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Judgment
D. Reddeppa Reddi, J.—These three petitions have been filed u/s 482 of the Code of Criminal Procedure, 1973 (for short "the Code"), to quash the proceedings in Calendar Cases Nos. 101, 505 and 100 of 1993, on the file of the Fifth Metropolitan Magistrate, Hyderabad, which have been taken cognizance of u/s 142 of the Negotiable Instruments Act, 1881 (for short "the Act").
The petitioner is a company registered under the Companies Act, 1956, and it is being prosecuted for an offence punishable u/s 138 of the Act, on a complaint filed by the respondent, viz., Nagarjuna Investment Trust Ltd. When these petitions came up for admission, while ordering notice to the respondent before admission, interim stay was granted on October 19, 1994. On receipt of the notice, the respondent entered appearance and filed a petition in each case to vacate the interim stay dated October 19, 1994. When they came up for consideration before me, learned counsel appearing on either side agreed to have the main petitions disposed of. It is, accordingly, done.
The undisputed facts are : The petitioner issued the cheques each for Rs. 4,04,593.20 in favour of the respondent and they were dishonoured when presented by the respondent for realisation with the remark "account closed". Notice was issued by the respondent to the petitioner as contemplated u/s 138 of the Act before filing the complaint in each case. It is admitted that complaint has been filed in each case within the period of limitation prescribed u/s 142 of the Act.
The principal submissions of Sri P. Venugopal, learned counsel for the petitioner, are :
(a) The provisions of the Act are not attracted when the cheques are dishonoured due to closure of account.
(b) The closure of the account on which the cheques were issued was as per the instructions of the State Bank of Indore, the principal financier of the petitioner, and, therefore, the petitioner is not liable to be prosecuted.
(c) The provisions of section 138 being penal in nature should receive strict construction.
In opposition, it is contended by Sri A.T.M. Rangaramanujam, learned counsel for the respondent, that the points raised in the petitions are squarely covered against the petitioner by a series of judicial pronouncements of various High Courts and the petitions are liable to be dismissed.
Learned counsel for the petitioner, in order to sustain his first submission, contends that section 138 of the Act provides for punishment only under two eventualities, viz., (i) insufficiency of the amount in the account of the drawer of the cheque to honour the cheque; (ii) the amount covered by the cheque exceeded the arrangement to be paid to the account and not on any other ground.
In support thereof, he places strong reliance on the decision of K. Ramachandraiah J. of the Karnataka High Court in G.F. Hunasikattimath v. State of Karnataka [1993] 76 Comp Cas 278 which has been followed by Pratap Singh J. of the Madras High Court in S. Prasanna v. R. Vijayalakshmi [1991] 2 MWN (Cr.) 89; [1993] 76 Comp Cas 522. True, it has been held in these two cases that the prosecution u/s 138 of the Act could be sustained only under the two eventualities mentioned above and not on any other ground. In G.F. Hunasikattimath v. State of Karnataka [1993] 76 Comp Cas 278, 280 (Kar), the learned judge referred to the following observation of a Division Bench of that court in Telecom Employees Co-operative Housing Society Ltd. Vs. Scheduled Castes, Scheduled Tribes, Minority Communities and Backward Classes Improvement Centre, :
"(1) The court will not extend the law beyond its meaning to take care of a broader legislative purpose. Here ''strict'' means merely that the court will refrain from exercising its creative function to apply the rule announced in the statute to situations not covered by it, even though such an extension would help to advance the manifest ulterior purpose of the statute. Here, strictness relates not to the meaning of the statute but to using the statute as a basis for judicial law making by analogy with it."
With great respect to the learned judges, I cannot persuade myself to agree with them in view of the decision of a Division Bench of this court in Syed Rasool and Sons and Others Vs. Aildas and Company and Another, . In this decision, G. Radhakrishna Rao J., speaking for the Division Bench, dealt with the scheme of the Act extensively and observed as under (at page 751 of 78 Comp Cas) :
"From the scheme of the Act, it is thus clear that following the dishonour of the cheque a notice has to be issued in writing to the person who has issued the cheque inviting his attention that the cheque has been dishonoured and he is liable for penal consequences u/s 138 read with section 142 of the Act. When the reason for return of the cheque has been mentioned as ''refer to drawer'' or ''insufficiency of funds'' or ''account closed'', it is the primary duty of the drawer of the cheque to make the payment of the said amount of money to the payee within fifteen days of the receipt of the said notice. So, an opportunity has been given by the Legislature itself by providing a notice to the drawer and for payment of the amount within fifteen days of the receipt of the said notice and if he fails to comply with clause (c) of section 138, filing of a complaint within one month from the date of cause of action is also provided under sub-section (b) of section 142 of the Act. Thus, a notice has to be given to the drawer and that notice is a condition precedent. That means, the drawer of the cheque has got an opportunity to know in advance before filing the complaint that the cheque was dishonoured for a particular reason. When that information was already available with him and when he has not made any attempt to pay the same, it cannot be said that the cheque was returned not for insufficiency of funds or not arranged for. In the normal banking parlance ''refer to drawer'' means that no funds are available and when an opportunity has been given to the drawer of the cheque by inviting his attention and when he has not paid the amount, it has to be construed that ''refer to drawer'' or ''insufficiency of funds'' or ''account closed'', etc., ultimately resulted in dishonouring the cheque and preventing the drawee from getting the amount which is only on account of the act committed by the drawer, who has given the cheque. The two situations contemplated in section 138 are insufficiency of the amount standing to the credit of the account or that it exceeds the amount arranged to be paid by an agreement made with the bank such as obtaining the facility of overdraft, etc. If either of these two contingencies has not been complied with, the only alternative left to the bank is to dishonour the cheque or to return the cheque with the endorsement as is being followed by them from time to time as per the trade custom, usage and practice. It is not the phrase or the words used by the bank in dishonouring the cheque that has to be taken into account but the intention of the bank has to be taken into consideration. The intention of the Legislature is clearly to see that in the event of the amount not being paid on presenting the cheque due to insufficiency of funds or if it exceeds the arrangement, the person is liable for prosecution. However, the further safeguard that has been made to prevent hasty action is that the payee or the holder in due course of the cheque shall make a demand for the payment of the amount covered by the said cheque by giving a notice, in writing, to the drawer within fifteen days of the receipt of information by him from the bank. It is well-settled that the penal provisions have to be construed strictly and not liberally. The court will not extend the law beyond its meaning to take care of a broader legislative purpose. Here ''strict'' means merely that the court will refrain from exercising its creative function to apply the rule announced in the statute to situations not covered by it even though such an extension would help to advance the manifest ulterior purpose of the statute. Here strictness relates not to the meaning of the statute but to using the statute as a basis for judicial law making by analogy with it. Even in the Calcutta High Court case, viz., Voltas Ltd. v. Hiralal Agarwalla [1991] 71 Comp Cas 273 (Gal) averments have been made in the complaint petition which show that the complainant had observed the formality as required by the provisos (a), (b) and (c) of section 138 of the Act before initiating the criminal proceeding against the drawer of the cheque. It was contended therein on behalf of the petitioners that the clause ''refer to drawer'' does not necessarily mean that the cheque was dishonoured. But, on a clarification from the bank, to the effect that the remark ''refer to drawer'' necessarily means as per banking custom that the cheque has been returned for want of funds, the court came to the conclusion that it is prima facie seen that the cheque in question was bounced because of inadequacy of funds in the drawer''s account. The endorsements ''refer to drawer'' or ''insufficiency of funds'' or ''not arranged'' or ''account closed'' or some other technical words used by the bank, ultimately resulted in dishonouring the cheque, on account of the fault of the person who has issued the cheque in not providing sufficient funds or not arranging funds. Having issued the cheque in not providing sufficient funds or not arranging the funds or after closing the account, it is definitely an act on the part of the drawer of the cheque which ultimately resulted in dishonouring the cheque. This again is a matter of evidence which has to be adduced in support of the endorsement. Under these circumstances, it cannot be said at this stage that taking of cognizance on a private complaint by the court itself is bad. The words ''refer to drawer'' in their ordinary meaning amounted to a statement by the bank, ''we are not paying; go back to the drawer and ask him why'' or else ''go back to the drawer and ask him to pay''. In view of the above discussion, we are of the firm view that ''refer to drawer'' necessarily means, as per banking parlance, that the cheque has been returned for want of funds in the account of the drawer of the cheque. So we are not in agreement with the view expressed by the learned single judge of this court Union Road Ways (P.) Ltd. v. Shah Ramanlal Ritesh Kumar [1992] 1 AWR 372; [1993] 76 Comp Cas 315."
A Division Bench of the Madras High Court, consisting of Janarthanam and Thangamani JJ. had occasion to consider the following question in J. Veeraraghavan v. Lalith Kumar [1994] 2 LW (Crl.) 663; [1995] 83 Comp Cas 853 (Mad) referred to it by Arunachalam J. (at page 859)
"When section 138 of the Negotiable Instruments Act contemplates deemed commission of an offence under two circumstances, namely, insufficiency of the amount of money standing to the credit of the account of a person or it exceeded the amount arranged to be paid from that account by an agreement made with that bank, will a Magistrate be competent to take cognizance, on a private complaint, when the return by the bank, of the cheque, bears an endorsement ''account closed'', or ''payment stopped'' or ''refer to drawer'' ?"
Janarthanam J. speaking for the Division Bench, having recast the above question as (at page 860) :
"Will a Magistrate be competent to take cognizance of a private complaint when the return by the bank of the cheque bears an endorsement of contingencies or eventualities other than the ones mentioned in section 138 of the Negotiable Instruments Act ?" made an exhaustive survey of banking practice and the law on the subject and answered the same as under (at page 880) :
"It shall be competent for a Magistrate to take cognizance of a private complaint, when the return by the bank of the cheque bears an endorsement of any of the contingencies or eventualities other than the ones mentioned in section 138 of the Negotiable Instruments Act."
I am in entire agreement with the said view. Therefore, the first submission must fail. It is, accordingly, rejected.
Equally, I find no substance in the second submission. It is already held that the closure of the account on which cheques have been drawn is no bar on the Magistrate to take cognizance of a complaint filed by the holder of a dishonoured cheque. In the present case, the petitioner might have closed the account as per the instructions of its principal financier. It may have so many other financial problems. But, they are totally irrelevant when the petitioner admits the issuance of cheques and does not deny its liability to pay the amount covered under the cheques. That is not the case of the petitioner in the present case. It should be remembered that the petitioner is prosecuted for his failure to make the payment of the amount due under the dishonoured cheques within fifteen days after the receipt of notice and not for closing the account on which cheques were issued. As already noted, there is no dispute that the petitioner received the notice; but failed to make the payment so far.
The third submission is only a limb of the first submission. In view of the rejection of first submission, this submission also shall fail. It is, accordingly, rejected.
For the aforesaid reasons, I find no merit in these petitions. They are, accordingly, dismissed.