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AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition
Advocates
Judges
Acts
  • Section 138 of the NI Act, Section 482 of the Code of Criminal Procedure
  • Section 140 of the Negotiable Instruments Act, 1881
  • Section 138(b) of the NI Act
  • Section 5, Subsection 2 of the 1983 Income Tax Act
  • Section 138 of the Negotiable Instruments Act, 1881
  • Section 139 of the Negotiable Instruments Act, 1881
  • Section 482 of the Code of Criminal Procedure, 1973
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition
Advocates
Judges
Acts
  • Section 138 of the NI Act, Section 482 of the Code of Criminal Procedure
  • Section 140 of the Negotiable Instruments Act, 1881
  • Section 138(b) of the NI Act
  • Section 5, Subsection 2 of the 1983 Income Tax Act
  • Section 138 of the Negotiable Instruments Act, 1881
  • Section 139 of the Negotiable Instruments Act, 1881
  • Section 482 of the Code of Criminal Procedure, 1973
Smart Summary

Factual and Procedural Background

HMT Watches Ltd. (the appellant) filed twenty criminal complaints in 2007 against M.A. Abida (Respondent 1) alleging offence under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The complaints arose from 57 cheques dated 28-9-2006, totalling Rs 1,79,86,357, which were dishonoured with the bank endorsement “payment stopped by the drawer.” After issuing a statutory demand notice on 9-10-2006 and receiving a reply denying liability, the appellant initiated the complaints before two Judicial First Class Magistrate Courts in Kochi.

Respondent 1 moved the Kerala High Court under Section 482 of the Code of Criminal Procedure, 1973 (CrPC), contending that the cheques were given merely as security in her capacity as a Redistribution Stockist and that no legally enforceable debt existed. On 25-2-2014 the High Court accepted these factual pleas and quashed all pending complaint proceedings. HMT Watches Ltd. appealed to the Supreme Court by special leave.

Legal Issues Presented

  1. Whether the Kerala High Court exceeded its jurisdiction under Section 482 CrPC by quashing the criminal complaints on the basis of disputed questions of fact regarding liability and the purpose of the cheques.
  2. Whether cheques dishonoured due to a “stop-payment” instruction can attract liability under Section 138 of the NI Act notwithstanding the absence of insufficiency of funds.

Arguments of the Parties

Appellant’s Arguments (HMT Watches Ltd.)

  • The High Court committed a grave error of law in quashing proceedings by relying on disputed factual defences that should be adjudicated only at trial.
  • Section 138 presumes liability unless rebutted, and the statutory notice requirements were complied with.
  • “Stop-payment” instructions constitute dishonour under Section 138, attracting criminal liability.

Respondent’s Arguments (M.A. Abida)

  • The cheques were issued merely as security for future transactions; therefore, no enforceable debt existed when they were presented.
  • Because the dishonour resulted from a stop-payment request rather than insufficiency of funds, the ingredients of Section 138 were not met.
  • The signatory of the demand notice was allegedly unauthorised, rendering the notice invalid.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Suryalakshmi Cotton Mills Ltd. v. Rajvir Industries Ltd. (2008) 13 SCC 678 Parameters governing High Court’s power under Section 482 CrPC; courts should not enter disputed facts or accept untested defences at the pre-trial stage. Used to show that the High Court wrongly assessed contested factual issues while quashing complaints.
Rallis India Ltd. v. Poduru Vidya Bhushan (2011) 13 SCC 88 High Court should not discharge accused at threshold without giving parties opportunity to adduce evidence. Reinforced the view that the complaints should proceed to trial where evidence can be examined.
Pulsive Technologies (P) Ltd. v. State of Gujarat (2014) 13 SCC 18 Stop-payment instructions are sufficient to attract liability under Section 138 NI Act. Cited to reject the respondent’s contention that absence of insufficient funds negated Section 138 liability.
Modi Cements Ltd. v. Kuchil Kumar Nandi (1998) 3 SCC 249 Clarified that dishonour due to stop-payment still falls within Section 138. Further supported the finding that a “stop-payment” defence does not absolve liability under the NI Act.

Court's Reasoning and Analysis

The Supreme Court held that the High Court erred in employing its inherent jurisdiction under Section 482 CrPC to decide disputed questions of fact, such as whether the cheques were security instruments and whether any outstanding liability existed. Referring to the statutory presumption of liability in Section 139 NI Act and prohibitions on certain defences in Section 140, the Court noted that such factual disputes must be resolved only after evidence is led before the trial court.

The Court observed that Respondent 1 admitted replying to the statutory notice, undermining the High Court’s conclusion that Section 138(b) was not complied with. Questions concerning the authority of the notice’s signatory were likewise factual and contested, unsuitable for determination in a petition under Section 482 CrPC.

Relying on the decisions in Suryalakshmi Cotton Mills and Rallis India, the Court reaffirmed that High Courts should exercise extreme caution before quashing complaints, especially when defences are neither unimpeachable nor undisputed. Furthermore, guided by Pulsive Technologies and Modi Cements, the Court clarified that a stop-payment instruction is adequate to trigger Section 138 liability, refuting the respondent’s argument centred on insufficiency of funds.

Holding and Implications

Holding: Appeals Allowed; High Court order dated 25-2-2014 quashed. The trial courts are directed to proceed with the criminal complaint cases.

Implications: The complaints under Section 138 NI Act are reinstated and will be tried on their merits. The decision reinforces the restrained scope of High Court interference under Section 482 CrPC and reiterates that “stop-payment” dishonour attracts criminal liability under the NI Act. No new legal doctrine is created, but existing principles are emphatically reaffirmed.

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    Hmt Watches Limited v. M.A. Abida And Another

    Prafulla C. Pant, J.— These appeals are directed against the judgment and order dated 25-2-2014 passed by the High Court of Kerala in M.A Abida v. HMT Watches Ltd. 2014 SCC OnLine Ker 3842 , (2014) 2 KLJ 40, whereby the said Court has allowed the petitions and quashed the proceedings of Criminal Complaint Cases Nos. 1790-96 and 1824-31 of 2007 pending in the Court of Judicial First Class Magistrate (Court No. IV), Kochi; and CC Nos. 1208-12 of 2007, pending in the Court of Judicial First Class Magistrate (Court No. III), Kochi. All these criminal complaint cases were pertaining to the offence punishable under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as “the NI Act”).

    2. We have heard the learned counsel for the parties and perused the papers on record.

    3. Succinctly stated, the appellant filed criminal complaint cases against respondent M.A Abida stating that as many as 57 cheques dated 28-9-2006 were issued by her in discharge of outstanding liability towards the appellant complainant (HMT Watches Ltd.). When the cheques were presented for collection the same were received back, dishonoured by bankers with the endorsement — “payment stopped by the drawer”. Notice of demand dated 9-10-2006 was issued by the complainant to Respondent 1 but she failed to make the payment of the amount mentioned in the cheques i.e total Rs 1,79,86,357. Instead, she sent reply to the notice disputing liability to pay. On this, the complainant filed twenty criminal complaints mentioned above, against Respondent 1 with regard to the offence punishable under Section 138 of the NI Act.

    4. The accused M.A Abida filed Criminal MCs Nos. 2366 and 2367 of 2008 challenging the proceedings initiated by the complainant on the ground that she was Redistribution Stockist (RDS) of watches manufactured by the appellant. The business with the appellant was done till September 2003 on “cash and carry” basis. The accused further pleaded in the petitions filed before the High Court under Section 482 of the Code of Criminal Procedure, 1973 that after 2003 the appellant Company used to collect cheques towards the amount covered by distinct invoices with respect to various consignments for securing payment of amount covered by the invoices.

    5. The High Court accepted the plea of the accused (Respondent 1) and quashed the criminal complaint cases. Hence, these appeals through special leave.

    6. On behalf of the appellant, it is argued before us that the High Court committed a grave error of law in quashing the proceedings of the criminal complaint cases on the factual pleas taken by Respondent 1. On the other hand, the learned counsel for Respondent 1 contended that since the cheques were given as security, as such there was no liability to make the payment, and the ingredients of the offence punishable under Section 138 of the NI Act were not made out.

    7. Section 138 of the Negotiable Instruments Act, 1881 reads as under:

    “138. Dishonour of cheque for insufficiency, etc., of funds in the account.—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 be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both:
    Provided that nothing contained in 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 thirty 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 section, ‘debt or other liability’ means a legally enforceable debt or other liability.”

    8. Section 139 of the Negotiable Instruments Act, 1881 provides that there shall be a presumption in favour of holder of a cheque as to the debt or liability. It reads as under:

    “139. Presumption in favour of holder.—It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque, of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability.”

    9. Section 140 of the Negotiable Instruments Act, 1881 prohibits what cannot be a defence in a prosecution in respect of the offence punishable under Section 138 of the NI Act. It reads as under:

    “140. Defence which may not be allowed in any prosecution under Section 138.—It shall not be a defence in a prosecution for an offence under Section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that section.”

    10. Having heard the learned counsel for the parties, we are of the view that the accused (Respondent 1) challenged the proceedings of criminal complaint cases before the High Court, taking factual defences. Whether the cheques were given as security or not, or whether there was outstanding liability or not is a question of fact which could have been determined only by the trial court after recording evidence of the parties. In our opinion, the High Court should not have expressed its view on the disputed questions of fact in a petition under Section 482 of the Code of Criminal Procedure, to come to a conclusion that the offence is not made out. The High Court has erred in law in going into the factual aspects of the matter which were not admitted between the parties. The High Court further erred in observing that Section 138(b) of the NI Act stood uncomplied with, even though Respondent 1 (accused) had admitted that he replied to the notice issued by the complainant. Also, the fact, as to whether the signatory of demand notice was authorised by the complainant company or not, could not have been examined by the High Court in its jurisdiction under Section 482 of the Code of Criminal Procedure when such plea was controverted by the complainant before it.

    11. In Suryalakshmi Cotton Mills Ltd. v. Rajvir Industries Ltd. (2008) 13 SCC 678 , (2009) 3 SCC (Cri) 824, this Court has made the following observations explaining the parameters of jurisdiction of the High Court in exercising its jurisdiction under Section 482 of the Code of Criminal Procedure:

    “17. The parameters of jurisdiction of the High Court in exercising its jurisdiction under Section 482 of the Code of Criminal Procedure is now well settled. Although it is of wide amplitude, a great deal of caution is also required in its exercise. What is required is application of the well-known legal principles involved in the matter.
    ***
    22. Ordinarily, a defence of an accused although appears to be plausible should not be taken into consideration for exercise of the said jurisdiction. Yet again, the High Court at that stage would not ordinarily enter into a disputed question of fact. It, however, does not mean that documents of unimpeachable character should not be taken into consideration at any cost for the purpose of finding out as to whether continuance of the criminal proceedings would amount to an abuse of process of court or that the complaint petition is filed for causing mere harassment to the accused. While we are not oblivious of the fact that although a large number of disputes should ordinarily be determined only by the civil courts, but criminal cases are filed only for achieving the ultimate goal, namely, to force the accused to pay the amount due to the complainant immediately. The courts on the one hand should not encourage such a practice; but, on the other, cannot also travel beyond its jurisdiction to interfere with the proceeding which is otherwise genuine. The courts cannot also lose sight of the fact that in certain matters, both civil proceedings and criminal proceedings would be maintainable.”

    12. In Rallis India Ltd. v. Poduru Vidya Bhushan (2011) 13 SCC 88 , (2012) 3 SCC (Civ) 269 , (2012) 1 SCC (Cri) 778, this Court expressed its views on this point as under:

    “12. At the threshold, the High Court should not have interfered with the cognizance of the complaints having been taken by the trial court. The High Court could not have discharged the respondents of the said liability at the threshold. Unless the parties are given opportunity to lead evidence, it is not possible to come to a definite conclusion as to what was the date when the earlier partnership was dissolved and since what date the respondents ceased to be the partners of the firm.”

    13. In view of the law laid down by this Court as above, in the present case the High Court exceeded its jurisdiction by giving its opinion on disputed questions of fact, before the trial court.

    14. Lastly, it is contended on behalf of Respondent 1 that it was not a case of insufficiency of fund, as such, ingredients of the offence punishable under Section 138 of the NI Act are not made out. We are not inclined to accept the contention of the learned counsel for Respondent 1. In this connection, it is sufficient to mention that in Pulsive Technologies (P) Ltd. v. State of Gujarat (2014) 13 SCC 18 , (2014) 5 SCC (Civ) 684 , (2014) 5 SCC (Cri) 511, this Court has already held that instruction of “stop payment” issued to the banker could be sufficient to make the accused liable for an offence punishable under Section 138 of the NI Act. Earlier also in Modi Cements Ltd. v. Kuchil Kumar Nandi (1998) 3 SCC 249 , 1999 SCC (Cri) 252, this Court has clarified that if a cheque is dishonoured because of stop payment instruction even then the offence punishable under Section 138 of the NI Act gets attracted.

    15. For the reasons as discussed above, we find that the High Court has committed grave error of law in quashing the criminal complaints filed by the appellant in respect of the offence punishable under Section 138 of the NI Act, in exercise of powers under Section 482 of the Code of Criminal Procedure by accepting factual defences of the accused which were disputed ones. Such defences, if taken before the trial court, after recording of the evidence, can be better appreciated.

    16. Therefore, for the reasons, as discussed above, these appeals deserve to be allowed. Accordingly, the appeals are allowed. The impugned order dated 25-2-2014 passed by the High Court of Kerala in M.A Abida v. HMT Watches Ltd. 2014 SCC OnLine Ker 3842 , (2014) 2 KLJ 40 is hereby quashed. The trial court shall proceed with the trial in the criminal complaint cases. It is clarified that we have not expressed our opinion as to correctness of the defence pleas taken by Respondent 1. No order as to costs.

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    Hmt Watches Limited v. M.A. Abida And Another
    (Mar 19, 2015)