1998 (3) TMI 632 - SC - Companies Law

Section 138 of the Negotiable Instruments Act, 1981 - Held that - On careful reading of Section 138 of the Act, we are unable to subscribe to the view that Section 138 of the Act draws presumption of dishonesty against drawer of the cheque if he without sufficient funds to his credit in his bank account to honor the cheque issues the same and, therefore, amounts to an offence under Section 138 of the Act. It is needless to emphasize that the Court taking cognizance of the complaint under Section 138 of the Act is required to be satisfied as to whether a prima facie case is made out under the said provision. The drawer of the cheque undoubtedly gets an opportunity under Section 139 of the Act to rebut the presumption at the trial. It is for this reason we are of the considered opinion that the complaints of the appellant could not have been dismissed by the High Court at the threshold. Appeal allowed.

Issues Involved:
1. Legality and correctness of High Court's judgment quashing the complaints under Section 138 of the Negotiable Instruments Act.
2. Interpretation and applicability of Section 138 of the Negotiable Instruments Act concerning "stop payment" instructions.
3. Presumption under Section 139 of the Negotiable Instruments Act regarding the issuance of cheques.

Issue-wise Detailed Analysis:

1. Legality and Correctness of High Court's Judgment:
The appeals challenge the High Court's decision to quash the complaints filed under Section 138 of the Negotiable Instruments Act. The High Court reasoned that the complaints did not meet the necessary ingredients of Section 138, as the appellant did not plead that the cheques were returned unpaid due to insufficient funds or exceeding the arrangement with the bank. Additionally, the High Court held that a "stop payment" endorsement was insufficient to entertain the complaint under Section 138.

2. Interpretation and Applicability of Section 138:
The Supreme Court disagreed with the High Court's interpretation, emphasizing that Section 138 is attracted when a cheque is returned unpaid with endorsements like "refer to the drawer," "instructions for stoppage of payment," or "exceeds arrangement." The Court cited its previous decision in Electronics Trade & Technology Development Corporation Ltd. vs. Indian Technologists & Engineers (Electronics) (P) Ltd., which held that "stop payment" instructions also amount to dishonor under Section 138. The Court reiterated that the object of Section 138 is to inculcate faith in banking operations and ensure credibility in transactions through cheques. Therefore, the Court found that the High Court's reasoning was contrary to established legal principles and the object of the statute.

3. Presumption under Section 139:
The Supreme Court highlighted the importance of Section 139, which presumes that the holder of a cheque received it for the discharge of a debt or liability unless proven otherwise. The Court noted that this presumption supports the appellant's case and that merely issuing a "stop payment" instruction does not preclude action under Section 138. The Court emphasized that the presumption under Section 139 must follow once the cheque is issued, and the drawer cannot evade penal consequences by instructing the bank to stop payment.

Conclusion:
The Supreme Court quashed the High Court's order and restored the Metropolitan Magistrate's order, allowing the complaints under Section 138 to proceed. The Court clarified that all contentions remain open for consideration during the trial, and the drawer has the opportunity to rebut the presumption under Section 139. The judgment underscores the significance of maintaining the efficacy and credibility of banking operations and transactions through cheques.

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