Sunday, 17 January 2016

When possessor of bearer cheque cannot claim to be a holder in due course?

As per section 9 of the N.I.Act, the payee can become a holder in due course only in the case of cheque payable to the order and when the  Cheque is payable to the bearer, unless the person became the possessor of the cheque for consideration, he cannot claim as holder in due course.   As stated supra, admittedly, all the Cheques were payable to the bearer and therefore, the appellant cannot claim to be a holder in due course and maintain any action.    IN THE HIGH COURT OF JUDICATURE AT MADRAS
Date of decision:    10.03.2015
CORAM:
THE HONOURABLE MR.JUSTICE R.S.RAMANATHAN

Criminal Appeal No.683 of 2003

K.R.K.Yarn Trading Co.,


      vs.

Sangeetha Exports,
Citation;2015 ALLMR(CRI) JOURNAL 560



The complainant in C.C.No.53 of 2001 on the file of the Judicial Magistrate No.II, Erode is the appellant.    The appellant filed the above complaint under section 138 of the Negotiable Instruments Act stating that the first accused, a registered firm in which Accused Nos.2 to  6 were partners, purchased yarn on credit from the complainant/appellant from 07.04.1997 to 13.4.1999 and towards that transactions, the accused owed a sum of Rs.5,87,252/- to the complainant and towards the discharge of the above liability, the second accused on behalf of the first accused issued 6 cheques for a total sum of Rs.5,25,252/- and the cheques were given for collection on 19.3.1999 and all the cheques were dishonoured with an endorsement   funds insufficient .     Therefore, a statutory notice was issued to the respondents 2 to 5.  Due to inadvertence, registered notice was not sent to the sixth accused.   However, being a partner of the first accused, he is also responsible.   Accused Nos.3 and 4 sent reply notice contending false allegations and as the amount was not repaid, the respondents are liable to be prosecuted.   The learned Judicial Magistrate dismissed the complaint and aggrieved by the same, the present Appeal is filed.

2. Mr.R.Sreerangan, learned counsel appearing for the appellant submitted that the trial court without properly appreciating the admission of the respondents/accused wherein they admitted the issuance of cheques, ought to have raised a presumption in favour of the complainant and ought to have held that the respondents are liable to be convicted as they failed to repay the amounts due under the Cheques.

3. He also submitted that the trial court erred in holding that Exs.P.2 to P.5 are not the original documents and they are copies and in the absence of filing original documents Exs.P.2 to P.5 cannot be taken into consideration to prove that there were transaction between the appellant and the respondents and as per the transaction, the respondents owed amount to the appellant as agreed by them.   The learned counsel further submitted that having regard to the issuance of Cheques by the respondents and having regard to the defence taken by the respondents that the Cheques were given as a security for the purchases to be made later by the accused and they did not purchase any yarn from the appellant and demanded return of the Cheques issued by them and failure on the part of the respondents to prove the same, even assuming that Exs.P.2 to P.5 cannot be admitted having regard to the presumption available under Section 139 of the N.I.Act, the trial Court ought to have held that the Cheques were issued towards legally enforceable liability and the respondents failed to rebut the presumption by substantiating their case and ought to have convicted the respondents.   He therefore submitted that the finding of the trial Court that the Cheques were not issued towards legally enforceable liability is erroneous and the same is liable to be set aside.   He further submitted that the trial Court erred in holding that the appellant is not a holder in due course, having regard to the admission of PW.1 that the Cheques were discounted with the financiers and the appellant received money and later the financiers got back the money from the appellant and thereafter, the cheques were presented for collection.   The learned further submitted that the trial Court without appreciating the fact that the Chques can be presented during the validity period for any number of times and admittedly, the validity period was extended by the second accused by altering the date in all the Cheques and endorsements were also made to that effect and though the second accused denied the endorsement made by him, no attempt was made by him to send the Cheque for expert's opinion that the endorsements were not made by him, the trial Court ought to have held that the appellant is a holder in due course and being a payee is entitled to initiate the prosecution.   He further submitted that the trial Court erred in holding that the statutory notice was not issued by the proper person and the statutory notice was a invalid one and therefore, the prosecution is liable to be quashed.   He submitted that the notice was issued by the power agent of the appellant, by name, Murugan and though the power document was not marked and the said Murugan was not examined, the statutory notice was issued on behalf of the complainant by the said Murugan and therefore, it can be construed that valid statutory notice was issued by the complainant and therefore, the finding that the notice was not valid, is liable to be set aside.   The trial Court also erred in holding that the appellant failed to prove the passing of consideration without properly appreciating the fact that the respondents failed to rebut the presumption and the trial Court further erred in hold that the appellant received money from the financiers by endorsing the Cheques and therefore, the appellant cannot maintain any action and these findings are liable to be set aside and he, therefore, submitted that having regard to the presumption available to the complainant under Section 139 of the N.I.Act, the trial Court ought to have convicted the respondents.

4. Mr.N.Manokaran, learned counsel appearing for the respondents submitted that the trial court rightly held that notice was not properly issued by the holder in due course or by the payee and the appellant failed to prove that they were the holder in due course to maintain action and the cheques were conveniently altered by the appellant by forging  the signature of the second accused and having received the consideration for the Cheques by endorsing those Cheques in favour of the financiers, the appellant has no locus-standi to present the Cheques for collection as the appellant ceased to be the holder in due course and considering all these aspects, the trial court rightly dismissed the complaint.   He submitted that admittedly the dates were altered and in the statutory notice, there was no whisper regarding alteration of dates and only in the complaint, it was stated that the accused were not able to make the payment within due dates and therefore, they extended the period by altering the dates in the Cheques and that was falsified by the evidence of PW.1 who admitted that the Cheques were discounted with the financiers and the appellant received money from the financiers, the amount mentioned in the Cheques and even though, it was stated that the appellant repaid the financiers the amount they received, there was no proof adduced by the appellant to that effect.    Therefore, having regard to definition of Holder in due course, it cannot be stated that the appellant is the Holder in due course entitled to maintain action.   He submitted that a perusal of the various cheques and the endorsements made thereon would prove that the Cheques were presented earlier for collection and the Cheques were endorsed in favour of the financiers and thereafter, the dates were altered and considering the material alteration, the Cheques became stale and invalid and also considering the fact that there were material alterations in the Cheques, the trial Court rightly dismissed the complaint.   He also submitted that the statutory notice was not issued by the holder in due course and under proviso b of  Section 138 of the N.I.Act,  the payee or the holder in due course of the cheque, shall make a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid.   Admittedly, the statutory notice was issued by Murugan as Power agent of the appellant and no power document was produced and the said Murugan was not examined and in the absence of production of power, the notice issued by one Murugan who was neither a payee nor a holder in due course, was not a valid notice and on that ground also, the trial Court rightly dismissed the complaint.    He therefore submitted that even assuming that the respondents were not able to rebut the presumption by giving evidence that they have not purchased yarn from the appellant and the Cheques were given as security, having regard to the admission of PW.1 that the Cheques were discounted with the financiers and the appellant received the money from the financiers, the appellant was not a holder in due course and the Cheques were materially altered by changing dates, the trial Court rightly dismissed the complaint, there is no need to interfere with the order of the trial Court.

5. On the basis of the submission of the learned counsel appearing for both sides, the following points arise for consideration:-
(i) Whether the appellant is entitled to maintain action as a payee or a holder in due course?
(ii) Whether there are material alterations in the Cheques regarding the dates?

(iii) Whether the statutory notice given by the appellant is a valid one?

6. Point No.(i):- In this case, the Cheques were marked as Exs.P.6 to 11.   The statutory notice was marked as Ex.P.18.   Admittedly in Ex.P.6, date was altered from 9.3.1998 to 19.9.1998.   Ex.P.7 was altered from 3.4.1998 to 01.10.1998.   Ex.P.8 was altered from 8.4.1998 to 5.10.1998.   Ex.P.9 was altered from 11.4.1998 to 7.10.1998.   Ex.P.10 was altered from 11.4.1998 to 7.10.1998.   Ex.P.11 was altered from 20.4.1998 to 16.10.1998.    In the statutory notice, there was no mention about the alteration of dates in the Cheques by the accused after the expiry of the validity of the Cheques.    Only in the complaint, it is stated that the Cheques were issued on various dates in the month of March and April, 1998 and in order to suit their convenience by arranging the funds to honour those Cheques, the second accused made endorsement changing the dates and handedover the Cheques for encashment.   In the notice as well as in the complaint, no reference was made regarding the endorsement of the Cheques in favour of the financiers and received money from the financiers after discounting the Cheques and later repaid the amounts to financiers and got back the Cheques and presented for collection.   It is admitted by PW.1 that the Cheques were endorsed in favour of the financiers and he received the amount due under the Cheques from the financiers and later the financiers gave those Cheques and got the amount from him.   In these circumstances, can it be stated that the appellant is a holder in due course and entitled to maintain any action.   Section 9 of the N.I.Act defines holder in due course and it means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque, if payable to the bearer or payee or the indorsee thereof, if payable to order before the amount mentioned in it becmae payable and without having sufficient case to believe that any defect existed in the title of the person from whom he derived his title.   Therefore, in respect of the cheque payable to the bearer, the first part of Section 9 of the N.I.Act is applicable and therefore, holder in due course, means any person who for consideration became possessor of promissory note, bill of exchange or cheque payable to the bearer.   Admittedly, the appellant discounted the Cheques with the financiers and got money from the financiers and according to the appellant, when the Cheques were not honoured when they were presented by the financiers, they gave back the cheques to the appellant and got back the amount paid by them.    To substantiate the said allegation, the financiers were not examined regarding the receipt of money from the appellant nor the same was mentioned in the notice as well as in the complaint.   It is also seen from the endorsement made in the Cheques, namely, Exs.P.3, P.6,  P.7 and P.10 that those Cheques were endorsed in favour of the financiers and as a matter of fact those Cheques were presented for collection by the financiers and they were returned.   Therefore, having regard to the admitted fact that the appellant received money from the financiers by discounting the Cheques and in the absence of any evidence to prove that he repaid the money to the financiers, it cannot be stated that the appellant is the holder in due course and entitled to maintain any action.   Though the appellant is a payee as per the cheques, having admitted that the cheques were discounted with the financiers and received money, the appellant cannot claim to be a payee for initiating the prosecution.   As per section 9 of the N.I.Act, the payee can become a holder in due course only in the case of cheque payable to the order and when the  Cheque is payable to the bearer, unless the person became the possessor of the cheque for consideration, he cannot claim as holder in due course.   As stated supra, admittedly, all the Cheques were payable to the bearer and therefore, the appellant cannot claim to be a holder in due course and maintain any action.    Hence, Point No.(i) is answered against the appellant.

7. Point No.(ii):- Admittedly, the date of cheques were altered.   As stated supra, the appellant did not state any thing about the alteration of the dates in the notice and only in the complaint it was stated that the dates were altered at the instance of the accused and the alteration was also attested by the second accused.   The accused disputed the alteration in the dates and signature found along with the alteration of date.   The appellant is relying upon the alteration of dates and contended that the dates were altered by the second accused and he also attested the alteration by affixing the signature.   Therefore, when the specific case was put forward by the appellant regarding the alteration and the same was denied, the burden is on the appellant to prove to that effect by sending the Cheques for examination of experts and the appellant did not take any steps to examine those documents.   Admittedly, the Cheques were presented for collection on 19.3.1999 and but for the alteration of the dates, the cheques would have become stale and invalid when they were presented for collection on 19.3.1999.   As stated supra, there are endorsements in Exs.P.3,  P.6,  P.7 and P.10 that the Cheques were presented for collection through bank by the financiers even in the year March 1998.   Therefore, in order to make the Cheques valid, the dates of the Cheques were altered and but for the alteration, the Cheques could not have been presented for collection on 19.3.1999.   Therefore, it is more important on the part of the complainant to prove that the alteration of dates was made by the accused.   Having regard to the fact that the appellant did not mention about the discounting of Cheques with the financiers and did not mention the alteration of dates  in the notice and failed to take steps to compare the signature found in the Cheques with the endorsement made along the alteration of date would lead to the conclusion that the appellant failed to prove that the alteration of dates in the Cheques were done by the second accused.    It is further to be noted that in the chief examination, PW.1 did not state any thing about the alteration of dates and the endorsements made by the second accused.   Once that conclusion is arrived at, it has to be held that the Cheques were materially altered as alteration of dates in the Cheques amounts to material alteration and when the Cheuqes were materially altered, the present action on those Cheques is not maintainable.   Point No.(ii) is also answered against the appellant.

8. Point No.(iii):-  As per proviso b to section 138 of the N.I.Act, statutory notice has to be given either by the payee or by the holder in due course and admittedly, the notice was issued by one Murugan, Power Agent of the appellant.   Power document was not produced nor Murugan was examined.   In the absence of production of power document authorising the said Murugan to issue notice, the notice issued by Murugan on behalf of the appellant cannot be considered as valid notice as per proviso b to section 138 of the N.I.Act.   Therefore, I hold that no valid notice was issued and Point No.(iii) is also answered against the appellant.   

9. The trial Court considered all these points in a proper perspective and rightly acquitted the accused and I do not find any reason to interfere with the judgment of the trial Court and the Criminal Appeal is dismissed.
                                                                         10.03.2015

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