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Judgment
M. Venkateswara Reddy, J.—Aggrieved of the acquittal of accused Nos. 1 to 3 of the offence punishable u/s 138 of the Negotiable Instruments Act, 1881 (for short ''the Act'') by the XVI Metropolitan Magistrate, Hyderabad, by his judgment dated 20.11.2001, in CC No. 38 of 1999, the complainant-the Charminar Co-operative Urban Bank Limited, Purani Haveli Branch, Hyderabad represented by Special Power of Attorney-Recovery Officer, preferred this appeal.
Admitted facts of the case are that accused No. 1 M/s. Chaithanya Kala Samithi, of which accused No. 2 is the Secretary and accused No. 3 is the President, availed an amount of Rs. 99 lakhs towards loan granted by the complainant bank. As per the terms and conditions of the loan agreement Ex.P 19, the amount is payable in 35 equal monthly installments of Rs. 3,75,000 each. Accused No. 1-M/s.Chaithanya Kala Samithi issued 35 post-dated cheques towards the repayment of the loan. As per the complainant Bank, the cheques bearing Nos.049494, 049451, 049485, 049452, 049453, 049454 marked as Exs.P3 to P8 respectively were dishonored. Therefore, the complainant Bank got issued a legal notice under Ex.P10 to all the three accused. They received the same under Exs.P15 to P17 acknowledgements. The postal receipts of accused Nos.l to 3 were also marked as Exs.Pl 1 to P13. Despite Ex.P10 notice, the accused failed to pay the amount. Hence, the complaint was filed by the Bank.
On behalf of the bank, its Manager (Recovery Officer) was examined as PWI and he deposed to the facts stated in the complaint and Exs.Pl to P21 were marked. The accused had not chosen to adduce any evidence on their behalf.
On consideration of the evidence and the other material placed before it, the trial Court acquitted all the accused on two grounds viz., that the complainant failed to prove that the cheques Exs.P3 to P8 were presented for encashment and it also failed to prove that the accused fell due of the payment of installments by the date of the said cheques.
The learned counsel for the appellant Bank contends that both the findings of the lower Court are not correct.
On the other hand, the learned counsel for the respondents/accused defended both the findings of the lower Court, in addition to it he also raised the following points:
(a) the complainant Bank does not fall within the ambit of the word "another person" employed in Section 138 of the Act?
(b) All the cheques were given only as security for the discharge of the loan amount and therefore. Section 138 of the Act cannot be invoked?
(c) The accused gave signed blank cheques, which were filled up later and therefore, the same would amount to material alteration?
In the teeth of the rival contentions, the points that arise for consideration are:
(1) Whether there is proper presentment of the cheques for payment?
(2) Whether the installment amounts had not fallen due by the date of presentment of the cheques and as such there was no enforceable debt or liability by the date of presentment?
(3) Whether the complainant Bank does not fall within the ambit of the word "another person" employed in Section 138 of the Act?
(4) Whether all the 35 cheques including the 6 cheques, Ex.P3 to P8, were given as security, only for the discharge of the loan amount?
(5) Whether there is material alteration?
Point No. 1, Presentation. The maker of all the 6 cheques i.e. the drawer is accused No. 1. These cheques were signed by both Accused No. 2 and 3 in their capacity as Secretary and President respectively of accused No. l, the payee, as noted in the first 5 cheques is as under:
D.L. 89/98
In Exs.P3, P5, P6 and P7, the word (DL) is added to the description of the payee. The same is not added in Ex.P4. Coming to Ex.P8, the words ''D.L.'' only find place as the Payee, but the account "89/98" was not incorporated therein. Whether the words ''D.L.89/ 98'' fall within the scope and ambit of the expression "any person" occurring in Section 138 will be considered while dealing with point No. 3. Presently, I shall confine my discussion to the point at issue that is being discussed.
Accused No. 1 is having a current account under Ex.P21 with the complainant Bank. Ex.P20 is the loan account bearing No. 89/98 containing the particulars as to the disbursement of the loan amounts granted to Accused No. 1 and the payments made by it from time to time. It is this account that finds place in the cheques as the payee. Ex.P20 loan account is maintained by the complainant Bank only.
Admittedly, the understanding was that the amounts payable under the cheques should be credited to the account ''89/98''. In other words, the ultimate beneficiary is the complainant-Bank and the amounts mentioned in the cheques are payable to the complainant-Bank only. If the complainant Bank is taken as the payee, the drawee and the payee in these transactions is one and the same i.e. the complainant-Bank M s. Channinar Co-operative Urban Bank Limited. The liability of the payee arises in usual course when the cheques are signed by the payee and presented before the drawee i.e. the complainant Bank. The six cheques in question do not bear the signature of the payee.
The contention of the learned counsel for the accused is that the cheques neither contain the signature of the payee nor presentment endorsement and as such there is no proper and due presentment for payment.
On the other hand, the learned counsel for the complainant-Bank contends that since the drawee Bank and the payee are one and the same, it is an in-house transaction to the extent of those two persons and Ex.P9 cheque return memo is itself conclusive proof to show that the cheques were presented for payment.
Ex.P9 cheque return memo, dated 07.06.1999, to the extent necessary for our purpose runs as under:
To
The Manager, D/L Section,
Cheque Draft/Dividend Warrant No. 049494485 for Rs. 3,75,000 x 4 is returned unpaid for reason No. 1.451, 452, 453, 454.3, 75,000 X 2
Funds insufficient.
Sd/- Manager
Which of the rival contentions is acceptable, is the legal dilemma here. There can be no dispute that the transaction is an in-house transaction. Whether the clerk dealing with the loan transaction D.L.89/98 and the clerk passing the cheques and making payment is one and the same is not known. Ex.P9 return memo bears the date 07.06.1999, that means it can be taken for granted that all the cheques were presented for encashment to the clerk passing and making the payments on 07.06.1999. As he found that the funds were insufficient, he returned those cheques under Ex.P9 return memo. Ex.P9 memo implies that the cheques were presented for payment/adjustment, if Ex.P9 return memo is not there on record, I would have straightaway accepted the contention of the learned counsel for the accused that there was no presentation of the cheques. But in the teeth of Ex.P9, does it lie in the mouth of the learned counsel for the accused to say that there is no due or valid presentment? This question I must answer.
The word ''presentment'' is not defined in the Act, but Section 64 deals with presentment for payment. The section as it stood prior to 06.02.2003 runs as under:
Presentment for payment- Promissory notes, bills of exchange and, cheques must be presented for payment to the maker, acceptor or drawee thereof respectively, by or on behalf of the holder as hereinafter provided. In default of such presentment, the other parties thereto are not liable thereon to such holder.
Where authorised by agreement or usage, a presentment through the post office by means of a registered letter is sufficient.
Exception- Where a promissory note is payable on demand and is not payable at a specified place, no presentment is necessary in order to charge the maker thereof.
In terms of the provisions of old Section 64, it must be said that the cheques are presented when-they are presented for payment to the drawee. Here we have already noted that the drawee and payee are one and the same. Unless the cheques were presented Ex.P9 cheque return memo would not have been generated. Therefore, it is implied that Ex.P9 cheque return memo was preceded by presentment of the. cheques for payment/ adjustment. No provision, either in the Act or any of the banking laws is brought to my notice which stipulates that the presentment for payment, particularly, in case of in-house transaction of this type, requires the signature of the payee, however, the learned counsel for the appellant brought to my notice, during the course of dictation of this judgment,, a decision of the Apex Court in Seth Jagjivan Mavji Vithlani Vs. Ranchhoddas Meghji, where the question as to valid acceptance of a hundi after proper presentment of it, was considered. After making reference to Sections 7 and 32 of the Act and the case law, their Lordships held, the drawee must sing on the bill. But here in the case on hand, the instruments presented for the payment are cheques, not hundis. Cheques cannot be deemed to be bills of exchange under the provisions of the Act. A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and includes the electronic images of a truncated cheque and a cheque in the electronic form as per the definition given in Section 6 of the Act. A cheque requires no acceptance a part from prompt payment. It is presented for payment only. Accordingly, there is no privities of contract between the banker and the payee, who cannot, therefore, sue the bank on dishonour. Bhashyam and Adiga''s The Negotiable Instruments Act, 16th Edition 1997, page 117.
Chapter V of the Act deals with, the presentment for acceptance. So far as the cheques are concerned, it is only the provisions of Sections 64, 68, 71, 72, 73 and 74 that deal with the cheque, but. they are not relevant for the purpose of deciding this point. As already pointed out, no provision is shown to me either under the Act or any other banking laws where in an in-house transaction of this type where a return memo followed, the signature of the Manager or the Clerk concerned in token of having it presented for payment is necessary. As already stated, the presentment is implicit in the cheque return memo Ex. P19. Therefore, for the foregoing reasons; I am of the firm view that there was proper presentment of the cheques and the finding of the trial Court that there was no presentment is not sustainable. In fact, the lower court''s judgment is bereft of reasons therefore.
Point No. 2: Installments and Enforceability. In Ex.P 19 loan agreement it is recited as under:
(1) I shall repay this loan in 35 monthly installment of Rs. 3,75,000/- (Three lakhs seventy five thousand only) of which the first shall be repayable on or before....and the other installments by a regular interval of one month, i.e. on or before 3rd of every month there after with interest due.
The lower Court on a fallacious reasoning came to the conclusion that there is no proof that the instalments fell due by 07.06.1999. The learned counsel for the accused also contended that it is not there in the above clause as to when the first installment is payable as the blank in that regard remained unfilled. There is a specific condition that the amount if payable in 35 monthly installments at a regular interval of one month. A comprehensive and cumulative reading of the agreement denotes that the first installment was payable from the month following the month during which the amount was disbursed. Even otherwise, it is not disputed that 35 cheques were issued by the accused. The amount is payable in 35 equal monthly installments. The first cheque Ex.P3 is dated 01.01.1999, implying thereby that the installments are payable commencing from January, 1999. Thus, in the teeth of the terms and conditions of the agreement and the issuance of the cheques, particularly the first cheque with the date 01.0! .1999, it would be preposterous to say that the complainant bank has not proved the date on which the instalments fell due. Therefore, in that view of the matter, the second finding of the trial Court that the installments due dates are not proved, cannot be accepted. Therefore, I answer this point holding that there is evidence to show that the installments had fallen due. When the installments had fallen due, there cannot be any doubt that there was enforceable debt or liability by the date of the cheques. Ex.P3 to P8 cheques are dated 01.01.1999,01.03.1999.01.02.1999,01.04.1999,01.05.1999 and 01.06.1999 respectively. Intact, in Ex.P5 cheque, in which the date is altered, contains the signature of R. Sundara Ramaiah (Accused No. 2), thereby giving rise to the presumption that al! the dates were entered by him in the cheques.
Point No. 3: The scope and ambit of the word ''another person'' obtaining in Section 138 of the Act:
Section 138 of the Act to the extent relevant for the purpose of meeting this point runs as under:
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 provision of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both:
Explanation: For the purposes of this section, "debt or other liability'' means a legally enforceable debt or other liability.
What the extracted part of the section postulates is that the cheque must be drawn by the drawer of an account maintained by him with a banker. The amount mentioned therein shall be payable to another person. The word ''another person'' contemplates person other than the drawer. A self cheque is not covered by this section. Here in the case on hand, the banker is the complainant bank with which accused No. 1 is maintaining Ex.P21 current account (Account No. 1312). So far as the person to whom the amount mentioned in the cheques is payable, it is described as ''DL 89/98'', which is the loan account of Al. The loan account shall not be understood as the account maintained by Al with the complainant bank. The account maintained by the accused with the complainant is only the current account No. 1312 under Ex.P21. The loan account Ex.P 19 contains the details of the payments made by the accused and is maintained by the Bank. It cannot be equated with Ex.P21, the account maintained with the bank by the accused. This distinction must be borne in mind. One should not be confused with the other. Section 138 of the Act does not take into its ambit and scope the loan account Ex.P19, but it does cover Ex. P21 account. The contention of the learned counsel for the accused is that since ''another person'' is described as ''DL account No. 89/98", the account cannot be treated as a person. The ordinary dictionary meaning of the word ''person'' in the New Oxford Dictionary of English is as under:
A human being regarded as an individual:
- used in legal or formal contexts to refer to an unspecified individual;
- used by speakers to refer to themselves or to people in general;
- an individual characterized by a preference or liking for a specified thing;
- an individual''s body
- used euphemistically to refer to a person''s genitals, especially those of a man;
- A character in a play or story
a category used in the classification of pronouns, possessive determiners, and verb forms, according to whether they indicate the speaker (first person), the addressee (second person), or a third party (third person).
each of the three modes of being of God, namely the Father, the Son, or the Holy Ghost, who together constitute the Trinity.
As per West''s Legal Thesaurus/Dictionary.
A natural person or human being, plus legal entities such as corporations, partnerships, unions, associations, firms trustees, receivers, legal representatives, etc. (the person aggrieved). Party, being, life, soul, body, character, fellow, one, personage, individual, mortal, organization.
No doubt the name of the bank would have been written, but it is not done so, instead the loan account number is mentioned as against the payee in the cheques. While appreciating this contention we should not be oblivious of the fact that this is an in-house transaction, in other words the amount has to be adjusted by the complainant bank-from the current account to loan account. It is a transfer on paper effected from one account to another account of the same bank. Since it is an in-house transaction, it can be understood why the bank''s name is not mentioned. If the cheques presented are of a different bank other than the complainant bank, the cheques must travel to the clearing house. But such a contingency had not arisen here since the transaction involved is a domestic adjustment. Cannot be it inferred who is the payee? In the circumstances of the case, no other inference is possible except to say that the payee is the complainant bank only. The common thread for the loan transaction, issuance of the cheques and the current account Ex.P21 is the fact that we are dealing with a domestic transaction. A direct legal interest is created in favour of the complainant bank only, by the accused by issuing the cheques. The benefit of the cheques is directly attributable to the complainant bank only, none else. In other words the beneficiary is the Bank itself. It is not as though the beneficiary is unidentifiable. The DL account mentioned in the cheques refers 10 the loan account relating to the accused only. Therefore, the payee can be identified specifically in as much as the loan account specifies the creditor or the payee as the complainant bank only. The object of criminal law is to punish those who did acts forbidden by law. it comprises an offender, the aggrieved/victim and the State. The aggrieved may be sometimes the society at large. Here, the aggrieved person, by dishonour of the cheques, is the complainant bank. The person who did the act forbidden by law is the accused. When a word in relation to criminal law is to be interpreted, the object of criminal law must be borne in mind. In the case on hand, there is a person who committed the offence and also an aggrieved. The person who committed the offence is made liable for punishment. When the person to whom the cheque was issued is identified, to give any other interpretation to the word ''another person'' in this case not to hold that non-mention of the bank''s name is fatal, that too when it is a domestic transaction and loan account DL account No. 89/98, is mentioned is to defeat the very purpose for which Section 138 of the Act came to be enacted. Hatch case has to be judged on its own facts. We cannot de-link the facts from the context while interpreting a particular word. Therefore. I am not able to accede to the contention in the facts and circumstances of the case and the context in which the question is raised that the complainant-bank does not fall within the ambit of word ''another person'' employed in Section 138 of the Act.
Point No. 4 cheques whether given as Security: The contention of the learned counsel is that the cheques were issued by way of security only for the loan amount. I am not able to appreciate this argument also. The fact that 35 cheques were given with dates; that they represent the monthly payments'' to be made that as per the terms of agreement installment of any particular month is payable by 3rd of every month and that the agreement stipulates 35 monthly installments, would demonstrate that 35 cheques were issued to enable the complainant bank to adjust the 35 installments from the amount lying to the credit of the current account No. 1312. In other words, the accused need not directly pay the amount if sufficient amount towards a particular installment is made available in that current account by 3rd of every month. This is implicit in the agreement and in the conduct of the parties in issuing the cheques otherwise there is no necessity for the complainant bank to take as many as 35 cheques representing 35 installments when one or two cheques for whole of the amount are sufficient. Therefore, interpreting that they were given as security is inferring something which is not vouched by the conduct of the parties. Accordingly, this contention is also repelled.
The learned counsel for the accused, at this juncture cited a ruling of this Court in Laxminivas Agarwal v. Andhra Semi Conductors Pvt. Ltd., Hyderabad & Ors. 2006 (1) ALT (Cri.) 423 (A.P.), where a finding was given that undated cheques were issued as security for payment and not for discharge of debt or other liability. It was a case where blank cheques were given. But here in the case, all the cheques are dated, in fact, in Ex.P5 the date was struck off and another date was put and the full signature of R. Sundara Ramaiah was put, which indicates that all the dates were put by the accused at the time of issuing the cheques, in the cross-examination, PW1 denied that the blanks were filled up subsequently. No evidence contra is adduced on behalf of the accused. Therefore, the ruling has no application.
Point No. 5. Material Alteration: It is contended by the learned counsel for the accused that there is material alteration, in the sense that blank cheques were issued and later they were filled. As already stated above, PW1 denied the suggestion that the blanks were filled up later, but it appears that the words ''DL No. 89/98'' were put in different ink. Even assuming that the column relating to the payee was filled up later, in my opinion, it does not amount to material alteration. The effect of material alteration is stated in Section 87 of the Act as follows:
Any material alteration of a negotiable instrument renders the same void as against anyone who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties;
Alteration by indorsee. And any such alteration, if made by an indorsee, discharges his indorser from all liability to him in respect of the consideration thereof.
The provisions of this section are subjection to those of Sections 20, 49, 86 and 125.
The effect of material alteration is qualified by the words, ''unless it was made in order to carry out the common intention of the original parties''. Here in the case on hand, it demands no probe to show that the common intention of the parties was to see that the amounts mentioned in the cheques are credited to the loan account, which pertains to the accused only. Therefore, it is in furtherance of the common intention the words ''DL No. 89/98'' came to be inserted. In that view of the matter, I am not able to accede to the contention that there is material alteration.
The learned counsel for the accused cited a decision rendered in M/s. Avon Organics Ltd. v. M/s. Poineer Products Ltd. and Others 2004 (2) CCC 579 (A.P.) : 2004 (2) CCC 335 (A.P.) : 2004 (1) ALT (Cri) 90 (A.P.) it was a case where complainant filled up the amount portion in words and figures as well as the date, as per his own choice. It is well settled that each case has to be judged on its own facts obviously, the facts and circumstances of the case on hand are different and the above decision has no application.
Thus, all the point raised by the learned counsel for the accused though raised for the first time that too in this appeal filed by the complainant, are also met me. Accordingly, the accused are found guilty of the offence u/s 138 of the Act.
Now comes the question of punishment. Al is a society of which A2 and A3 are the Secretary and President. There is no denial that they were in-charge and were responsible for the conduct of the business of Al society. Therefore, both of them are liable to be punished.
The offence is punishable with imprisonment or fine. A2 and A3 are the Secretary and President of Al society. Admittedly, the complainant bank is in doldrums. Therefore, this is a fit case where compensation can be awarded. In the circumstances, compensation can be awarded in as sum of Rs. 26,00,00/-. Since I am awarding huge compensation, A1 to A3 can be sentenced to pay a fine of Rs. 5,000 each, the maximum fine that can be imposed.
In the result the appeal is allowed. The judgment of the lower Court is set aside. A1 to A3 are Convicted for the offence u/s 138 of the Act and sentenced to pay a fine of Rs. 5,000 (Rupees Five thousand only) each. In default of payment of fine, they shall undergo simple imprisonment for four months each. Al to A3 shall pay compensation of Rs. 26,00,000 (Rupees Twenty Six Lakhs only) to the complainant. The compensation amount shall be deposited within six months, with the trial Court failing which the trial Court shall take steps for realization of the same in accordance with law.