Whether only drawer of cheque is liable for dishonour of cheque?

 Similar question was raised and considered by two Judge Bench of this Court in Anil Hada v. India Acrylic Ltd. MANU/SC/0736/1999 : (2000) 1 SCC 1. This Court held:

12. Thus when the drawer of the cheque who falls within the ambit of Section 138 of the Act is a human being or a body corporate or even firm, prosecution proceedings can be initiated against such drawer. In this context the phrase "as well as" used in Sub-section (1) of Section 141 of the Act has some importance. The said phrase would embroil the persons mentioned in the first category within the tentacles of the offence on a par with the offending company. Similarly the words "shall also" in Sub-section (2) are capable of bringing the third category persons additionally within the dragnet of the offence on an equal par. The effect of reading Section 141 is that when the company is the drawer of the cheque such company is the principal offender Under Section 138 of the Act and the remaining persons are made offenders by virtue of the legal fiction created by the legislature as per the section. Hence the actual offence should have been committed by the company, and then alone the other two categories of persons can also become liable for the offence.

IN THE SUPREME COURT OF INDIA

Criminal Appeal No. 1364 of 2014 

Decided On: 07.07.2014

 Anil Gupta Vs.  Star India Pvt. Ltd.

Hon'ble Judges/Coram:

S.J. Mukhopadhaya and V. Gopala Gowda, JJ.

Citation: 2014 CRLJ 3884 SC

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Whether offence of dishonour of cheque is made out even if drawer of cheque has changed date of cheque to revalidate it?

 In our view this reasoning is entirely fallacious. There is no provision in the Negotiable Instruments Act or in any other law which stipulates that a drawer of a negotiable instrument cannot re-validate it. It is always open to a drawer to voluntarily revalidate a negotiable instrument, including a cheque. The High Court has also placed reliance on Section 87 of the Negotiable Instruments Act, which reads as follows:

87. Effect of material alteration -- Any material alteration of a negotiable instrument renders the same void as against any one who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties;

Alteration by indorsee -- Any such alteration, if made by an indorsee, discharges his endorser from all liability to him in respect of the consideration thereof.

The provisions of this section are subject to those of Sections 20, 49, 86 and 125". The first paragraph of Section 87 makes it clear that the party who consents to the alteration as well as the party who made the alteration are disentitled to complain against such alteration, e.g. if the drawer of the cheque himself altered the cheque for validating or revalidating the same instrument he cannot take advantage of it later by saying that the cheque became void as there is material alteration thereto.Further, even if the payee or the holder of the cheque made the alteration with the consent of the drawer thereof, such alteration also cannot be used as a ground to resist the right of the payee or the holder thereof. It is always a question of fact whether the alteration was made by the drawer himself or whether it was made with the consent of the drawer. It requires evidence to prove the aforesaid question whenever it is disputed.

It is held by the High Court that a change of date is a material alteration which affected the interests of the Respondent. It is held that the Respondent not being a willing party to the said alteration, the cheques were void as contemplated by Section 87 of the Negotiable Instruments Act. At this stage there is no basis for arriving at such a conclusion. In the earlier part of the impugned Judgment it has been correctly held that this is a question of fact. This is a fact which will have to be established on evidence during trial. At this stage the High Court could not have quashed the complaint merely on the basis of an assertion in the reply.

IN THE SUPREME COURT OF INDIA

Crl. A. Nos. 1110-1111 of 2001

Decided On: 02.11.2001

Veera Exports  Vs.  T. Kalavathy

Hon'ble Judges/Coram: 

K.T. Thomas and S.N. Variava, JJ.

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When juristic person like body corporate who is not drawer of cheque can be held liable for dishonour of cheque?

The learned Counsel for the Respondents has relied upon the case of Anil Hada v. Indian Acrylic Ltd. MANU/SC/0736/1999 : (2000) 1 SCC 1, wherein this Court held-

Normally an offence can be committed by human beings who are natural persons. Such offence can be tried according to the procedure established by law. But there are offences which could be attributed to juristic person also. If the drawer of a cheque happens to be a juristic person like a body corporate it can be prosecuted for the offence Under Section 138 of the Act. Now there is no scope for doubt regarding that aspect in view of the clear language employed in Section 141 of the Act. In the expanded ambit of the word 'company' even firms or any other associations of persons are included and as a necessary adjunct thereof a partner of the firm is treated as director of that company.

(Emphasis supplied)

Thus when the drawer of the cheque who falls within the ambit of Section 138 of the Act is a human being or a body corporate or even firm, prosecution proceedings can be initiated against such drawer. In this context the phrase 'as well as' used in Sub-section (1) of Section 141 of the Act has some importance. The said phrase would embroil the persons mentioned in the first category within the tentacles of the offence on a par with the offending company. Similarly the words 'shall also' in Sub-section (2) are capable of bringing the third category persons additionally within the dragnet of the offence on an equal par. The effect of reading Section 141 is that when the company is the drawer of the cheque such company is the principal offender Under Section 138 of the Act and the remaining persons are made offenders by virtue of the legal fiction created by the legislature as per the section. Hence the actual offence should have been committed by the company, and then alone the other two categories of persons can also become liable for the offence.

IN THE SUPREME COURT OF INDIA

Criminal Appeal No. 1001 of 2010

Decided On: 16.09.2015

Appellants: Jitendra Vora
Vs.
Respondent: Bhavana Y. Shah and Ors.

Hon'ble Judges/Coram:Pinaki Chandra Ghose and R.K. Agrawal, JJ.

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Whether drawer of cheque will be liable for dishonour of cheque when cheque was obtained under threat and force?

 It clearly shows under the guise of execution of any summons or warrant served on the accused in the crime registered by police, after referring the complaint to the police by the Court, P.Ws. 1 and 2 along with Sub Inspector and Head Constable, went to the house of the accused at Mumbai. There are no details what was the time taken for the said settlement and how the accused is responsible for the amount of Rs. 35,00,000/-, which was given to the father of the complainant and how the said amount of Rs. 35,00,000/- was arrived at Rs. 25,00,000/- in settlement, which are material facts but for mentioning as if a settlement already arrived and the five cheques were issued which include Ex. P.3. That also probablises the defence version apart from the complaint as well as evidence of P.Ws. 1 and 2 also silent regarding proof how the sum of Rs. 35,00,000/- was paid if at all to the accused when and by what source. The defence of the accused that his father was running that entity and after his death it became defunct and he was not even Director by then and not responsible for it and it is under the threat and force through police, P.Ws. 1 and 2 obtained the signatures on the blank cheques and on the so-called undertaking letter in the absence of showing the said amount due by the accused much less of Rs. 35,00,000/- and there from settlement of Rs. 25,00,000/- and how and why mere filing of a cheque is not sufficient despite the evidence of the accused and reply notice Ex. P.9, which is sometime prior to the presentation of the cheque and that too having filed the private complaint including this cheque and the allegations of cheating for non-payment, the survival of the cause of action for its dishonour also doubtful from the complainant version leave that as it is not a matter of dispute or controversy for any finding therein for purpose of the accused even taken it is after filing of the so-called cheating case and so-called Exs. P.2 and P.3 along with other cheques given, those show the complainant entity represented by P.Ws. 1 and 2 through police force went to the accused under the guise of securing his presence before the court in Cr. No. 29 of 2004 pending under the police investigation under threat and force, obtained signatures and misused the same and there is no legally enforceable debt. There is nothing to rebut the same even from cross-examination of D.W. 1 in this regard by producing any material regarding giving of Rs. 35,00,000/- much less to the accused and otherwise liability for the same by the accused and what the law laid down by the Apex Court in Narayan Menon (supra) in discharge of burden on the part of the accused in rebutting the presumptions if at all available against the accused under Section 118 and 139 N.I. Act is need not by coming to the witness box suffice even from showing preponderance of the probabilities of the version by putting to the fact the complainant and witnesses and by confronting with the documents and the accused need not disprove the case of the complainant, he can discharge even by direct or circumstantial evidence is said probable evidence to rebut the defence. In this case not only the suggestions to P.Ws. 1 and 2, but also admissions from the evidence of P.Ws. 1 and 2 in the cross-examination co-relating to Ex. P.2 date and contents therefrom substantiating the defence version that Ex. P.3 cheque and other cheques were obtained under threat and force by the complainant entity officials including P.Ws. 1 and 2 through Police force and thereafter proved that he is not liable for the amount and there is no legally enforceable debt or other liability as rightly concluded by the trial Court's with that finding supported by reasons from the factual matrix with reference to the law settled supra. Hence for this Court while sitting in appeal, there is nothing to interfere. Accordingly, point No. 1 is answered.

Equivalent Citation: 2015 (2) ALT (Crl.) 280 (A.P.),2015CRLJ(NOC)392 (HYD)

IN THE HIGH COURT OF JUDICATURE AT HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH

Criminal Appeal No. 1512 of 2007

Decided On: 04.06.2014

 Inden Power International Ltd.
Vs.
Chandan Pandya

Hon'ble Judges/Coram:Dr. B. Siva Sankara Rao, J.

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How to show that cheque was issued on behalf of partnership firm?

It is clear from this that the suit promissory notes were not executed on behalf of the firm and there is nothing in these three documents to show that, when these promissory notes were executed, the firm was sought to be made liable. It is now well settled that "it is of the utmost importance that the name of a person or firm to be charged upon a negotiable document should be clearly stated on the face or on the back of the document so that the responsibility is made plain, and can be instantly recognised as the document passes from hand to hand and that in action on a bill of exchange or promissory note against a person whose name properly appears as party to the instrument, it is not open either by way of claim or defence to show that the signatory was, in reality acting for an undisclosed principal."

Andhra High Court

Thummala Rama Rao And Ors. vs Chodagam Venkateswara Rao And ... on 14 July, 1961

Equivalent citations: AIR 1963 AP 154

Bench: Seshachelapathi, C Sastry

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Whether legal heirs of drawer of cheque can be prosecuted for dishonour of cheque?

...on careful perusal of the relevant statutory provisions of law, it is clear that the intention of the legislature was not to make the provisions for prosecuting the legal heirs of the drawer of a cheque, in the event of dishonour under the provisions of Negotiable Instruments Act. It is needless to say that the provisions of the Negotiable Instruments Act are a self contained enactment and wherever there is lacking, the provisions of the Code of Criminal Procedure will have to be pressed into service. As stated earlier, there are absolutely no statutory provisions made under the Negotiable Instruments Act to cover the situation like this. Under the provisions of Section 394 of the Cr.P.C., it is seen that the said section deals with the abatement, of appeals filed Under Section 377 or 378 of the Cr.P.C. This provision cannot be pressed into service for the reason that the Trial Court or this Court has not been dealing with an appeal under the said provisions. It is also necessary to mention that the provisions of Section 256 of the Cr.P.C. deal with the situation that arises after the death of the complainant. In the case in hand, the drawer of the cheque, the accused in a proceeding of this nature, had died even earlier to the presentation of the complaint. Such being the case, the provisions of Section 256 of the Cr.P.C. also cannot come to the aid of the complainant. From this aspect, it is clear that the statute law in this regard is totally silent to meet the situation. When this be the intention of the Legislature, the Courts of law will have to interpret the law, keeping in mind, the golden rules of interpretation and the Courts should always interpret the law keeping in view the letter and spirit of law and such an interpretation should advance the purpose of legislation. It is needless to say that if the Courts do not resort to this exercise,the result thereon will not only be irregular and also illegal, so as to vitiate the entire proceedings.
Thus, in view of the aforesaid admitted facts and legal position, I am of the opinion that filing of the complaint by the complainant as well as the process issued by the Magistrate against the petitioners is nothing but an abuse of the process of the Court. On the plain reading of Section 138 of the Act, it is clear that the proceedings in the complaint alleging offence Under Section 138 cannot be initiated against legal heirs of the person, who had issued the cheque.

Punjab-Haryana High Court

Smt. Kamla And Ors. vs C.P. Bhardwaj on 20 July, 2006

Equivalent citations: III (2007) BC 233, (2006) 144 PLR 174

Bench: S K Mittal

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Whether Drawer of cheque will be liable for dishonour of cheque if cheque was issued as an advance payment for purchase of the goods?

The Explanation appended to Section 138 of the Negotiable Instruments Act, 1881 explains the meaning of the expression “debt or other liability” for the purpose of Section 138. This expression means a legally enforceable debt or other liability. Section 138 treats dishonoured cheque as an offence, if the cheque has been issued in discharge of any debt or other liability. The Explanation leaves no manner of doubt that to attract an offence under Section 138, there should be a legally enforceable debt or other liability subsisting on the date of the drawal of the cheque. In other words, drawal of the cheque in discharge of an existing or past adjudicated liability is sine qua non for bringing an offence under Section 138. If a cheque is issued as an advance payment for purchase of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or otherwise, and material or goods for which purchase order was placed is not supplied, the cheque cannot be held to have been drawn for an existing debt or liability. The payment by cheque cannot be held to have been drawn for an existing debt or liability. The payment by cheque in the nature of advance payment indicates that at the time of drawal of cheque, there was no existing liability.
In Swastik Coaters (P) Ltd. v. Deepak Brothers, 1997 Cri LJ 1942 it was held as under:
“Explanation to Section 138 of the Negotiable Instruments Act clearly makes it clear that the cheque shall be relatable to an enforceable debt or liability and as on the date of the issuing of the cheque there was no existing liability in the sense that the title in the property had not passed on to the accused since the goods were not delivered.”
In Balaji Seafoods Exports (India) Ltd. v. Mac Industries Ltd., (1999) 1 CTC 6, it was held:
“Section 138 of the Negotiable Instruments Act makes it clear that where the cheque drawn by a person on 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 arrangement made with that bank, such person shall be deemed to have committed an offence under section 138 of the Act. The Explanation reads that for the purposes of this section, ‘debt or other liability’ means a legally enforceable debt or liability.”
In Magnum Avaition (P) Ltd. v. State, (2010) 172 DLT 91, it was held:
“The purpose of making or enabling Section 138 of the Negotiable Instruments Act was to enhance the acceptability of cheque in settlement of commercial transactions, to infuse trust into commercial transactions and to make a cheque as a reliable negotiable instrument and to see that the cheques of business transactions are not dishonoured. The purpose of Negotiable Instruments Act is to make an orderly statement of rules of law relating to negotiable instruments and to ensure that mercantile instruments should be equated with goods passing from one hand to other. The sole purpose of the Act would stand defeated if after placing order and giving advance payments, the stop payments are issued and orders are cancelled on the ground of pricing.
But, if a cheque is issued as an advance payment for purchase of the goods and for any reason whatsoever purchase order is not carried to its logical conclusion either because of its cancellation or otherwise and material or goods for which purchase order was placed is not supplied by the supplier, the cheque cannot be said to have been drawn for an existing debt or liability.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 830 OF 2014
(Arising out of SLP (Crl.) No.9752 of 2010)
M/s. Indus Airways Pvt. Ltd. & Ors. V M/s. Magnum Aviation Pvt. Ltd. & Anr.
Dated;April 7, 2014.
Citation;(2014) 12 SCC 539.
R.M. LODHA, J.

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How to prove signature of accused on cheque in case of dishonour of cheque?

 In the case of denial of signature of drawer of a cheque, the best witness would be the concerned Bank Manager and not a hand writing expert The learned Magistrate has allowed the application solely on the ground that the accused would be put to greater hardship if the application were rejected. The learned magistrate has not appreciated the facts on record while allowing the application. It is useful to refer to the decision of the Hon'ble Apex court rendered in L.C. Goyal v. Mrs. Suresh Joshi and Ors. has

observed in para 8 of its judgment as under that

...the cheque bounced not on account of the fact that the appellant of Ext.C-4 was not talking with the specimen signature of the appellant kept with the bank, but on account of insufficient funds. Had the signature on Ext C-4 been different, the bank would have returned the same with the remark that the signature on Ext C-4 was not tallying with the appellant's specimen signature kept with the bank. The memos Ext. C-6 and Ext.C-8 issued by the bank clearly show that the signature of the appellant on Ext.C-4 was not objected to by the bank, but the same was returned with the remark "insufficient funds". This circumstances shows that the signature of Ext.C-4 was that of the appellant.

Karnataka High Court

H.M. Satish S/O Mote Gowda vs B.N. Ashok S/O Ninge Gowda on 8 February, 2007

Equivalent citations: IV (2007) BC 344, 2007 CriLJ 2312

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