India: Supreme Court: Section 138 Of The NI Act Is Self-Contained; CrPC Is Not Applicable To Dishonour Of Cheques

Supreme Court has held that:

  • The concept of "taking cognizance of the offence but not the offender" in the context of the Code of Criminal Procedure, 1973 ("CrPC"), is not applicable to proceedings under Section 138 of the Negotiable Instruments Act 1881 ("NI Act"). Section 138 is self-contained in so far as it creates an offence and prescribes the punishment;
  • To establish the commission of an offence of dishonor of cheques - each of the ingredients under Section 138 of the NI Act has to be proven;
  • The identity of the drawer of the cheque, being the first ingredient under Section 138 of the NI Act, is a mandatory requirement for establishing the cause of action for prosecution
  • Mandatory to array the company itself in case the offence is committed by the company;

Introduction:

Recently, in N. Harihara Krishnan ("Appellant") v. J. Thomas ("Respondent"),1 the Supreme Court ("SC") has held that Section 1382 of the NI Act is self-contained, in so far as it creates an offence and prescribes necessary punishment. It does not contemplate a procedure for investigation of the offence. Hence, the concept of "taking cognizance of the offence and not the offender" is inappropriate in cases of dishonour of cheques.

Background Facts:

M/s Norton Granites ("Norton") and M/s Srivari Exports ("Srivari") executed three sale deeds for sale of three parcels of land to Srivari. The Appellant was the managing partner of Srivari besides being a director of a company M/s Dakshin Granites Pvt. Ltd. ("Dakshin"), while the Respondent was the power of attorney holder for the managing director of Norton. A cheque amounting to INR 39 lakhs (allegedly towards the balance of the sale consideration) was drawn by the Appellant in favour of the Respondent. When the cheque was presented for collection, the same was dishonoured as the account on which the cheque was drawn had been closed.

Subsequently, the Respondent issued a notice calling upon the Appellant to pay INR 39 lakhs within 15 days from the receipt of the notice.3 This notice was served on the Appellant on 14 September 2012. On the Appellant's failure to respond or make any payment, a complaint was filed by the Respondent on 8 October 2012.

Subsequently, on 19 August 2015, an application was moved by the Respondent ("Application") under Section 319 of the CrPC to implead Dakshin. In the Application, the Respondent contended that it was only during the cross-examination of the Appellant that the Respondent discovered that the impugned cheque was drawn on behalf of Dakshin, and by the Appellant as its signatory. The trial court allowed the Application on the basis that court is not required to take cognizance of each accused persons if cognizance has been taken against the offence. The Appellant filed an appeal aggrieved by the decision of the trial court. However, the High Court upheld the decision of the trial court. The decision of the High Court was subsequently appealed before the Supreme Court.

Arguments on behalf of the parties:

Arguments advanced on behalf of the Appellant

  1. Since the cheque was drawn on behalf of Dakshin, the primary liability would be on Dakshin and the Appellant could only be vicariously liable (if at all) in his capacity as the director of Dakshin.
  2. Since, the Respondent had not impleaded Dakshin in the original complaint (the impleadment application was filed only after the lapse of three years), the application was, in substance, a complaint against Dakshin, filed three years after the expiry of the period of 15 days stipulated under proviso (c) to Section 138 of the NI Act.4
  3. In the absence of any valid explanation for condonation of such delay, the courts below have erred in allowing impleadment of Dakshin, especially since the timelines prescribed in the NI Act are mandatory, and in holding that once the offence is taken cognizance of, the question of delay does not arise.

Arguments advanced on behalf of the Respondent

It was the case of the Respondent that the cheque was signed by the Appellant. It was further contended that sufficient cause had been established for condonation of delay since the Respondent became aware that the cheque in question was drawn on the account of Dakshin only during the course of trial.

Decision of the SC:

On the liability of the Respondent vis-à-vis Dakshin

Applying the doctrine laid down in Aneeta Hada v. Godfather Travels & Tours Private Limited5 in cases of dishonour of cheques issued by a company if the company is not arrayed as an accused in the complaint, the court cannot take cognizance of the offence. The SC further held that:

"...for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the dragnet on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh (supra) which is a three-Judge Bench decision."

Thus, other categories of offenders in this regard, such as authorized signatories of the company who may have signed the cheque would only be vicariously liable.

On the scheme under the Section 138 of NI Act: cognizance of each accused v. cognizance of the offence:

The SC held that Section 138 creates an offence and prescribes punishment on establishment of the ingredients stipulated therein, that are:

  1. that a person drew a cheque on an account maintained by him with the banker;
  2. that such a cheque when presented to the bank is returned by the bank unpaid;
  3. that such a cheque was presented to the bank within a period of six months from the date it was drawn or within the period of its validity whichever is earlier;
  4. that the payee demanded in writing from the drawer of the cheque the payment of the amount of money due under the cheque to payee;
  5. such a notice of payment is made within a period of 30 days from the date of the receipt of the information by the payee from the bank regarding the return of the cheque as unpaid; and
  6. that in spite of the demand notice referred to above, the drawer of the cheque failed to make the payment within a period of 15 days from the date of the receipt of the demand – this would essentially have to be proven by the drawer of the cheque.

A failure to comply with any of these ingredients would not provide a "cause of action for prosecution." Thus, in the context of Section 138 of the NI Act, the concept of "taking cognizance of the offence but not the offender" would be inappropriate. Non-fulfillment of the first ingredient, i.e. person drawing the cheque would result in prosecution without accused – an impossibility in itself. In such a scenario, the court cannot take cognizance of the offence.

Analysis of the decision:

In the foregoing judgment, the SC has distinguished between the schemes and procedures under the NI Act and CrPC, with sufficient clarity. In doing so, it has exempted applicability of the principle of "taking cognizance of the offence but not the offender" derived in in the background of the scheme of CrPC, to prosecution for dishonour of cheques under Section 138 of the NI Act.

Such a finding has several practical implications especially when a cheque is drawn by a company wherein cognizance would have to be taken against the company. Since an authorized signatory signing on behalf of the company would only be vicariously liable, it would be mandatory to array the company in the prosecution.

Footnotes

1 2017 SCC OnLine SC 1017 [Criminal Appeal No. 1534 of 2017 (Arising out of SLP (Crl.) No. 1439 of 2017), decided on 30 August 2017]

2 NI Act, section 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 provisions of this Act, be punished with imprisonment for 19 [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, 20 [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.]

3 See Section 138(b) of the NI Act.

4 See, NI Act, section 142(1)(a)

5 (2012) 5 SCC 661

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Alipak Banerjee
Moazzam Khan
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions