2022 (1) TMI 9 - HC - Indian Laws

Dishonor of cheque - incomplete signatures - primary ground that has been urged by the petitioners is that the complaint and the order of issuing process is not legally tenable as the dishonor of cheque due to mismatch of signatures or incomplete signatures does not constitute an offence under Section 138 of the NI Act - HELD THAT - It is clear that an offence under Section 138 of the NI Act is constituted when a cheque drawn by a person 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 of any debt, is returned by the bank unpaid either because 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 that account by an agreement made with that bank. At first blush, it appears that it is only in two situations that Section 138 of the NI Act is attracted, firstly when there are insufficient funds available in the bank account of the person who is drawing the cheque and secondly where it exceeds the arrangement. In VINOD TANNA ANR. VERSUS ZAHEER SIDDIQUI ORS. 2001 (9) TMI 1078 - SUPREME COURT , the Supreme Court, while dealing with a case where the cheque drawn by the accused was not been honoured by the bank on account of drawer s signatures being incomplete, held that dishonour of cheque for the aforesaid reason would not constitute an offence under Section 138 of the NI Act and, accordingly, the criminal proceedings against the accused were quashed. The aforesaid decision of the Supreme Court came up for consideration before the same Court in the case of Laxmi Dyechem vs. State of Gujarat and others, 2012 (12) TMI 106 - SUPREME COURT . The Supreme Court in the aforesaid decision did not follow the ratio laid down in Vinod Tanna s case 2001 (9) TMI 1078 - SUPREME COURT ,. - The Supreme Court on the basis of the aforesaid observations and the ratio, while dealing with a case in which the cheques were dishonoured by the bank on the ground that drawer s signatures were incomplete and that no image was found or that the signatures did not match, came to the conclusion that criminal prosecution against the accused in such cases should be allowed to proceed and the judgment and orders passed by the High Court quashing the criminal proceedings were set aside. Both the judgments of the Supreme Court in Vinod Tanna s case as well as in Laxmi Dyechem s case (supra) have been rendered by the Benches of co-equivalent strength. The judgment rendered in Laxmi Dyechem s case is latest in point of time, wherein the ratio laid down in Vinod Tanna s case has been termed as per incuriam. Therefore, as per law of precedents, the ratio laid down in Laxmi Dyechem s case has to be followed. Accordingly, as per the ratio laid down in Laxmi Dyechem s case, the contention of the petitioners that in the instant case offence under Section 138 of the NI Act is not constituted because the cheques were dishonoured on account of incomplete signatures and not for the reason of insufficiency of funds or exceeding the arrangement, deserves to be rejected. The trial court is directed to proceed further in the matter in accordance with law. - The petition (of the accused) is found to be devoid of merit and the same is dismissed.

Summary

Issues:
Challenge to complaint filed under Section 138 of Negotiable Instruments Act and Section 420 IPC, challenge to order issuing process against petitioners, interpretation of Section 138 of the NI Act regarding dishonor of cheques due to incomplete signatures.

Analysis:
1) The petitioners contested a complaint filed by the respondent under Section 138 of the NI Act and Section 420 IPC, challenging the order of process issuance by the Magistrate. The respondent alleged that the petitioners knowingly endorsed only one partner's signature on cheques issued by their firm, leading to dishonor by the bank. The respondent served a legal notice upon the petitioners before filing the complaint.

2) The petitioners argued that dishonor due to incomplete signatures does not constitute an offense under Section 138 of the NI Act. The court examined Section 138, which specifies conditions for an offense, including insufficiency of funds or exceeding arrangement limits. However, previous Supreme Court judgments have interpreted the provision liberally to include dishonors for reasons beyond these two conditions.

3) The Supreme Court in NEPC Micon Limited vs. Magma Leasing Limited emphasized interpreting Section 138 in line with legislative intent to prevent dishonesty, expanding the scope of offenses beyond mere insufficiency of funds. Similarly, in Modi Cements Ltd vs. Kuchil Kumar Nandi, the Court rejected the notion that stoppage of payment could evade penal consequences under Section 138.

4) The Court referred to M. M. T. C. Ltd. vs. M/S Medchl Chemicals and Goaplast (P) Ltd vs. Chico Ursula D'Souza, where it was held that dishonors due to stop payment instructions fall within the offense under Section 138. The judgments highlighted the need to prevent abuse of cheques and ensure the efficacy of the statute.

5) The Supreme Court's decision in Vinod Tanna's case, where dishonor due to incomplete signatures was not considered an offense under Section 138, was revisited in Laxmi Dyechem vs. State of Gujarat. The latter judgment overruled the former, stating that dishonor on grounds like incomplete signatures would attract Section 138 provisions.

6) Given the precedence set by Laxmi Dyechem's case, the Court rejected the petitioners' argument that dishonor due to incomplete signatures did not constitute an offense under Section 138. The petition was dismissed, directing the trial court to proceed in accordance with the law.

This detailed analysis of the judgment provides a comprehensive understanding of the legal interpretation regarding dishonor of cheques under Section 138 of the NI Act.