M/S. Union Road Ways (P) Ltd., And Another v. M/S. Shah Ramanlal Satesh Kumar And Another

Factual and Procedural Background

The petitioners are accused in C.C. No. 110/90 on the file of the VII Additional Judicial First Class Magistrate, Vijayawada for offences under Sections 138 and 142 of the Negotiable Instruments Act. The first petitioner is a company and the second petitioner is its Director. According to the complaint, a cheque for Rs. 19,000/- issued by the second petitioner in favour of the first respondent on 8-6-1990 was presented on 19-6-1990 and was returned by the bank on 204-1990 with the endorsement “Refer to Drawer”. The complainant issued a registered notice dated 23-6-1990 calling upon the petitioners to pay the amount; the petitioners did not pay and the complaint was filed.

The petitioners' counsel stated that blank cheques were kept in the custody of the Branch Manager and were misused by that manager; a police complaint was lodged and an F.I.R. dated 24-6-1990 was registered. Counsel also contended that Section 138 of the Negotiable Instruments Act was not made out because the cheque was not returned with an endorsement expressly stating insufficiency of funds.

Legal Issues Presented

1. Whether the endorsement “Refer to Drawer” on a returned cheque permits an inference that the cheque was dishonoured for insufficiency of funds so as to sustain a prosecution under Section 138 of the Negotiable Instruments Act.

Arguments of the Parties

Petitioners' Arguments

• Blank cheques were held by the company's Branch Manager and were misused by that manager; a police complaint and FIR dated 24-6-1990 were lodged in that regard.
• Section 138 is not made out because the cheque was not returned with an endorsement stating that it was returned due to insufficiency of funds in the petitioners' account.

Complainant's Position

• The complainant treated the bank's endorsement “Refer to Drawer” as indicating that the cheque had been issued without necessary funds, issued a registered notice dated 23-6-1990, and alleged non-payment by the petitioners.

Table of Precedents Cited

Court's Reasoning and Analysis

The court examined the complaint and noted the bank's endorsement “Refer to Drawer” on the returned cheque. It held that the complainant's inference — that this endorsement necessarily meant the cheque was returned for insufficiency of funds — was not justified because a cheque may be returned for various reasons. The court relied on precedents (Abdul Samad and G.F. Hunasikattimath) that under similar circumstances there is no justification to allow proceedings to continue when the return endorsement does not expressly indicate insufficiency of funds. Applying that principle to the present complaint, the court concluded that the essential ingredient of Section 138 (dishonour for insufficiency of funds as indicated by the bank) was not established by the complaint.

Holding and Implications

The proceedings in C.C. No. 110 of 1990 are quashed and the Criminal Petition is allowed.

Direct effect: The prosecution in the specified criminal case has been terminated. The opinion does not discuss broader implications beyond the quashing of these proceedings; no new precedent beyond the court's application of existing authorities is articulated in the text.