JAYANTI BHAI VALJI BHAI KATARIA VS KAMLAKAR

(Term paper towards the fulfillment of the Project in the subject of Commercial

Transaction)

SUBMITTED BY SUBMITTED TO

ADITYA PRAKASH M R. BIPIN

KUMAR

B.A.LL.B F ACULTY OF

LAW

U.G SEMESTER III NATIONAL LAW

UNIVERSITY

SECTION A JODHPUR

Roll no- 1296

National Law University, Jodhpur

Summer Session

(July- November 2016)

 TABLE OF CONTENTS

Table of Contents.......................................................................................................................2

Factual Matrix............................................................................................................................3

I. Background Facts............................................................................................................3

Relevant Provisions of Law.......................................................................................................4

Section 138, Negotiable Instruments Act, 1881.....................................................................4

Section 482, Criminal Procedure Code, 1973........................................................................5

Section 9, Negotiable Instruments Act, 1881.........................................................................5

Parties Contentions.....................................................................................................................6

I. Appellants Contention....................................................................................................6

II. Respondents Contention................................................................................................6

The Judgement and the Reasoning.............................................................................................6

I. The Legal Aspect.............................................................................................................6

II. The Normative Aspect.....................................................................................................7

III. The Final adjudication.................................................................................................8

Case Analysis.............................................................................................................................9

I. What is a Cheque?...........................................................................................................9

II. E-Cheque.........................................................................................................................9

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 III. The General Requisites for an Act to be termed as an Offence under Section 138,

Negotiable Instruments Act, 1881........................................................................................10

Grounds for Dishonour of a cheque:....................................................................................10

Conclusion................................................................................................................................12

Bibliography.............................................................................................................................14

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 FACTUAL MATRIX

I. BACKGROUND FACTS

The factual matrix of the case in brief are that the non-applicant complainant has filed a

private complaint before the CJM Khandwa under Section 138 of the Negotiable Instruments

Act, with the allegations that the petitioner/applicant has borrowed cash loan of Rs.

2,81,138/- from the complainant and for this amount issued an advance cheque No. 737409

dated 10-6-2004 on his account maintained in State Bank of India, Narmada Nagar Branch,

Khandwa payable to self. It is also contended by the non- applicant/complainant that the

applicant had assured him that the loan amount shall be paid to him on the presentation of the

cheque. The complainant deposited the aforesaid cheque in his account in Canara Bank at

Khandwa on 14-7-2004. When this cheque was sent to State Bank of India Ganga Nagar

Branch for realization of the cheque amount the aforesaid cheque had been return unpaid with

the report that in sufficient funds in the account of the drawer. When this information

received to the complainant then the non-applicant/complainant issued the statutory notice to

the present petitioner by registered post demanding the amount of the concern cheque; and

thereafter filed the aforesaid complaint under Section 138 of the Negotiable Instruments Act.

The learned Trial Court CJM Khandwa issued a summon to the present petitioner and after

his appearance also framed the charge against the petitioner accused for the offence

under Section 138 of the Negotiable Instruments Act. Feeling aggrieved by the aforesaid

order of cognizance and framing of charge petitioner has filed this petition under Section 482,

CrPC for the quashment of the aforesaid proceeding.

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 RELEVANT PROVISIONS OF LAW

SECTION 138, NEGOTIABLE INSTRUMENTS ACT, 1881

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 19 [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, 20 [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.]1

1Section 138, Negotiable Instruments Act, 1881

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 SECTION 482, CRIMINAL PROCEDURE CODE, 1973

Saving of inherent powers of High Court. Nothing in this Code shall be deemed to limit or

affect the inherent powers of the High Court to make such orders as may be necessary to give

effect to any order under this Code, or to prevent abuse of the process of any Court or

otherwise to secure the ends of justice.2

SECTION 9, NEGOTIABLE INSTRUMENTS ACT, 1881

Holder in due course.Holder in due course means any person who for consideration

became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or

the payee or indorsee thereof, if 1[payable to order], before the amount mentioned in it

became payable, and without having sufficient cause to believe that any defect existed in the

title of the person from whom he derived his title.3

2 Section 482, Code of Criminal Procedure, 1973

3 Section 9, Negotiable Instruments Act, 1881

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 PARTIES CONTENTIONS

I. APPELLANTS CONTENTION

It is contended by the learned Counsel for the applicant that the disputed cheque was

not in the name of the complainant/non-applicant. He has not "holder in due course"

of the concern cheque, no liability for the payment of any debt is on the

petitioner/accused. Therefore, in such circumstances the complaint under Section

138 of the Negotiable Instruments Act is not maintainable. Consequently, prayed for

the quashment of the aforesaid complaint.

II. RESPONDENTS CONTENTION

Per contra, the learned Counsel for the non-applicant/complainant contended that as

per the pleadings of the non-applicant, it is apparent that the present

applicant/accused borrowed cash loan from the complainant and for the payment of

the aforesaid loan. The applicant accused had issued the aforesaid cheque in favour

of the complainant which has been dishonour by the concerned Bank. Therefore, on

the basis of this averments prima facie case under Section 138 of the NI Act is made

out and there is no ground for the quashment of the aforesaid proceeding. Therefore

prayed for the dismissal of the petition.

THE JUDGEMENT AND THE REASONING

I. THE LEGAL ASPECT

The Court in this case laid down that while exercising powers under Section 482, the Court

does not function as a Court of appeal or revision. Inherent jurisdiction under the section

though wide has to be exercised sparingly, carefully, and with caution and only when such

exercise is justified by the tests specifically laid down in the section itself. It is to be

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exercised ex debit justitiae to do real and substantial justice for the administration of which

alone Courts exist.

According to what Section 9 of the Negotiable Instruments Act, the holder in due course is

normally unambiguous. The "holder in due course" is a person who is possessor of an

instrument even then it is payable to bearer. What is required is that he must be in possession

of the aforesaid instrument.

Therefore, in view of the law laid down by the Hon'ble Supreme Court in the present case, it

is apparent that this case that looking to the averments made in the complaint, a prima facie

case is made out under Section 138 of the Negotiable Instruments Act against the applicant

and this Court at this initial stage cannot express any view on the merits of the proposed

evidence which ought to be produced by the complainant in his defence.4

II. THE NORMATIVE ASPECT

Authority of the Court exists for advancement of justice and if any attempt is made to abuse

that authority so as to produce injustice, the Court has power to prevent such abuse. It would

be an abuse of process of the Court to allow any action which would result in injustice and

prevent promotion of justice. In exercise of the powers Court would be justified to quash any

proceeding if it finds that initiation/continuance of it amounts to abuse of the process of Court

or quashing of these proceedings would otherwise serve the ends of justice.5

When no offence is disclosed by the complainant, the Court may examine the question of

fact. When a complaint is sought to be quashed, it is permissible to look into the materials to

assess what the complainant has alleged and whether any offence is made out even if the

allegations are accepted in toto. Unless issuance of cheque is pleaded and proved to discharge a

4 R. Vijayan vs Baby & Anr

5 State of Punjab v. Kasturi Lai and Ors.

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legally enforceable liability, dishonour is no default entailing criminal proceedings. Complaint in

respect of such a cheque issued as a gift, is not maintainable.6

Section 482 envisages three circumstances under which the inherent jurisdiction may be

exercised, namely

(i) to give effect to an order under the code,

(ii) to prevent abuse of the process of Court, and
(iii) to otherwise secure the ends of justice. It is neither possible nor desirable to lay down

any inflexible rule which would govern the exercise of inherent jurisdiction. No

legislative enactment dealing with procedure can provide for all cases that may

possibly arise.

Thus the Court in subsiding the decision against the Applicant was right as the main objective

of the court is to provide justice and equality to all.

III. THE FINAL ADJUDICATION

Prima facie no ground is made out in the present case for the quashment of the concerning

criminal proceedings pending before the CJM Khandwa for the offence of 138 of Negotiable

Instruments Act against the petitioner/accused in Cr. Case No. 1940/2004.

(Consequently, the petition filed by the applicant being devoid of merits is dismissed.)

6 1995 Andh LT 468, 1997 Cr LJ 4237 AP; 1998 (3) Bank LJ 279

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 CASE ANALYSIS

I. WHAT IS A CHEQUE?

Section 6 gives a conclusive definition of a cheque:

Cheque. A cheque is a bill of exchange drawn on a specified banker and not expressed

to be payable otherwise than on demand and it includes the electronic image of a truncated

cheque and a cheque in the electronic form. Explanation I. For the purposes of this section,

the expressions

(a) a cheque in the electronic form means a cheque which contains the exact mirror

image of a paper cheque, and is generated, written and signed in a secure system

ensuring the minimum safety standards with the use of digital signature (with or

without biometrics signature) and asymmetric crypto system;

(b) a truncated cheque means a cheque which is truncated during the course of a

clearing cycle, either by the clearing house or by the bank whether paying or

receiving payment, immediately on generation of an electronic image for

transmission, substituting the further physical movement of the cheque in writing.

Explanation II. For the purposes of this section, the expression clearing house means the

clearing house managed by the Reserve Bank of India or a clearing house recognised as such

by the Reserve Bank of India.]

II. E-CHEQUE

Electronic cheque (e-cheque) is the image of a normal paper cheque generated, written and

signed in a secure system using digital signature and asymmetric crypto system. Simply said

an electronic cheque is nothing more than an ordinary cheque produced on a computer system

and instead of signing it in ink, it is signed using the digital equivalent of ink. After the

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coming into force of The Negotiable Instruments (Amendment And Miscellaneous

Provisions) Act, 2002, legal recognition has been accorded to e-cheques and they have been

brought at par with the normal cheques. Now, a cheque includes an e-cheque.

III. THE GENERAL REQUISITES FOR AN ACT TO BE TERMED AS AN

OFFENCE UNDER SECTION 138, NEGOTIABLE INSTRUMENTS ACT, 1881

1. The cheque should have been issued for the discharge , in whole or part, of any debt

or other liability

2. The cheque should have been presented within a period of six months or within its

validity period whichever is earlier.

3. The payee or holder in due course should have issued a notice in writing to the drawer

within 30 days of the receipt of information by him from the Bank regarding the return

of the cheque as unpaid.

4. After receipt of the said notice from the holder in due course, the drawer should have

failed to pay the cheque within 15 days of receipt of the said notice.

GROUNDS FOR DISHONOUR OF A CHEQUE:

Funds Insufficient:

Section 138 describes the above ground of insufficient funds in the account of the drawer of

the cheque in the following words:

The amount of money standing to the credit of the account of the drawer on which the cheque

is drawn is insufficient to honour the cheque, or

1. The cheque amount exceeds the amount that can be paid by the bank under an

arrangement entered into between the bank and the drawer of the cheque.

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However, besides the above, the Courts have also accepted some other heads which though

expressly do not say insufficient funds but are implied to mean the same and a cheque

dishonoured on any of these grounds can be used for the purpose of prosecution under section

138 Negotiable Instruments Act. Some of these grounds are:

1. Account Closed: It is an offence under section 138 of the Act Closure of account

would be an eventuality after the entire amount in the account is withdrawn It means that

there was no amount in the credit of that account on the relevant date when the cheque was

presented for honouring the same

This has been held by the Honble Supreme Court of India in-

NEPS MICON LTD. AND OTHERS VS. MAGMA LEASING LTD.7

2. Stop Payment instructions:

Once the cheque has been drawn and issued to the payee and the payee has presented the

cheque, stop payment instructions will amount to dishonour of cheque.

MAHENDR S. DADIA VS. STATE OF MAHARASHTRA8

3. Refer to drawer:

.. makes out a case under section 138 of the Negotiable Instruments Act, 1881 which

expression means that there were not sufficient funds with the bank in the account of the

respondent

LILY HIRE PURCHASE LTD. VS. DARSHAN LAL,9

7 1999 ISJ (BANKING) 0433; 1999 (1) APEX C.J. 0624; 1999 AIR (SCW) 1637

8 I (1999) BANKING CASES (BC) 133 (17/03/1998)

9 (1997) 89 COMPANY CASES 663 (10/01/1997)

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4. Not a clearing member:

Cheque returned with endorsement not a clearing member. To attract the provisions of

section 138 NI Act, the cheque should be presented with the bank on which it I drawn- If the

cheque is not presented to the bank on which it is drawn, then provisions of sec 138 would

not be attracted. If bank on which the cheque is drawn is not a clearing member of the

Reserve Bank of India unpaid return of the cheque would not attract section 138.

CHAIRMAN, JAWAHAR COOPERATIVE URBAN BANK LTD. AND OTHERS VS.

RAMANJANEYA ENTERPRISES, HYD. AND ANOTHER1011

5. Effect of other endorsements:

It has been repeatedly held by courts that manifest dishonest intention of the drawer resulting

in dishonour of the cheque would lead to prosecution under section 138 Negotiable

Instruments Act regardless of the actual ground of dishonour.

10 2005 (5) CRIMINAL REPORTED JUDGEMENTS (CRJ) 0591;

11 2005 (2) DISHONOUR OF CHEQUE REPORTER (DCR) 0169

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 CONCLUSION

By what has been stated in the present factual matrix, the Applicant in this case has been held

liable for violating Section 138 of the Negotiable Instruments Act, for committing dishonour

of cheque.

The Court in deciding so rightly said that No legislative enactment dealing with procedure

can provide for all cases that may possibly arise. Courts, therefore, have inherent powers

apart from express provisions of law which are necessary for proper discharge of functions

and duties imposed upon them by law. That is the doctrine which finds expression in the

section which merely recognizes and preserves inherent powers of the High Courts. All

Courts, whether civil or criminal possess, in the absence of any express provision, as inherent

in their constitution, all such powers as are necessary to do the right and to undo a wrong in

course of administration of justice.

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 BIBLIOGRAPHY
Cases

(1997) 89 COMPANY CASES 663 (10/01/1997)11

1995 Andh LT 468, 1997 Cr LJ 4237 AP; 1998 (3) Bank LJ 279......................................8

1999 ISJ (BANKING) 0433; 1999 (1) APEX C.J. 0624; 1999 AIR (SCW) 1637.....................11

2005 (2) DISHONOUR OF CHEQUE REPORTER (DCR) 0169...........................................12

2005 (5) CRIMINAL REPORTED JUDGEMENTS (CRJ) 0591;............................................12

I (1999) BANKING CASES (BC) 133 (17/03/1998..................................................................11

R. Vijayan vs Baby & Anr..........................................................................................................7

State of Punjab v. Kasturi Lai and Ors.................................................................................7

Statutes

Section 138, Negotiable Instruments Act, 1881.........................................................................4

Section 482, Code of Criminal Procedure, 1973........................................................................5

Section 9, Negotiable Instruments Act, 1881.............................................................................5

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