Thomas Varghese v. P. Jerome

Sreedharan, J.:— This is a petition filed under Section 482 of the Code of Criminal Procedure for quashing the complaint in C.C 468/1990 on the Judicial 1st Class Magistrate's Court, Punalur. Learned counsel representing the petitioner canvassed the correctness of the decision in Calcutta Sanitary Wares v. Jacob (1991 (1) K.L.T 269), Consequently a learned Single Judge referred the petition to Division Bench for disposal.

2. Before dealing with the question of law raised, we consider it advantageous to refer to the averments made by the complainant before the Court below. They are in the following terms. Accused entered into an agreement for sale of his property with the complainant on 21-3-1989. In pursuance of that agreement, accused received Rs. 21,001/- In three instalments since the contract fell through, he issued cheque dated 8-12-1989 bearing No. 787656 drawn on the Cheppad Branch of the Lord Krishna Bank for repayment of the amount. Thereafter with the intention of cheating the complainant and to make unlawful enrichment to himself, the accused caused the issuance of a lawyer's notice on 25-9-1989 alleging incorrect facts. By the intervention of mediatorsr accused agreed to remit sufficient amount in the bank so as to honour the cheque. The complainant agreed to forgo interest on the amount. Contrary to this agreement, without remitting the amount in the bank for honouring the cheque, accused informed the back to stop payment of the amount covered by the cheque. Complainant presented the cheque through the Punalur Branch of the Canara Bank for encashment. That cheque was dishonoured by memo dated 4-4-1990 stating “Payment stopped by the Drawer”. The complainant proceeded on to state that the accused had no funds with his bank either on 8-12-1989 or on any subsequent date and so he issued stop memo to the bask. When the cheque was dishonoured, a lawyer's notice was sent to the accused on 18-4-1990 requiring him to pay the amount covered by the cheque. The notice was received by the accused on 20-4-1990. Accused did not pay the amount. Hence liable for offences under Section 138 of the Negotiable Instruments Act, herainafter referred to as “the Act”, and Section 420 of the Indian Penal Code. For a proper understanding of the provisions contained in Section 138 of the Act, we read the same:—

“138. 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 provision of this Act be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained is 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 within fifteen 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 seetion, “debt or other liability” means a legally enforceable debt or other liability”.

3. This shows that the drawer of the cheque should have drawn the same on am account maintained by him with the banker. That cheque must have been drawn for payment of any amount of money to another from out of that account. The money so drawn must have been for discharge of the whole or part of any debt or other liability. The said cheque must be returned by the bank unpaid. The return of the cheque must be either because of the amount of money standing to the credits 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 the bank. On satisfying these conditions, drawer of the cheque will be deemed to have committed an offence under the Section if the other requisites in the proviso are satisfied. As per the proviso, the cheque should have been presented to the bank within a period of six months from the date on which it was drawn or within the period of its validity, whichever is earlier. The payee should make a demand for the payment of the amount covered by the cheque by giving notice in writing to the drawer within 15 days of the information regarding the return of the cheque. Within 15 days of the receipt of the said notice, the drawer of the cheque must fall to pay the amount covered by the cheque to the payee or the holder in due course of the cheque.

4. In the instant case, the complaint specifically avers that the accused drew a cheque on an account maintained by him with the Cheppad Branch of the Lord Krishna Bank. It was for payment of an amount of Rs. 21,001/- to the complainant. It was dated 8-12-1989. Complainant presented the cheque for encashment. It was returned unpaid, as evidenced by banker's memo dated 4-4-1990. Memo is to the effect that the return of the cheque was due to “Payment stopped by Drawer”. On 18-4-1990, complainant issued lawyer's notice calling upon the accused to make the payment covered by the cheque. That notice was received by the accused on 20-4-1990. He did not pay the amount and hence complaint dated 4-6-1990.

5. The main argument advanced by the learned counsel representing the petitioner is that an offence under Section 138 of the Negotiable Instruments Act can be maintained only if the cheque happens to be returned by the bank either because of the amount of money standing to the credit of the account of the drawer 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. Hence for a complaint to be entertained by the Court, the banker's endorsement while returning the cheque must. Be on the ground that the amount of money standing to the credit of the account of the drawer is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the Bank. In other words, it is contended that if the endorsement given by the bank while returning the cheque is anything other than the above, the complaint must be thrown out at the threshold. According to counsel, the penal provision contained in Section 138 of the Act should be construed liberally in favour of the person who would be liable to the penalty.

6. From the argument advanced by the learned counsel representing the petitioner, it would appear that an offence under Section 138 of the Act should depend on the endorsement made by the banker while returning the cheque unpaid, i.e only when the banker makes an endorsement that the amount of money standing to the credit of the account of the drawer 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 can an offence under Section 138 of the Act be made out. According to us, such an approach Will defeat the very purpose of the enactment. The offence under the Section cannot depend on the endorsement made by the banker while returning the cheque, Irrespective of the endorsement made by the banker, if it is established that infact the cheque was returned unpaid either because the amount of the money standing to the credit of the account of the drawer 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, the offence will be established. The endorsement made by the banker while returning the cheque cannot be the decisive factor.

7. Learned counsel representing the petitioner brought to our notice the following decisions in support of his contention that the offence under Section 138 of the Act will depend on the wording of endorsement made by the banker while returning the cheque. The first decision referred by him is of a learned Single Judge of the Punjab and Haryana High Court in Abdul Samad… v. Satya Narayan Mahawar…. (II (1990) BC 305). In that case, the banker returned the cheque unpaid with the remarks “Payment stopped by the drawer”. Learned Single Judge held that the ingredient of Section 138 of the Act, namely the cheque is returned unpaid because the amount available in that account is Insufficient for making the payment of the cheque was missing and consequently the complaint was quashed under Section 482 of the Code. No discussion is seen in the judgment to support that conclusion. The second decision cited by him is G.F Hunasikattimath v. State of Karnataka (ILR 1990 KAR 3881). In that case, a complaint under Section 138 of the Act was dismissed by the Magistrate holding that no sufficient material is made out by the complainant to proceed against the accused for the offence punishable under Section 138 of the Act. There the cheque was dishonoured on the ground of “closure of his account.” The order of the Magistrate was challenged before the High Court in a petition under Section 482. Petitioner's counsel at first wanted two weeks time on the ground that the matter is likely to be settled. After the expiry of the two weeks when the case came up for hearing, he did not appear in Court. Learned Judge, after hearing counsel for respondent, took the view that in the light of the endorsement made by the banker at the time of the return of the cheque, the Court will not be justified in proceeding with the complaint for an offence under Section 138 of the Act.

8. Section 138 was enacted by the legislature to enhance the acceptability of cheques. The drawer of the cheque was sought to be made liable in case of bouncing of cheques due to insufficiency of funds in the accounts or for the reason that it exceeds the arrangements made by the drawer with the bank. If the cheque is bounced on account of insufficiency of funds in the accounts of the drawer or for the reason that it exceeds the arrangements made by the drawer, then the drawer must be liable. It cannot solely depend on the endorsement made by the banker. An endorsement by the banker that a cheque is returned due to insufficiency of funds standing in the name of the drawer will tell upon the financial soundness of the drawer. Such an endorsement may adversely affect the reputation of the drawer. Sometimes a banker may be slow to use the words such as “no sufficient fund in the account” etc. because it may have adverse implication on the financial soundness of the drawer of the cheque and consequently affect his reputation also. So if the banker refrains from making such a derogatory endorsement, should the object of the legislation be defeated?.

9. The rule of strict interpretation of penal statutes in favour of an accused is not of rigid or universal application. It must be considered along with other well established rules of interpretation. When it is seen that the scheme and object of the statute are likely to be defeated by the strict interpretation, Courts must endeavour to resort to that interpretation which furthers the object of the legislation. It is well recognised that a statutory provision must be construed, if possible, to avoid absurdity and mischief. In K.P Varghese v. Income Tax Officer, Ernakulam ((1981) 4 SCC 173) Their Lordships observed:—

“It is now a yell-settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the court may modify the language used by the legislature or even ‘do some violence’ to it, so as to achieve the obvious intention of the legislature and produce a rational construction (vide Luke v. Inland Revenue Commissioner). The Court may also in such a case read Into the statutory provision a condition which though not expressed, is implicit as constituting the basic assumption underlying the statutory provision”.

10. In this circumstance, we are not in a position to hold that a complaint under Section 138 of the Act should be thrown out at the threshold if the Banker's endorsement while returning the cheque is anything other than that the amount of money standing to the credit of the account of the drawer is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank. If the circumstances contemplated by Section 138 of the Act are made out, the Court has to examine whether the return of the cheque was on account of Insufficiency of funds belonging to the drawer. This can be done even without reference to the endorsement made by the banker. Endorsements like “refer to drawer”, “account closed”, “payment has been stopped”, etc. made by the banker at the time of the return of the cheque are having the effect of proving that the cheque has been bounced. If the bouncing of the cheque was on account of insufficiency of funds belonging to the drawer, then the drawer will be subjecting himself to proceedings under Section 138 of the Act. In Calcutta Sanitary Wares v. Jacob (1991 (1) KLT 269), a learned Judge of this Court observed:—

“The issuance of cheques and their dishonour followed by notices of demand and failure, to pay, are not matters which had been challenged. That payment was countermanded by a stopmemo is of no consequence. That hardly affects the right of the respondent to initiate proceedings under the Act. It has the same effect as a closure of the account as far as he is concerned. The object of the provision cannot be allowed to be defeated by such ingenuous action”.

11. According to us, the above observations were made with reference to the facts before him. However, we are of the view that the learned Judge was right in observing that countermanding of a cheque by a stop memo hardly affects the rights of the complainant to initiate proceedings under the Act. It is not necessary for us to consider the effect of other observations made by the learned Single Judge in the above quoted passage on the facts before us. In the complaint filed before the Court below complainant had specifically stated that the accused had no amount in his account with the bank for honouring the cheque and that he mischievously and maliciously issued a direction to the backer to stop payment. The complaint makes out all the ingredients of the offence under Section 138 of the Act. In such a situation, this Court is not to quash the complaint in exercise of he powers under Section 482 of the Code of Criminal Procedure.

12. Petition fails. It is accordingly dismissed.