In order to constitute an offence under sections 138 of the Negotiable Instrument Act, the following ingredients are required to be fulfilled:
1.Existence of a "live account" at the time of issue of cheque is a condition precedent for attracting penal liability for the offence under this section. A cheque cannot be issued de hors an account maintained by its drawer with the banker. When the cheque is returned by the bank unpaid because of the account of money standing to the credit of the drawer is insufficient, to make demand for payment as provided for payment as indicated in clause (b) of the proviso. The words "that account" in the section denote to the account in respect of which the cheque was drawn. No doubt if any person manages to issue a cheque without an account with the bank concerned its consequences would not snowball into the offence described under section 138 of the Act. For the offence under section 138 of the Act there must have been an account maintained by the drawer at the time of the cheque was drawn.
2.Issue of Cheque in discharge of a debt or liability wholly or in part. Where a cheque is issued not for the purposes of discharge of any debt or other liability, the maker of the cheque is not liable for prosecution under section 138 of the Act. A cheque given as a gift or for any other reasons and not for the satisfaction of any debt or other liability, partly or wholly, even if it is returned unpaid will not meet the penal consequences.
If the above conditions are fulfilled, irrespective of the notice of the drawer he shall be deemed to have committed an offence, provided the other three requisites are fulfilled:
Case :- APPLICATION U/S 482 No. - 26156 of 2007
Petitioner :- Sri Ajay Sharda
Respondent :- State Of U.P. & Another
Hon'ble Sunil Hali,J.
Applicant has been summoned in Complaint Case No. 848 of 2007 under section 138 read with section 142 of Negotiable Instrument Act ( in short as 'the Act') pending in the Court of Special Chief Judicial Magistrate (C.B.I.) District Ghaziabad.
On presentation of this complaint, an order was passed by this Court on 26.10.2007 referring the matter to the Mediation Center subject to the deposit of Rs. 50,000/- by the applicant with the Registrar General of this Court within three weeks. It was averred that the proceeding including the non-bailable warrants issued against the applicant in the aforesaid complaint case shall remain stayed.
A report has been submitted by the Mediation Center, Allahabad High Court, Allahabad on 30.3.2008 that the parties are not willing for the mediation. The matter was, therefore, heard on merits.
A complaint under section 138 of the Act was filed before the court below. The complainant is a company incorporated under the provisions of the Indian Companies Act, 1956 having its registered office at B-217, Yojana Vihar, New Delhi. The instant complaint was filed through Sri Sanjay Kumar, the authorized representative of the company who was authorized by a Board Resolution dated 20.5.2007.
It appears that from the contents of the complaint that the accused company was under the liquidation. During course of its revival in the year 2003, the accused no. 1 through accused no. 4 approached the complainant for grant of financial assistance for settling certain outstanding and other statutory dues, including dues of banks and financial institutions, workmen etc and for further revival of company-accused no. 1. The request of the accused was accepted by the complainant company subject to the condition that a piece of land allotted by the U.P. State Industrial Development Corporation (UPSIDC) located at C-45 & 46, Site-III, Meerut Road Industrial Area, Ghaziabad admeasuirng 7356 Sq. Meters and 9446.26 Sq. Meters respectively (Total 16802.26 Sq. Meters) which was valued at Rs. 75 Lacs would be handed over to the complainant company in terms of the prevailing marked rates who agreed to provide financial assistance on the mutually agreed terms and conditions. The complainant as per the instructions, and on the assurance tendered by accused no. 3 and 4 has advanced a sum of Rs. 2,15,98,153/- as a loan vide Cheque no. 10702 dated 29.9.2003 and Cheque no. 10703 dated 29.9.2003 for a sum of Rs. 1,75,00,000/- and Rs. 40,98,153/- both drawn at Allahabad Bank, Main Branch, Ghaziabad. The loan in question was approved for transfer by Corporation in favour of the applicant company vide letter dated 16.1.2007. Except the transfer of the land, despite repeated reminders the accused have failed to deposit any amount toward the principal amount or interest thereon. Upon continuous and persistent follow up by the complainant the accused no. 1 on 21.7.2006 has paid an amount of Rs. 25 Lacs against the outstanding amount. The said amount has been adjusted in the books of accounts. The accused no. 1 had assured the complainant to clear all the outstanding dues including the agreed interest by the closure of the financial year and have also handed over a cheque dated 1.4.2007 for a sum of Rs. 2,24,80, 823/- drawn at Punjab National Bank, Raj Nagar, Ghaziabad U.P. towards the outstanding principal amount and interest thereon. The said cheque was drawn on the account of accused no. 1 and has been signed by accused no. 2 being the authorised signatory to the said account of accused no. 1. It is pertinent to mention here that accused no. 2 and 3 are the authorized signatories of the said bank account of accused no. 1. The said cheque was deposited in the account on 3.4.2007 and despite assurance tendered the said cheque bearing no. 595853 for an amount of Rs. 2,24,30,823/- was returned along with dishonour memo dated 5.4.2007 with the remark that "Funds insufficient". Consequent thereupon the complainant was compelled to issue a statutory notice under sections 138 & 142 of the Negotiable Instrument Act, 1881 through its counsel to the petitioners through registered post on 25.4.2007, intimating them about the return of the cheque on account of insufficient funds and with a demand to make payment of the cheque amount within 15 days of the receipt of the notice. Initially notice sent on 25.4. 2007 has been returned back with the endorsement that no company exists at the address mentioned on the envelope. The complainant again sent notices on the address of accused nos. 1 and 3 which was again returned back by the postal department with an endorsement "Refused" on 7.5.2007. On their failure to make payment, the present complaint has been filed.
The court after obtaining statement of the complainant summoned the accused persons to face trial vide order dated 23.6.2007. The petitioner has questioned the summoning order in this Court.
The main contention raised by the learned counsel for the petitioner is that (a) blank cheques were issued by way of collateral security on which date has been fixed by the complainant party in breach of agreement and that the blank cheques being not negotiable instrument, no complain can be filed against the petitioner; (b) the signature on the cheque does not resemble with the signature of accused no. 2; (c) the present petitioner could not be arrayed as an accused as it is nowhere averred in the petition that he was actively involved in the affairs of the company; lastly, (d) it is said that the court at Ghaziabad has no jurisdiction as both have their registered offices at New Delhi.
I have heard the learned counsel for the parties.
In order to constitute an offence under sections 138 of the Negotiable Instrument Act, the following ingredients are required to be fulfilled:
1.Existence of a "live account" at the time of issue of cheque is a condition precedent for attracting penal liability for the offence under this section. A cheque cannot be issued de hors an account maintained by its drawer with the banker. When the cheque is returned by the bank unpaid because of the account of money standing to the credit of the drawer is insufficient, to make demand for payment as provided for payment as indicated in clause (b) of the proviso. The words "that account" in the section denote to the account in respect of which the cheque was drawn. No doubt if any person manages to issue a cheque without an account with the bank concerned its consequences would not snowball into the offence described under section 138 of the Act. For the offence under section 138 of the Act there must have been an account maintained by the drawer at the time of the cheque was drawn.
2.Issue of Cheque in discharge of a debt or liability wholly or in part. Where a cheque is issued not for the purposes of discharge of any debt or other liability, the maker of the cheque is not liable for prosecution under section 138 of the Act. A cheque given as a gift or for any other reasons and not for the satisfaction of any debt or other liability, partly or wholly, even if it is returned unpaid will not meet the penal consequences.
If the above conditions are fulfilled, irrespective of the notice of the drawer he shall be deemed to have committed an offence, provided the other three requisites are fulfilled:
a) Presentation of the cheque within six months or within the period of its validity, whichever is earlier. Thus, if a cheque is valid for three months and is presented to the bank within a period of six months the provisions of this section shall not be attracted. However if the period of validity of the cheque is not specified or prescribed the cheque is presented within six months from the date the cause of action can arise. The six months are taken from the date the cheque was drawn.
b) Return of the cheque unpaid for reason of insufficiency of funds to honour the cheque or that it exceeds the arrangement made to be paid from that account by an agreement with the bank. Even if the cheque is returned with the endorsement "account closed" section 138 is attracted;
c) Issue of the notice of dishonour demanding payment within thirty days of receipt of information as to dishonour of the cheque. Such notice must be given within 30 days of information from the bank regarding the return of cheque as unpaid and;
d) Failure of the drawer to make the payment within fifteen days of the receipt of the payment. If the payment is not made after the receipt of the notice within stipulated time a cause of action for initiating criminal proceedings under this section will arise.
The essential feature is that the cheque must be issued for discharge of a debt or other liability and drawer of the cheque must be a account holder in the said bank. In the present case, either of the two conditions are not disputed by the present petitioner. The only plea raised by him is that blank cheques were issued in favour of the complainant as collateral security. The only question which is required to be determined is as to whether blank cheques have been issued in favour of the complainant party or not.
The contention of the learned counsel for the petitioner is that the cheques were issued in the year 2003 while the case set up by the complainant is that the said cheques were issued in the year 2007 after joint meeting of the petitioner and accused persons. This is the issue which is required to be determined during the course of trial. At this stage, it is not appropriate for this Court to enter into this factual controversy.
The second contention raised by the learned counsel for the petitioner is that the petitioner is not actively involved in the affairs of the company. The averment made in paragraph 5 of the complaint shows that the during the course of revival of the company and in the year 2003, the company through accused no. 4 approached the complainant for grant of financial assistance for settling certain outstanding and other statutory dues, including dues of banks and financial institutions, workmen etc. for further revival of the company. The complaint further reveals that on assurance of accused nos. 3 and 4 a sum of Rs. 2,15,98,153/- was advanced to the company. From the perusal of the aforesaid averments it can not be said that the petitioner was not actively involved in the affairs of the company.
Section 141 of the Negotiable Instrument Act clearly makes a Director responsible who was incharge and responsible to company for the conduct of the business of the company. According to provision of Section 141 of N.I. Act every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence. Prima facie, there is nothing to presume that the petitioner was not incharge or responsible for the conduct of affairs of the company.
The last contention raised by the learned counsel for the petitioner is that the registered office of both the companies are located at New Delhi, and as such, this Court has no jurisdiction to entertain the complaint.
It is not in dispute that the disputed cheques were issued and drawn on Punjab National Bank, Ghaziabad. In order to appreciate this argument, it is relevant to mention that the Hon'ble Supreme Court has observed in the case of K. Bhaskaran vs Sankaran Vaidhyan Balan Anothre AIR 1999 SC 3762, that :
"the offence under Section 138 of the Act can be completed only with the concatenation of a number of acts. Following are the acts which are components of the said offence : (1) Drawing of the cheque, (2) Presentation of the cheque to the bank, (3) Returning the cheque unpaid by the drawee bank, (4) Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount, (5) failure of the drawer to make payment within 15 days of the receipt of the notice. It is not necessary that all the above five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at five different localities. But concatenation of all the above five is a sine qua non for the completion of the offence under Section 138 of the Code. In this context a reference to Section 178(d) of the Code is useful. It is extracted below:
"Where the offence consists of several acts done in different local areas, it may be inquired into or tried by a Court having jurisdiction over any of such local areas."
Thus it is clear, if the five different acts were done in five different localities any one of the courts exercising jurisdiction in one of the five local areas can become the place of trial for the offence under Section 138 of the Act. In other words, the complainant can choose any one of those courts having jurisdiction over any one of the local areas within the territorial limits of which any one of those five acts was done. As the amplitude stands so widened and so expansive it is an idle exercise to raise jurisdictional question regarding the offence under Section 138 of the Act."
The Supreme Court has observed that the complaint will have right in any of the five local areas where the cause of action has arisen, the court having jurisdiction over any one of the local areas within the territorial limits of any of the five acts was done to try the case.
Applying the aforesaid principles, the petition fails and is accordingly dismissed.
(Sunil Hali, J.)
Order Date :- 8.2.2013.
Print Page
1.Existence of a "live account" at the time of issue of cheque is a condition precedent for attracting penal liability for the offence under this section. A cheque cannot be issued de hors an account maintained by its drawer with the banker. When the cheque is returned by the bank unpaid because of the account of money standing to the credit of the drawer is insufficient, to make demand for payment as provided for payment as indicated in clause (b) of the proviso. The words "that account" in the section denote to the account in respect of which the cheque was drawn. No doubt if any person manages to issue a cheque without an account with the bank concerned its consequences would not snowball into the offence described under section 138 of the Act. For the offence under section 138 of the Act there must have been an account maintained by the drawer at the time of the cheque was drawn.
2.Issue of Cheque in discharge of a debt or liability wholly or in part. Where a cheque is issued not for the purposes of discharge of any debt or other liability, the maker of the cheque is not liable for prosecution under section 138 of the Act. A cheque given as a gift or for any other reasons and not for the satisfaction of any debt or other liability, partly or wholly, even if it is returned unpaid will not meet the penal consequences.
If the above conditions are fulfilled, irrespective of the notice of the drawer he shall be deemed to have committed an offence, provided the other three requisites are fulfilled:
Case :- APPLICATION U/S 482 No. - 26156 of 2007
Petitioner :- Sri Ajay Sharda
Respondent :- State Of U.P. & Another
Hon'ble Sunil Hali,J.
Applicant has been summoned in Complaint Case No. 848 of 2007 under section 138 read with section 142 of Negotiable Instrument Act ( in short as 'the Act') pending in the Court of Special Chief Judicial Magistrate (C.B.I.) District Ghaziabad.
On presentation of this complaint, an order was passed by this Court on 26.10.2007 referring the matter to the Mediation Center subject to the deposit of Rs. 50,000/- by the applicant with the Registrar General of this Court within three weeks. It was averred that the proceeding including the non-bailable warrants issued against the applicant in the aforesaid complaint case shall remain stayed.
A report has been submitted by the Mediation Center, Allahabad High Court, Allahabad on 30.3.2008 that the parties are not willing for the mediation. The matter was, therefore, heard on merits.
A complaint under section 138 of the Act was filed before the court below. The complainant is a company incorporated under the provisions of the Indian Companies Act, 1956 having its registered office at B-217, Yojana Vihar, New Delhi. The instant complaint was filed through Sri Sanjay Kumar, the authorized representative of the company who was authorized by a Board Resolution dated 20.5.2007.
It appears that from the contents of the complaint that the accused company was under the liquidation. During course of its revival in the year 2003, the accused no. 1 through accused no. 4 approached the complainant for grant of financial assistance for settling certain outstanding and other statutory dues, including dues of banks and financial institutions, workmen etc and for further revival of company-accused no. 1. The request of the accused was accepted by the complainant company subject to the condition that a piece of land allotted by the U.P. State Industrial Development Corporation (UPSIDC) located at C-45 & 46, Site-III, Meerut Road Industrial Area, Ghaziabad admeasuirng 7356 Sq. Meters and 9446.26 Sq. Meters respectively (Total 16802.26 Sq. Meters) which was valued at Rs. 75 Lacs would be handed over to the complainant company in terms of the prevailing marked rates who agreed to provide financial assistance on the mutually agreed terms and conditions. The complainant as per the instructions, and on the assurance tendered by accused no. 3 and 4 has advanced a sum of Rs. 2,15,98,153/- as a loan vide Cheque no. 10702 dated 29.9.2003 and Cheque no. 10703 dated 29.9.2003 for a sum of Rs. 1,75,00,000/- and Rs. 40,98,153/- both drawn at Allahabad Bank, Main Branch, Ghaziabad. The loan in question was approved for transfer by Corporation in favour of the applicant company vide letter dated 16.1.2007. Except the transfer of the land, despite repeated reminders the accused have failed to deposit any amount toward the principal amount or interest thereon. Upon continuous and persistent follow up by the complainant the accused no. 1 on 21.7.2006 has paid an amount of Rs. 25 Lacs against the outstanding amount. The said amount has been adjusted in the books of accounts. The accused no. 1 had assured the complainant to clear all the outstanding dues including the agreed interest by the closure of the financial year and have also handed over a cheque dated 1.4.2007 for a sum of Rs. 2,24,80, 823/- drawn at Punjab National Bank, Raj Nagar, Ghaziabad U.P. towards the outstanding principal amount and interest thereon. The said cheque was drawn on the account of accused no. 1 and has been signed by accused no. 2 being the authorised signatory to the said account of accused no. 1. It is pertinent to mention here that accused no. 2 and 3 are the authorized signatories of the said bank account of accused no. 1. The said cheque was deposited in the account on 3.4.2007 and despite assurance tendered the said cheque bearing no. 595853 for an amount of Rs. 2,24,30,823/- was returned along with dishonour memo dated 5.4.2007 with the remark that "Funds insufficient". Consequent thereupon the complainant was compelled to issue a statutory notice under sections 138 & 142 of the Negotiable Instrument Act, 1881 through its counsel to the petitioners through registered post on 25.4.2007, intimating them about the return of the cheque on account of insufficient funds and with a demand to make payment of the cheque amount within 15 days of the receipt of the notice. Initially notice sent on 25.4. 2007 has been returned back with the endorsement that no company exists at the address mentioned on the envelope. The complainant again sent notices on the address of accused nos. 1 and 3 which was again returned back by the postal department with an endorsement "Refused" on 7.5.2007. On their failure to make payment, the present complaint has been filed.
The court after obtaining statement of the complainant summoned the accused persons to face trial vide order dated 23.6.2007. The petitioner has questioned the summoning order in this Court.
The main contention raised by the learned counsel for the petitioner is that (a) blank cheques were issued by way of collateral security on which date has been fixed by the complainant party in breach of agreement and that the blank cheques being not negotiable instrument, no complain can be filed against the petitioner; (b) the signature on the cheque does not resemble with the signature of accused no. 2; (c) the present petitioner could not be arrayed as an accused as it is nowhere averred in the petition that he was actively involved in the affairs of the company; lastly, (d) it is said that the court at Ghaziabad has no jurisdiction as both have their registered offices at New Delhi.
I have heard the learned counsel for the parties.
In order to constitute an offence under sections 138 of the Negotiable Instrument Act, the following ingredients are required to be fulfilled:
1.Existence of a "live account" at the time of issue of cheque is a condition precedent for attracting penal liability for the offence under this section. A cheque cannot be issued de hors an account maintained by its drawer with the banker. When the cheque is returned by the bank unpaid because of the account of money standing to the credit of the drawer is insufficient, to make demand for payment as provided for payment as indicated in clause (b) of the proviso. The words "that account" in the section denote to the account in respect of which the cheque was drawn. No doubt if any person manages to issue a cheque without an account with the bank concerned its consequences would not snowball into the offence described under section 138 of the Act. For the offence under section 138 of the Act there must have been an account maintained by the drawer at the time of the cheque was drawn.
2.Issue of Cheque in discharge of a debt or liability wholly or in part. Where a cheque is issued not for the purposes of discharge of any debt or other liability, the maker of the cheque is not liable for prosecution under section 138 of the Act. A cheque given as a gift or for any other reasons and not for the satisfaction of any debt or other liability, partly or wholly, even if it is returned unpaid will not meet the penal consequences.
If the above conditions are fulfilled, irrespective of the notice of the drawer he shall be deemed to have committed an offence, provided the other three requisites are fulfilled:
a) Presentation of the cheque within six months or within the period of its validity, whichever is earlier. Thus, if a cheque is valid for three months and is presented to the bank within a period of six months the provisions of this section shall not be attracted. However if the period of validity of the cheque is not specified or prescribed the cheque is presented within six months from the date the cause of action can arise. The six months are taken from the date the cheque was drawn.
b) Return of the cheque unpaid for reason of insufficiency of funds to honour the cheque or that it exceeds the arrangement made to be paid from that account by an agreement with the bank. Even if the cheque is returned with the endorsement "account closed" section 138 is attracted;
c) Issue of the notice of dishonour demanding payment within thirty days of receipt of information as to dishonour of the cheque. Such notice must be given within 30 days of information from the bank regarding the return of cheque as unpaid and;
d) Failure of the drawer to make the payment within fifteen days of the receipt of the payment. If the payment is not made after the receipt of the notice within stipulated time a cause of action for initiating criminal proceedings under this section will arise.
The essential feature is that the cheque must be issued for discharge of a debt or other liability and drawer of the cheque must be a account holder in the said bank. In the present case, either of the two conditions are not disputed by the present petitioner. The only plea raised by him is that blank cheques were issued in favour of the complainant as collateral security. The only question which is required to be determined is as to whether blank cheques have been issued in favour of the complainant party or not.
The contention of the learned counsel for the petitioner is that the cheques were issued in the year 2003 while the case set up by the complainant is that the said cheques were issued in the year 2007 after joint meeting of the petitioner and accused persons. This is the issue which is required to be determined during the course of trial. At this stage, it is not appropriate for this Court to enter into this factual controversy.
The second contention raised by the learned counsel for the petitioner is that the petitioner is not actively involved in the affairs of the company. The averment made in paragraph 5 of the complaint shows that the during the course of revival of the company and in the year 2003, the company through accused no. 4 approached the complainant for grant of financial assistance for settling certain outstanding and other statutory dues, including dues of banks and financial institutions, workmen etc. for further revival of the company. The complaint further reveals that on assurance of accused nos. 3 and 4 a sum of Rs. 2,15,98,153/- was advanced to the company. From the perusal of the aforesaid averments it can not be said that the petitioner was not actively involved in the affairs of the company.
Section 141 of the Negotiable Instrument Act clearly makes a Director responsible who was incharge and responsible to company for the conduct of the business of the company. According to provision of Section 141 of N.I. Act every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence. Prima facie, there is nothing to presume that the petitioner was not incharge or responsible for the conduct of affairs of the company.
The last contention raised by the learned counsel for the petitioner is that the registered office of both the companies are located at New Delhi, and as such, this Court has no jurisdiction to entertain the complaint.
It is not in dispute that the disputed cheques were issued and drawn on Punjab National Bank, Ghaziabad. In order to appreciate this argument, it is relevant to mention that the Hon'ble Supreme Court has observed in the case of K. Bhaskaran vs Sankaran Vaidhyan Balan Anothre AIR 1999 SC 3762, that :
"the offence under Section 138 of the Act can be completed only with the concatenation of a number of acts. Following are the acts which are components of the said offence : (1) Drawing of the cheque, (2) Presentation of the cheque to the bank, (3) Returning the cheque unpaid by the drawee bank, (4) Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount, (5) failure of the drawer to make payment within 15 days of the receipt of the notice. It is not necessary that all the above five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at five different localities. But concatenation of all the above five is a sine qua non for the completion of the offence under Section 138 of the Code. In this context a reference to Section 178(d) of the Code is useful. It is extracted below:
"Where the offence consists of several acts done in different local areas, it may be inquired into or tried by a Court having jurisdiction over any of such local areas."
Thus it is clear, if the five different acts were done in five different localities any one of the courts exercising jurisdiction in one of the five local areas can become the place of trial for the offence under Section 138 of the Act. In other words, the complainant can choose any one of those courts having jurisdiction over any one of the local areas within the territorial limits of which any one of those five acts was done. As the amplitude stands so widened and so expansive it is an idle exercise to raise jurisdictional question regarding the offence under Section 138 of the Act."
The Supreme Court has observed that the complaint will have right in any of the five local areas where the cause of action has arisen, the court having jurisdiction over any one of the local areas within the territorial limits of any of the five acts was done to try the case.
Applying the aforesaid principles, the petition fails and is accordingly dismissed.
(Sunil Hali, J.)
Order Date :- 8.2.2013.
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