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REPORTABLE

IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

CRIMINAL     APPEAL     NOS.     1870-1909     OF     2012   (Arising out S.L.P. (Crl.) Nos. 1740-1779 of 2011)

M/s Laxmi Dyechem …Appellant

Versus

State of Gujarat & Ors. …Respondents

With      

CRIMINAL     APPEAL     NOS.       1910-1949     OF     2012   (Arising out S.L.P. (Crl.) Nos.1780-1819 of 2011)

J     U     D     G     M     E     N     T   

T.S.     THAKUR,     J.   

1. Leave granted.

2. These appeals are directed against orders dated 19th April,  

2010 and 27th August, 2010 passed by the High Court of Gujarat at  

Ahmedabad whereby the High Court has quashed 40 different  

complaints under Section 138 of the Negotiable Instruments Act,  

1881 filed by the appellant against the respondents. Relying upon  

the decision of this Court in Vinod Tanna & Anr. v. Zaher Siddiqui  

& Ors. (2002) 7 SCC 541, the High Court has taken the view that  

dishonour of a cheque on the ground that the signatures of the  

drawer of the cheque do not match the specimen signatures

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available with the bank, would not attract the penal provisions of  

Section 138 of the Negotiable Instruments Act. According to the High  

Court, the provisions of Section 138 are attracted only in cases  

where a cheque is dishonoured either because the amount of money  

standing to the credit to the account maintained by the drawer is  

insufficient to pay the cheque amount or the cheque amount exceeds  

the amount arranged to be paid from account maintained by the  

drawer by an agreement made with the bank.  Dishonour of a  

cheque on the ground that the signatures of the drawer do not  

match the specimen signatures available with the bank does not,  

according to the High Court, fall in either of these two contingencies,  

thereby rendering the prosecution of the respondents legally  

impermissible.  Before we advert to the merits of the contentions  

urged at the Bar by the learned counsels for the parties, we may  

briefly set out the factual backdrop in which the controversy arises.

3. The appellant is a proprietorship firm engaged in the sale of  

chemicals.  It has over the past few years supplied Naphthalene  

Chemicals to the respondent-company against various invoices and  

bills issued in that regard. The appellant’s case is that a running  

account was opened in the books of account of the appellant in the  

name of the respondent-company in which the value of the goods  

supplied was debited from time to time as per the standard

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accounting practice. A sum of Rs.4,91,91,035/- (Rupees Four Crore  

Ninety One Lac Ninety One Thousand Thirty Five only) was according  

to the appellant outstanding  against the respondent-company in the  

former’s books of accounts towards the supplies made to the latter.  

The appellant’s further case is that the respondent-company issued  

under the signatures of its authorised signatories several post dated  

cheques towards the payment of the amount aforementioned.  

Several of these cheques (one hundred and seventeen to be precise)  

when presented were dishonoured by the bank on which the same  

were drawn, on the ground that the drawers’  signatures were  

incomplete or that no image was found or that the signatures did not  

match. The appellant informed the respondents about the dishonour  

in terms of a statutory notice sent under Section 138 and called upon  

them to pay the amount covered by the cheques. It is common  

ground that the amount covered by the cheques was not paid by the  

respondents although according to the respondents the company had  

by a letter dated 30.12.2008, informed the appellant about the  

change of the mandate and requested the appellant to return the  

cheques in exchange of fresh cheques. It is also not in dispute that  

fresh cheques signed by the authorised signatories, according to the  

new mandate to the Bank, were never issued to the appellant  

ostensibly because the offer to issue such cheques was subject to

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settlement of accounts, which had according to the respondent been  

bungled by the outgoing authorised signatories. The long and short  

of the matter is that the cheques remained unpaid despite notice  

served upon the respondents that culminated in the filing of forty  

different complaints against the respondents under Section 138 of  

the Negotiable Instruments Act before the learned trial court who  

took cognizance of the offence and directed issue of summons to the  

respondents for their appearance.  It was at this stage that Special  

Criminal Applications No.2118 to 2143 of 2009 were filed by Shri  

Mustafa Surka accused No.5 who happened to be one of the  

signatories to the cheques in question.  The principal contention  

urged before the High Court in support of the prayer for quashing of  

the proceedings against the signatory to the cheques was that the  

dishonour of cheques on account of the signatures ‘not being  

complete’  or ‘no image found’  was not a dishonour that could  

constitute an offence under Section 138 of the Negotiable Instrument  

Act.  

4. By a common order dated 19th April, 2010, the High Court  

allowed the said petitions, relying upon the decision of this Court in  

Vinod Tanna’s case (supra) and a decision delivered by a Single  

Judge Bench of the High Court of Judicature at Bombay in Criminal  

Application No.4434 of 2009 and connected matters. The Court

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observed:

“In the instant case, there is no dispute about the endorsement  that “drawers signature differs from the specimen supplied”  and/or “no image found-signature”  and/or “incomplete  signature/illegible”  and for return/dishonour of cheque on the  above endorsement will not attract ingredients of Section 138  of the Act and insufficient fund as a ground for dishonouring  cheque cannot be extended so as to cover the endorsement  “signature differed from the specimen supplied” or likewise.  If  the cheque is returned/bounced/dishonoured on the  endorsement of “drawers signature differs from the specimen  supplied”  and/or “no image found-signature”  and/or  “incomplete signature / illegible”, the complaint filed under  Section 138 of the Act is not maintainable.  Hence, a case is  made out to exercise powers under Section 482 of the Code of  Criminal Procedure, 1973 in favour of the petitioner”.

5. Special Criminal Applications No.896 to 935 of 2010 were  

then filed by the remaining accused persons challenging the  

proceedings initiated against them in the complaints filed by the  

petitioner on the very same ground as was taken by Mustafa Surka.  

Reliance was placed by the petitioners in the said petitions also upon  

the decision of this Court in Vinod Tanna’s case (supra) and the  

decision of the Single Judge Bench of High Court of Bombay in  

Mustafa Surka v. M/s. Jay Ambe Enterprise & Anr. [2010 (1)  

Bombay Cases Reporter (Crl.) 758].  The High Court has, on the  

analogy of its order dated 19th April, 2010 passed in the earlier batch  

of cases which order is the subject matter of SLP Nos.1780-1819 of  

2011, quashed the proceedings and the complaints even qua the  

remaining accused persons, respondents herein. The present  

appeals, as noticed above, assail the correctness of both the orders

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passed by the High Court in the two batch of cases referred to  

above.

6. Chapter XVII comprising Sections 138 to 142 of the  

Negotiable Instruments Act was introduced in the statute by Act 66  

of 1988. The object underlying the provision contained in the said  

Chapter was aimed at inculcating faith in the efficacy of banking  

operations and giving credibility to negotiable instruments in  

business and day to day transactions by making dishonour of such  

instruments an offence.  A negotiable instrument whether the same  

is in the form of a promissory note or a cheque is by its very nature  

a solemn document that carries with it not only a representation to  

the holder in due course of any such instrument but also a promise  

that the same shall be honoured for payment. To that end Section  

139 of the Act raises a statutory presumption that the cheque is  

issued in discharge of a lawfully recoverable debt or other liability.  

This presumption is no doubt rebuttable at trial but there is no  

gainsaying that the same favours the complainant and shifts the  

burden to the drawer of the instrument (in case the same is  

dishonoured) to prove that the instrument was without any lawful  

consideration.  It is also noteworthy that Section 138 while making  

dishonour of a cheque an offence punishable with imprisonment and  

fine also provides for safeguards to protect drawers of such

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instruments where dishonour may take place for reasons other than  

those arising out of dishonest intentions.  It envisages service of a  

notice upon the drawer of the instrument calling upon him to make  

the payment covered by the cheque and permits prosecution only  

after the expiry of the statutory period and upon failure of the  

drawer to make the payment within the said period.  

7. The question that falls for our determination is whether  

dishonour of a cheque would constitute an offence only in one of the  

two contingencies envisaged under Section 138 of the Act, which to  

the extent the same is relevant for our purposes 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  of a term which may extend to one year, or with fine which  may extend to twice the amount of the cheque, or with both.”

8. From the above, it is manifest that a dishonour would  

constitute an offence only if the cheque is retuned by the bank  

‘unpaid’ either because the amount of money standing to the credit  

of the drawer’s account is insufficient to honour the cheque or that  

the amount exceeds the amount arranged to be paid from that

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account by an agreement with that bank.  The High Court was of the  

view and so was the submission made on behalf of the respondent  

before us that the dishonour would constitute an offence only in the  

two contingencies referred to in Section 138 and none else.  The  

contention was that Section 138 being a penal provision has to be  

construed strictly.  When so construed, the dishonour must  

necessarily be for one of the two reasons stipulated under Section  

138 & none else. The argument no doubt sounds attractive on the  

first blush but does not survive closer scrutiny. At any rate, there is  

nothing new or ingenious about the submission, for the same has  

been noticed in several cases and repelled in numerous decisions  

delivered by this Court over the past more than a decade.  We need  

not burden this judgment by referring to all those pronouncements.  

Reference to only some of the said decisions should, in our opinion,  

suffice.  

9. In NEPC Micon Ltd. v. Magma Leasing Ltd. (1999) 4 SCC  

253, the cheques issued by the appellant-company in discharge of  

its liability were retuned by the company with the comments  

‘account closed’.  The question was whether a dishonour on that  

ground for that reason was culpable under Section 138 of the  

Negotiable Instruments Act. The contention of the company that  

issued the cheque was that Section 138 being a penal provision

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ought to be strictly construed and when so interpreted, dishonour of  

a cheque on ground that the account was closed was not punishable  

as the same did not fall in any of the two contingencies referred to in  

Section 138. This Court noticed the prevalent cleavage in the judicial  

opinion, expressed by different High Courts in the country and  

rejected the contention that Section 138 must be interpreted strictly  

or in disregard of the object sought to be achieved by the statute.  

Relying upon the decision of this Court in Kanwar Singh v. Delhi  

Administration (AIR 1965 SC 871), and Swantraj v. State of  

Maharashtra (1975) 3 SCC 322 this Court held that a narrow  

interpretation of Section 138 as suggested by the drawer of the  

cheque would defeat the legislative intent underlying the provision.  

Relying upon the decision in State of Tamil Nadu v. M.K.  

Kandaswami (1975) 4 SCC 745, this Court declared that while  

interpreting a penal provision which is also remedial in nature a  

construction that would defeat its purpose or have the effect of  

obliterating it from the statute book should be eschewed and that if  

more than one constructions are possible the Court ought to choose  

a construction that would preserve the workability and efficacy of the  

statute rather than an interpretation that would render the law otiose  

or sterile.  The Court relied upon the much quoted passage from the  

Seaford Court Estates Ltd. v. Asher (1949 2 All E.R. 155)

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wherein Lord Denning, L.J. observed:

“The English language is not an instrument of mathematical  precision. Our literature would be much poorer if it were. This  is where the draftsmen of Acts of Parliament have often been  unfairly criticised. A judge, believing himself to be fettered by  the supposed rule that he must look to the language and  nothing else, laments that the draftsmen have not provided for  this or that, or have been guilty of some or other ambiguity. It  would certainly save the judges trouble if Acts of Parliament  were drafted with divine prescience and perfect clarity. In the  absence of it, when a defect appears a judge cannot simply  fold his hands and blame the draftsman. He must set to work  on the constructive task of finding the intention of Parliament,  and he must do this not only from the language of the statute,  but also from a consideration of the social conditions which  gave rise to it and of the mischief which it was passed to  remedy, and then he must supplement the written word so as  to give ‘force and life’  to the intention of the legislature. ... A  judge should ask himself the question how, if the makers of  the Act had themselves come across this ruck in the texture of  it, they would have straightened it out? He must then do so as  they would have done. A judge must not alter the material of  which the Act is woven, but he can and should iron out the  creases.”

 10. Relying upon a three-Judge Bench decision of this Court in  

Modi Cements Ltd. v. Kuchil Kumar Nandi (1998) 3 SCC 249,  

this Court held that the expression “the amount of money …………. is  

insufficient to honour the cheque” is a genus of which the expression  

‘account being closed’ is a specie.   

11. In Modi Cements Ltd. (supra) a similar question had arisen  

for the consideration of this Court.  The question was whether  

dishonour of a cheque on the ground that the drawer had stopped  

payment was a dishonour punishable under Section 138 of the Act.  

Relying upon two earlier decisions of this Court in Electronics  

Trade & Technology Development Corporation Ltd. v. Indian

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Technologists and Engineers (Electronics) (P) Ltd. (1996) 2  

SCC 739 and K.K Sidharthan v. T.P. Praveena Chandran (1996)  

6 SCC 369, it was contended by the drawer of the cheque that if the  

payment was stopped by the drawer, the dishonour of the cheque  

could not constitute an offence under Section 138 of the Act.  That  

contention was specifically rejected by this Court. Not only that, the  

decision in Electronics Trade & Technology Development  

Corporation Ltd. (supra) to the extent the same held that  

dishonour of the cheque by the bank after the drawer had issued a  

notice to the holder not to present the same would not constitute an  

offence, was overruled.  This Court observed:

“18. The aforesaid propositions in both these reported  judgments, in our considered view, with great respect are  contrary to the spirit and object of Sections 138 and 139 of the  Act. If we are to accept this proposition it will make Section  138 a dead letter, for, by giving instructions to the bank to  stop payment immediately after issuing a cheque against a  debt or liability the drawer can easily get rid of the penal  consequences notwithstanding the fact that a deemed offence  was committed. Further the following observations in para 6 in  Electronics Trade & Technology Development Corpn. Ltd.  “Section 138 intended to prevent dishonesty on the part of the  drawer of negotiable instrument to draw a cheque without  sufficient funds in his account maintained by him in a bank and  induce the payee or holder in due course to act upon it.  Section 138 draws presumption that one commits the offence if  he issues the cheque dishonestly”  (emphasis supplied) in our  opinion, do not also lay down the law correctly.

20. On a careful reading of Section 138 of the Act, we are  unable to subscribe to the view that Section 138 of the Act  draws presumption of dishonesty against drawer of the cheque  if he without sufficient funds to his credit in his bank account to  honour the cheque issues the same and, therefore, this  amounts to an offence under Section 138 of the Act. For the  reasons stated hereinabove, we are unable to share the views

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expressed by this Court in the above two cases and we  respectfully differ with the same regarding interpretation of  Section 138 of the Act to the limited extent as indicated  above.”

12. We may also at this stage refer to the decisions of this Court  

in M.M.T.C. Ltd. and Anr. v. Medchl Chemicals and Pharma (P)  

Ltd. and Anr. (2002) 1 SCC 234, where too this Court considering  

an analogous question held that even in cases where the dishonour  

was on account of “stop payment”  instructions of the drawer, a  

presumption regarding the cheque being for consideration would  

arise under Section 139 of the Act.  The Court observed:

“19. Just such a contention has been negatived by this Court  in the case of Modi Cements Ltd. v. Kuchil Kumar Nandi. It has  been held that even though the cheque is dishonoured by  reason of “stop-payment” instruction an offence under Section  138 could still be made out. It is held that the presumption  under Section 139 is attracted in such a case also. The  authority shows that even when the cheque is dishonoured by  reason of stop-payment instructions by virtue of Section 139  the court has to presume that the cheque was received by the  holder for the discharge, in whole or in part, of any debt or  liability. Of course this is a rebuttable presumption. The  accused can thus show that the “stop-payment”  instructions  were not issued because of insufficiency or paucity of funds. If  the accused shows that in his account there were sufficient  funds to clear the amount of the cheque at the time of  presentation of the cheque for encashment at the drawer bank  and that the stop-payment notice had been issued because of  other valid causes including that there was no existing debt or  liability at the time of presentation of cheque for encashment,  then offence under Section 138 would not be made out. The  important thing is that the burden of so proving would be on  the accused. Thus a court cannot quash a complaint on this  ground.”

13. To the same effect is the decision of this Court in Goaplast

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(P) Ltd. v. Chico Ursula D’souza and Anr. (2003) 3 SCC 232,  

where this Court held that ‘stop payment instructions’  and  

consequent dishonour of the cheque of a post-dated cheque attracts  

provision of Section 138.  This Court observed :

“Chapter XVII containing Sections 138 to 142 was introduced  in the Act by Act 66 of 1988 with the object of inculcating faith  in the efficacy of banking operations and giving credibility to  negotiable instruments in business transactions. The said  provisions were intended to discourage people from not  honouring their commitments by way of payment through  cheques. The court should lean in favour of an interpretation  which serves the object of the statute. A     post-dated     cheque    will     lose     its     credibility     and     acceptability     if     its     payment     can     be    stopped     routinely.     The     purpose     of     a     post-dated     cheque     is     to    provide     some     accommodation     to     the     drawer     of     the     cheque.    Therefore,     it     is     all     the     more     necessary     that     the     drawer     of     the    cheque     should     not     be   allowed     to     abuse     the     accommodation    given     to     him     by     a     creditor     by     way     of     acceptance     of     a     post-   dated     cheque.   

In view of Section 139, it has to be presumed that a cheque is  issued in discharge of any debt or other liability. The  presumption can be rebutted by adducing evidence and the  burden of proof is on the person who wants to rebut the  presumption. This     presumption     coupled     with     the     object     of    Chapter     XVII     of     the     Act     leads     to     the     conclusion     that     by    countermanding     payment     of     post-dated     cheque,     a     party     should    not     be     allowed     to     get     away     from     the     penal     provision     of     Section    138     of     the     Act.     A     contrary     view     would     render     Section     138     a    dead     letter     and     will     provide     a     handle     to     persons     trying     to     avoid    payment     under     legal     obligations     undertaken     by     them through  their own acts which in other words can be said to be taking  advantage of one's own wrong.”  

   (emphasis supplied)

14. A three-Judge Bench of this Court in Rangappa v. Sri  

Mohan (2010) 11 SCC 441 has approved the above decision and  

held that failure of the drawer of the cheque to put up a probable  

defence for rebutting the presumption that arises under Section 139

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would justify conviction even when the appellant drawer may have  

alleged that the cheque in question had been lost and was being  

misused by the complainant.   

15. The above line of decisions leaves no room for holding that  

the two contingencies envisaged under Section 138 of the Act must  

be interpreted strictly or literally.  We find ourselves in respectful  

agreement with the decision in NEPC Micon Ltd. (supra) that the  

expression “amount of money …………. is insufficient”  appearing in  

Section 138 of the Act is a genus and dishonour for reasons such “as  

account closed”, “payment stopped”, “referred to the drawer”  are  

only species of that genus.  Just as dishonour of a cheque on the  

ground that the account has been closed is a dishonour falling in the  

first contingency referred to in Section 138, so also dishonour on the  

ground that the “signatures do not match” or that the “image is not  

found”, which too implies that the specimen signatures do not match  

the signatures on the cheque would constitute a dishonour within the  

meaning of Section 138 of the Act.  This Court has in the decisions  

referred to above taken note of situations and contingencies arising  

out of deliberate acts of omission or commission on the part of the  

drawers of the cheques which would inevitably result in the  

dishonour of the cheque issued by them. For instance this Court has  

held that if after issue of the cheque the drawer closes the account it

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must be presumed that the amount in the account was nil hence  

insufficient to meet the demand of the cheque.  A similar result can  

be brought about by the drawer changing his specimen signature  

given to the bank or in the case of a company by the company  

changing the mandate of those authorised to sign the cheques on its  

behalf.  Such changes or alteration in the mandate may be dishonest  

or fraudulent and that would inevitably result in dishonour of all  

cheques signed by the previously authorised signatories. There is in  

our view no qualitative difference between a situation where the  

dishonour takes place on account of the substitution by a new set of  

authorised signatories resulting in the dishonour of the cheques  

already issued and another situation in which the drawer of the  

cheque changes his own signatures or closes the account or issues  

instructions to the bank not to make the payment.  So long as the  

change is brought about with a view to preventing the cheque being  

honoured the dishonour would become an offence under Section 138  

subject to other conditions prescribed being satisfied. There may  

indeed be situations where a mismatch between the signatories on  

the cheque drawn by the drawer and the specimen available with the  

bank may result in dishonour of the cheque even when the drawer  

never intended to invite such a dishonour.  We are also conscious of  

the fact that an authorised signatory may in the ordinary course of

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business be replaced by a new signatory ending the earlier mandate  

to the bank.  Dishonour on account of such changes that may occur  

in the course of ordinary business of a company, partnership or an  

individual may not constitute an offence by itself because such a  

dishonour in order to qualify for prosecution under Section 138 shall  

have to be preceded by a statutory notice where the drawer is called  

upon and has the opportunity to arrange the payment of the amount  

covered by the cheque.  It is only when the drawer despite receipt of  

such a notice and despite the opportunity to make the payment  

within the time stipulated under the statute does not pay the amount  

that the dishonour would be considered a dishonour constituting an  

offence, hence punishable.  Even in such cases, the question whether  

or not there was a lawfully recoverable debt or liability for discharge  

whereof the cheque was issued would be a matter that the trial  

Court will examine having regard to the evidence adduced before it  

and keeping in view the statutory presumption that unless rebutted  

the cheque is presumed to have been issued for a valid  

consideration.

16. In the case at hand, the High Court relied upon a decision of  

this Court in Vinod Tanna’s case (supra) in support of its view.  We  

have carefully gone through the said decision which relies upon the  

decision of this Court in Electronics Trade & Technology

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Development Corporation Ltd. (supra). The view expressed by  

this Court in Electronics Trade & Technology Development  

Corporation Ltd. (supra) that a dishonour of the cheque by the  

drawer after issue of a notice to the holder asking him not to present  

a cheque would not attract Section 138 has been specifically  

overruled in Modi Cements Ltd.  case (supra).  The net effect is  

that dishonour on the ground that the payment has been stopped,  

regardless whether such stoppage is with or without notice to the  

drawer, and regardless whether the stoppage of payment is on the  

ground that the amount lying in the account was not sufficient to  

meet the requirement of the cheque, would attract the provisions of  

Section 138.   

17. It was contended by learned counsel for the respondent that  

the respondent-company had offered to issue new cheques to the  

appellant upon settlement of the accounts and that a substantial  

payment has been made towards the outstanding amount.  We do  

not think that such an offer would render illegal a prosecution that is  

otherwise lawful. The offer made by the respondent-company was in  

any case conditional and subject to the settlement of accounts. So  

also whether the cheques were issued fraudulently by the authorised  

signatory for amounts in excess of what was actually payable to the  

appellant is a matter for examination at the trial.  That the cheques

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were issued under the signature of the persons who were authorised  

to do so on behalf of the respondent-company being admitted would  

give rise to a presumption that they were meant to discharge a  

lawful debt or liability.  Allegations of fraud and the like are matters  

that cannot be investigated by a Court under Section 482 Cr.P.C. and  

shall have to be left to be determined at the trial after the evidence  

is adduced by the parties.  

18. On behalf of the signatories of the cheques dishonoured it  

was argued that the dishonour had taken place after they had  

resigned from their positions and that the failure of the company to  

honour the commitment implicit in the cheques cannot be construed  

an act of dishonesty on the part of the signatories of the cheques.  

We do not think so. Just because the authorised signatories of the  

cheques have taken a different line of defence than the one taken by  

by the company does not in our view justify quashing of the  

proceedings against them.  The decisions of this Court in National  

Small Industries Corporation Limited v. Harmeet Singh  

Paintal and Anr. (2010) 3 SCC 330 and S.M.S. Pharmaceuticals  

Ltd. v. Neeta Bhalla & Anr. (2005) 8 SCC 89 render the  

authorised signatory liable to be prosecuted along with the company.  

In the National Small Industries Corporation Limited’s case  

(supra) this Court observed:

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“19. xxxx (c) The answer to Question (c) has to be in the affirmative. The  question notes that the managing director or joint managing  director would be admittedly in charge of the company and  responsible to the company for the conduct of its business.  When that is so, holders of such positions in a company  become liable under Section 141 of the Act. By virtue of the  office they hold as managing director or joint managing  director, these persons are in charge of and responsible for the  conduct of business of the company. Therefore, they get  covered under Section 141. So far as the signatory of a cheque  which is dishonoured is concerned, he is clearly responsible for  the incriminating act and will be covered under sub-section (2)  of Section 141.”

19. In the result, we allow these appeals, set aside the judgment  

and orders passed by the High Court and dismiss the special criminal  

applications filed by the respondents. The trial Court shall now  

proceed with the trial of the complaints filed by the appellants  

expeditiously. We make it clear that nothing said in this judgment  

shall be taken as an expression of any final opinion on the merits of  

the case which the trial Court shall be free to examine on its own.  

No costs.      

……………………….……..……J. (T.S. THAKUR)

………………………….…..……J.               (GYAN SUDHA MISRA)

New Delhi November 27, 2012

Page 20

Reportable

IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

CRIMINAL     APPEAL     NOS.     1870-1909     OF     2012             (Arising out of S.L.P. (Crl.) No.1740-1779/2001)

M/S. LAXMI DYECHEM           .. Appellant

Versus

STATE OF GUJARAT & ORS.        ..  

Respondents  

WITH

CRL.APPEAL     NOS.     1910-1949     of     2012   (Arising out of SLP (Crl.) Nos.1780-1819/11

J     U     D     G     E     M     E     N     T   

GYAN     SUDHA     MISRA,     J.   

1. I endorse  and substantially  agree with the views  

expressed in the judgment  and order of  learned  Brother Justice  

Thakur.  However,  I propose to highlight a specific aspect relating  

to dishonour of cheques which constitute an offence under Section  

138 as introduced by  the Banking, Public Financial Institutions and  

Negotiable Instruments Laws (Amendment) Act, 1988 by adding that  

in so far as the category of  ‘stop payment of cheques’ is concerned

Page 21

as to whether they  constitute an offence within the meaning  of  

Section 138 of the ‘NI Act’,  due to the return of  a cheque by the  

bank to the  drawee/holder of the cheque  on the ground of ‘stop  

payment’  although has been held  to constitute  an offence  within  

the meaning  of Sections 118 and 138 of the NI Act,  and the same is  

now no longer  res integra, the said presumption is a ‘rebuttable  

presumption’  under Section 139 of the NI Act itself since the  

accused issuing  the cheque is at liberty  to prove to the contrary.  

This is already  reflected  under Section 139 of the NI Act when  it  

lays down  as follows:-

“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.”

2. We have to bear in mind that the Legislature while  

incorporating  the provisions of Chapter XVII, Sections 138 to  

142 inserted in the  NI Act (Amendment Act 1988) intends to punish  

only those who  know fully well that they have no amount  in the  

bank and yet issue a cheque in discharge  of debt or liability  already  

borrowed/incurred -which amounts to cheating, and not to  punish  

those  who refused to discharge the debt for  bona fide and  

sustainable reason.   It is in this context that this  Hon’ble Court in

Page 22

the matter of  M.M.T.C. Ltd. And  Anr  vs. Medchl Chemical and  

Pharma (P) Ltd. And Anr.1   was pleased to hold that cheque  

dishonour on account  of drawer’s stop payment instruction  

constitutes an offence under Section 138 of the NI Act but it is  

subject to the  rebuttable presumption under Section 139 of  the NI  

Act as the same can be  rebutted  by the drawer even at the  first  

instance.  It was held  therein  that  in order to escape liability  

under Section  139, the accused has to show    that  dishonour was  

not   due to   insufficiency of  funds   but   there   was valid cause,  

including absence   of   any debt  or liability for the stop payment  

instruction to the   bank.    The  specific   observations   of the  

Court   in this   regard may be quoted for ready reference which are  

as follows:

“The authority shows that even when the cheque is dishonoured by  reason of stop-payment instructions by virtue of Section 139 the court  has to presume that the cheque was received by the holder for the  discharge, in whole or in part, of any debt or liability.  Of course this is  a rebuttable presumption.  The accused can thus show that the “stop- payment”  instructions were not issued because of insufficiency or  paucity of funds.  If the accused shows that in his account there were  sufficient funds to clear the amount of the cheque at the time of  presentation of the cheque for encashment at the drawer bank and  that the stop-payment notice had been issued because of other valid  causes including that there was no existing debt or liability at the time  of presentation of cheque for encashment, then offence under Section  138 would not be made out.  The important thing is that the burden of  so proving would be on the accused.  Thus a court cannot quash a  complaint on this ground.”

Therefore, complaint filed in such a case although might not be  

1  (2002) 1 SCC 234

Page 23

quashed  at the threshold before trial, heavy  onus lies on the court  

issuing summons in such cases as the trial is summary in nature.     

3. In the matter of Goaplast (P)  Ltd. vs.  Chico Ursula  

D’Souza And Anr.2 also this Court had held  that  ordinarily the  

stop payment instruction is issued to the bank by the account  

holder when there is no sufficient amount in the account.  But, it  

was also observed therein that the reasons for stopping the payment  

can be  manifold which cannot be overlooked.  Hence, in view of  

Section 139, it has to be presumed that a cheque is issued in  

discharge of any debt or other liability.  But the presumption can be  

rebutted by adducing evidence and the burden of proof is on the  

person who wants to rebut the presumption.  However, this  

presumption coupled with the object of Chapter XVII of the Act leads  

to the conclusion that by countermanding payment of post-dated  

cheque, a party should not be allowed to get away from the penal  

provision of Section 138 of the Act.   Therefore, in order to hold that  

the stop payment instruction to the bank would not constitute an  

offence, it is essential that there must have been sufficient funds in  

the accounts in the first place on the date of signing of the cheque,  

the date of presentation  of  the cheque, the date on which  stop  

payment instructions were issued to the bank.  Hence, in Goaplast  

matter (supra), when the magistrate had disallowed  the application  

in a case of ‘stop payment’ to the bank without hearing the  matter  

2  (2003) 3 SCC 232 = (2004) Crl.L.J. 664

Page 24

merely on the ground that there was no dispute about the  

dishonour of the cheque issued by the accused,  since the signature  

was admitted and therefore held that no purpose would be served  in  

examining the bank manager  since the dishonour was not  in issue,  

this Court held that  examination of the bank manager would have  

enabled the Court to know on what date  stop payment  order was  

sent by the drawer to the bank clearly leading to the obvious  

inference that stop payment although by itself would be an offence,  

the same is subject  to rebuttal provided there was sufficient funds  

in the account of the drawer of the cheque.  

4. Further, a three judge Bench of this Court  in the  

matter of   Rangappa vs. Sri Mohan 3 held that Section 139 is an  

example of a reverse onus clause  that has been included in  

furtherance  of the  legislative objective  of improving the credibility  

of negotiable instruments.  While  Section 138 of the Act specifies  

the  strong criminal remedy  in relation  to the dishonour of the  

cheques, the rebuttable presumption  under Section 139 is a  

device to prevent  undue delay in the course of  litigation.  The Court  

however, further observed that  it must be remembered  that the  

offence made punishable  by   Section 138 can be better described  

as a regulatory  offence since the  bouncing  of a  cheque  is  largely  

in the nature of  a civil wrong  whose  money is usually confined to  

3  (2010) 11 SCC 441

Page 25

the private parties involved in  commercial transactions.  In such a  

scenario, the test of  proportionality  should guide the construction  

and interpretation of reverse onus clauses and the defendant  

accused  cannot be expected to discharge an  unduly high standard  

of proof”.  The Court further observed that it is a settled  position  

that when  an accused  has to rebut the presumption under Section  

139, the standard of proof  for doing so is all preponderance  of  

probabilities.   

5. Therefore, if the accused is able to establish a probable  

defence which creates doubt about the existence of a legally  

enforceable debt or liability, the prosecution can fail.  The accused  

can rely on the materials submitted by the complainant in order to  

raise  such a defence  and it  is  inconceivable  that in some cases  

the accused  may not need to adduce the evidence of his/her  own.  

If     however,     the     accused/drawer     of     a     cheque      in     question       neither    

raises      a     probable     defence        nor     able     to     contest     existence     of      a     legally    

enforceable     debt     or     liability,     obviously     statutory     presumption     under    

Section     139     of     the     NI     Act     regarding      commission     of     the     offence     comes    

into     play     if     the     same     is     not     rebutted     with     regard     to      the     materials    

submitted     by     the     complainant.   

6. It is no doubt true that the dishonour of cheques in  

order to qualify for prosecution under Section 138 of the NI Act

Page 26

precedes a statutory  notice where the drawer is called upon by  

allowing him to avail the opportunity to   arrange  the payment  of  

the amount covered by the cheque and it is only when the  drawer  

despite the receipt of  such a notice  and despite  the opportunity to  

make the payment  within the time stipulated under the statute does  

not  pay the amount,  that the said default would be considered a  

dishonour constituting  an offence, hence  punishable.   But even in  

such cases, the question whether or not  there was  lawfully  

recoverable  debt or liability  for discharge whereof the cheque was  

issued, would be a matter that the trial court will have to examine  

having regard to the  evidence  adduced before it keeping in view the  

statutory presumption that unless rebutted, the cheque is presumed  

to have been issued for a  valid consideration.   In view   of this  the  

responsibility of the trial judge while issuing summons to  conduct  

the trial in matters where there has been instruction to stop  

payment despite sufficiency of funds  and whether the same would  

be a sufficient ground  to proceed in the matter,  would be  extremely  

heavy.  

7. As  already noted, the Legislature intends to punish  

only those  who are  well aware that they have no amount  in the  

bank and yet issue  a cheque  in discharge of  debt or liability  which  

amounts to cheating and not to punish those who  bona fide issues  

the cheque and in return  gets cheated giving rise to disputes

Page 27

emerging from breach of agreement and hence contractual violation.  

To illustrate this, there may be a situation where the cheque  is  

issued in favour of a supplier who delivers  the goods which is found  

defective by the consignee before the  cheque is encashed or a post-

dated cheque towards full and final payment to a  builder after  

which the apartment owner might notice breach of agreement for  

several reasons.  It is not uncommon that  in that event the  

payment  might be stopped bona fide by the drawer of  the cheque  

which becomes the contentious issue relating to breach of contract  

and hence the question whether that would constitute an offence  

under the NI Act.   There may be  yet another example where  a  

cheque is issued  in favour of  a hospital which  undertakes to treat  

the patient by operating the patient or any other method of  

treatment  and the doctor fails to turn up and operate and in the  

process  the patient  expires even before the treatment is  

administered.   Thereafter, if the  payment is  stopped  by the drawer  

of the cheque,  the obvious question would arise as to whether that  

would amount to an  offence under Section 138 of the NI Act by  

stopping the payment ignoring Section 139 which makes it  

mandatory by incorporating that the offence  under Section 138 of  

the NI Act is rebuttable.  Similarly, there may be innumerable  

situations where the drawer of the cheque for bonafide reasons  

might issue instruction of ‘stop payment’  to the bank in spite of  

sufficiency of funds in his account.

Page 28

8.     What is wished to be emphasized is that matters arising  out  

of ‘stop payment’ instruction to the bank although would constitute  

an offence under Section 138 of the NI Act since this is no  longer  

res-integra, the same is an offence subject to the provision of Section  

139 of the Act and hence, where the accused fails to discharge  his  

burden  of rebuttal by proving that the cheque could  be held  to be  

a cheque only for discharge of a lawful debt, the offence would be  

made out.  Therefore,  the cases arising out of  stop payment  

situation where the drawer of cheques  has sufficient funds in his  

account and yet stops payment for bona fide reasons, the same  

cannot be put on par with other  variety of cases where the cheque  

has  bounced on account of  insufficiency  of funds or where it  

exceeds the amount arranged to be paid from  that account, since  

Section 138 cannot be applied in isolation  ignoring Section 139  

which envisages a right of rebuttal before an offence could be made  

out under Section 138 of the Act as the Legislature already  

incorporates the expression “unless the contrary  is proved”  which  

means that the presumption of law shall stand  and unless it is  

rebutted or disproved, the holder of a cheque shall be presumed to  

have received the cheque  of the nature referred to in  Section 138 of  

the NI Act, for the discharge of a debt  or other liability.  Hence,  

unless the contrary is proved,  the presumption shall be made that  

the holder of  a negotiable instrument is holder in due  course.

Page 29

9. Thus although a petition under Section 482 of the  

Cr.P.C. may not be entertained by the High Court for quashing  such  

proceedings, yet the judicious use of discretion by the trial judge  

whether to proceed in the matter or  not would be enormous in view  

of Section 139 of the NI Act and if the  drawer of  the cheque  

discharges the burden  even at the stage of enquiry that he had  

bona fide reasons to stop the payment and not make the said  

payment even within the statutory time of 15 days provided under  

the NI Act, the trial court  might  be justified in refusing  to issue  

summons to the drawer of  the cheque by holding that ingredients  

to constitute offence  under Section 138 of the NI Act  is missing  

where the account holder has sufficient funds  to discharge the debt.  

Thus the category  of ‘stop payment cheques’  would be a  category  

which is  subject  to rebuttal and hence  would be an offence  only if  

the drawer of the cheque  fails to discharge the burden of rebuttal.  

10. Thus, dishonour of cheques  simpliciter for the reasons  

stated in Section 138 of the NI Act although is sufficient  for  

commission of offence since  the presumption  of  law on this point is  

no longer res     integra,       the category of ‘stop payment’ instruction  to  

the bank  where the  account holder   has sufficient funds  in his  

account  to discharge  the debt for which  the cheque  was issued,  

the said category of cases  would be subject  to rebuttal as  this

Page 30

question  being rebuttable, the accused can show  that the stop  

payment instructions were not issued because of insufficiency or  

paucity  of funds, but  stop payment  instruction had been issued  to  

the bank for other valid causes including  the reason that there  was  

no  existing debt  or liability  in view  of bonafide dispute  between  

the drawer and drawee of the cheque.   If that be so, then offence  

under Section 138 although would be made out, the same will  

attract Section 139 leaving the burden  of proof  of rebuttal  by the  

drawer  of the cheque.  Thus, in cases arising out of ‘stop payment’  

situation, Sections 138 and 139 will have to be  given a harmonious  

construction as in that event  Section 139 would be rendered  

nugatory.  

11. The instant matter however do not relate to a case of  

‘stop payment’  instruction to the bank  as the cheque in question  

had been returned due to mismatching of  the signatures but more  

than that the petitioner having neither raised nor proved to the  

contrary as envisaged under Section 139 of the NI Act that the  

cheques were not for the discharge of  a lawful debt nor making the  

payment within fifteen days of the notice assigning any reason as to  

why the cheques had at all been issued if the amount had not been  

settled, obviously the  plea of rebuttal  envisaged under Section 139  

does not come to his rescue so as to hold that the  same would  fall  

within the realm of rebuttable presumption envisaged  under Section

Page 31

139 of the Act.   I, therefore, concur  with the judgment and order  of  

learned Brother Justice Thakur subject to my views on the  

dishonour of cheques arising  out of cases   of  ‘stop payment’  

instruction to the bank in spite of sufficiency of funds on  account of  

bonafide  dispute  between the drawer and drawee of the cheque.  

This is in view  of the  legal position that  presumption in favour of  

the holder  of a cheque  under Section 139 of the NI Act has been  

held  by the NI Act as also by this Court to be a rebuttable  

presumption to be discharged by the accused/drawee of the cheque  

which may be discharged even at the threshold   where the  

magistrate examines a case at the stage of taking cognizance as to  

whether a prima facie  case  has been made out or not  against the  

drawer of the cheque.       

………..……………..J     (Gyan Sudha Misra)

New Delhi; November  27, 2012