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Reportable

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NOS. 261-264 OF 2002

MSR Leathers … Appellant

Vs.

S. Palaniappan & Anr. … Respondents

J U D G M E N T

PINAKI CHANDRA GHOSE,  J.

1. This matter was referred before the larger Bench by order dated 25th  

March, 2009. The question referred to the larger Bench was : “whether the  

action  of  the  appellant  was  time-barred  under  Section  138(b)  of  the  

Negotiable Instruments Act or not ?”

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2. The facts of the case, briefly stated, are that the respondent issued four  

cheques to the appellant on 14th August, 1996. The appellant presented those  

four cheques on 21st November, 1996 and on presentation, those cheques  

were returned by the Bank with an endorsement “not arranged funds for”. At  

the request of the respondent, the appellant did not present the said cheques  

since the respondent agreed to settle the dispute. However, the respondent  

failed  to  settle  the  dispute  subsequently.  In  these  circumstances,  on  8th  

January, 1997, the appellant sent a notice (to the respondent) under section  

138(b) of the Negotiable Instruments Act, 1881 (hereinafter referred to as  

‘the Act’). The respondent duly received the said notice. Subsequent thereto,  

those cheques were again presented before the Bank on 21st January, 1997  

by the appellant.  On presentation,  the said cheques were dishonoured for  

want of sufficient funds.

3. On 28th January, 1997 the appellant sent a notice under Section 138(b)  

of  the  Act  and called  upon the  respondent  to  pay  the  said  amount  with  

interest within 15 days. The respondent duly received the said notice on 3rd  

February, 1997.

4. From the said facts,  it  appears  that  while  the first  notice dated 8 th  

January, 1997 was beyond the limitation period, as required under Section  

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138(b) of the Act, the second notice sent by the appellant under the Act was  

within the limitation period from the date the Bank informed the appellant  

on the second occasion, i.e., on 28th January, 1997. Thereafter, the appellant  

filed  a  complaint  before  the  Trial  Court  on  4th March,  1997.  In  the  

circumstances, the question arises whether the action of the appellant was  

time-barred under Section 138(b) of the Act or not.  

5. The  Division  Bench  since  expressed  their  Lordships’  reservation  

about the correctness of the law laid down in  Sadanandan Bhadran vs.  

Madhavan Sunil Kumar [1998 (6) SCC 514] and felt that it requires to be  

considered by a larger Bench and the matter was placed before the Hon’ble  

Chief Justice for consideration.  

6. Accordingly,  the  matter  was  placed  before  a  larger  Bench.  Their  

Lordships, while deciding the said question, noticed that proviso to Section  

138 stipulates following three distinct conditions precedent, which must be  

satisfied  before  dishonour  of  the  cheque  can  constitute  an  offence  and  

becomes punishable.  

“…The  first  condition is that the cheque ought to have 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. The second condition is that the payee or   the holder in due course of the cheque,  as the case may be,   ought to make a demand for the payment of the said amount of   

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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.   The third condition is that the drawer of such a cheque should   have failed to make 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….”  

Fulfilment of those three conditions constitutes an offence under Section 138  

and it  can  then be  said  that  an  offence  under  the  said  section  has  been  

committed by the person issuing the cheque.  

7. Their Lordships further noticed that no court shall take cognizance of  

any  offence  punishable  under  Section  138  except  when  a  complaint  in  

writing  is  made  by  the  payee  or  by  the  holder  in  due  course  and  such  

complaint  has to be made within one month from the date on which the  

cause of action arises under clause (b) of the proviso to Section 138. It is  

also noticed by their Lordships that neither Section 138 nor Section 142 of  

the Act or any other provision contained in the said Act prevents the holder  

or the payee of the cheque from presenting the cheque for encashment for  

any number of occasions within a period of six months from the date of its  

issuance or within a period of its validity, whichever is earlier. Therefore, it  

appears that the payee or the holder has a right to present the same as many  

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number of times for encashment within a period of six months or within its  

validity period, whichever is earlier.  

8. After analysing Sections 138 and 142 of the Act, their Lordships held  

that “…  we find it difficult to hold that the payee would lose his right to   

institute such proceedings on a subsequent default that satisfies all the three   

requirements of Section 138.” Accordingly, their Lordships held as follows :  

“23. Coming then to the question whether there is anything in   Section 142(b) to suggest that prosecution based on subsequent   or successive dishonour is impermissible, we need only mention   that the limitation which Sadanandan Bhadran’s case (supra)   reads into that provision does not appear to us to arise. We say   so because while a complaint based on a default and notice to   pay must be filed within a period of one month from the date   the cause of action accrues, which implies the date on which   the period of  15 days  granted to  the drawer  to  arrange the   payment expires, there is nothing in Section 142 to suggest that   expiry of any such limitation would absolve him of his criminal   liability should the cheque continue to get dishonoured by the   bank on subsequent  presentations.  So  long as  the  cheque is   valid and so long as it is dishonoured upon presentation to the   bank, the holder’s right to prosecute the drawer for the default   committed by him remains valid and exercisable. The argument   that  the  holder  takes  advantage  by  not  filing  a  prosecution   against the drawer has not impressed us. By reason of a fresh   presentation of a cheque followed by a fresh notice in terms of   Section 138, proviso (b), the drawer gets an extended period to   make  the  payment  and  thereby  benefits  in  terms  of  further   opportunity to pay to avoid prosecution. Such fresh opportunity   cannot  held  the  defaulter  on  any  juristic  principle,  to  get  a   complete absolution from prosecution.”   

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9. It was further held as follows :

“31. Applying  the  above  rule  of  interpretation  and  the   provisions of Section 138, we have no hesitation in holding that   a  prosecution  based  on  a  second  or  successive  default  in   payment  of  the  cheque  amount  should  not  be  impermissible   simply because no prosecution based on the first default which   was followed by a statutory notice and a failure to pay had not   been launched. If the entire purpose underlying Section 138 of   the  Negotiable  Instruments  Act  is  to  compel  the  drawers  to   honour their commitments made in the course of their business   or  other  affairs,  there  is  no  reason  why  a  person  who  has   issued a cheque which is dishonoured and who fails to make   payment  despite  statutory  notice  served  upon him should  be   immune to prosecution simply because the holder of the cheque   has not rushed to the court  with a complaint based on such   default or simply because the drawer has made the holder defer   prosecution promising to make arrangements for funds or for   any other similar reason. There is in our opinion no real or   qualitative  difference  between  a  case  where  default  is   committed and prosecution immediately launched and another   where  the  prosecution  is  deferred  till  the  cheque  presented   again gets dishonoured for the second or successive time.

32. The  controversy,  in  our  opinion,  can  be  seen  from   another angle also. If the decision in  Sadanandan Bhadran’s  case  (supra)  is  correct,  there  is  no  option  for  the  holder  to   defer institution of judicial proceedings even when he may like   to do so for so simple and innocuous a reason as to extend   certain accommodation to the drawer to arrange the payment   of the amount. Apart from the fact that an interpretation which   curtails  the  right  of  the  parties  to  negotiate  a  possible   settlement without prejudice to the right of holder to institute   proceedings within the outer period of limitation stipulated by   law should be avoided we see no reason why parties should, by   a  process  of  interpretation,  be  forced  to  launch  complaints   where they can or may like to defer such action for good and   valid reasons. After all, neither the courts nor the parties stand   

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to  gain  by  institution  of  proceedings  which  may  become   unnecessary  if  cheque  amount  is  paid  by  the  drawer.  The   magistracy in this country is over-burdened by an avalanche of   cases under Section 138 of Negotiable Instruments Act. If the   first default itself must in terms of the decision in Sadanandan  Bhadran’s  case  (supra)  result  in  filing  of  prosecution,   avoidable litigation would become an inevitable  bane of  the   legislation that was intended only to bring solemnity to cheques   without forcing parties to resort to proceedings in the courts of   law.  While  there  is  no  empirical  data  to  suggest  that  the   problems of  overburdened magistracy and judicial  system at   the district level is entirely because of the compulsions arising   out of the decisions in Sadanandan Bhadran’s case (supra), it   is difficult to say that the law declared in that decision has not   added to court congestion.”

    10. In the result, their Lordships overruled the decision in  Sadanandan  

Bhadran’s   case (supra) and held that the prosecution based on second or  

successive dishonour of the cheque is also permissible so long as it satisfies  

the requirements stipulated under the proviso to Section 138 of the Act.  

11. In the light of the said decision, we set aside the order passed by the  

High Court and allow these appeals.      

…………………………J. (K.S. Radhakrishnan)

New Delhi; ………………………..J.

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September 10, 2013. (Pinaki Chandra Ghose)

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