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Gulshan Rai v. Anil Kumar
Structured Summary of the Opinion — Criminal Miscellaneous Nos. 8855-M, 8857-M & 8859-M of 1991
Factual and Procedural Background
These three connected petitions under Section 482 of the Criminal Procedure Code sought quashing of three complaints filed under Section 138 of the Negotiable Instruments Act, 1881 (as amended in 1988) and quashing of the summoning order dated July 1, 1991, passed by the Judicial Magistrate, First Class, Karnal.
The background facts (as set out in the opinion) are: in 1988 a private limited company called Sai Beverage Pvt. Ltd. was formed and purchased land in District Sonepat; disputes between parties led to civil litigation and ultimately to a compromise. Under the compromise the petitioner agreed to pay Rs. 10,00,000 by instalments to the respondent and his associates; share certificates were to be handed over and post-dated cheques were issued as payment. The cheques in dispute comprised two cheques dated February 15, 1991 (each Rs. 1,00,000), one dated April 15, 1991 (Rs. 1,50,000) and one dated May 15, 1991 (Rs. 1,50,000). When presented to the bank the cheques were dishonoured for want of funds. The respondent claims to have served notice and initiated prosecution under Section 138.
There is a factual dispute about when the post-dated cheques were issued: the petitioner says March 12, 1990, the respondent says March 5, 1990. The compromise deed contains clauses (including Clause 1 and paragraph 7) describing payment by post-dated cheques to be issued simultaneously with transfer of share certificates and stating that, if the petitioner fails to arrange payment, the respondent may recover the amount by filing execution.
Legal Issues Presented
- Whether the complaints under Section 138 of the Negotiable Instruments Act disclose an offence when the disputed cheques were post-dated and were presented to the bank more than six months after the date on which they were made (signed) by the drawer.
- When, for the purposes of Section 138, a cheque is to be regarded as "drawn" or "made": (a) the date the instrument bears, or (b) the date on which the drawer actually filled in and signed the cheque?
- Whether the presentation beyond six months from the date the cheque was made bars criminal liability under Section 138 even if the cheque bears a later date.
Arguments of the Parties
Petitioner's Arguments
- The petitioner contends the disputed post-dated cheques were issued on March 12, 1990.
- The petitioner relies on documentary references (receipt P-1 issued by the respondent and P-2 issued by the petitioner) and Clause 1 of the compromise deed to show the cheques were issued contemporaneously with share transfers.
- The petitioner points to paragraph 7 of the compromise deed which provides that if the petitioner fails to arrange payment the respondent would be entitled to recover the amount by execution — suggesting the parties contemplated civil remedies rather than criminal liability if payment failed.
Respondent's Arguments
- The respondent contends the cheques were issued on March 5, 1990, at the time of execution of the compromise deed.
- The respondent claims to have served the statutory notice following dishonour and has proceeded under Section 138 by initiating prosecution.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Babu Xavier v. Lalchand Munoth, [1992] 74 Comp Cas 716 (Madras High Court) | Held that post-dated cheques are "drawn" on the date they are filled in and signed by the drawer; post-dated/ante-dated cheques beyond six months are out of the purview of Section 138 because the cheque is to be treated as drawn when signed. | The court explicitly follows the observations in Babu Xavier and adopts its reasoning that a cheque is drawn on the day it is signed/filled by the drawer; this supports the conclusion that presentation more than six months after the date the cheque was made precludes liability under Section 138. |
| Manoj K. Seth v. Fernandez, [1992] 73 Comp Cas 441 (Kerala High Court) | Held that a post-dated cheque should be considered to have been drawn on the date it bears (i.e., the date written on the cheque) and, accordingly, presentation within six months of the date on the cheque suffices for Clause (a) of the proviso to Section 138. | The court records this contrary view but expressly rejects it, stating that it is unable to endorse the Kerala High Court's observations and instead prefers the approach in Babu Xavier and the textual reading of the Act. |
Court's Reasoning and Analysis
The court's analysis proceeds from statutory text, definitions in the Negotiable Instruments Act and the facts admitted in the record:
- Interpretation of Section 138 proviso: The court notes that proviso (a) to Section 138 requires presentation of the cheque "within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier." The court emphasizes the wording "from the date on which it is drawn" rather than the date printed on the instrument.
- Presumption under Section 118: The court observes that the general presumption under Section 118 (that the negotiable instrument bears the date on which it was made) is not attracted here because the parties have specifically averred that the cheques were post-dated; thus the presumption is rebutted by clear averments.
- Reference to definitions (Section 7): The court cites definition provisions that describe the maker of a cheque as the 'drawer' and explains that a document is "made" when recorded and signed by the maker. On this basis the court reasons that a cheque is deemed to have been made on the day it is filled in and signed by the drawer, without reference to the date it carries.
- Strict construction of penal provision: As Section 138 creates criminal liability, it must be strictly construed. The court reasons that all ingredients (timely presentation, service of notice, and failure to pay within the prescribed period) must be satisfied for criminal liability to arise.
- Consequences for post-dated cheques: The court adopts the view that where a cheque is post-dated and presented beyond six months from the date it was actually made (signed), Section 138 cannot apply. The court accepts that post-dating does not make a cheque invalid, but if post-dating means presentation will be beyond six months from the date of making, the payee is presumed to have known that Section 138 protection would not be available on dishonour.
- Authority and choice between conflicting High Court decisions: The court cites Babu Xavier (Madras) which aligns with its interpretation and follows that decision. It records the contrary Kerala decision in Manoj K. Seth but respectfully rejects that reasoning and prefers the textual and definitional approach it has explained.
- Application to the facts: Because the disputed cheques were admittedly presented more than six months after the date they were made (signed), the court concludes that the necessary temporal ingredient for an offence under Section 138 is not satisfied.
Holding and Implications
Holding:
The court accepted all three criminal miscellaneous petitions and quashed the impugned complaints and the summoning orders.
Implications:
- Direct effect on the parties: The criminal prosecutions under Section 138 arising from the four disputed post-dated cheques (two of Rs. 1,00,000 and two of Rs. 1,50,000) have been quashed; the summoning order dated July 1, 1991, is set aside.
- Scope of decision: The opinion rests on statutory interpretation and choice between two High Court approaches; the court expressly follows Babu Xavier and rejects the contrary view in Manoj K. Seth. The opinion does not purport to lay down a novel general rule beyond its textual analysis, and no broader new precedent beyond the court's stated reliance is claimed in the text of the opinion.
End of summary. This summary strictly reflects only the information contained in the provided opinion and does not add or infer facts beyond that text.
1. This order will dispose of three connected Criminal Miscellaneous Nos. 8855-M of 1991, 8857-M of 1991 and 8859-M of 1991, brought under Section 482 of the Criminal Procedure Code for quashing of three complaints, brought by the respondent against the petitioner for offence under Section 138 of the Negotiable Instruments Act, 1881 (as introduced by the Banking, Public Financial Institutions and Negoitable Instruments Laws (Amendment) Act, 1988), (for brevity " the Act " ). The petitioner also seeks the quashing of the summoning order dated July 1, 1991, passed by the Judicial Magistrate, I Class, Karnal, in these complaints.
2. The brief facts leading to the litigation may be enumerated. In 1988 a private limited concern, known and styled as Sai Beverage Pvt. Ltd., was floated and a piece of land was purchased in District Sonepat, while its registered office was situated at 43 Km. Stone, Karnal GT Road. Disputes having arisen, civil litigation started which culminated in a compromise. Under the terms of the compromise, the petitioner agreed to pay a total sum of Rs. 10,00,000 to the respondent and his associates through instalments. The respondent had to hand over the shares issued in his name and in the names of his associates. Post-dated cheques were issued. The cheques in dispute in the three complaints are : two cheques dated February 15, 1991, each for Rs. 1,00,000 ; a third cheque dated April 15, 1991, for Rs. 1,50,000 and a fourth cheque dated May 15, 1991, for Rs. 1,50,000. These cheques, when presented to the bank, were dishonoured, as the funds were not arranged for. The respondent claims to have served the necessary notice and the payments nut having been made, he has initiated prosecution.
3. The fact that the cheques were post-dated is not disputed. However, there is a dispute as to the date when these were issued. According to the petitioner, the cheques were issued on March 12, 1990, while according to the respondent, they were issued on March 5, 1990, at the time of execution of the compromise deed. The case of the petitioner is prima facie corroborated by a reference to receipt P-i issued by the respondent in favour of the petitioner and P-2 issued by the petitioner in favour of the respondent, read along with Clause 1 whereby it had been agreed between the parties that :
" The mode of payment will be by means of cheques to be drawn by the defendants/appellants in favour of the shareholders belonging to the respondents' group whose names will be given by the respondent to the appellant showing the amount to be paid to each payee, as per schedule of instalments, shown above, in respect of the total amount of Rs. 10 lakhs to be paid to them. The defendants/appellants will issue post-dated cheques simultaneously on transfer of the share certificates held by the respondent and his associates in respect of the above-said two companies, and those shall have the first charge on the present and future assets of the appellant."
4. The recitals in the compromise deed clearly postulated the issuing of post dated cheques simultaneously when the shares were transferred. I may, however, add that the date of issue of the post-dated cheques, whether March 5, 1990, as claimed by the respondent or March 12, 1990, as claimed by the petitioner, will not make any material difference for the decision of the present case as, in either case, the legal proposition will be the same.
5. Section 138 of the Act envisages the commission of an offence by the drawer of a cheque which has been dishonoured if the conditions mentioned therein are fulfilled. One of the conditions in proviso (a) to the Section is to the effect that 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. A plain reading of this Section shows that the cheque has to be presented not beyond the period of six months from the date of its making. It shall be irrespective of the fact as to the date which the cheque carries at its face. The presumption under Section 118 of the Act that the negotiable instrument bearing the date will be presumed to have been made on that date is not attracted to the facts of the present case, as this presumption stands rebutted from the clear averments made by the parties themselves. The cheques were post-dated and to fix the petitioner with a criminal liability, the respondent had to present the cheque within six months of the date it was drawn. The Legislature, in its wisdom has used in Section 138 the words "within a period of six months from the date on which it is drawn" instead of saying "within six months from the date the cheque bears." The post-dating of the cheque does not make it invalid, but when such a cheque is post-dated in a manner that the date of presentation is beyond the period of six months of the date on which it is drawn, it can be presumed that the payee had the knowledge that in the event of its dishonour for want of funds, the criminal liability created under Section 138 will not be attracted. The fact that it was stipulated in the compromise and it was to the knowledge of the respondent that the criminal charge shall not be attracted in case of dishonour, derives support from the averments made in paragraph 7 of the compromise deed wherein it had been agreed that in case the petitioner fails to arrange for payment of the cheque in favour of the respondent or his associates, the respondent shall be entitled to recover the amount by filing an execution. Section 138 of the Act is a penal provision and its language has to be strictly construed. Under this section, the offence is not committed either by the issuance of the cheque or by its dishonour, but only if all the ingredients of the Section are fulfilled, including the presentation within the time specified, the issuance of a proper notice and the failure of the drawer to make the payment within the stipulated period.
6. A similar situation was examined by Padmini Jesudurai J. of the Madras High Court in Babu Xavier v. Lalchand Munoth, [1992] 74 Comp Cas 716 and the learned judge observed as follows (at page 722) :
" Post-dated cheques, though legal, are real anomalies in the commercial world. They are payable on demand and negotiable even between the dates of issue and the dates shown on them. The holder of such a cheque, duly negotiated to him, even before the date the cheque bears, is indeed a holder in due course under the Act. Yet when presented to the bank before the ostensible date, the banker does not honour the cheque but returns them. The unpaid banker who honours the cheque, without noticing the date the cheque bears, does so at its risk, since he is bound to suffer loss, if the drawer of the cheque countermands the cheque before the date of the cheque, by a stop payment order or he dies or becomes insolvent before the above date. The position of a holder in due course of such a cheque is just the same.
Yet the law is that a cheque otherwise valid, does not become invalid merely by reason of its being either post-dated or ante-dated. When, therefore, a person receives a cheque, post-dated or ante-dated beyond a period of six months, he should be deemed to receive it with the knowledge that in the event of dishonour for want of funds, Section 138 of the Act will not help him. This obviously is the intention of Parliament. . .
It flows from the above discussion that a cheque is drawn on the date when the drawer signs the cheque, complete in its form. On such an interpretation, cheques post-dated or ante-dated beyond the period of six months from the date the cheques bear, would be out of the purview of Section 138 of the Act."
7. A contrary view was taken by the Kerala High Court in Manoj K. Seth v. Fernandez [1992] 73 Comp Cas 441. Their Lordships of the Kerala High Court considered as to when a post-dated cheque shall be deemed to have been drawn and the following observations were made (at page 447) :
" Offences under Section 138 of the Act would be committed only when a cheque drawn for payment of any debt or liability is returned by the bank unpaid and the drawer fails to make payment of the said amount within 15 days of the notice of dishonour. One of the elements to be satisfied is that the cheque should have been returned unpaid. It goes without saying that such return of the cheque by the drawee could only be on presentation ; that is when he is capable of presenting the same for encashment. In the case of post-dated cheque as noted earlier, the same can be presented only on or after the date of the cheque. The question as to when a post-dated cheque can be considered to have been drawn for the purpose of Section 138 of the Act cannot be dealt with independently of the right to present the same. In relation to the drawer and drawee, a post-dated cheque becomes operative only from the date of the cheque when alone the same is intended to be honoured. A post-dated cheque for the purpose of Clause (a) of the proviso to Section 138 of the Act has to be considered to have been drawn on the date it bears and in this case, since the cheque was presented within six months of the date of the cheque, it cannot be said that the condition in the said proviso is not satisfied."
8. With due respect to the learned judges, I am unable to endorse these observations. No separate definition as to drawing or making a cheque was given in the Act for the purpose of Section 138. As such, the other provisions of the Act have to be considered as to when the cheque is deemed to have been drawn under Section 7 of the Act. 'Drawer' and 'drawee' are defined as follows :
" 7. 'Drawer', 'Drawee'. - The maker of a bill of exchange of cheque is called the 'drawer', the person thereby directed to pay is called the 'drawee'."
9. A document is stated to be made when recorded and signed by the maker thereof. A cheque shall be deemed to have been made on the day it is filled in and signed by the drawer without reference to the date it carries. The date it carries at its face is only recorded to determine if it is an ante-dated or post-dated cheque. If there be no such allegation, then there will be a presumption under Section 118 that the cheque was drawn on the date it carries at its face. I follow the observations of the learned judge of the Madras High Court in Babu Xavier's case [1992] 74 Comp Cas 716.
10. Since admittedly, the disputed cheques were presented to the bank more than six months after the date they were made, no criminal offence under Section 138 of the Act is made out. In this situation, I accept all the three criminal miscellaneous petitions, enumerated above and quash the impugned complaints and the summoning orders.
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