2009 (5) TMI 533 - SC - Companies Law

Whether return of a cheque by the bank on the ground that it was reported lost by the drawer would attract the penal provisions contained in section 138 of the Negotiable Instruments Act, 1881? Held that - Appeal allowed. The parameters for invoking the provisions of section 138 of the Act, thus, being limited, we are of the opinion that refusal on the part of the bank to honour the cheque would not bring the matter within the mischief of the provisions of section 138 of the Act.

Summary

Issues:
- Whether the return of a cheque reported lost by the drawer would attract the penal provisions of section 138 of the Negotiable Instruments Act, 1881.

Analysis:
1. The case involved a question of law regarding the applicability of section 138 of the Act to a situation where a cheque was returned by the bank due to being reported lost by the drawer. The appellant had reported the theft of blank cheques from his office, which were later filled and presented to the bank, only to be returned dishonored with the remark "said cheque reported lost by the drawer."

2. The respondent filed a complaint under section 138 of the Act, alleging that the appellant falsely claimed the cheques were stolen to avoid payment. The appellant had also initiated various legal proceedings against the respondent, including filing a false FIR, which had been closed, and other criminal complaints and a civil suit for recovery of a substantial sum.

3. The High Court dismissed the appellant's application to quash the proceedings under section 138, leading to the appeal before the Supreme Court. The appellant argued that the complaint did not disclose an offense under section 138, while the respondent contended that the appellant had engaged in various deceptive actions to evade payment.

4. Section 138 of the Act provides for penal provisions in case of dishonor of a cheque due to insufficient funds in the account. The Court emphasized that a strict construction must be applied to penal provisions created by legal fictions. The Court clarified that for section 138 to apply, the cheque must be dishonored due to insufficient funds or exceeding the arranged amount.

5. The Court held that before initiating proceedings under section 138, all legal requirements must be met, and the court must ensure that the ingredients of the offense are present. The bank's refusal to honor the cheque, without meeting the specific criteria of section 138, does not attract the provision.

6. The Court highlighted that in considering an offense under section 138, only the complaint's allegations and the complainant's evidence should be examined, not other reports or allegations from separate proceedings. The Court also noted that the complaint did not allege insufficient funds in the appellant's account, a crucial element for invoking section 138.

7. Ultimately, the Court concluded that the complaint did not disclose an offense punishable under section 138 of the Act. Therefore, the impugned judgment was set aside, and the appeal was allowed in favor of the appellant.