present case, reference to the complaint (a copy of which is Annexures P-7) shows that as per the case of the complainant, the cheques which were subject matter of the said complaint were towards the partial repayment of the dues under the loan agreement (para 5 of the complaint).

17. As is clear from the above observations of this Court, it is well settled that while dealing with a quashing petition, the Court has ordinarily to proceed on the basis of averments in the complaint. The defence of the accused cannot be considered at this stage. The court considering the prayer for quashing does not adjudicate upon a disputed question of fact.

18. In Rangappa v. Sri Mohan [2010] 100 SCL 389 (SC) this Court held that once issuance of a cheque and signature thereon are admitted, presumption of a legally enforceable debt in favour of the holder of the cheque arises. It is for the accused to rebut the said presumption, though accused need not adduce his own evidence and can rely upon the material submitted by the complainant. However, mere statement of the accused may not be sufficient to rebut the said presumption. A post dated cheque is a well recognized mode of payment Goaplast (P.) Ltd. v. Chico Ursula D’Souza [2003] 44 SCL 472 (SC).

19. Thus, the question has to be answered in favour of the respondent and against the appellant. Dishonour of cheque in the present case being for discharge of existing liability is covered by Section 138 of the Act, as rightly held by the High Court.

20. Accordingly, we do not find any merit in this appeal and the same is dismissed. Since we have only gone into the question whether on admitted facts, case for quashing has not been made out, the appellant will be at liberty to contest the matter in trial court in accordance with law.

What is Promissory note ?

CA Satbir Singh — Thu, 12 May 2016 04:11:26 +0000

Section – 4, NEGOTIABLE INSTRUMENTS ACT, 1881

” Promissory note “

4. A ” promissory note ” is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

Illustrations

A signs instruments in the following terms :

(a)		“I promise to pay B or order Rs. 500″.
(b)		“I acknowledge myself to be indebted to B in Rs. 1, 000, to be paid on demand, for value received.”
(c)		“Mr B, I.O.U Rs. 1,000.”
(d)		“I promise to pay B Rs. 500 and all other sums which shall be due to him.”
(e)		“I promise to pay B Rs. 500 first deducting thereout any money which he may owe me.”
(f)		I promise to pay B Rs. 500 seven days after my marriage with C .
(g)		I promise to pay B Rs. 500 on D‘s death, provided D leaves me enough to pay that sum.
(h)		I promise to pay B Rs. 500 and to deliver to him my black horse on 1st January next.

The instruments respectively marked (a) and (b) are promissory notes. The instruments respectively marked (c), (d), (e), (f), (g) and (h) are not promissory notes.

What is Bill of exchange ?

CA Satbir Singh — Thu, 12 May 2016 04:04:32 +0000

Section – 5, NEGOTIABLE INSTRUMENTS ACT, 1881

” Bill of exchange “

5. A ” bill of exchange ” is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

A promise or order to pay is not “conditional” within the meaning of this section and section 4, by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.

The sum payable may be “certain”, within the meaning of this section and section 4, although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due.

The person to whom it is clear that the direction is given or that payment is to be made may be “certain person”, within the meaning of this section and section 4, although he is mis-named or designated by description only.

No need to send individual notices to Directors u/s 138 of Negotiable Instruments Act

CA Satbir Singh — Thu, 05 May 2016 13:29:40 +0000

Held

In our view, Section 138 of the Act does not admit of any necessity or scope for reading into it the requirement that the directors of the Company in question must also be issued individual notices under Section 138 of the Act. Such directors who are in charge of affairs of the Company and responsible for the affairs of the Company would be aware of the receipt of notice by the Company under Section 138. Therefore neither on literal construction nor on the touch stone of purposive construction such requirement could or ought to be read into Section 138 of the Act. Consequently this appeal must succeed.

SUPREME COURT OF INDIA

Kirshna Texport & Capital Markets Ltd.

ILA A. Agrawal

UDAY UMESH LALIT AND PINAKI CHANDRA GHOSE , JJ.

CRIMINAL APPEAL NO. 1220 OF 2009

MAY 6, 2015

Ajit Anekar, Satyajit A. Desai and Ms. Indu Sharma, Advs. for the Appellant. Prakash Sinha, Ashok Bhatia, Shekhar Kumar, Aniruddha P. Mayee, Charudatta Mahindrakar, Selvin Raja, Mahaling Pandarge, Nishant Katneswarkar and Ms. Asha Gopalan Nair, Advs. for the Respondent.

JUDGMENT

Uday Umesh Lalit, J. – This appeal by Special Leave is directed against the order dated 6.5.2008 passed by the High Court of Judicature at Bombay rejecting Criminal Application No. 2174 of 2007 preferred by the appellant for leave to appeal.

2. On 14.09.1996 a notice under Section 138 of the ‘Negotiable Instruments Act, 1881′(hereinafter referred to as “the Act”) was issued on behalf of the appellant to M/S Indo French Bio Tech Enterprises Ltd (‘the Company’ for short). The notice stated that a cheque bearing No. 364776 dated 8.9.1996 drawn by the Company on Dena Bank, New Marine Lines, Mumbai in favour of the appellant was returned on 10.9.1996 with endorsement “funds insufficient”. The notice therefore called upon the addressee to make the payment of the cheque amount within 15 days of the receipt of such notice. No reply was sent to the aforesaid notice dated 14.9.1996.

3. The appellant thereafter filed Complaint Case No. 243/S/1996 before the Additional Chief Metropolitan Magistrate, 5th Court at Dadar, Mumbai against the Company, Mr. K.J. Bodiwala, the Chairman and Managing Director of the Company and 11 other directors including respondents 1 and 2. In so far as the directors are concerned, it was averred that they were in-charge of the business of the Company and its day to day affairs and were liable. During the pendency of said complaint case, the process issued against Accused Nos. 3 to 5, 7, 9 to 13 was recalled and due to the death of Mr. Bodiwala the proceedings as against him also abated, which left the Company and the present respondents 1 and 2 namely Ms. Ila A. Agrawal and Mr. Prafulla Ranadive, Accused Nos. 6 and 8 respectively in the array of accused.

4. It was submitted by the appellant that separate notices to the directors were additionally issued but at the stage of evidence it turned out that such individual notices to the directors were with respect to dishonour of a different cheque. The facts as found therefore were that no individual notices were given to the directors. The Metropolitan Magistrate by his judgment and order dated 30.4.2007 convicted the Company but acquitted respondents 1 and 2 of the offence punishable under Section 138 of the Act. Relying on the judgment of the Division Bench of Madras High Court in B. Raman v. Shasun Chemicals & Drugs Ltd. 2006 Cril. L.J. 4552, it was observed that statutory notice under Section 138 of the Act was required to be issued to every Director and for non-compliance of such mandatory requirement respondents 1 and 2 could not be proceeded against.

5. The appellant being aggrieved filed Criminal Application No. 2174 of 2007 in the High Court seeking leave to prefer appeal against the judgment acquitting respondents 1 and 2. It was submitted that it was not necessary to serve individual notice upon the directors and it was sufficient if the notice was served on the Company. Reliance was placed on the decision of a Single Judge of the Calcutta High Court in the case of Girish Chandra Pandey v. Kanhaiyalal Chandak 1999 ALL MR (CRI) JOURNAL 3, wherein it was held that if the partnership firm failed to give the amount within the stipulated time after receipt of notice, each partner need not be served with a separate notice individually. So also reliance was placed on the decision of a Single Judge of Delhi High Court in the case of Jain Associates v. Deepak Chawdhary & Co. (1999) 80 DLT 654, wherein it was laid down that Section 141 of the Act does not require that each and every partner of the firm is required to be issued notice.

Similar view was taken by High Court of Andhra Pradesh in K. Pannir Selvan v. MMTC [2000] Cr. L.J. 1002 and by Delhi High Court in Ranjit Tiwari v. Narender Nayyar [2012] 191 DLT 318.

6. The High Court, relying on the judgment of the Division Bench of Madras High Court B. Raman (supra) observed that it was mandatory to have issued separate notices to the directors. The High Court concluded thus :—

“If the legal fiction is created by Section 141 to make directors who are responsible for day to day affairs of the Company, punishable under Section 138, then it is necessary that they get an opportunity to rectify, the mistake or clarify matters after service of notice. So before making the complaint against the directors, notice necessarily must be served on them. In my opinion without service of notice to accused Nos. 6 & 8, vicarious liability of the offence under Section 138 cannot be fixed upon them.”

7. At this stage the decision of the Division Bench of Madras High Court in B. Raman (supra) may also be referred to. Para 2 of said decision sets out that the matter was referred to the Division Bench as a result of divergent views taken by Single Judges of the Court. Paras 25 and 26 of the decision are as under :—

“25. Under Section 141(1), the persons in charge of and responsible to the Company shall be deemed to have committed the offence. Under sub-section (2), even the persons, who are not stated to be in charge of and responsible to the Company, can be prosecuted, if it is alleged and proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of any of those persons prosecuted. So, these Sections would provide that when there are Directors, who are responsible for the conduct of the business of the Company, and when there are other officers, with whose consent the offence has been committed, the complainant shall make averments to the said effect. In that context, the complainant has to start the process of getting back the cheque amount from those persons, who represent the Company, in order to avoid the filing of the Complaint against them. In the said process, he has to necessarily make a demand from those persons, who are part and parcel of the drawer. Only when the process fails, the cause of action, as envisaged in Section 138, would arise against them, to enable the complainant to approach the Court, within the stipulated time. So, the starting of the process is, the service of notice on the persons, who represent the Company, the drawer of the cheque.

26. The object of the notice is to give a chance to the drawer of the cheque to rectify his omission and also to protect an honest drawer. Service of notice of demand in Clause (b) of the proviso to Section 138 is a condition precedent for filing a complaint under Section 138. By sending a notice to the Company as well as the persons in charge of and responsible fore the conduct of the business of the company, he can make a demand, asking them to pay the amount. Some may reply that they are not in charge of and responsible for the conduct of the business of the Company. Some may reply that they are not connected with the Company in any way and some may rectify the omission, by making efforts to pay the amount to the payee, in the name of the Company, in that event, the complainant may either drop the action of filing the Complainant or, in the event of non-payment of the cheque amount, he may choose the persons, who are really responsible fore the commission of offence and, then, initiate prosecution against them.”

8. It was submitted by Mr. Ajit Anekar, learned Advocate for the appellant that Section 138 does not contemplate issuance of separate notices to the directors and that no such requirement ought to be read into said Section. Mr. Shree Prakash Sinha and Mr. Ashok Bhatia, learned Advocates appearing for respondents relied upon the decision of the Division Bench of Madras High Court in B. Raman (supra). It was submitted that though the issue whether such separate notices are mandatorily required to be given to the Directors had not squarely arisen, paras 10 & 11 of the decision of this Court in N.K. Wahi v Shekhar Singh [2007] 9 SCC 481 did speak of such notices. We quote said paras 10 & 11 :—

“10. In order to bring application of Section 138 the complaint must show :

1. That Cheque was issued;

2. The same was presented;

3. It was dishonored on presentation;

4. A notice in terms of the provisions was served on the person sought to be made liable;

5. Despite service of notice, neither any payment was made nor other obligations, if any, were complied with within fifteen days from the date of receipt of the notice.

11. Section 141 of the Act in terms postulates constructive liability of the Directors of the company or other persons responsible for its conduct or the business of the company.”

9. The question, therefore, is whether notice under Section 138 of the Act is mandatorily required to be sent to the directors of a Company before a complaint could be filed against such directors along with the Company. At the outset we must consider whether the decision of this Court in N.K. Wahi (supra) had considered and concluded that it is obligatory to issue separate notices to the Directors in addition to the Company, before initiating any proceedings against them. We have perused the decision and find that no such issue had arisen for consideration in that case. We, therefore, proceed to consider the question. Before we deal with the matter, Sections 138 and 141 of the Act may be quoted :—

‘138. Dishonour of cheque for insufficiency, etc., of funds in the accounts.

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 provisions 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 :

Provided that nothing contained in this section shall apply unless —

(a) The cheque has 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.

(b) The payee or the holder induce course of the cheque, as the case may be, makes 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 cheques as unpaid, and

(c) The drawer of such cheque fails to make the 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.

Explanation : For the purpose of this section, “debt or other liability” means a legally enforceable debt or other liability.

141. Offences by companies – (1) If the person committing an offence under section 138 is a Company, every person who, at the time the offence was committed, was in charge of, and was responsible to the Company for the conduct of the business of the Company, as well as the Company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and proceeded against and punished accordingly;

Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.

“Provided further that where a person is nominated as a Director of a Company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a Company and it is proved that the offence has been committed with the consent or connivance of, or is attribute to, any neglect on the part of, any director, Manager, secretary, or other office of the Company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation: For the purpose of this section. —

(a) “Company” means any body corporate and includes a firm or other association of individuals; and

(b) “Director”, in relating to a firm, means a partner in the firm.’

The expression “drawer” used in Section 138 has to be understood in the light of the definition in Section 7 of the Act which is to the following effect :—

‘The maker of a bill of exchange or cheque is called the “drawer”; the person thereby directed to pay is called the “drawee.”‘

10. Since the High Court has read into Section 138 of the Act the requirement that separate notices ought to be given to the directors, without which they cannot be made vicariously liable, the principles concerning interpretative function of the Court may be adverted to. In Kanai Lal Sur v. Paramnidhi Sadhukhan 1958 SCR 360 it was observed,

“In support of his argument Mr. Chatterjee has naturally relied on the observations made by Barons of the Exchequer in Heydon’s case. Indeed these observations have been so frequently cited with approval by courts administering provisions of welfare enactments that they have now attained the status of a classic on the subject and their validity cannot be challenged. However, in applying these observations to the provisions of any statute, it must always be borne in mind that the first and primary rule of construction is that the intention of the Legislature must be found in the words used by the Legislature itself. If the words used are capable of one construction only then it would not be open to the courts to adopt any other hypothetical construction on the ground that such hypothetical construction is more consistent with the alleged object and policy of the Act. The words used in the material provisions of the statute must be interpreted in their plain grammatical meaning and it is only when such words are capable of two constructions that the question of giving effect to the policy or object of the Act can legitimately arise. When the material words are capable of two constructions, one of which is likely to defeat or impair the policy of the Act whilst the other construction is likely to assist the achievement of the said policy, then the courts would prefer to adopt the latter construction. It is only in such cases that it becomes relevant to consider the mischief and defect which the, Act purports to remedy and correct.”

11. In Nasiruddin v. Sita Ram Agarwal [2003] 2 SCC 577 this Court stated the law in the following terms :

“37. The court’s jurisdiction to interpret a statute can be invoked when the same is ambiguous. It is well known that in a given case the court can iron out the fabric but it cannot change the texture of the fabric. It cannot enlarge the scope of legislation or intention when the language of the provision is plain and unambiguous. It cannot add or subtract words to a statute or read something into it which is not there. It cannot rewrite or recast legislation. It is also necessary to determine that there exists a presumption that the legislature has not used any superfluous words. It is well settled that the real intention of the legislation must be gathered from the language used………”

12. In Nathi Devi v. Radha Devi Gupta [2003] 2 SCC 577 a Constitution Bench of this Court was called upon to consider, inter alia, whether the expression, “where the landlord is a widow and the premises let out by her, or by her husband, are required by her for her own residence” appearing in Section 14-D of the Delhi Rent Control Act would include every widow so as to entitle her to obtain immediate possession of the premises owned by her. While holding that the benefit under Section 14-D is available only to a widow, where premises are let out by her or by her husband, this Court repelled the contention that a widow who had acquired tenanted premises by sale or transfer could also invoke the provisions of Section 14-D. During the course of its decision this Court observed :

“The interpretative function of the court is to discover the true legislative intent. It is trite that in interpreting a statute the court must, if the words are clear, plain, unambiguous and reasonably susceptible to only one meaning, give to the words that meaning, irrespective of the consequences. Those words must be expounded in their natural and ordinary sense. When the language is plain and unambiguous and admits of only one meaning, no question of construction of statute arises, for the Act speaks for itself. Courts are not concerned with the policy involved or that the results are injurious or otherwise, which may follow from giving effect to the language used. If the words used are capable of one construction only then it would not be open to the courts to adopt any other hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act. In considering whether there is ambiguity, the court must look at the statute as a whole and consider the appropriateness of the meaning in a particular context avoiding absurdity and inconsistencies or unreasonableness which may render the statute unconstitutional.”

13. With these principles in mind, we now consider the provisions in question. According to Section 138, where any cheque drawn by a person on an account maintained by him is returned by the Bank unpaid for reasons mentioned in said Section such person shall be deemed to have committed an offence. The proviso to the Section stipulates three conditions on the satisfaction of which the offence is said to be completed. The provisointer alia obliges the payee to make a demand for the payment of said amount of money by giving a notice in writing to “the drawer of the cheque” and if “the drawer of the cheque” fails to make the payment of the said amount within 15 days of the receipt of said notice, the stages stipulated in the proviso stand fulfilled. The notice under Section 138 is required to be given to “the drawer” of the cheque so as to give the drawer an opportunity to make the payment and escape the penal consequences. No other person is contemplated by Section 138 as being entitled to be issued such notice. The plain language of Section 138 is very clear and leaves no room for any doubt or ambiguity. There is nothing in Section 138 which may even remotely suggest issuance of notice to anyone other than the drawer.

14. Section 141 states that if the person committing an offence under Section 138 is a Company, every director of such Company who was in charge of and responsible to that Company for conduct of its business shall also be deemed to be guilty. The reason for creating vicarious liability is plainly that a juristic entity i.e. a Company would be run by living persons who are in charge of its affairs and who guide the actions of that Company and that if such juristic entity is guilty, those who were so responsible for its affairs and who guided actions of such juristic entity must be held responsible and ought to be proceeded against. Section 141 again does not lay down any requirement that in such eventuality the directors must individually be issued separate notices under Section 138. The persons who are in charge of the affairs of the Company and running its affairs must naturally be aware of the notice of demand under Section 138 of the Act issued to such Company. It is precisely for this reason that no notice is additionally contemplated to be given to such directors. The opportunity to the ‘drawer’ Company is considered good enough for those who are in charge of the affairs of such Company. If it is their case that the offence was committed without their knowledge or that they had exercised due diligence to prevent such commission, it would be a matter of defence to be considered at the appropriate stage in the trial and certainly not at the stage of notice under Section 138.

15. If the requirement that such individual notices to the directors must additionally be given is read into the concerned provisions, it will not only be against the plain meaning and construction of the provision but will make the remedy under Section 138 wholly cumbersome. In a given case the ordinary lapse or negligence on part of the Company could easily be rectified and amends could be made upon receipt of a notice under Section 138 by the Company. It would be unnecessary at that point to issue notices to all the directors, whose names the payee may not even be aware of at that stage. Under Second proviso to Section 138, the notice of demand has to be made within 30 days of the dishonour of cheque and the third proviso gives 15 days time to the drawer to make the payment of the amount and escape the penal consequences. Under clause (a) of Section 142, the complaint must be filed within one month of the date on which the cause of action arises under the third proviso to Section 138. Thus a complaint can be filed within the aggregate period of seventy five days from the dishonour, by which time a complainant can gather requisite information as regards names and other details as to who were in charge of and how they were responsible for the affairs of the Company. But if we accept the logic that has weighed with the High Court in the present case, such period gets reduced to 30 days only. Furthermore, unlike proviso to clause (b) of Section 142 of the Act, such period is non-extendable. The summary remedy created for the benefit of a drawee of a dishonoured cheque will thus be rendered completely cumbersome and capable of getting frustrated.

16. In our view, Section 138 of the Act does not admit of any necessity or scope for reading into it the requirement that the directors of the Company in question must also be issued individual notices under Section 138 of the Act. Such directors who are in charge of affairs of the Company and responsible for the affairs of the Company would be aware of the receipt of notice by the Company under Section 138. Therefore neither on literal construction nor on the touch stone of purposive construction such requirement could or ought to be read into Section 138 of the Act. Consequently this appeal must succeed. The order passed by the High Court is set aside. Since the matter was at the stage of considering application for leave to appeal and the merits of the matter were not considered by the High Court, we remit the matter to the High Court for fresh consideration which may be decided as early as possible. Concluding so, we must record that the decision of the Division Bench of the Madras High Court in B. Raman (supra) was incorrect and it stands overruled. The appeal is allowed in these terms.