Going by the above provision with the explanation, it is crystal clear that there is any such restriction or impediment in one issuing a cheque to discharge the liability of another person. Even if the cheque was issued in discharge of the liability of another person, the offence under Section 138 of the N.I.Act would be made out in the event the cheque issued is dishonoured for insufficiency of funds and despite the notice demanding discharge, the liability is not discharged within the time limit. Therefore, the plea of the petitioner that since there was no transaction between the petitioner and the first respondent; and the petitioner owed no liability to the first respondent, the prosecution under Section 138 of th N.I.Act would not lie is devoid of any merits.1
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Crl. M.C. No. 449 of 2006 - Alex. P. Oommen Vs. Kerala State Film Developmnent Corporation Limited, (2012) 268 KLR 2711
Dated this the 4th day of September, 2012
Head Note:-
Negotiable Instrument Act, 1881 - Section 138(b) - the proviso (b) Section 138 of the N.I.Act stipulates notice regarding dishonour of the cheque and demanding discharge alone. There is no statutory mandate that the notice shall narrate the nature of liability. Therefore, the omission or error in the notice regarding the liability is therefore not much significant.
Citation;2013 ALL M R (cri)JOURNAL 107
This petition under Section 482 of the Code of Criminal Procedure (CrPC) was filed by the accused in S.T.No.1141/2005 on the file of the Chief Judicial Magistrate-III, Thiruvananthapuram. The first respondent herein is the complainant. He filed Annexure -V complaint against the petitioner alleging offence under section 138 of the Negotiable Instruments Act (NIAct) with a plea that the petitioner is the Managing Partner of a cinema theatre by name Prathibha theatre at Mavelikkara. One Bose Varghese, Proprietor of Chemapakasseri Films had liabilities with the first respondent. The petitioner issued two cheques both dated 17.2.2005 for Rs. 1,00,000/- each drawn on Federal Bank Ltd., Mavelikkara branch in discharge of a part of the liability owed by Bose Varghese. The liability is in relation to a feature film titled 'Hrudayathil Sookshikkan'. When the first respondent sent the cheques for collection through Indian Bank, Thiruvananthapuam branch, the cheques were returned dishonoured with endorsement 'account closed'. Thereupon the first respondent caused notice intimating dishonour of the cheques and demanding discharge of the liability. Though the petitioner accepted the same on 19.5.2005, the liability was not discharged.
2. On getting the process, the petitioner moved this petition with a plea that there was no transaction between the petitioner and the first respondent and that the petitioner did not owe any liability to the fist respondent and that the petitioner entered into an agreement with Sree Mookambika Films, Ernakulam for screening their film 'Hrudayathil Sookshikkan'. Annexure-I is the copy of the agreement. As per Annexure-I, Sree Mookambika Films who are producer and distributor of the above movie, agreed to release the film on 17.2.2005 as a Muharam release. There was a practice in the film industry that the distributor would collect advance from the theatres and adjusting it against movie collections. Petitioner also agreed to pay an advance of Rs.2,00,000/- and towards the same, two cheques for Rs. 1,00,000/- each were issued in favour of Sree Mookambika Films. Chempakassery productions owned by Bose Varghese issued a cheque for Rs. 2,00,000/- as security to prevent abuse of the cheques issued by the petitioner. Despite Annexure-I agreement, the film could not be released by 17.2.2005. It is further stated that the distributor had availed a loan from the first respondent and without informing the petitioner, the cheques issued by the petitioner were handed over to the fist respondent, which in turn presented the same for collection and dishonoured. More amounts were due from the distributor to the first respondent. The first respondent had initiated prosecution basing upon a cheque issued by the distributor and had also initiated revenue recovery proceedings. Since there was no transaction between the petitioner and the 1st respondent and there is no enforceable debt or other liability as against the petitioner no offence u/s 138 of NIAct is made out to sustain prosecution. With this plea, the petitioner sought for quashing Annexure-V complaint.
3. I have heard either side and perused the documents.
4. The learned senior counsel for the petitioner while reiterating the contentions in the petition would argue that since the cheques were drawn without consideration, in view of Section 43 of the N.I. Act, the prosecution is not sustainable. The learned counsel had also canvassed my attention to Annexure-III, copy of the notice issued by the first respondent to the petitioner, wherein it is stated that the cheques were issued in discharge of the liability owed by the petitioner to the 1st respondent. In Annexure-V complaint, the 1st respondent had a different case that the cheques were issued to discharge a part of the liability owed by Bose Varghese. Therefore, according to the learned senior counsel, the prosecution is not sustainable. On the other hand, the 1st respondent would argue that to make out an offence u/s 138 of NIAct, there need not be any transaction between the drawer and holder of the cheque and that even if the cheque was issued in discharge of another's liability and it was dishonoured, offence would be made out.
5. For a correct appraisal of the case, I find that a reading of Section 138 of the N.I.Act, which reads as follows, would be relevant.
"138. Dishonour of cheque for insufficiency, etc., of funds in the account.- Where any cheque drawn by a pe4son 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 the 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 be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless- (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the s aid amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation.- For the purpose of this section, "debt or other liability", means a legally enforceable debt or other liability."
Going by the above provision with the explanation, it is crystal clear that there is any such restriction or impediment in one issuing a cheque to discharge the liability of another person. Even if the cheque was issued in discharge of the liability of another person, the offence under Section 138 of the N.I.Act would be made out in the event the cheque issued is dishonoured for insufficiency of funds and despite the notice demanding discharge, the liability is not discharged within the time limit. Therefore, the plea of the petitioner that since there was no transaction between the petitioner and the first respondent; and the petitioner owed no liability to the first respondent, the prosecution under Section 138 of th N.I.Act would not lie is devoid of any merits.
6. Since the petitioner would seek to quash the complaint on the basis of Section 43 of the N.I.Act, I find that a reading of the same also would be relevant. Section 43 of the N.I.Act reads as follows.
"43. Negotiable instrument made, etc., without consideration.- A negotiable instrument made, drawn accepted, endorsed, or transferred without consideration, or for a consideration which fails, creates no obligation of payment between the parties to the transaction. But if any such party has transferred the instrument with or without endorsement to a holder for consideration, such holder, and every subsequent holder deriving title from him, may recover the amount due on such instrument from the transferor for consideration or any prior party thereto.
Exception 1. xxx xxx
Exception 2. xxx xxx
First part of the above provision would show that in the event a negotiable instrument has been made, drawn, accepted, endorsed, or transferred without consideration, or for a consideration which fails, creates no obligation on the side of the drawer. But, by the second part, in the event the instrument was transferred with or without endorsement to the holder for consideration, such holder and every subsequent holder deriving title from him can recover the amount due on such instrument from the transferrer for consideration or any prior party theDated this the 4th day of September, 2012
Head Note:-
Negotiable Instrument Act, 1881 - Section 138(b) - the proviso (b) Section 138 of the N.I.Act stipulates notice regarding dishonour of the cheque and demanding discharge alone. There is no statutory mandate that the notice shall narrate the nature of liability. Therefore, the omission or error in the notice regarding the liability is therefore not much significant.
O R D E R
This petition under Section 482 of the Code of Criminal Procedure (CrPC) was filed by the accused in S.T.No.1141/2005 on the file of the Chief Judicial Magistrate-III, Thiruvananthapuram. The first respondent herein is the complainant. He filed Annexure -V complaint against the petitioner alleging offence under section 138 of the Negotiable Instruments Act (NIAct) with a plea that the petitioner is the Managing Partner of a cinema theatre by name Prathibha theatre at Mavelikkara. One Bose Varghese, Proprietor of Chemapakasseri Films had liabilities with the first respondent. The petitioner issued two cheques both dated 17.2.2005 for Rs. 1,00,000/- each drawn on Federal Bank Ltd., Mavelikkara branch in discharge of a part of the liability owed by Bose Varghese. The liability is in relation to a feature film titled 'Hrudayathil Sookshikkan'. When the first respondent sent the cheques for collection through Indian Bank, Thiruvananthapuam branch, the cheques were returned dishonoured with endorsement 'account closed'. Thereupon the first respondent caused notice intimating dishonour of the cheques and demanding discharge of the liability. Though the petitioner accepted the same on 19.5.2005, the liability was not discharged.
2. On getting the process, the petitioner moved this petition with a plea that there was no transaction between the petitioner and the first respondent and that the petitioner did not owe any liability to the fist respondent and that the petitioner entered into an agreement with Sree Mookambika Films, Ernakulam for screening their film 'Hrudayathil Sookshikkan'. Annexure-I is the copy of the agreement. As per Annexure-I, Sree Mookambika Films who are producer and distributor of the above movie, agreed to release the film on 17.2.2005 as a Muharam release. There was a practice in the film industry that the distributor would collect advance from the theatres and adjusting it against movie collections. Petitioner also agreed to pay an advance of Rs.2,00,000/- and towards the same, two cheques for Rs. 1,00,000/- each were issued in favour of Sree Mookambika Films. Chempakassery productions owned by Bose Varghese issued a cheque for Rs. 2,00,000/- as security to prevent abuse of the cheques issued by the petitioner. Despite Annexure-I agreement, the film could not be released by 17.2.2005. It is further stated that the distributor had availed a loan from the first respondent and without informing the petitioner, the cheques issued by the petitioner were handed over to the fist respondent, which in turn presented the same for collection and dishonoured. More amounts were due from the distributor to the first respondent. The first respondent had initiated prosecution basing upon a cheque issued by the distributor and had also initiated revenue recovery proceedings. Since there was no transaction between the petitioner and the 1st respondent and there is no enforceable debt or other liability as against the petitioner no offence u/s 138 of NIAct is made out to sustain prosecution. With this plea, the petitioner sought for quashing Annexure-V complaint.
3. I have heard either side and perused the documents.
4. The learned senior counsel for the petitioner while reiterating the contentions in the petition would argue that since the cheques were drawn without consideration, in view of Section 43 of the N.I. Act, the prosecution is not sustainable. The learned counsel had also canvassed my attention to Annexure-III, copy of the notice issued by the first respondent to the petitioner, wherein it is stated that the cheques were issued in discharge of the liability owed by the petitioner to the 1st respondent. In Annexure-V complaint, the 1st respondent had a different case that the cheques were issued to discharge a part of the liability owed by Bose Varghese. Therefore, according to the learned senior counsel, the prosecution is not sustainable. On the other hand, the 1st respondent would argue that to make out an offence u/s 138 of NIAct, there need not be any transaction between the drawer and holder of the cheque and that even if the cheque was issued in discharge of another's liability and it was dishonoured, offence would be made out.
5. For a correct appraisal of the case, I find that a reading of Section 138 of the N.I.Act, which reads as follows, would be relevant.
"138. Dishonour of cheque for insufficiency, etc., of funds in the account.- Where any cheque drawn by a pe4son 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 the 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 be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless- (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the s aid amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation.- For the purpose of this section, "debt or other liability", means a legally enforceable debt or other liability."
Going by the above provision with the explanation, it is crystal clear that there is any such restriction or impediment in one issuing a cheque to discharge the liability of another person. Even if the cheque was issued in discharge of the liability of another person, the offence under Section 138 of the N.I.Act would be made out in the event the cheque issued is dishonoured for insufficiency of funds and despite the notice demanding discharge, the liability is not discharged within the time limit. Therefore, the plea of the petitioner that since there was no transaction between the petitioner and the first respondent; and the petitioner owed no liability to the first respondent, the prosecution under Section 138 of th N.I.Act would not lie is devoid of any merits.
6. Since the petitioner would seek to quash the complaint on the basis of Section 43 of the N.I.Act, I find that a reading of the same also would be relevant. Section 43 of the N.I.Act reads as follows.
"43. Negotiable instrument made, etc., without consideration.- A negotiable instrument made, drawn accepted, endorsed, or transferred without consideration, or for a consideration which fails, creates no obligation of payment between the parties to the transaction. But if any such party has transferred the instrument with or without endorsement to a holder for consideration, such holder, and every subsequent holder deriving title from him, may recover the amount due on such instrument from the transferor for consideration or any prior party thereto.
Exception 1. xxx xxx
Exception 2. xxx xxx
First part of the above provision would show that in the event a negotiable instrument has been made, drawn, accepted, endorsed, or transferred without consideration, or for a consideration which fails, creates no obligation on the side of the drawer. But, by the second part, in the event the instrument was transferred with or without endorsement to the holder for consideration, such holder and every subsere to. Section 36 of the N.I. Act lends support to the second part of Section 43. I find that a reading of Section 36 of the N.I.Act also would be relevant.
36.Liability of prior parties to holder in due course.- Every prior party to a negotiable instrument is liable thereon to a holder in due curse until the instrument is duly satisfied."
A combined reading of Sections 36 and 43 would show that even if the cheque was drawn and issued by a person without consideration, in the event the cheque is transfered with or without endorsement, such holder is entitled to recover the amount covered by the cheque from the transferrer or the drawer. Here, in this case, it is admitted by the petitioner that the cheques were issued to Bose Varghese in pursuance to Annexure -I agreement. It is also admitted by the petitioner that amounts were due from Bose Varghese to the first respondent. The very case of the 1st respondent in Annexure-V complaint is that the cheques were issued by the petitioner in discharge of a part of the liability which Bose Varghese owed to the 1st respondent. In the above circumstance, on a combined reading of Sections 36, 43 and 138 of the NI.Act, I find that though there was no transaction between the petitioner and the 1st respondent and that the cheques in dispute were issued not for the discharge of the liability which the petitioner owed to the 1st respondent since the cheques were either transferred or given in discharge of the liability, which Bose Varghese owed to the 1st respondent, it is to be presumed, referring to Sections 118 and 139 of the N.I.Act, that the cheques in dispute were drawn for valuable consideration and issued in discharge of the liability.
7. The scope of Sections 36 and 43 of the N.I.Act had been considered by this Court in Federal Bank Ltd. v. P.S.P. Panicker (1975 KLT 472). Referring to Section 43, at para 3 it is held as follows :
"The first part of the section provides that where there is initial want of consideration or where there is subsequent failure of consideration for a negotiable instrument, such instrument does not create a obligation for payment as between the parties to the transaction. The expression 'parties to the transaction' clearly indicates that the plea of avoidance of the liability is available only to the immediate parties to the transaction. The very essence of a negotiable instrument is its negotiability and as is well-known there may be one or more assignments of the rights under an instrument. Absence of consideration or failure of consideration could avoid the liability only as between the parties to the particular transaction for which there was no initial considerati8on or there was a subsequent failure of consideration. That the legislature never intended to extend such avoidance of obligation to other transactions pertaining to the same instrument is clear from the second part of the provision. The second part lays down that as far as a holder for consideration or a subsequent assignee for consideration are concerned, any one of them can recover the amount due under the instrument not only from his transferor but from any prior party to the instrument. The expression "prior party" is found in other provisions of the Act like Ss.36 and 38. The latter part of S.43 apparently is to safeguard the rights of a holder in due course. Such a positive provision was necessary because S.36 o the act provides that every prior party to the negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied. S.36 of the act, thus, confers a special right on a holder in due course in the matter of realization of the amounts due under the instrument, he holds. S.43 has, therefore, to be read in conjunction with S. 36 of the Act. The rights conferred to a holder in due course under S. 36 are not intended to be defeated on the ground that a prior transaction relating to the instrument was bad for want of consideration. The latter part of S. 43, thus, is to preserve in tact the rights conferred on a holder in due course under the general provision contained in S. 36 of the Act. An analogous position came up for consideration before the Assam High Court in the decision reported in Jethmal Ganeshmal Firm v. Haridas Roy and others (AIR 1949 Assam 6). In that case it was held that the plaintiff, who was the holder in due course, was entitled to recover the amount not only from the payee, but also from the drawer, even though there was failure of consideration for the transaction between the drawer and the payee".
8. Issuance of the cheque in discharge of the liability of another had been the consideration of this Court in Gopi v. Sudarshanan (2002 (2) KLT 606) and in Komalam v. Mohanakumar (2009(3) KLT 263). In Gopi's case, referring to Section 138 of the N.I.Act, at para-7 it is held as follows:
"This section does not in any way debar a person from taking up another person's liability or insist that the cheque should be one drawn to discharge the liability of the drawer. Under S.139 of the Act there is a presumption, unless the contrary is proved, that the holder of a cheque received the cheque for the discharge in whole or in part of any debt or other liability. "Any debt" would cover the liability of another person as well. Here the accused's own case is that the cheque was exeuted with the intention that it should cover the liability of another person. Even if his said contention is accepted, Ext.P1 cheque is one issued to cover a legal liability."
9. In Komalam's case, at para 4 it is held as follows:
"The law provides for discharge of debt by a person, even if it is a debt of another. Such transactions, where one discharges debt of another, is an instance of discharge of debt or other liability. If"A" discharges a legally enforceable debt or other liability of "B" by making a payment to "C" then, if that is one by "A" issuing a cheque to "C", it becomes a cheque issued in discharge of the legally enforceable debt or other liability of "B" and is therefore, debt or other liability for the purpose of S.138 of the N.I.Act. So much so, the arguments on behalf of the accused that she issued the cheque for discharge of liability of her husband DW4 would not save her from the penal provision of S.138 of the N.I.Act"
The precedents quoted above, support my above conclusion.
10. The learned senior counsel for the petitioner giving reliance to Annexure-III notice would submit that averments in Annexure-III notice and averments in Annexure-V complaint are mutually contradictory because in Annexure-III it is stated that the cheques were issued to discharge the liability which the petitioner owed to the first respondent. In Annexure-V it was stated that the cheques were issued to discharge the liability of Bose Varghese. According to the learned counsel, to determine the cause of action, the averments in the notice is to be read and since that is found belied by the averments in the complaint, the petitioner is entitled to have Annuxure -V complaint quashed. Carefully going through Annexures-III and IV and the pleadings in the petition, I find that the argument advanced by the learned senior counsel for the petitioner is devoid of any merit because in the petition it is admitted that the petitioner had issued cheques to Bose Varghese in terms of Annexure-I agreement. Evidently, Bose Varghese owed liability to the 1st respondent. In the event the cheques were transferred without endorsement by Bose Varghese to the 1st respondent, in the absence of any specific bar, the 1st respondent is entitled to present the cheques for collection and initiate prosecution under Section 138 of the N.I.Act. Even if it was mistakenly stated in the notice demanding discharge that the liability was between the petitioner and the 1st respondent that would not be a reason to interfere with the complaint u/s 482 CrPC. It is pertinent to note that the proviso (b) Section 138 of the N.I.Act stipulates notice regarding dishonour of the cheque and demanding discharge alone. There is no statutory mandate that the notice shall narrate the nature of liability. Therefore, the omission or error in the notice regarding the liability is therefore not much significant. In the above circumstance, I find that this petition is devoid of any merit. There is no room for any interference under Section 482 Cr.P.C.
In the result, this petition is dismissed. The case on hand being pretty old, the trial court is directed to give top priority and to have the case disposed of as early as possible. The petitioner is directed to surrenderer before the trial court.
Sd/-
P.S. GOPINATHAN, JUDGE.
Cl
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