LEGAL REASONING AND LOGIC

SHADOW JUDGMENT

Rishabh Munjal

PRN: 18010223039

Division: D; Batch 2018-23

Programme: B.A. LL.B

Symbiosis Law School

Symbiosis International (Deemed) University

March, 2020

Under the Guidance of

Ms Charvi Kumar
 IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NOS. 1056-57 of 1999

CENTRAL BANK OF INDIA AND ANOTHER .….… Appellants;

VERSUS

SAXONS FARMS AND OTHERS ..… Respondents.

JUDGMENT

RISHABH MUNJAL, J.

1. These two appeals have been filed by the complainants against the judgment
and order of the learned Single Judge of the High Court of Madhya Pradesh,
Gwalior Bench passed in Miscellaneous Criminal Case Nos. 636 and 637 of
1997. By the impugned judgment and order the High Court allowed the
petitions filed under Section 482 Criminal Procedure Code and quashed the
criminal proceedings namely case Nos. 172 and 1156 of 1995 pending before
the Judicial magistrate, First Class, Gwalior.

2. Brief facts of the case necessary for deciding this appeal are:
Respondent 1 (Saxons Farms), a partnership firm, took a loan of over a crore of
rupees from the appellant Bank (Central Bank of India) and towards part-
repayment of the above loan, issued three cheques dated 29-3-1994, for Rs 1
lakh, Rs 2 lakh and Rs 39,50,000. All three cheques were presented to the
Bank for collection but received back by the appellant (Central Bank of India)
unpaid on two separate occasions, 25-4-1994 and 19-6-1994 respectively, with
the remark “funds insufficient”. The appellant (Central Bank of India) sent two
registered notices dated 2-5-1994 and 27-6-1994 through their advocate. In
this case, there is no dispute that the notices were received. All the cheques
were again presented to the Bank but returned with the same remark namely
“funds insufficient”.
3. Thereafter, the appellant (Central Bank of India) approached the Judicial
Magistrate, First Class by filing two complaints under Section 138 of the
Negotiable Instruments Act, 1881. The Magistrate took cognizance in respect to
both the complaints but the High Court quashed the criminal proceedings only
on the ground that there was no proper notice as required under Section 138 of
the Act.

4. This court has heard the learned counsel for the parties and the issue to be
addressed in this appeal is :
Whether there were valid notices as required under clause (b) of the proviso to
Section 138 of the Negotiable Instruments Act?

5. The relevant portion of both the notices which were served by the appellant
Bank to Saxons Farms firm has been extracted below:
“The bouncing of the two cheques is a most serious matter.
The said act of issuance of cheques knowing fully well that the
same shall not be paid statutes an offence under Section 138
of the Negotiable Instruments Act. As per the relevant
provisions of the Negotiable Instruments Act my client through
this notice informs you that my client shall represent the two
cheques again and if the same are returned unpaid, my client
shall report the matter to the Police for initiating appropriate
criminal action against you all. My client further reserves the
right to file criminal case against all of you for the non-
payment of the cheques in question and details given above.
Kindly arrange to make the payment of the cheques if you
intend to avoid the unpleasant action of my client."

6. This court has considered the following set of rules to be applied while deciding
this appeal:
Chapter XVII of the Negotiable Instruments Act, 1881 (The Act) containing
Sections 138 to 142 inculcates confidence in the efficacy of banking operations
and gives credibility to negotiable instruments employed in business
transactions. If a party issues a cheque as a mode of payment and the payee of
the cheque accepts the same on the faith that he will get his payment on due
date, then he should not suffer on account of non-payment. The penal
provisions contained in Sections 138 to 142 of the Act have been enacted to
ensure that obligations undertaken by issuing cheques as a mode of payment
are honoured.
7. Section 138 of the Act provides for circumstances under which a case for
dishonour of cheques is filed. According to this section 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 one year, or with fine which may extend to twice
the amount of the cheque, or with both.

8. This court in C.C. Alavi Haji v. Palapetty Muhammed1 held that in order to avert
unnecessary prosecution of an honest drawer of the cheque and with a view to
give an opportunity to him to make amends, the prosecution under Section 138
of the Act has been made subject to certain conditions. These conditions are
stipulated in the proviso to Section 138.

9. Proviso to Section 138 prescribes a prerequisite procedure to be followed by the

payee before initiating criminal proceedings against defaulter drawer. The
measures which are to be mandatorily taken by the holder or payee are:
a) The payee or the holder has to present the cheque 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) Within fifteen days of the receipt of information by the payee or holder from
the bank regarding the return of the cheque as unpaid, he/she, has 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.
The object of notice is to give a chance to the drawer of the cheque to rectify
his omission and also to protect an honest drawer. If 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, within fifteen days of the receipt of the said notice,
then the payee or the holder, as the case may be, reserves the right to initiate
criminal proceedings against the drawer.

1
(1997) 6 SCC 555
10. Serving of notice of demand in Clause (b) of the proviso to Section 138 is a
condition precedent for filing a complaint under Section 138 of the Act. Proviso
(b) to Section 138 of the Negotiable Instruments Act identifies two vital
elements of the notice demanding payment. The notice must be in writing and
it must demand payment of the “said amount of money” meaning the amount
of the dishonoured cheque. The provision does not speak of any other
requirement as to its content. The notice of demand therefore must be
distinguished from mere information regarding the dishonour. Such an
information will not be a notice and no case can be founded on such
information. A telephonic demand will also not qualify as a notice, the
requirement of writing being absent. The statute does not require that any time
need be mentioned in the notice to fulfil the demand. Therefore absence or
existence of a shorter or longer period in the notice is irrelevant as a test of
validity of the notice.

11. The holder or payee of the cheque may present the cheque for encashment on
any number of occasions within the period of its validity or three months from
the date of issue whichever is earlier. Dishonour, whether based on a second or
any successive presentation of a cheque for encashment, would be dishonour
within the meaning of Section 138 of Negotiable Instruments Act, as held by
this court in MSR Leathers v. S. Palaniappan2.

12. In light of the above interpretation of section 138 of Negotiable Instruments

Act, the court has addressed the issue in this appeal by making the following
observations and analysing the facts in question:
In the present appeals there is no dispute that notices were in writing and
these were sent within fifteen days of receipt of information by the appellant
(Central Bank of India) regarding return of cheques as unpaid. Therefore, only
question to be examined whether in the notice there was a demand for
payment. The last line to the portion of notice extracted above in the judgment
reads as under:

"Kindly arrange to make the payment to avoid the unpleasant

action of my client."

13. In this court’s opinion the abovementioned sentence from the notice in question
is a clear demand for payment as required under Clause (b) of Section 138.
Regarding demand for payment, the High Court was of the opinion that "the
intention in the notice was that cheque was being presented again and the

2
(1999) 1 SCC 177
 applicant/petitioner should arrange the payment on re-presentation of the
cheque". The High Court over looked the this particular sentence in the notice
as indicated above which resulted in misinterpretation of the notice, thus
leading the Learned court to the conclusion that Central Bank of India did not
demand re-payment.

14. A cheque can be presented any number of times to the bank within the period
of its validity3. In view of the above, appellant (Central Bank of India) had a
legal right to re-present the cheques to the bank as it did and mentioned the
same in the notices. Saxons Farms could have arranged the payment. By not
doing so the provision of Section 138 is clearly attracted and proceedings are
permissible.

15. In the notices it was stated that on re-presentation of the cheques if returned
unpaid, the appellant (Central Bank of India) would report the matter to the
police for initiating appropriate criminal action against the respondent (Saxons
Farms) and that the appellant also reserves the right to initiate legal
proceedings against the respondent under section 138 of N.I. Act. The counsel
on behalf of the respondent (Saxons Farms) submits that it was clear to the
respondent that the appellant (Central Bank of India) through their notices
intended to get police action initiated in case of non-payment instead of filing
complaint under Section 138 of the Negotiable Instruments Act.

16. Under Section 142 of Negotiable Instruments Act, court can take cognizance of
an offence punishable under Section 138 only on a complaint in writing made
by the payee as held by this court in William Rosario Fernandes v. Cabral &
Co., (1996) BC 732 4. Therefore, the police could not have started investigation
under Section 138 of the Act. But if a cheque is dishonoured drawer may
expose himself to prosecution under various Sections of the Indian Penal Code
which are cognizable and police could take up investigation. After reading of the
notice in question, this court believes that it was clearly stated in the notice
that in addition to taking action against the respondents under the provisions of
Indian Penal Code by informing the police, an alternative measure of initiating
legal action by the appellant (Central Bank of India) under the N.I. Act was at
its disposal. Therefore, the contention of the counsel for the respondents
(Saxons Farms) that the appellant (Central Bank of India) only intended to file

3
MSR Leathers v. S. Palaniappan (1999) 1 SCC 177
4
“In criminal law, commission of offence is one thing and prosecution is quite another. Commission
of offence is governed by Section 138 of the Act. Prosecution is governed by Section 142 of the
Act.”
 a complaint with the police and not initiate criminal proceedings under N.I. Act
is found to be wrong.

17. For the reasons stated above, this court holds that the notices served by the
appellant (Central Bank of India) were valid and proper. The notices fulfilled
each and every requisite under section 138 of the Negotiable Instruments Act.
Through the means of this notice, the appellant clearly demanded from the
respondents to arrange for the payment of the cheques. The inaction on the
part of Saxons Farms after being served the notice by the appellant on two
separate occasions clearly indicates its intention to either defer from paying the
promised amount or stop entirely. The learned High Court evidently erred in
interpreting the notices which were served by the appellant (Central Bank of
India) to the respondent (Saxons Farms). Thus, wrongfully deciding that there
was no proper notice for payment served, as per the requisites of Section 138
of the Negotiable Instruments Act.

18. In light of the above conclusion reached by this court, both the appeals are
allowed by quashing the impugned judgment and order of the High Court and
the concerned court is directed to proceed with the trial in both the complaint
petitions.

19. No order as to cost.

…………………………………..J.
(RISHABH MUNJAL)

NEW DELHI

OCTOBER 7,1999