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DISHNOUR OF CHEQUES
INTRODUCTION
With the advent of payment through cheques, monetary transactions became much easier. In
place of bundle of notes a piece of cheques is much easier to carry. It has facilitated trade
and commerce tremendously. But with the arrival of cheque system the problem of bouncing
or dishonoring of cheque also started. People started to issue cheques without intention of
honoring them. This led to decline in the value system of trade and credibility of business.
Some step was needed to curb this. For commerce to flourish it was needed that some law,
which could ensure credibility to the holder of the negotiable instrument, should be enacted.
Before 1988 there was no effective legal provision to restrain people from issuing cheques
without having sufficient funds in their account or any stringent provision to punish them on
cheque not being honored by their bankers and returned unpaid. The money could be
recovered on filing a civil suit by the holder but it would take a lot of time.

OBJECT
To ensure promptitude and remedy against defaulters and to ensure credibility of the holders
of the negotiable instrument, a criminal remedy of penalty was inserted in Negotiable
Instruments Act,1881 in the form of Banking, Public Financial Institutes and Negotiable
Instruments Laws (Amendment) Act,1988 which were further modified by the Negotiable
Instruments (Amendment and Miscellaneous Provisions) Act ,2002. The object and purpose
of bringing in the act was to make the person dealing in commercial transactions work with a
sense of responsibility and for that reason under the amended provisions of law lapse on
their part to honour their commitment renders the persons liable for criminal prosecution.

What is Negotiable Instrument?

A Negotiable instrument is a specialized type of "contract" for the payment of money that is
unconditional and capable of transfer by negotiation. As payment of money is promised
later, the instrument itself can be used by the holder in due course frequently as money. It is
a transferable, signed document that promises to pay the bearer a sum of money at a future
date or on demand. Examples include checks, bills of exchange, and promissory notes.A
negotiable instrument means a promissory note, bill of exchange or cheque payable either
to order or to bearer.
Section 138 to 142 of chapter XVII, of the negotiable Instrument Act,1881, deals with
dishonouring of cheques.. The Parliament in its wisdom had chosen to bring section 138 on
the statute book in order to introduce financial discipline in business dealings. Prior to
insertion of 138 of NI, a dishonoured cheque left the person aggrieved with the only remedy
of filing a claim. The remedy available in civil court is a long drawn matter and an
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unscrupulous drawer normally takes various pleas to defeat the genuine claim of the
payee.Section 138 has converted civil liability into criminal offence. This has been inserted
by the parliament with the object and purpose of holding a person criminally responsible for
his acts in commercial transactions trade and business dealings with people carried out
carelessly or without sense of responsibility.
Offence under 138 is an offence without any mensrea .It is not a criminal offence in real
sense as it does not require mensrea, like few other criminal offences, but as public interest
is hampered by such offence so it has been made a punishable offence. It includes strict
liability. Creation of the strict liability is an effective measure by encouraging greater
vigilance to prevent usual callous attitude of drawers of cheques in discharge of debts.
The circumstances under which such a dishonour takes place are not of much importance.
Any reason for dishonour is an offence under section 138 of the NI Act. Marginal Note
stating "Dishonour of cheque for insufficiency etc. of funds in accounts" addition of word
"etc." cannot be considered to be an accident.

Ingredients
The essential ingredients of sec138 are as follows:1. Drawing of a cheque by a person on an account of any debt or other liability.
2. Presentation of the cheque to the bank within a period of 6 months from date of its
drawing or within the period of its validity.
3. Returning of the cheque unpaid by the drawee bank.
4. Notice in writing to the drawer of cheque within 30 days of receipt of information
regarding return of cheque as unpaid in form of debit advance or return memo.
5. Failure of the drawer to make payment within 15 days of receipt of notice.
The provisions of section 138 will be attracted only when the cheque has been issued for the
discharge of any debt or other legally enforceable liability. The maker of the cheque is not
liable for prosecution if cheque which is dishnoured, is the one, which is given as gift,
present or donation. The offence gets completed only after notice is served and payment as
required by notice is not made.
Letters written by complainant can be construed as notice under Section 138 NIA.Complaint can be filed on 16th day.Notice need not be sent through registered post
notice/letter sent under certificate of posting is presumed to have received by accused.
Notice served on company but not MD and director who are parties in complaint , is valid
notice U/S 13813. Notice to reasonably correct address is sufficient.A notice refused to be
accepted by the addressee can be presumed to have been served on him.

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Drawer of cheque is alone liable. Even it is true that the cheque was issued by the first
accused towards the discharge of the liability of the petitioner/second accused company. Still
the 2nd accused company cannot be prosecuted as it is not the drawer.
When a cheque of joint account is return as signature required from another director, 138
will lie. Cheque returned as account operation jointly., another director signature required it
amounts to dishonour. Even if notice is issued stopping payment before the payee deposited
the cheque in his bank, offence is complete. In the case of dishonour of cheque period of one
month for filing the complaint will be reckoned from the day immediately following the day
on which the period of fifteen days from the date of receipt of the notice by the drawer
expires.

JURISDICTION
Presence of all the above mentioned ingridents is necessary to attract the provision of section
138 of the N.I. Act. It is not necessary that all the above five acts should have been
perpetrated at the same locality, they may have been performed in five different localities.
Complaint can be filed at any of the places mentioned below. One of the Courts exercising
jurisdiction in one of the five local areas can become the place of trail for the offence under
sec. 138 of the Act
1. Where the cheque was drawn.
2. Where the cheque was presented for encashment.
3. Where the cheque was returned unpaid by drawee bank.
4. Where notice in writing was given to drawer of cheque demanding payment.
5. Where drawer of cheque failed to make payment within 15 days of receipt of notice.

COGNIZANCE OF OFFENCES
Under Section 142, courts take cognizance of offences punishable under Section 138 only
upon a complaint made by the payee or, as the case may be, the holder in due course of the
cheque. The complaint must be in writing and be made within one month of the date on
which the cause of action i.e. after the person drew the cheque fails to pay the amount within
15 days of the receipt of notice of its dishonour. No court inferior to that of a Metropolitan
Magistrate or a Judicial Magistrate of the first class has the power to try any offence
punishable under section 138.
By the 2002 amendment Courts have been provided discretion to waive the period of one
month, which has been prescribed for taking cognizance of the case under the Act;
Cognizance of a complaint may be taken by the Court after the prescribed period, if the
complainant satisfies the Court that he had sufficient cause for not making a complaint
within such period.
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The Magistrate while taking cognizance has to look into the question whether the ingredients
of an offence have been made out or not. So long as the period of notice does not expire
there can be no cause of action with the payee to make the drawer liable criminally.

Limitation
The time period laid down in the act has to be strictly followed. Any lapse in adhering to the
schedule, shall take away a cause of action under Sec. 138. The time limits placed cannot be
condoned by the Courts. The limitation which has to be kept in mind and taken into account
are as follows:
Cheque should be presented to the bank for encashment within its validity period.
Within fifteen days from the receipt of return memo indicating reason of dishonour, a
notice should be sent demanding the amount of dishonoured cheque.
If the drawer does not pay the amount of dishonoured cheque within the grace period, a
complaint thereafter should be filed within one month in the relevant court having
jurisdiction.
Limitation for filing complaint limit defined as from a particular day . The first day is to be
excluded. Period of 15 days from the date of receipt of notice ending on 14-10-1995 so, 30
days period begins on 15-10-1995. Complaint filed on15-11-1995 is within time.
Death of complainant will not terminate proceedings U/S 138 NI Act. Complainants
presence is not necessary .Legal heirs can be impleaded.

PUNISHMENT
Punishment for accused if proved guilty under section 138 N.I. Act:
1. Imprisonment of up to 2 years
2. Penalty of up to twice the amount of the bounced cheque.
Beside the punishments, the court can grant compensation to the complainant under section
357 of the Code of Criminal Procedure, 1973 and no limit has been provided for the amount
of compensation.
By the 2002 amendment the term of imprisonment has been increased to two years.

COMPOUNDABLE OFFENCE
By an amendment introduced in 2002, under Section 147, an offence related to the dishonour
of a cheque and every other offence punishable under the Negotiable Instruments Act, 1881
can be privately settled.

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OFFENCE UNDER 138 BY COMPANY

If the person committing an offence under Section 138 is a company, 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 and shall be liable to be proceeded against and punished accordingly.
A person shall not be liable if he proves that the offence was committed without his
knowledge, or that he had exercised all due diligence to prevent the commission of such
offence26. Where a person is nominated as a Director of a company by virtue of his holding
any office or employment in the Central Government or State Government or a financial
corporation owned or controlled by the Central Government or the State Government, as the
case may be, he shall not be liable for prosecution27. Where any offence under this Act has
been committed by a company and it is proved that the offence has been committed with the
consent or connivance of, or is attributable to, any neglect on the part of, any director,
manager, secretary or other officer of the company, such director, manager, secretary or other
officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded
against and punished accordingly.28 Notice served on company but not MD and director
who are parties in complaint , is valid notice U/S 13829

CIVIL OR CRIMINAL WRONG

Merely because an act has a civil remedy is not sufficient to denude it of its criminal outfit.
Both criminal law and civil law remedy can be pursued in diverse situations. As a matter of
fact they are not mutually exclusive but clearly co-extensive and essentially differ in their
content and consequence. The object of criminal law is to punish an offender who commits
an offence against a person, property or the State for which the accused, on proof of the
offence, is deprived of his liberty and in some cases even his life. This does not, however,
affect civil remedies at all for suing the wrongdoer in case like arson, accidents etc. It is
anathema to suppose that when a civil remedy is available, a criminal prosecution is
completely barred.Filing of civil suit and filing of criminal compliant are not alternative
remedies and they are different type of rights
There is nothing in law to prevent the criminal courts from taking cognizance of the offence
merely because on the same facts, the person concerned might also be subjected to civil
liability or because civil remedy is obtainable. Sec.420 is valid even after Sec.138 is
introduced. Section 420 Indian Penal Code can be clubbed with complaints filed Under
Section 138 of NI Act33. If Section 138 not made out then Section 420 IPC can be drawn
such complaint was dismissed by magistrate under Section 138 and 141 of NI Act. High
Court directed to take cognizance under Section 120-B and 420 IPC. Such decision of the
High Court held to be valid by the Supreme Court.34 When the cheque was dishonored for
insufficiency of funds such person issuing a cheque is liable for offence of section 138 of
N.I.Act but not u/s 420 of IPC35. In case of prosecution launched under Section 420 IPC in
respect of dishonour of cheques, prosecution has to establish facts which prima facie point to
the conclusion that the failure to meet the cheque was not accidental but was a consequence
expected and was intended by the accused.
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OBLIGATIONS UNDER SECTION 138 Of NEGOTIABLE

INSTRUMENTS ACT,1881:
To constitute an offence under Section 138 of the Negotiable Instruments Act, 1881, the
Complainant is obliged to prove its ingredients which include the receipt of notice by
accused under clause (b). It is to be kept in mind that it not the giving of notice which
makes the offence, but is the receipt of the notice by the drawer which gives cause of action
to complainant to file the complaint within the statutory period.
It is settled law that without taking peremptory action in exercise of his right under clause
(b) of Section 138 of the Negotiable Instruments Act, 1881, the payee cannot go on
presenting the cheque so as to enable him to exercise his right at any point of time during the
validity of the cheque. But once he gives a notice under clause (b) of the proviso to Section
138 of the Act, he forfeits the right of presenting the cheque all over again, for, in the case of
failure of drawer to pay the money within the stipulated time, the drawer would be liable for
the offence and the cause of action for filing the complaint will arise with the period of one
month for filing the complaint being required to be reckoned from the day immediately
following the day on which the period of fifteen days from the date of the notice by the
drawer expires.
Statutory notice of demand must be a written notice and not an oral notice. When the
complainant brought fact of dishonour of Cheque to notice of accused orally but on request
by accused, complainant allowed three month time. On second presentation, cheque was
again dishonoured. Statutory Notice after second dishonour by complainant was well within
validity period then complaint filed after second dishonour within validity period was proper.

CAUSE OF ACTION
Allahabad High Court held that the cause of action under the proviso (b) and (c) of Section
138 of the Negotiable Instruments Act, filing complaint cannot be said to arise merely on the
cheque being dishonoured but will arise only after the giving of notice of demand of a the
amount of the cheque by payee or holder in due course of the cheque to the drawer of the
cheque and coupled with the failure of the drawer of the cheque to pay the amount within 15
days of the date of service or receipt of the notice on or by him.34 Whereas the Madras High
Court held that the mere presentation and dishonour do not create the cause of action. It is
the notice, which gives the cause. There is no restriction on the number of times for
presenting the cheque for payment. Accordingly, any one of those presentments, within the
time limit of six months, may be chosen for given notice and launching prosecution.35In this
case it followed its earlier decision. In another case it held that the date of the issue of the
cheque could be enquired at the trial.
Similar views were expressed by the Delhi High Court38 and Andhra Pradesh High Court39
in their decisions in the cases presented before them.
Before filing a complaint with regard to the dishonour of cheque issued on behalf of the firm
particularly when the appellant did not serve a notice within the period prescribed under
Section 138 of the Act then no interference in respect thereof is called for.
A cheque can be presented by the payee or its holder in due course on different occasions but
within the prescribed period of six months or the period of validity of the cheque whichever
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is earlier, further a clear stipulation that upon the dishonouring of the cheque for the first
time, the payee has not taken any action as postulated in terms of provision (b) and (c) of
provision to Section 138 of the Act.
Failure to file prosecution on the dishonour of a cheque on the first occasion is not a bar for
initiation of a prosecution subsequently, and successive dishonour of cheque on different
occasions, of course, presented within its period of validity, will have to be construed as
constituting separate cause of action for the initiation of a prosecution.
According to Sections 138 and 142(b) cause of action to file complaint arises on the expiry
of notice demanding payment and not earlier.

Latest Law

By a landmark judgment, Dashrath Roopsingh Rathod Vs. Stae of

Maharashtra & Anr.
In this case, the Supreme Court has changed the basic criteria under Section 138 of
Negotiable Instruments Act which is to prosecute a person who had presented the
cheque which had been returned due to insufficiency of funds or if the amount
exceeds the amount in the bank of the payer.
Earlier, a case under Section 138 could be initiated by the holder of the cheque at
his place of business or residence. But, a bench of justices TS Thakur, Vikramjit Sen
and C Nagappan ruled that the case has to be initiated at the place where the
branch of the bank on which the cheque was drawn is located.
And the judgment would apply retrospectively. This means, lakhs of cases pending
in various courts across the country would witness a interstate transfer of cheque
bouncing cases.
The bench said: In this analysis, we hold that the place, situs or venue of judicial
inquiry and trial of the offence must logically be restricted to where the drawee bank
is located.
Example: Mr. X who resides in Chennai owes Rs. 1 Lakh to Mr. B who resides in
Chandigarh, Mr. X issues a cheque in delhi in favour of Mr. B. The cheque bounces
in Ludhiana (place of bank where the cheque is given by Mr. B) for insufficiency of
funds.
According to the earlier law Mr. X could have chosen any of the four places. But by
the recent judgment the only place for institution of case would be Ludhiana, i.e.

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where the cheque has dishonored at the payee bank which is located in Ludhiana in
this example.
Reasons for passing the new law
The rationale behind this change is that the payers majority being businessmen and
traders were using extending credit recklessly and due to the leniency in the
provision of Section 138, it was being misused in regards to the place of institution,
as sometime the payer had no concern with the place where the cheque was issued
and to unnecessarily harass the payee cause hardship of place of institution of case
according to their convenience. To curb this practice this judgment aims to get to the
root of the issue and resolve it by a strict approach so as to discourage the payer
from misusing or carelessly issuing cheques. The hardship of traveling to the
location of drawee bank is now on the payer.
The change in the existing law shifts the inconvenience and hardship on
the payer because now he would have to travel to the place of the
drawee bank where the cheque gets dishonored due to insufficiency of
funds. Hence, guaranteeing more precaution by the payer at the time of
issuing the cheque.

IN THE HIGH COURT OF ANDHRA PRADESH

Original Side Appeal No. 47 of 2001
Decided On: 24.10.2006
Appellants: Devi Travels Pvt. Ltd. rep. by its Director
Vs.
Respondent: Inter Globe Air Transport and Anr.
Hon'ble Judges:
Bilal Nazki and M. Venkateswara, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: Milind G. Gokhale, Adv.
For Respondents/Defendant: Mohan Vinod and Associates
Subject: Company

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Acts/Rules/Orders:
Companies Act - Section 434 and 434(1)
Cases Referred:
Vysya Bank Limited v. Randhir Steel and Alloys (P) Ltd. 1993 Company Cases (76)
244; B. Viswanathan v. Seshasayee Paper and Boards Limited (1997) 3 Comp LJ
209 (Mad); Alliance Credit and Investments Ltd. v. Khaitan Hostombe Spinels Ltd.
(1997) 3 Comp LJ 200 (All); N.L. Mehta Cinema Enterprises (P.) Ltd. v.
Pravinchandra P. Mehta 1991 Company Cases (70) 31
Disposition:
Appeal allowed
JUDGMENT
Bilal Nazki, J.
1. This is an appeal filed against the order passed by the learned Company Judge in
Company Petition No. 73 of 1999, on 26-04-2001.
2. For the sake of convenience, the parties shall be hereinafter referred to as
arrayed in the Company Petition.
3. The Company Petition was filed by the petitioner, the first respondent herein,
claiming that the respondent-Company i.e., appellant herein was indebted to the
petitioner to the tune of Rs. 14,47,369/-. The Company Petition was allowed and the
respondent--Company was directed to be wound up under the provisions of the
Companies Act.
4. 'A statutory notice as required under Section 434 of the Companies Act was
issued on 08-12-1998. However, the said notice was returned unserved.' This is the
observation of the learned Company Judge in his order dated 26-04-2001.
5. So admittedly, no notice had been served in terms of Section 434 of the
Companies Act, when the Company Petition was filed.
After the Company Petition was filed, Notice before Admission was ordered on 0806-1999. This notice was also not served. Therefore, on 31-08-1999, the Company
Court permitted the petitioner therein to serve the respondent by substituted service.
The service was affected and proof was filed before the Court on 29-09-1999. On
29-09-1999, the Court recorded that an Advocate had offered to enter appearance
on behalf of the respondent and requested time to file counter. Matter was
adjourned to 16-11-1999. On 16-11-1999, it was recorded that the Advocate, who
made representation on earlier occasion on behalf of the respondent, had not
appeared and had not filed any counter. Then, the Company Petition was admitted
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and publication was ordered to be made. Proof of publication was filed on 13-121999. Even at that stage, there was no appearance on behalf of the respondent.
Then, an application being C.A.(SR) No. 95284 of 1999 came to be filed on behalf
of the respondent praying that the respondent be permitted to file a counter. This
application was dismissed on 16-02-2000. However, the Company Court allowed
the respondent therein to participate in further proceedings in the Company Petition.
Thereafter, the petitioner adduced evidence. Then, the matter was adjourned to 2403-2000 for cross-examination of the deponent. The matter was again adjourned to
3-4-2000 in order to enable the respondent to cross-examine the witnesses.
Respondent did not take the opportunity to cross-examine the witnesses. Then, the
matter was posted for arguments. Again a representation was made by the
respondent on 07-11-2000 stating that there was a chance of compromise between
the parties. The matter was adjourned on 18 occassions, but no settlement was
reached. Thereafter, the learned Company Judge relying on the evidence produced
by the petitioner in the Company Petition allowed the petition.
6. In this background, this appeal has been filed on the sole ground that no notice
under Section 434 of the Companies Act was served on the registered office, and
therefore, even the subsequent knowledge of the respondent/appellant could not
cure the defect and the application for winding up could have not been allowed.
Section 434 (1) of the Act is reproduced below:
Section 434: Company when deemed unable to pay its debts: (1) A company shall
be deemed to be unable to pay its debts ;
(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a
sum exceeding five hundred rupees then due, has served on the company, by
causing it to be delivered at its registered office, by registered post or otherwise, a
demand under his hand requiring the company to pay the sum so due and the
company has for three weeks thereafter neglected to pay the sum, or to secure or
compound for it to the reasonable satisfaction of the creditor;
(b) if execution or other process issued on a decree or order of any Court in favour
of a creditor of the company is returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the Court that the company is unable to pay its
debts, and, in determining whether a company is unable to pay its debts, the Court
shall take into account the contingent and prospective liabilities of the company.'
7. According to the learned Counsel for the respondent/appellant, admittedly, no
notice was given to the respondent at its registered office. In this connection, he
placed reliance on the Company Petition itself. In paragraph 4 of the Company
Petition, it is stated that the registered office of the respondent--Company is situated
at No. 1, MCH Commercial Complex, Sardar Patel Road, Secunderabad, Andhra
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Pradesh, but, copy of the notice, which has been annexed to the Company Petition,
shows the address as 'Devi Travels Pvt. Limited, 202, Aggarwal Bhawan, 35-36,
Nehru Place, New Delhi --- 110019'. Even the two directors Mr.Gulale Raisinghani
and Dr.N.Mohanan, were also shown to be available at New Delhi. Mr.Gulale
Raisinghani's address was given as 'Director, Devi Travels Pvt. Limited, C-28,
Mayfair Gardens, New Delhi --- 110016', where as the address of Sri N.Mohanan
was given as 'Director, Devi Travels Pvt. Limited. 2, Pandit Pant Marg, New Delhi --110016'.
8. The learned Counsel for the petitioner/respondent, on the other hand, submits
that it is too late in the day to complain that the notice has not been given at the
registered office because the respondents in pursuance to the notices of the Court
appeared in the Court, sought time to file counter but did not file counter. Then,
sought permission to participate in the proceedings, but did not participate.
Therefore, the defect, even if any, in service of the notice under Section 434 of the
Act would not render any help to the respondent/appellant.
9. The learned Counsel for the respondent/appellant has relied on judgments of the
various High Courts. The Bombay High Court in Vysya Bank Limited v. Randhir
Steel and Alloys (P) Ltd. 1993 Company Cases (Vol.76) 244 held that the condition
for serving notice at registered office was mandatory in terms of Section 434 of the
Act. The High Court of Madras in B.Viswanathan v. Seshasayee Paper and Boards
Limited (1997) 3 Comp LJ 209 (Mad) also held that notice under Section 434 of the
Act was mandatory. In this case, notice was given to the Managing Director and not
to the Company. The High Court of Allahabad in Alliance Credit and Investments
Ltd. v. Khaitan Hostombe Spinels Ltd. (1997) 3 Comp LJ 200 (All) also held that
Section 434(1) was mandatory and had to be strictly complied with. Similarly,
Bombay High Court in N.L. Mehta Cinema Enterprises (P.) Ltd. v. Pravinchandra
P.Mehta 1991 Company Cases (Vol.70) 31 held that the provision was mandatory,
and in the absence of a notice under Section 434 of the Act, the Company Petition
is not maintainable. In the present case, we have seen that the learned Company
Judge after noting that there was no defence also observed that,
In the circumstances, the averments made in the petition coupled with the evidence
of Mr. Ravi Kumar and the documents proved by him, which are marked as Exs.A.1
to A.4, go unrebutted. Therefore, I have no option but to allow the Company Petition
as prayed for.
10. In terms of Section 434 of the Act, a presumption would be available, only if the
notice had been served at the registered office, which, admittedly, has not been
done in this case.

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Therefore, the appeal is allowed and the order passed by the learned Company
Judge in Company Petition No. 73 of 1999, dated 26-04-2001 is hereby set aside.
No costs.

IN THE HIGH COURT OF ANDHRA PRADESH AT HYDERABAD

Crl. P. No. 2062 of 1999
Decided On: 11.04.2000
Appellants: K. Thyagaraj, MD, APITL, Hyd. and others
Vs.
Respondent: Reserve Bank of India, Hyd. and another
Hon'ble Judges:
Vaman Rao, J.
Counsels:
For Appellant/Petitioner/Plaintiff: Mr. Milind G. Gokhale, Adv.
For Respondents/Defendant: Mr. K. Srinivasa Murthy, Adv. and Public Prosecutor
Subject: Banking
Subject: Criminal
Acts/Rules/Orders:
Criminal Procedure Code, 1973 - Sections 204 and 482; Reserve Bank of India Act,
1934 - Section 58-B and C
Cases Referred:
M/s. Delhi Cloth and General Mills Company Limited v. State of Himachal Pradesh,
1980 Crl.LJ NOC 163 (HP); Punjab National Bank v. Surendra Prasad Sinha, AIR
1992 SC 1815
Case Note:
(i) Banking cognizance by magistrate Section 204 of Code of Criminal
Procedure, 1973 complaint taken on file under Section 58-B of Reserve Bank
of India Act by cognizance of alleged offence by Magistrate such Order
without application of mind seems mysterious held, mysteriousness in
Order does not render complaint revealing offence of accused liable to be
quashed.
(ii) Liability of Directors Section 58-C of Reserve Bank of India Act, 1934 allegation of offence committed by company every Director who is in-charge
of and responsible to company deemed to be guilty held, proceedings
against Director of company valid.

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ORDER
1. This petition under Section 482 of Cr.PC seeks quashing of the proceedings in
CC No.1832 of 1998 on the file of the XXIII Metropolitan Magistrate, City Civil
Courts, Hyderabad in which the petitioners are said to have committed various
offences under Section 58-B of the Reserve Bank of India Act, 1934 (for short 'the
Act'). Inasmuch a1- the offences are said to have been committed by A1 company,
the other accused are prosecuted for the said offences in view of Section 58-C of
the Act.
2. The principal ground on which the learned Counsel for the petitioners, Sri. Milind
Gokhle, seeks quashing of these proceedings is that the learned Magistrate,
according to the learned Counsel for the petitioners, has not applied his mind before
taking cognizance of the offences in question. In support of his contention, he cites
a judgment of the Supreme Court in the case of Punjab National Bank v. Surendra
Prasad Sinha, MANU/SC/0345/1992, in which the Supreme Court held that the
Court should be circumspect and judicious in exercising discretion and take all the
relevant facts and circumstances into consideration before issuing process lest it
would be an instrument in the hands of private complainant as vendetta to harass
the persons needlessly.
3. This argument is based on the order of the learned Magistrate passed for taking
cognizance of the offences in this case reads as follows:
"Taken on file under Section 58-B of RBI Act".
4. The contention is that this cryptic order itself is a sufficiently indicative of the fact
that the learned Magistrate has not applied his mind before taking cognizance of the
case. It is further pointed out that Section 58-B of the Act pertains to penalties under
various sub-sections and each of the sub-sections carves out an offence. It is
contended that the very fact that the learned Magistrate has merely mentioned that
he has taken cognizance of the offence under Section 58-B of the Act goes to
indicate that he has not applied his mind. In this connection, the learned Counsel for
the petitioner cites an authority in the case of M/s. Delhi Cloth and General Mills
Company Limited v. State of Himachal Pradesh, 1980 Crl.LJ (NOC) 163 (HP), in
which it has been held that the Magistrate under Section 204 of Cr.PC does not
enjoy unrestricted power to summon a person at his whim, fancy or caprice simply
because a compliant has been filed against him.
5. It is true that Section 204 of Cr.PC does not require the Magistrate to pass a
detailed order supported by and quoting from the material in the complaint justifying
taking of cognizance of offence against the accused but it is desirable that the
Magistrate gives some indication in his order that he has looked into the material
and that the order passed by him is based on material furnished by the complainant
for taking cognizance of the offence. In this case, the order in question as stated
above is very cryptic and does not give any indication that the learned Magistrate
has applied his mind. It is true that Section 58-Bof the Act provides for penalties and
various sub-sections therein create distinct offences. To that extent, the order of the
learned Magistrate is quite unsatisfactory inasmuch as it does not give any
indication of the Magistrate having applied his mind with reference to the facts of the
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case. But, this cannot be considered conclusive of the fact that the Magistrate has
not applied his mind at all. This is particularly so when the complaint in this case has
elaborately described and listed the acts constituting various offences under Section
58-B of the Act. It may be mentioned that in the judgment of the Supreme Court
cited by the learned Counsel, on facts, it was discovered that there was no material
to proceed against the accused. In this case, on a perusal of the complaint, it is not
possible to hold that there is no material to take cognizance of the offences against
the accused. Under these circumstances, the mere fact that the order does not
expressly refer to the material placed by the complainant in respect of constitution of
offences does not justify quashing the cognizance taken by the learned Magistrate
in view of the fact that the material placed before the Court justifies taking
cognizance of the offence.
6. The next ground urged by the learned Counsel for the petitioners is that in this
case A1 is the company against whom the offences are alleged. A2 is the Managing
Director of the Company, A3 is the Chairman of the Company and A4 to A18 are the
Directors of the Company. Under Section 58-C of the Act, where a person
committing a contravention or default referred to in Section 58-B is a company,
every person who, at the time the contravention or default was committed, was
incharge of and was responsible to, the company for the conduct of the business
ofthe company as well as the Company shall be deemed to be guilty of the
contravention or default and shall be liable to be proceeded against and punished
accordingly.
7. The contention of the learned Counsel for the petitioners is that except the
Managing Director and Chairman, it is difficult to conceive that the 16 other accused
who are merely the Directors can be proceeded against by virtue of the provision in
Section 58-C of the Act. It is true that it appears somewhat improbable that besides
the Managing Director and Chairman, a large number of such other Directors could
really be held to be in charge of and responsible to the company for the conduct of
the business of the company. But, it certainly is a question of fact. In a given case,
Directors other than the Managing Director or Executive Director etc., may on the
facts and circumstances of a case be held to be liable by virtue of provision in
Section 58-C of the Act. In some cases, it may not be so. It may also be mentioned
that in such cases, there appears to be a tendency to rope in as many Directors as
possible as accused. It is for the trial Court to decide about their liability on the basis
of the material produced during the trial, and if a large number of Directors not
incharge of and not responsible to the company for the conduct of the business of
the company are wantonly implicated in the alleged offence committed by the
company, it is for the trial Court to deal with such false complaints in the manner as
provided in the Criminal Procedure Code. But, where assertions are made in the
complaint that the accused who are the Directors of the Company are incharge of
and are responsible to the company for the conduct of the business of the company
within the meaning of Section 58-C of the Act, this Court under Section 482 of Cr.PC
would not step into quash the proceedings against the Directors merely on the
ground that the assertion of the complainant that such alarge number of Directors
are incharge of and are responsible to the company is improbable.
8. In Para 11 of the complaint, there is a specific assertion that the accused
concerned are incharge of and responsible to the company for the conduct of the
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business of the company. In the teeth of such assertion, it may not be possible to
quash the proceedings merely on the ground of alleged improbability of such
assertions being true. In these circumstances this petition is dismissed.

CONCLUSION
Section 138 creates statutory offence in the matter of dishonor of cheques on the ground of
insufficiency of funds in the account maintained by a person with the banker. It makes the
matter of dishonoring of cheques on grounds of insufficient fund, a statutory offence. In the
cases of dishonour of cheques mensrea is not required. Offence under 138 is an offence
without any mensrea but it is based on a negotiable instrument ie cheque, If a cheque is
issued in discharge of a legally enforceable debt and on presentation of the cheque for
encashment the same is dishonoured and offence will come into existance under section 138
of the N.I act.The circumstances under which the dishonour took place is irrelevant. The law
only takes cognizance of the fact that the payment has not been forthcoming and it matters
little that any of the manifold reasons may have caused that situation. Defect in structure
cheque will not attract Sec. 138.39 Dishonour of cheque because of incomplete signature on
cheque of drawer did not attract section 138.
Complaint under section 138 of the Act cannot be quashed or dismissed merely because the
notice was not served on the accused or drawer, without enquiring into the circumstances
leading to the non serving of the notice.41Burden is on the complainant to show that the
accused has managed to get incorrect postal order endorsement made.
It is erroneous to construe that section 138 would not apply from a closed bank account,
section 138 does not call for such a narrow construction, and such an interpretation would
defeat the provision of the act.
The burden of proof as to cheque has not been issued for legal debt or liability, is always on
the accused. Complainat is not required to adduce number of witnesses and bulk of
documentary evidence on the question.

Bibliography
Books:

The Negotiable Instrument Act------Bhashyam and adiga

Indian Contract Act--------------------Avtar Singh.

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Internet:

www.wikipidia.com
www.ddegjust.ac.in/studymaterial/mcom/mc-207

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