9911796707
TMI Blog1995 (1) TMI 409X X X X Extracts X X X X X X X X Extracts X X X X ..... or the reason that it exceeds the arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers. Of the five sections comprising Chapter XVII of the Act (inserted by section 4 of Act 66 of 1988), section 138 creates a statutory offence in the matter of dishonour of cheques on the ground of insufficiency of funds in the account maintained by a person with a banker. The main enacting clause of section 138 lays down that where a person issues a cheque drawn by him on an account maintained by him with a bank for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, he shall be deemed to have committed an offence if the cheque is returned by the bank unpaid either because of insufficiency of funds standing to the credit of his account or the cheque exceeds the amount arranged to be paid from the account by an agreement made with the bank. The drawer of the cheque is liable to be punished with imprisonment for a term which may extend to one year or with fine which may extend to twice the amount of the cheque or with both without prejudice to any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The petitioner is the distributor for suppling liquor manufactured by the third respondent to the retailers as per the agreement concluded between the two. The case of the petitioner is that it used to give blank cheques to the third respondent as per the trade practice in respect of the stocks of liquor supplied for distribution. In the month of February, 1987, 12 blank cheques were issued by the petitioner in favour of the third respondent. In February, 1989, 200 cases of several varieties of brandy were supplied by the third respondent and the same were found by the petitioner to be sedimented and spurious. When informed of the same, the third respondent deputed its marketing manager from Bangalore for inspection. Because of the nature of the quality of the liquor supplied, the third respondent informed the petitioner that payment would not be insisted upon. Anticipating that the third respondent might present the blank cheques issued earlier by the petitioner, a letter was addressed by the petitioner on September 21, 1989, to the third respondent reminding about the understanding arrived at between them that no payment would be insisted upon for the stocks supplied in Februar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is incorporated in section 138 in pith and substance affects the relationship of debtor and creditor or the relationship of two private persons with reference to their mutual rights and liabilities and so, is not traceable to entries 45 and 46 of List I as is sought to be justified by the Union of India; (ii) mens rea is a necessary ingredient of a criminal offence and as section 138 dispensed with that indispensable ingredient, it is arbitrary being violative of articles 14, 19(1), 20 and 21 of the Constitution of India; (iii) proviso (c) to section 138 which refers to the failure of a drawer who issued the cheque which was dishonoured must be read down as the failure of the drawer without reasonable cause; and (iv) the presumption incorporated in section 139 is violative of the constitutional guarantee of an accused person under article 20(3) of the Constitution of India. 8. Sri Gopal Reddy, learned counsel appearing for Sri Lakshmi Saraswathi Paper Mills Ltd., has urged that the petitioner being a limited company and a sick unit, cannot be prosecuted since it enjoys absolute immunity under the provisions of the Sick Industrial Companies (Special Provisions) Act; even otherwis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the contentions urged by both the sides, the following points emerge for consideration : (i) whether the impugned legislation is ultra vires the powers of the Union Parliament on the ground of want of legislative competency; (ii) whether a statutory provision creating an offence without incorporating mens rea as a necessary ingredient is violative of article 14 of the Constitution of India; (iii) whether treating companies and individuals separately for fastening criminal liability is violative of article 14 of the Constitution; (iv) whether the words fails to make payment occurring in proviso (c) to section 138 imply failure without reasonable cause ; (v) whether the presumption in section 139 in favour of the holder of a cheque is violative of the guaranteed fundamental right of an accused person under clause (3) of article 20 of the Constitution of India; and (vi) whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, prohibits launching of prosecution under section 138 of the Act? Re. (1) : Clause (1) of article 246 of the Constitution of India confers exclusive power on the Union Parliament to make laws with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Central Legislature had power with respect to duties of excise on tobacco and other goods manufactured or produced in India. By clause (3) of section 100 read with entry 48 of List II of the Seventh Schedule, the State Legislature had power with respect to taxes on sale of goods and on advertisements . The Federal Court held that in its pith and substance, the Central Provinces and Berar Motor Spirit Act was not an excise duty and, therefore, not ultra vires the powers of the State Legislature. 15. In Subramanyan v. Muttuswami, AIR 1941 FC 47, applying the doctrine of pith and substance, Gwyer C. J., held that the Madras Agriculturists Relief Act, 1938, was not a law with respect to promissory notes covered by entry 28 of List I of the Seventh Schedule to the Government of India Act, 1935, but fell within the ambit of entries 4 and 15 of List III and entry 2 of List II. 16. The aforesaid precedents were cited approvingly in Union of India v. Harbhajan Singh Dhillon . Speaking for the majority, Sikri C. J. laid down the test (page 1078) : ... we have the three lists and a residuary power and, therefore, it seems to us that in this context if a Central Act is challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money-lenders, it cannot be said that in its true nature and character, the legislation concerns money-lenders and money-lending. 20. We, therefore, hold that the impugned legislation is not ultra vires the powers of the Union Parliament. Point No. 1 is accordingly, answered in the negative and against the petitioners. Re. (2) : The question for consideration is : whether a legislation creating a penal offence by excluding mens rea as a necessary ingredient is arbitrary and, therefore, violative of article 14 of the Constitution. According to Sri Prasad, learned counsel for the petitioners, it is the cardinal principal of criminal law that no one can be punished for an offence if he has no guilty mind. 21. One of the earliest cases that dealt with this question arose in 1895, before the Queen's Bench in Sherras v. De Rutzen [1895] 1 QB 918. Section 16(2) of the Licensing Act, 1872, prohibited supply of liquor or refreshment to any constable on duty unless authorised by an officer superior to that constable. A licensee of a public house was convicted under section 16(2) for having supplied unlawfully liquor to a police constable on duty without having the authority of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject-matter with which the offence deals and both these aspects must be considered by the court. The same is the position under the Indian law. 25. Section 138 of the Act excludes mens rea by creating strict liability and this is explicit from the words such person shall be deemed to have committed an offence . The returning of the cheque by the bank either because the amount of money standing to the credit of the drawer of the cheque is insufficient or the amount covered by the cheque is in excess of the amount arranged to be paid from that account by an agreement with the bank are the two necessary conditions creating strict liability. If the cheque is dishonoured on any other ground, the offence is not made out. 26. Interpreting the provisions of sections 8, 23(1A) and 24 of the Foreign Exchange Regulation Act, 1947, Rajagopala Ayyangar J., speaking for the majority in State of Maharashtra v. Mayer Hans George , held : Where the statute does not contain the word 'knowingly', the first thing to do is to examine the statute to see whether the ordinary presumption that mens rea is required applies or not. 27. Following that test, it was held that the mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Essential Commodities Act was amended by incorporating the words whether intentionally or otherwise between the word contravenes and the words any order made under section 3 . Later on, section 10C was added under which the court shall presume the existence of culpable mental state on the part of the accused but the accused in his defence can prove that he had no such mental state with respect to the act charged. In view of the presumption incorporated in section 10C, the Supreme Court in State of M. P. v. Narayan Singh, , agreeing with the law expounded in Swastik Oil Industries v. State [1978] 19 Guj LR 1117, set aside the decision of the Madhya Pradesh High Court. 32. As already noticed supra, section 138 of the Act creates strict liability. When the two requirements constituting the offence, as specified in the section, are present, then the drawer of the cheque shall be deemed to have committed the offence. Section 140 in clear terms excludes the defence that the drawer had no reason to believe, when he issued the cheque, that it may be dishonoured on presentment for the reasons stated in section 138. The exclusion of mens rea as a necessary ingredient of the offenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if a person wilfully fails to furnish in due time the return of income required under section 139(1), he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine. The Supreme Court held that the element of mens rea was not required to be proved in the proceedings taken by the Income-tax Officer under section 271(1)(a). The analogy sought to be drawn by Sri Prasad, learned counsel for the petitioners, between the aforesaid two sections of the Income-tax Act and the impugned section 138 of the Negotiable Instruments Act is baseless. The difference in the language between the two is clearly discernible. The expressions without reasonable cause and wilful failure found in the two sections of the Income-tax Act, cannot be read into section 138. It is a settled rule of interpretation that the intention of the Legislature must be ascertained with reference to the language employed. The exception to this rule arises only in cases where the explicit language of the statute leads to perverse or absurd results. Akbar Badrudin Jiwani of Bombay v. Collector of Customs, , arises under the Customs Act, wherein it was held that for imposition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , was in charge of and was responsible to the company for the conduct of the business, shall be deemed to be guilty of the offence but if he exercised due diligence to prevent the commission of the offence, he is not liable to be punished. This safeguard, according to the petitioners, is excluded in the case of an individual charged under section 138. We do not agree with this contention. Article 14, it is a firmly settled legal position, forbids class legislation but does not forbid reasonable classification vide, Ram Krishna Dalmia v. Justice S. R. Tendolkar, . A company, in law, is different from its shareholders or members. It is a legal person. When wrongful acts are attributed to a legal person, they are, in reality, the acts of its agents. The same in effect would be the case with regard to any body comprising a plurality of persons like a firm or association of persons, comprehended by the definition of company under section 141(2). Recognising this reality, modern penal law makes a distinction between natural persons and legal persons in the matter of fastening criminal liability (see sections 10 of the Essential Commodities Act and section 17 of the Prevention of Food A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouched, the principle of strict liability incorporated in the main enacting clause and also the specific exclusion, by section 140, of any defence in respect of a prosecution under section 138 that the drawer had no reason to believe when he issued the cheque, that the cheque may be dishonoured on presentment for the reasons stated in that section . As we have already held that section 138 is not unconstitutional, it is not permissible to hold that the failure contemplated in proviso (c) to section 138 implies failure without reasonable cause. 40. The ruling of the Supreme Court in Sanjay Dutt v. State in which section 5 of the TADA Act fell for interpretation, on which strong reliance was placed for the petitioners, in our view, is not in point. Accepting the English principle as regards construction of a penal provision that if two possible and reasonable constructions can be put upon a penal provision, the court must lean towards that construction which exempts the subject from penalty rather than the one which imposes penalty, the Supreme Court explained that there is mental element in the concept of possession and that the ingredient of possession in section 5 of the TA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n section 139 cannot be understood as defined in section 8 of the Act which covers any person entitled in his own name to the possession thereof and to receive or recover the amount due on cheque from the parties thereto. The definition as contained in section 8 comprehends even an endorsee for consideration though he may not have property in the instrument. The presumption incorporated in section 139 is not intended to cover all kinds of holders; it covers only the holder of a cheque of the nature referred to in section 138 . Only in respect of a cheque which was issued in discharge, in whole or in part, of a debt or other liability, the presumption operates in favour of the payee and as well as in favour of a holder in due course as defined in section 9. This construction receives support from the language employed in clause (a) of section 142, which speaks of cognizance of offences, and provisos (b) and (c) of section 138. 43. Section 4 of the Evidence Act defines the expression shall presume as under : 4. Whenever it is provided by this Act that the court shall presume a fact, it shall regard such fact as proved, unless and until it is disproved . 44. It is, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction of the company, neither the company nor any of its employees are liable to be prosecuted without the express permission of the Board. We do not agree. 48. Evidently, learned counsel for the petitioner, had in view section 22 of the Sick Industrial Companies (Special Provisions) Act. The section contemplates suspension of legal proceedings in respect of an industrial company when an enquiry under section 16 is pending or a scheme under section 17 is under preparation or sanctioned or where an appeal under section 25 relating to an industrial company is pending. Notwithstanding anything contained in the Companies Act, 1956, no proceedings for winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of security against an industrial company or any guarantee in respect of any loans or advances granted to the industrial company shall lie or be proceeded with further except with the consent of the Board or, as the case may be, the appellate authority. What the section contemplates is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence, came to the conclusion that an independent assessment of the evidence adduced by the complainant, both oral and documentary, leads me to an irresistible conclusion that the cheques were issued by the accused in connection with the film distribution business as alleged by the complainant but not in connection with some other transaction as contended by the accused. After recording this finding, the learned judge made a further observation : Even otherwise, he should not have issued the cheques without sufficient funds in the bank to his credit. 53. These observations clearly imply that in every case where a cheque was issued without sufficient funds in the bank, the maker is liable for an offence under section 138. Unless the two conditions set out in section 138 are satisfied, no criminal liability can be fastened. The aforesaid observations, therefore, are clearly unsustainable and so to that limited extent, we overrule the same. 54. Section 138 is not couched in precise language. Apart from being vague, it is likely to be mis-interpreted in a manner different from what was intended by the law-making body, and this is because of the words payment of any am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extend to one year or with fine which may extend to twice the amount of the cheque or with both . Section 142, which speaks of cognizance of offences, reads : 142. Cognizance of offences. - (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), -... (c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the First Class shall try any offence punishable under section 138. 58. One of the contentions advanced before us is that since the jurisdiction of a Magistrate of the First Class or a Metropolitan Magistrate is limited to passing a sentence of imprisonment for a term not exceeding three years or fine not exceeding ₹ 5,000 under section 29 of the Code of Criminal Procedure, in a prosecution under section 138, no Magistrate can impose a fine in excess of ₹ 5,000 notwithstanding the fact that the Magistrate of the First Class is empowered to try the offence under section 138. We do not agree. When section 142 was enacted, the Union Parliament was aware of the fact that the jurisdiction of the Metropolitan Magistrate or a Judicial Magistrate of the First Class was limited to imposing a sen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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