Thursday, 8 December 2016

Whether offence of dishonour of cheque is made out if debt amount is less than cheque amount?

 The indorsement for part payment of the cheque

was explained under Section 56 of the N.I. Act. According

to Section 56 of the Negotiable Instruments Act, "no

writing on a negotiable instrument is valid for the purpose

of negotiation, if such writing purports to transfer only a

part of the amount appearing to be due on the

instrument; but where such amount has been partly paid



a note to that effect may be indorsed on the instrument,

which may then be negotiated for the balance."         The

sections prohibit the transfer of an instrument for a

portion of the amount due under it. But the last portion

says that if the amount has been paid in part, the fact of

the part payment may be endorsed on the instrument and

negotiated for the balance amount. When the maker of

the payment makes a part payment, but that amount is

not endorsed and the note is fraudulently negotiated by

the payee without admitting the part payment, the maker

has to pay the full amount of the instrument to the holder.

When court considers part payment due under a cheque

and if drawee makes an endorsement regarding the part


payment on the instrument and he claims the balance


amount by presenting the cheque for encashment through


a bank and if it is dishonoured, then an offence under


Section 138 of the N.I. Act will be made out. Both the

courts below failed to appreciate the admission made by

PW1 and the documentary evidences which resulted in



miscarriage of justice. Therefore, this is a fit case to

exercise revisional jurisdiction. While invoking revisional

jurisdiction,    this   court     can   rectify    the   illegalities

committed by the inferior courts. The object of conferring

such power is to correct grave miscarriage of justice

arising from erroneous orders.

      12. In Angu Parameswari Textiles (P) Ltd. and

Others V. Sri. Rajam and Co. 2001 Company Cases

Vol.(105) 186, Madras High Court held that;

         "For the purposes of Section 138 of the Negotiable

         Instruments Act, 1881, the cheque should be


         towards the discharge of either the whole debt or


         part of the debt. If the cheque is for more than the


         amount of the debt due, Section 138 cannot be


         attracted."




Here the      portion of the cheque was repaid and such

payment is admitted by PW1 and no endorsement was

made on the back of the cheque or face thereof and on

prosecution complainant claimed cheque amount, no

offence under Section 138 of the N.I. Act is made out. The


evidence adduced in this case is not sufficient to convict

the accused under Section 138 of the N.I. Act.
IN THE HIGH COURT OF KERALA AT ERNAKULAM

                                                      PRESENT:

                              MR. JUSTICE P.D.RAJAN

          26TH DAY OF NOVEMBER 2015

                                       Crl.Rev.Pet.No. 1251 of 2005 
            SHIJU K.
           V

         NALINI,
          

     This revision petition is preferred by the accused

against the judgment in Criminal Appeal 150/02 of the 1st

Additional Sessions Judge, Kozhikode. Revision Petitioner

was accused in C.C.351/99 of the Judicial First Class

Magistrate-V, Kozhikode for having committed an offence

punishable   under     Section     138     of   the    Negotiable

Instruments Act (hereinafter referred to as the 'N.I. Act').

The complainant's case is that, accused borrowed a sum

of Rs.1,17,500/- from the complainant and in discharge of

that debt, he issued Ext.P1 cheque.           When the cheque

was presented for encashment, it was dishonoured for the

reason of funds insufficient. The complainant demanded

the due amount by giving a notice in writing, but after

notice, there was no repayment of the due amount, hence

he filed a complaint before Judicial First Class Magistrate,

Kozhikode.


      2. During trial, complainant was examined as PW1

and his documents were marked as Exts.P1 to P7. The

incriminating circumstances brought out in evidence were

denied     by the accused while questioning him under

Section 313 Cr.P.C. Accused did not adduce any defence

evidence. The learned Magistrate convicted the accused

under Section 138 of the N.I. Act and sentenced to

imprisonment for six months. Against that he preferred

Criminal     Appeal  No.150/2002    before 1st Additional

Sessions Judge, Kozhikode, where the sentence was

modified by the appellate court. Being aggrieved by that

he preferred this revision petition.

      3.   The main contention advanced by the revision

petitioner is that part payment of the debt amount under

the cheque was paid to the payee and he has not made

any endorsement of that part payment in the cheque.

Instead of claiming the balance amount, he claimed the

cheque amount, which is higher amount than the debt, in

such a situation, no offence under Section 138 of the N.I.


Act will be attracted.

      4. In reply to the above argument, the 1st respondent

admitted that the debt is less than the cheque amount,

even though no endorsement is made on the back side of

the cheque leaf an offence will attract against the revision

petitioner.

      5. The question that arise for consideration is that if

the debt amount is less than the cheque amount whether

any offence under Section 138 will be attracted against

the revision petitioner.   According to Section 138 of the

N.I. Act, where any cheque drawn by a person on an

account maintained by him with a bank for payment of

any money to another person from, out of that account,

for the discharge of any debt or liability, in whole or in

part is returned by the bank, on the ground that the

amount in that account is insufficient to honour the

cheque or it exceeds the amount arranged to be paid from

that account by an agreement made with a bank, such

person shall be deemed to have committed an offence


under Section 138 of the N.I. Act. This deemed provision

is subject to the statutory condition that the cheque has to

be presented within the statutory period in which it is

drawn or within the period of its validity. Secondly, the

payee or holder in due course of the cheque makes a

demand for payment of such amount by giving a notice in

writing to the drawer of the cheque within 30 days (with

effect from 06.02.2003) on receipt of information from the

bank. If the drawer fails to make payment of due amount

within 15 days on receipt of notice, the payee or the

holder of the cheque can file a complaint. The facts of the

case show that the amount covered by the cheque is

bigger than the cheque amount.           A reading of the

wordings of the Section shows that the cheque should be

given in discharge of a debt either in whole or in part or

any liability and if the cheque amount is higher than the

debt or liability, Section 138 of the N.I. Act would not get

attracted.

      6.   The position of part payment of the cheque



amount has been considered by the Division Bench of this

Court in Joseph Sartho V. Gopinathan and Another

(2008(4) KHC 463), where it was held as follows;

        "Question arose for consideration in this case

        was whether, when part payment due under a

        cheque was paid, an offence under S.138 of the

        Act will be made out or not. There was

        conflicting decisions of the High Court on this

        point and thus the matter was referred to the

        Division Bench for a finality. Court considered

        certain key issues regarding making of part

        payment due under a cheque. Court concluded

        that, if the drawee makes an endorsement

        regarding the part payment on the cheque and

        claimed only the balance amount and if it is

        dishonoured, the offence under S.138 will be

        made out. Such a pragmatic view was taken,

        because any person who makes a part payment

        which may be very small compared to the

        amount due under the cheque can escape from

        the liability."

      7. The accepted connotation of interpretation is that

penal statute should be considered strictly and in case of

doubt, the benefit will go to the accused.              The


presumption of law is that a person is innocent until

proved guilty. This means that there is always a

presumption of innocence in favour of an accused and the

burden to prove the case is on the prosecution.           That

presumption is available to an accused who is prosecuted

under Section 138 of the Negotiable Instruments Act,

simply because a cheque happened to be dishonoured

itself is not a ground to say that the accused has

committed an offence. There may be exceptional cases

out side the purview of the Section 138.        A debt is a

liquidated amount of money owed and payable to another

in present       or in future which is a pecuniary liability

recoverable by action in respect of money or demand.

Therefore, Section 138 of the N.I. Act shows not only the

debt, but also the liability. A cheque have been issued in

discharge of a debt wholly or in part or of any liability.

      8.   Apex court in NEPC MICON Ltd. V. Magna

Leasing Ltd AIR 1999 SC 1952 and M/s.Dalmia

Cement (Bharat) Ltd. V. M/s.Galaxy Traders and



Agencies Ltd. AIR 2001 SC 676 has explained the

position of law regarding strict interpretation of penal

statute. Apex court reiterated that even though Section

138 of the N.I. Act is a penal statute, it should be

interpreted taking into consideration, the legislative

intent.     However, in Rahul Builders V.         Arihant

Fertilizers & Chemicals 2007(4) KLT 977 (SC) apex

court reiterated the principle and held that the penal

provision under section 138 of the N.I. Act ought to be

interpreted strictly. Therefore the penal statute must be

interpreted strictly and in case of doubt, the benefit

should go to the accused.

      9. The point that arises in this case is when a part

payment of the amount due under a cheque is paid and if

the payee or drawee fails to make an endorsement and

the holder claims the full cheque amount whether any

offence under Section 138 of the N.I. Act will be attracted

in this context. Normally, admissions are not conclusive

proof of the matters admitted, but they may operate as



estoppel and one can prove that it was made under

mistake of law or fact or under threat or inducement. In

the absence of such proof of threat or inducement or

mistake of law, admission made by persons constitutes

good evidence against the party making it. Thus when

there was no material to show that the admission made

by the complainant is not in another transaction such

admission is valuable in connection with the transaction in

this case. In this context, I have examined the evidence

of PW1, who is the complainant in this case. His evidence

shows that Ext.P1 was issued in discharge of a debt of

Rs.1,17,500/-. When it was presented for encashment, it

was dishonoured for the reason of funds insufficient.

Ext.P2 is dishonour memo, Ext.P3 is the pay in slip, Ext.P4

is the intimation, Ext.P5 is the lawyer notice, Ext.P6 is the

acknowledgement card and Ext.P7 is the attested extract

of the account of the accused. During cross-examination,

PW1 admitted that before institution of the complaint, he

received     Rs.35,000/-  (Rs.25,000/-   on    2.11.98   and


Rs.10,000/- on 29.12.98).     Revision petitioner also paid

Rs.10,000/- and the balance debt amount is only

Rs.72,500/-. In Ext.P5 lawyer notice the amount claimed

is Rs.82,500/-, then the impact of the admission and the

failure of the maker or holder of the cheque making

endorsement of the part payment was not considered by

the      courts below.     An admission is a voluntary

acknowledgment made by one party in legal interest of

the existence of certain facts which are relevant to the

fact in issue in a case. The important characteristic of this

evidence is that it is in the style of binding nature. When

an admission is made by a party during proceeding of a

case, it is fully binding on that party which is a judicial

admission.

      10.    An indorsement on the back or face of the

instrument is valid under Section 15 of the N.I. Act, when

the maker or holder of a negotiable Instrument signs the

same. If the signature on the back side of the instrument

or on the face of the instrument is made by a third party,


neither the maker nor the holder made any indorsement

within the meaning of the Section. Section 15 of the N.I.

Act reads as follows;

                "When the maker or holder of a negotiable

         instrument signs the same, otherwise than such as

         maker, for the purpose of negotiation, on the back

         or face thereof or on a slip of paper annexed

         thereto, or so signs for the same purpose a

         stamped paper intended to be completed as a

         negotiable instrument, he is said to indorse the

         same, and is called the "indorser".

Therefore, a promissory note, bill of exchange or a cheque

can be negotiated by making an indorsement either on

the instrument or on a separate paper annexed to it.

      11. The indorsement for part payment of the cheque

was explained under Section 56 of the N.I. Act. According

to Section 56 of the Negotiable Instruments Act, "no

writing on a negotiable instrument is valid for the purpose

of negotiation, if such writing purports to transfer only a

part of the amount appearing to be due on the

instrument; but where such amount has been partly paid



a note to that effect may be indorsed on the instrument,

which may then be negotiated for the balance."         The

sections prohibit the transfer of an instrument for a

portion of the amount due under it. But the last portion

says that if the amount has been paid in part, the fact of

the part payment may be endorsed on the instrument and

negotiated for the balance amount. When the maker of

the payment makes a part payment, but that amount is

not endorsed and the note is fraudulently negotiated by

the payee without admitting the part payment, the maker

has to pay the full amount of the instrument to the holder.

When court considers part payment due under a cheque

and if drawee makes an endorsement regarding the part

payment on the instrument and he claims the balance

amount by presenting the cheque for encashment through

a bank and if it is dishonoured, then an offence under

Section 138 of the N.I. Act will be made out. Both the

courts below failed to appreciate the admission made by

PW1 and the documentary evidences which resulted in



miscarriage of justice. Therefore, this is a fit case to

exercise revisional jurisdiction. While invoking revisional

jurisdiction,    this   court     can   rectify    the   illegalities

committed by the inferior courts. The object of conferring

such power is to correct grave miscarriage of justice

arising from erroneous orders.

      12. In Angu Parameswari Textiles (P) Ltd. and

Others V. Sri. Rajam and Co. 2001 Company Cases

Vol.(105) 186, Madras High Court held that;

         "For the purposes of Section 138 of the Negotiable

         Instruments Act, 1881, the cheque should be

         towards the discharge of either the whole debt or

         part of the debt. If the cheque is for more than the

         amount of the debt due, Section 138 cannot be

         attracted."



Here the      portion of the cheque was repaid and such

payment is admitted by PW1 and no endorsement was

made on the back of the cheque or face thereof and on

prosecution complainant claimed cheque amount, no

offence under Section 138 of the N.I. Act is made out. The


evidence adduced in this case is not sufficient to convict

the accused under Section 138 of the N.I. Act.

      In the result, the conviction and sentence passed by

the court below under Section 138 of the N.I. Act are set

aside and revision petitioner is acquitted and set at

liberty.

     
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