Dada Silk Mills and ors. Vs. Indian Overseas Bank and anr. - Court Judgment

S.D. Shah, J.

1. This group of applications filed under section 482 of the Code of Criminal Procedure raises an interesting question of interpretation of section 138, read with section 142 of the Negotiable Instruments Act, 1881 (hereinafter referred to as 'the said Act' for the brevity). The question raised is as to whether penal or criminal liability sought to be imposed on the drawer of a cheque by section 138 of the said Act is limited to two specified cases of dishonour of the cheque by the banker or whether the section would apply and liability could be imposed in all cases of dishonour of the cheque by the banker for reason referable either to insufficiency of funds in the account from which the cheque is drawn or where the drawer has failed to make arrangement for the funds so that the cheque may be honoured. In other woods, the question is one of interpretation of a penal provision in the statute - should it be strictly construed so as to confine operation of section 138 to the cases of dishonour of the cheque to the two specified classes of cases or should it be liberally construed consistent with the legislative intent and object sought to be achieved by the Legislature while introducing Chapter XVII in the said Act so that legislative exercise is not frustrated?

2. In all these cases the complaints are instituted by the Indian Overseas Bank against the petitioners' accused persons for the offence punishable under section 138 of the said Act mainly on the ground that the various cheques issued by the petitioner-accused in favour of the complainant-bank were returned unpaid with the banker's endorsement 'account is closed', and, therefore, the offence is made out. In all the cases, om prima facie satisfaction, the learned Judicial Magistrate First Class issued process under section 138 of the said Act, and thereupon, the petitioner's accused have moved this court of quashing the process and proceeding, Since all these cases raise common questions of law on more or less identical facts, they are heard and imposed of by this common judgment.

For the purpose of this judgment, the facts of Miscellaneous Criminal Application No. 117 of 1992 are stated and the facts in all the cases are more or less identical.

3. It appears that the Indian Overseas Bank, the original complainant - instituted Criminal Complaint No. 4160 of 1991 in the trial court against the petitioner-accused for offences punishable under section 138, read with section 141 of the Negotiable Instruments Act, 1881. The case of the complainant in the complaint was that accused No. 1 was a partnership firm of which accused Nos. 2 and 3 were partners. The accused has accepted hundis drawn by Prakash Tej Udyog a customer of the bank. The hundis were duly accepted and demand was made by the bank from the accused on due dates. The accused did not make the payment. It was the further case of the bank that after repeated demands the accused had given the following cheques :

Cheque No. Date Amount(Rs.)904737 20-5-1991 25,146904738 18-5-1991 25,147904739 24-5-1991 37,955904740 22-5-1991 37,956904741 28-5-1991 33,688904742 26-5-1991 33,689

It was the further case of the bank that the accused had written a letter which was received by the bank on April 24, 1991, stating that he has some dispute about the quality of yarn of Prakash Tej Udyog and, therefore, the bank should not present the said cheques given by the accused to the bank. It is the case of the bank that this was nothing but a device adopted by the accused with a view to delaying the payment to the bank and, therefore, the bank presented the said cheques for clearance before the Bank of Maharashtra on May 28, 1991. The said cheques were returned with an endorsement 'account is closed'. The bank has thereafter written a letter dated May 30, 1991, to the accused regarding return of the cheques and called upon the accused to pay the amounts of cheques with overdue interest. Even after receipt of said letter the accused persons did not care to pay the amount. A legal notice was thereafter served under section 138 of the said Act to accused Nos. 2 and 3. It is the case of the complainant that the accused has closed the account with the intention to avoid legal liability under the provisions of the Negotiable Instruments Act. According to the complainant this is a device to circumvent the liability. In view of the aforesaid, the complaint was filed in the trial court and the trial court has issued process on the accused persons.

4. Mr. N. N. Gandhi, the learned advocate for the accused, has vehemently submitted before this court that the trial court was not justified in mechanically issuing process on the complaint filed by the complainant as one of the ingredients of section 138 of the Negotiable Instruments Act was not satisfied so as to authorise the trial court to take cognizance of the offence under section 141 of the said Act. He has further submitted that the closing of an account in a banking institution by the subscriber would not amount to saying that there were insufficient funds in the account of the subscriber or that the liability of the subscriber exceeded the amount arranged to be paid from the account of the subscriber. In his submission, the Legislature has specifically provided for two contingencies of dishonour of cheques and only when any one of the two contingencies exists, an offence punishable under section 138 of the said Act is made out. He further submitted that section 138 of the said Act is a penal provision and, therefore, it must be very strictly construed. When the language employed by the statute is very clear and unambiguous, it is not permissible to look to legislative intent either with a view to adding to or subtracting any words sos as to fasten criminal liability. He further submitted that even if two interpretations are possible, the one favourable to the accused should be preferred. Lastly, he submitted that on the face of the complaint no offence under section 138 of the Act was made out and, therefore, it was a fit case for exercise of the power under section 482 of the Criminal Procedure Code.

5. On the other hand, Mr. A. C. Gandhi, the learned advocate for the opponent-bank, and Mr. S. R. Divetia, the learned Assistant Public Prosecutor, have strenuously urged before this court that the court should be loath to interfere in proceedings under section 482 of the Criminal Procedure Code, especially when the drawer of the cheque is not in a position to make arrangement for funds to make payment against the cheque and when the liability is sought to be avoided by too technical and legalistic a reading of section 138. They have further submitted that when the drawer of a cheque intentionally closes an account maintained by him with a banker after issuance of a cheque, it should be legally inferred that as the drawer was not possessed of sufficient funds to honour the cheque, he closed the account. They further submitted that the closure of account in a bank after issuance of cheque to the creditor itself is sufficient to infer dishonest intention on the part of the drawer of the cheque and, therefore, issuance of process under section 138 of the Act read with section 420 of the Indian Penal Code, was just and proper and interference by this court is not called for. They have also invited the attention of this court to cases in which the court exercises the power of quashing and setting aside the process under section 482 of the Criminal Procedure Code, and have submitted that consistent with the guidelines laid down by the Supreme Court time and again, this court should be loath to interfere with these proceedings.

6. In order to appreciate the aforesaid rival submissions made by learned counsel appearing for the parties it would be necessary for this court to make reference to the provisions of section 138 of the Negotiable Instruments Act, 1881, which reads as under :

'138. Dishonour of cheques for insufficiency, etc., of funds in the account. - Where any 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, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of 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 the bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term with may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both :

Provided that nothing contained in this section shall unless -

(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within 15 days of the receipt of the information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within 15 days of the receipt of the said notice.

Explanation. - For the purposes of this section, 'debt or other liability' means a legally enforceable debt or other liability.'

It is thus clear that a court shall not take cognizance of an offence punishable under section 138 of the Act except upon a complaint in writing made by the payee or, as the case may be, the holder, in due course, of the cheque. In the present case, it is not disputed before this court that a complaint in writing is filed by the complainant-bank which was the payee. It is also not seriously disputed before this court that such a complaint is made within one month of the date on which the cause of action has arisen. Thus, when on a complaint in writing cognizance of the offence is taken by the trial court, would this court under section 482 of the Criminal Procedure Code, interfere with the discretion exercised by the trial court? -is the most question which is required to be answered.

7. In order to answer the aforesaid question this court shall have to satisfy itself as to whether an offence punishable under section 138 of the Negotiable Instruments Act, 1881, is prima facie made out. From the aforesaid tax of the section it becomes abundantly clear that in order to invoke section 138 of the Act a complainant must establish the following ingredients :

(i) The complainant is a creditor, or person entitled to receive any amount from the person who has drawn a cheque for payment of such amount of money.

(ii) The drawer of the cheque should have drawn the sum on an account maintained by him with a banker.

(iii) The money so drawn must have been for the discharge or the whole or part of any debt or other liability.

(iv) Such cheque must be returned by the bank unpaid (a) either because the amount of money standing to the credit of that account is insufficient to honour the cheque, or (b) it exceeds the amount arranged to be paid from that account by an agreement with the bank.

On satisfying the aforesaid ingredients, the drawer of the cheque will be deemed to have committed an offence under section 138, if the other requirements stipulated in the provisos to the section are satisfied. The said requirements are :

(i) The cheque must have been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. Thus, if the cheque is valid for three months and is presented to the bank within a period of six months the provisions of section 138 shall not be attracted. However, if the period of validity of the cheque is specified or prescribed and the cheque is presented within six months from the date it is drawn a cause of action can arise (proviso (a)).

(ii) When the cheque is dishonoured by the concerned bank, the payee or the holder in due course of the cheque has to give a notice in writing making a demand for payment of the said amount of money to the drawer of the cheque. Such notice must be given within 15 days of receipt of information from the bank regarding the return of cheque as unpaid. Thus, the payee or the holder in due course of the cheque has to give notice in writing making a demand within 15 days (proviso (b)).

(iii) After receipt of notice stipulated by proviso (b) the drawer of the cheque has to make payment of said amount of money to the payee or to the holder in due course of the cheque within 15 days of the receipt of the notice. If the payment is not made after receipt of notice within the stipulated time a course of action for initiating criminal proceedings under section 138 will arise.

On a plain and strictly literal reading of section 138, it becomes clear that the section refers to dishonour of cheques on two grounds, i.e., (i) due to the insufficiency of funds in the account to honour the cheque, and (ii) the amount of the cheque exceeds the amount arranged to be paid from that account by agreement made with that bank.

8. The question which is raised for consideration of this court is as to whether section 138 deals with dishonour of cheques in all types of cases or whether criminal liability arises only in the aforesaid two contingencies of dishonour of cheques? Return of cheques may be for number of reasons. The specimen return memo as published in Tannan's Banking Law and Practice in India, 1989, 18th edition, clearly indicates different types of reasons for a cheque being returned unpaid, and reference to such specimen return memo may be made at this stage :

SPECIMEN RETURN MEMOCheque....................................is returned unpaid for reason No...........----------------------------------------------------------------------Funds----------------------------------------------------------------------1. Refer to drawer2. Not arranged for3. Effects not yet cleared : Please re-present4. Exceeds arrangement5. Full cover not received6. No arrangement7.----------------------------------------------------------------------Endorsement----------------------------------------------------------------------8. ............. payees endorsement incomplete-----------required9. ............. payees endorsement irregular---------illegible10............... endorsement requires bank's guarantee/confirmation11.----------------------------------------------------------------------Account----------------------------------------------------------------------12. No account13. Account closed14. Account transferred to out .....branch15. Title of account required16. Drawn on non-resident account (Form A. 7(c)) approved by theReserve Bank of India required.17.----------------------------------------------------------------------Discharge----------------------------------------------------------------------18. Collecting banker's confirmation requires clearing bank'sguarantee19. Banker's discharge required/irregular/ambiguous20. Payee's receipt required21. 20 paise receipt stamp required22. Collecting bank's confirmation required/irregular23.----------------------------------------------------------------------Signature----------------------------------------------------------------------24. Drawer's signature incomplete/differs required25. Alteration in date/figures/words requires drawer's fullsignature26.----------------------------------------------------------------------Crossing----------------------------------------------------------------------27. Crossed-please present through a bank28. Crossed to two banks29. Crossed Not over Rs..........only--------under30. Crossed 'account payee only'31.----------------------------------------------------------------------Other irregularities----------------------------------------------------------------------32. Mutilated33. Post-dated34. Out of date35. Amount in words and figures differ36. Should not contain extraneous matter37. Clearing stamp required back/front/to be cancelled. Pleasereturn per bearer38. No advice39. Not drawn on us40. Drawer deceased/bankrupt41. Contravenes Saving Bank Rule No.42. Payment stopped by drawer43.----------------------------------------------------------------------Authorised signature----------------------------------------------------------------------

It may be mentioned that reason Nos. 1 to 6 under the heading 'Funds' and reasons Nos. 12 and 13 under the heading 'Account' and reason 42 under the heading 'Other irregularities' may in the ultimate analysis after the entire evidence is led assume importance as dishonour of the cheque in such contingencies may be referrable to the inability of the drawer of the cheque to make payment. It is said that section 138 refers to only two categories are made punishable. From the aforesaid specimen return form, it becomes clear that the endorsement 'refer to drawer' pertains to funds. So whenever there is the endorsement 'refer to drawer' it is possible to initiate proceedings under section 138. Similarly, issuance of cheque followed by closure of account is prima facie referrable to non-availability of funds or no intention to pay.

Refer to drawer. - Very often, bankers return cheques unpaid with the endorsement 'refer to drawer'. The question would arise as to whether the endorsement would fall within the stipulations of section 138. One submission which is often advanced before the court of law is that the endorsement 'refer to drawer' does not necessary mean that the cheque was dishonoured for insufficient of funds. There might be a number of reasons on the part of the banker to refer the cheque back to the drawer. The propounder of this meaning places reliance upon the decision of House of Lords in London Joint Stock Bank Ltd. v. MacMillan and Arthur [1918] AC 777, the House of Lords following pertinent observations (at page 824) :

'The case, then, must be taken as the simplest one, namely, of a cheque duly signed, forward on behalf of the customer to the banker, and honoured. My Lords, there are in these circumstances reciprocal obligations. If the cheque do not contain on its face any reasonable occasion for suspicion as to the wording and figuring of its contents, the banker, under the contract of mandate which exists between him and his customer, is bound to pay. He dare not, without liability of law, fail in this obligation, and the consequences to both parties of the dishonour of a duly signed and ex-facie valid cheque are serious and obvious. In the second place, if there be on the face of cheque any reasonable ground for suspecting that it has been tampered with, then that in the usual case met by the marking 'refer to drawer', and by a delay in payment until that reference clears away the doubt. Always granted that the doubt was reasonable, the refused to pay is warranted. These obligations on the banker do not, of course, exist until after the cheque has been presented.'

From the aforesaid observations, it becomes clear that in the second contingency contemplated, the cheque may be returned by the banker with the endorsement 'refer to drawer' for certain other purposes. However, while considering this plank of submission this court shall have to consider the custom and usage which is being followed by the bank. In banking practice the aforesaid pro forma or specimen return memo is followed or used for return of cheques. The said pro forma is used only to indicate that the cheque is not honoured for a particular reason mentioned therein. A person in whose favour a cheque has been issued is entitled to have that amount provided there is sufficient amount to the credit of that account. It is an account cheque he is entitled to draw the same through his account.

9. At this stage, in the opinion, it would be necessary to examine the scheme of the Act for filing a complaint in this behalf. Section 138 of the Act lays down that a cheque drawn by a person for payment of any amount of money to any other person from out of his account is returned by the bank unpaid, either because the amount of money standing to the credit of the account is insufficient to honour the cheque or it exceeds the amount arranged to be paid from that account by an arrangement made with the bank, such person shall be deemed to have committed an offence under the said section, and shall be punished with imprisonment for a term which may extend to one year to with fine which may extend to twice the amount of the cheque, or with both. However, before imposing criminal liability, by provisos (a), (b) and (c) to section 138 certain conditions precedent are stipulated. From the scheme of the Act it is clear that following the dishonour of a cheque a notice has to be issued in writing to the person who has issued the cheque inviting his attention to the fact that the cheque has been dishonoured for reasons stated in the return memo and that he is liable for penal consequences under section 138, read with section 142 of the Act. When the reason for return of the cheque has been mentioned as 'refer to drawer' or 'insufficiency of funds' or 'account closed' it is the primary duty of the drawer of the cheque to make the payment of the said amount of money to the payee within 15 days of the receipt of the said notice. So, an opportunity has been given by the Legislature itself by providing a notice to the drawer and for payment of the amount within 15 days of the receipt of the said notice and if he fails to comply with clause (c) of section 138, the filing of a complaint within month from the date of cause of action is also provided for under clause (b) of section 142 of the Act. Thus, a notice has to be given to the drawer and that notice is a condition precedent. That means, the drawer of the cheque has got an opportunity to know in advance before the filing of the complaint that the cheque was dishonoured for a particular reason. When that information was already available with him and when he has not made any attempt to pay the same, it cannot be said that the cheque was returned not for insufficiency of funds or funds not arranged for. In the normal banking parlance 'refer to drawer' means that no funds are available and when an opportunity has been given to the drawer of the cheque by inviting his attention and when he has not paid the amount, it has to be construed that 'refer to drawer' or 'insufficiency of funds' or 'account closed', etc., ultimately resulted in dishonouring the cheque and preventing the payee from getting the amount which is only on account of the act committed by the drawer, who has given the cheque. The two situations contemplated in section 138 are insufficiency of the amount standing to the credit of the account or that it exceeds the amount arranged to be paid by an agreement made with the bank such as obtaining the facility of overdraft, etc. If either of these two contingencies arises, the only alternative left to the bank is to bank is to dishonour the cheque or to return the cheque with the endorsement as is being followed by them from time to time as per the trade custom, usage and practice. It is not the phrase or the words used by the bank in dishonouring the cheque that have to be taken into account but the real reason of the bank has to be taken into consideration. The intention of the Legislature is clearly to see that in the event of the amount not being paid on presenting the cheque due to insufficiency of funds or if it exceeds arrangement, the person is liable for prosecution. However, the further safeguard that has been made to prevent hasty action is that the payee or the holder in due course of the cheque shall make a demand for the payment of the amount covered by the said cheque by giving a notice, in writing, to the drawer within 15 day of the receipt of information by him from the bank.

10. The question that arises for consideration of the court is, in view of the aforesaid scheme of the Act, when the drawer of the cheque has sufficient notice after his attention is invited to the dishonour of the cheque, whether the endorsement 'refer to drawer' or 'insufficiency of funds' or 'funds are not arranged' or 'account is closed' would make any difference? In my opinion, in the light of the specific scheme of section 138 of the Act, the return of a cheque by the banker with any of the aforesaid endorsements ultimately connotes dishonouring of the cheque on account of fault on the part of the person who has issued the cheque in not providing sufficient funds or in not arranging for the funds or in closing the account. The drawer of the cheque himself is prima facie answerable as dishonouring of cheque is ultimately referable to insufficiency of funds. Even if the drawer of the cheque has any other explanation to offer with respect to such endorsement made by the bank while returning the cheque, it once again becomes a matter of evidence which is to be adduced by the drawer of the cheque in support of his explanation to such endorsement. It cannot, therefore, be said that in cases where the cheque is returned by the banker with the endorsement 'refer to drawer' or 'insufficiency of funds' or 'account closed' the provisions of section 138 of the Act are not at all attracted. The words 'refer to drawer', in their ordinary meaning, amount to the statement by the bank 'we are not paying, go back to the drawer, and ask him why' or else 'go back to drawer and ask him to pay'. In my opinion, therefore, the endorsement by the banker 'refer to drawer' necessary, in banking parlance, means that 'the cheque has been returned for want of funds in the account of the drawer of the cheque' or the endorsement 'account closed' would also mean that 'though the account was in operation when the cheque was issued, subsequently the account is closed', which act prima facie is referable to the 'intention of the drawer not to make payment'. In the scheme of the Act, the Legislature has provided an opportunity to the drawer to explain the endorsement made by the banker, and, therefore, when the complaint is filed based on any such endorsement, it cannot be said that such complaint is not maintainable or tenable under section 138 of the Act as in my opinion it is always open to the drawer of the cheque to explain and establish that the dishonouring of the cheque was not referable to insufficiency of funds or not making provision for necessary funds. Such a complaint is not, therefore, liable to be quashed as one not fulfilling the ingredients of section 138 of the Act.

11. Mr. N. N. Gandhi, the learned advocate for the petitioner-accused, has strenuously urged before this court that since in all these cases the cheques were returned on the ground of closure of the account or with the endorsement 'account closed' one of the ingredients of section 138 of the Act was not satisfied and no offence was made out. He submitted that the complaint under section 138 of the Negotiable Instruments Act can be maintained only when the cheque is returned by the banker either because the amount of money standing to the credit of account of the drawer is insufficient to honour the cheque or it exceeds the amount arranged to be paid from that account by an agreement made with that bank. Hence, in order to entertain a complaint under section 138 of the Act, the banker's endorsement while returning the cheque must be on the ground that the money standing to the credit of the account of the drawer is insufficient to honour the cheque or that it exceeds the amount arranged to be paid. In other words, he contended that if the endorsement made by the bank while returning the cheque is anything other than the above, the complaint must be thrown out at the threshold. In my opinion, the aforesaid submission of learned counsel appearing for the petitioners is based on a purely literal interpretation of the provision of section 138. It fails to take into account the entire scheme of section 138 of the Act read with sections 139 to 142 of the Act. It also fails to take into account the objects sought to be achieved by Parliament by introducing Chapter XVII in the Negotiable Instruments Act, 1881.

12. At this stage, it may be noted that the Negotiable Instruments Act, 1881, was amended by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988. The said amendment came into force with effect from April 1, 1988. The object of introducing such a provision in the Negotiable Instruments Act was to discourage persons from issuing cheques which were liable to be dishonoured for insufficiency of funds. When a cheque is issued for the discharge, in whole or in part of one's debt or other liability, it is clear that a legally enforceable debt or liability is accepted. When such a cheque is dishonoured by the banker with an endorsement, immediately liability is not fastened but by provisos (a), (b) and (c) to the section the drawer of the cheque is provided an opportunity to explain the endorsement. It is open to him to point out that the dishonour of the cheque was not referable to 'insufficiency of funds' or in not arranging for sufficient funds or in having no sufficient funds. In my opinion, therefore, not only sufficient opportunity is provided to the drawer of the cheque before the criminal liability is fastened but by enacting section 139 of the Act, the Legislature has placed the burden on the drawer of the cheque to prove to the contrary. Section 139 provides that it shall be presumed unless the contrary is proved, that the holder of the cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability. Thus, unless and until it is shown by the drawer that the debt or other liability was not legally enforceable the offence shall be presumed to have been committed by the drawer. Similarly, section 140 rules out the probable defence which the drawer can take up when the cheque is dishonoured. In my opinion, therefore, there is no justification in restricting the operation of section 138 to only two specified contingencies as is submitted by Mr. N. N. Gandhi, the learned advocate for the petitioner-accused.

13. It would not be out of place at this stage to make a reference to the Statement of Objects and Reasons appended to the Bill which reads as under :

'This clause (clause 4 of the Bill) inserts a new Chapter XVII in the Negotiable Instruments Act, 1881. The provisions contained in the new chapter provide that where any cheque drawn by a person for the discharge of any liability is returned by the bank unpaid for the reason of insufficiency of the amount of money standing to the credit of the account on which the cheque was drawn or for the reason that it exceeds the arrangements made by the drawer of the cheque with the bank for that account, the drawer of such cheque shall be deemed to have committed an offence. In that case, the drawer, without prejudice to the other provisions of the said Act, shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both.'

In order to ensure that genuine and honest bank customers are not harassed or put to inconvenience, sufficient safeguards have also been provided in the new Chapter XVII introduced by the Amending Act of 1988. It being the object, the provision must be construed in letter and spirit. Therefore, wherever cheques are dishonoured on account of insufficiency of funds or reasons referrable to the drawer's inability to provide for funds, the provisions of section 138 of the Negotiable Instruments Act would be attracted.

The heading or caption of section 138 may also provide internal indication for giving a liberal interpretation. The heading is Dishonour of cheque for insufficient, etc., of funds in the account.

14. It is pertinent to note that the Legislature has, while drafting the section, not employed or used the word 'dishonour of cheque'. It has used the words 'is returned by the bank unpaid'. It then proceeds to set out two possible reasons of the cheque being returned unpaid. The two reasons given in the section are referrable to insufficiency of funds in the account to honour the cheque. In my opinion, the two possible reasons given in section 138 should not restrict the applicability of the section to the two specific contingencies only. The word 'dishonour' is defined by Black's Law Dictionary in relation to a negotiable instrument as being a situation whereby 'payment is refused or cannot be obtained'. The dishonour of cheque therefore takes place for a variety of reasons. From the heading of the section it becomes clear that the Legislature never intended dishonour of the cheques to be made punishable only in a solitary case of insufficient of funds is the use of 'etc.' would be meaningless (sic). By the caption of the section, it is also suggested that the Legislature contemplated various other contingencies where a cheque is dishonoured. The reason is obvious. The Legislature itself has before fastening criminal liability provided for a mandatory statutory notice to the drawer of the cheque giving him an intimation of the fact that the cheque given by him is dishonoured for the reason stated in the memo of the bank and has given him a clear 15 days' time to see that either an explanation is provided or payment is made. The Negotiable Instruments Act does not define the term 'dishonour' but the title of the section 138 lists insufficiency of funds as being one of the situations that could contribute to 'dishonour' and inevitably the most important one, but it is followed by the word 'etc.'. This is of some significance if the meaning of the word 'dishonour' as given in Black's Law Dictionary is kept in mind. As per the said dictionary it means 'to refuse to accept or pay a draft or to pay a promissory note when duly presented'. An instrument is dishonoured when a necessary or optional presentation is duly made and due acceptance or payment is refused, or cannot be obtained within the prescribed time. It is, therefore, clear that on a correct understanding of the terminology employed by section 138, the Legislature intended to fasten the liability in case of inability of the bankers to obtain payment as against the instrument. The manifold situations or reasons giving rise to that result of failure to obtain payment would be secondary as the drawer of the cheque is provided opportunity by the condition precedent of issuance of statutory notice requiring the drawer of the cheque to explain or to make good the payment. It is for this reason that the Legislature, in my opinion, has wisely used the words 'if any cheque . . . is returned by the bank unpaid'. These circumstances under which such dishonour takes place would not assume importance a the Legislature has enacted a complete scheme. However, in my opinion, if reasons for the dishonour are referrable to the 'funds' or 'account' and if other conditions as set out hereinabove are satisfied, prima facie liability would arise. The Legislature has, in my opinion, laid sufficient emphasis on the fact that payment has not been forthcoming by employing the words 'the cheque is returned by the bank unpaid'. It matters little for any of the manifold reasons may have caused that situation. If the closure of the account or stoppage of payment or the endorsement 'refer to drawer' or any other reasons for dishonour were to be justifiable defence the Legislature would have set this out in the section as exceptions in constituting the offence. The Division bench of the Bombay High Court in the case of Rakesh Nemkumar Porwal v. Narayan Dhondu Joglekar [1973] 78 Comp Cas 822 made pertinent observations in this behalf as under (at page 836) :

'No such intention can be read into section 138, as none exists. The solitary exception made by the Legislature is with regard to the drawer being offered a final opportunity of paying up the amount within 15 days from the receipt of the notice which, in other words, provides a last opportunity to prove one's bona fides. It is obvious, that having regard to the widespread practice of issuing cheques which are dishonoured and the many ingenious methods of avoiding payment that are practised, the Legislature has opted for a no-nonsense situation. The possibility has not been overlooked whereby an account may inadvertently be overdrawn or a dishonour may be for technical reasons or where a genuine mistake has occurred and the grace period provided for by the Legislature after service of notice on the drawer is in order to afford an opportunity to the drawer to rectify these. Undoubtedly, even when the dishonour has taken place due to the dishonestly of the depositor, the drawer is still given a last chance to act otherwise. Consequently, the reasons for dishonour even if they be very valid as was sought to be pointed out in this case, should not and cannot be taken into account by a Magistrate when such a complaint is presented.'

15. Mr. N. N. Gandhi, the learned advocate for the petitioners-accused relied upon a large number of decisions of various High Courts to make good the proposition that section 138 deals with only two specific situations of dishonour of cheques provided by employing 'either... or' phrase ology and for the further proposition that in case of return of a cheque unpaid on the ground of 'closure of account' by the drawer of the cheque, section 138 is not attracted. The decisions on the subject could be broadly classified into two classes, viz., (i) those preferring a strict literal interpretation of section 138 of the Act so as to confine criminal liability in cases of dishonour of cheque in two specified classes of cases only, (ii) those preferring wide and purposive interpretation of the provision consistent with the object sought to be achieved namely, to fasten liability if the reason for dishonour of cheque is ultimately referrable to insufficiency of funds or inability to arrange for sufficient funds.

Cases preferring strict interpretation :

In the case of Hunasikattimath (G.F.) v. State of Karnataka [1991] 1 Crimes 226; [1993] 76 Comp Cas 278 (Kar), the learned single judge of the Karnataka High Court was dealing with a situation when a cheque for Rs. 1,000 was issued in favour of the complainant in respect of a certain amount the accused had received under an agreement. When the said cheque was duly presented it was returned by the bank with an endorsement 'account closed'. On a complaint being filed under section 138 of the Act, the learned Magistrate came to the conclusion that the dishonoring of the cheque on the ground of 'closure of account' by the drawer of the cheque does not constitute an offence under section 138 of the Act as the said section contemplates dishonouring of the cheque either for want of funds or for exceeding arrangement made. In this context, when the High Court was moved under section 482 of the Criminal Procedure Code, the learned single judge observed as under (at page 280) : 'As rightly pointed out by learned counsel for the accused, section 138 of the Act provides for punishing the drawer of a cheque which is dishonoured only under two eventualities. They are : (i) insufficiency of the amount in the account of the drawer of the cheque to honour the cheque, or (ii) the amount covered by the cheque exceeding the amount arranged to be paid from that account by an agreement made with that bank and not on any other ground although there are several eventualities under which a cheque can be dishonoured and one eventuality is the closure of the account of the drawer of the cheque in the particular bank on which he has drawn the cheque, subsequent to the issue of the cheque.'

The learned single judge referred to and relied upon the decision of the Division Bench of the Karnataka High Court for the proposition that penal provisions will have to be considered strictly and not literally.

16. The aforesaid decision of the Karnataka High Court, with respect to the learned single judge of that High Court, in my opinion, does not lay down the correct proposition of law. It rather reads section 138 too strictly and literally. Such an interpretation of section 138, in my opinion, would frustrate and negate the objects sought to be achieved by the Legislature by introducing Chapter XVII in the Negotiable Instruments Act. I may, incidentally, mention at this stage that this decision in the case of G.F. Hunasikattimath [1993] 76 Comp Cas 278 (Kar) is not followed or is dissented from by various other High Courts as it does not lay down the correct proposition of law.

In the case of Union Roadways (P.) Ltd. v. Shah Ramanlal Satesh Kumar [1992] 2 Crimes 215; [1993] 76 Comp Cas 315, a single judge of the Andhra Pradesh High Court was dealing with a case where a cheque was issued by the accused persons for Rs. 19,000 in favour of the complainant. The said cheque was presented on June 19, 1990, to the banker and was returned by the banker on June 20, 1990, with an endorsement 'refer to drawer'. Presuming that the endorsement made would mean that the cheque was issued without necessary funds in the account of the accused, the complainant filed the complaint for an offence punishable under sections 138 and 142 of the Act. The learned single judge following the decision of the Karnataka High Court in the case of G.F. Hunasikattimath [1993] 76 Comp Cas 278 took the view that no offence was made out under section 138 of the Act as the cheque was not returned with the endorsement 'sufficient funds'. He took the view that there might be number of other reasons for return of the cheque and by placing reliance upon the aforesaid decision of the Karnataka High Court held that no offence was made out. The decision simply follows the decision of the Karnataka High Court in the case of G.F. Hunasikattimath [1993] 76 Comp Cas 278 and does not contain any additional/or independent reason. I may state at this stage that for the reasons already recorded hereinabove it is not possible for me to agree with the aforesaid view of the learned single judge of the Andhra Pradesh High Court. Even otherwise, this decision of the learned single judge in the case of Union Roadways (P.) Ltd. [1993] 76 Comp Cas 315, no longer holds the field as in a subsequent decision where reference was made to the Division Bench on a difference of opinion, the Division Bench of the Andhra Pradesh High Court has clearly ruled that the aforesaid decision does not lay down the correct proposition of law. Reference to the decision of the Division Bench of the Andhra Pradesh High Court shall be made hereafter while dealing with cases preferring the liberal and purposive interpretation of section 138 of the Act.

In the case of Abdul Samad v. Satya Narayan Mahawar [1993] 76 Comp Cas 241 (P & H), the learned single judge of the Punjab and Haryana High Court was dealing with a complaint under section 138 when a cheque for an amount of Rs. 22,000 given by the accused was returned unpaid by the bank with the remarks 'payment stopped by the drawer'. The learned single judge took the view that section 138 is attracted only when the cheque is returned unpaid because the amount in the account is insufficient for making the payment on the cheque. The court took the view that the Legislature in its wisdom has confined the offence only to bouncing of cheques on the ground of inadequate funds in the account and that when the cheque is returned unpaid on any other ground, same has not been made an offence. The aforesaid view of the learned single judge, once again, is too narrow and in my opinion fails to read section 138 in proper perspective. It fails to consider the entire scheme of the section. It fails to consider that the drawer of the cheque is provided an opportunity by a statutory notice either to explain the endorsement of the bank or to make good the payment. By ascribing too literal meaning to the provision, in my opinion, the court would frustrate and defeat than object for which the section is introduced. I, therefore, with respect, cannot agree with the aforesaid view of the learned single judge. I may also mention at this stage that this decision of the Punjab and Haryana High Court is not followed by various other High Courts as it does not pay down the correct proposition of law.

In the case of S. Prasanna v. R. Vijayalakshmi [1993] 76 Comp Cas 522 (Mad), the learned single judge of the Madras High Court was confronted with a situation where the accused wanted a certain amount as hand-loan and the complainant agreed and gave the hand-loan. The accused promised to return the borrowed amount in stages and parted with post-dated cheques. One of the cheques was presented for encashment to the bank and it was returned with the endorsement 'account closed'. Accepting the contention of the accused that the return of the cheque on the ground the 'account closed' would not attract the provisions of section 138 of the Act as no offence was committed, the learned single judge once again gave a very literal interpretation to section 138 by following the decision of the Karnataka High Court in the case of G.F. Hunasikattimath [1993] 76 Comp Cas 278. The learned single judge has simply followed the decision of the Karnataka High Court and for the reasons already recorded by me I am not in position to agree with the aforesaid view of the learned single judge of the Madras High Court.

Similarly, in the case of Omprakash Bhojraj Maniyar v. Smt. Swati Girish Bhide [1992] 3 Crimes 306; [1993] 78 Comp Cas 797 (Bom), the learned single judge of the Bombay High Court when the cheque was returned unpaid with the endorsement that 'the account was closed by the drawer' simply followed the decision of the Karnataka High Court in the case of G.F. Hunasikattimath [1993] 76 Comp Cas 278 and held that dishonour of cheque is made penal when such dishonour is because of insufficiency of the amount standing to the credit of the account or because the amount of cheque exceeds that amount arranged to be paid from that account. He took the view that only two contingencies are contemplated and as such the words 'either... or' have been used. He, therefore, took the view that the cheque should be dishonoured either for insufficiency of funds or because it exceeds the amount arranged to be paid from that account. No third contingency or eventuality has been contemplated and that specific wording of section 138 eliminates any third contingency. He also recorded that the cheque can be dishonoured for many reasons and there may be number of eventualities in which the payee is denied payment by the bank. However, in his opinion dishonour is made punishable only in two contingencies.

17. For the reasons for which I have disagreed with the view of the learned single judge of the Karnataka High Court, I cannot agree with the view taken by the learned single judge of the Bombay High Court. It is also required to be noted at this stage that this decision of the learned single judge in the case of Omprakash Bhojraj Maniyar [1993] 78 Comp Cas 797 is dissented from or expressly overruled by the Division Bench of the Bombay High Court in the subsequent case of Rakesh Nemkumar Porwal v. Narayan Dhondu Joglekar [1993] 78 Comp Cas 822. The Division Bench of the Bombay High Court has regarded the view of the learned single judge in the case of Omprakash Bhojraj Maniyar [1993] 78 Comp Cas 797 as too narrow a construction of the section and one which fails to take into account the objective and reason behind the amendment. The Division Bench also noted that the wording and the endorsement from the bank or the circumstances under which a cheque is returned are not the guiding criteria but the fact that on presentation of the cheque the payment was not made was decisive. The Division Bench has also noted that there could be a host of reasons for the cheque not being honoured but the paramount fact is that the payment could not be made by the banker and had the funds been available, the payment would have been made. The Division Bench also has taken into consideration the scheme of section 138 and has noted that before fastening criminal liability statutory notice is served on the accused providing him an opportunity to explain the endorsement of the bank or else to make payment of the amount covered by the cheque. It is found that section 138 was intended to be a provision to curb the instances of dishonour. The legislative intent behind section 138 was that a case of dishonour of a cheque would constitute a criminal offence unless the payment was forthcoming within the prescribed period.

In the case of Bhageerathy v. V. Beena [1992] 3 Crimes 663; [1993] 76 Comp Cas 684, the learned single judge of the Kerala High Court was dealing with situation when the cheque was returned unpaid with an endorsement 'payment stopped by drawer'. The judgment in fact does not discuss in the proper prospective section 138 of the Act, the simply gives a literal interpretation to the provision and takes the view that section 138 is attracted in a case of dishonour of cheque in two contingencies only. In my opinion, the decision does not lay down the correct proposition of law nor does it discuss various relevant aspects in the context of which section 138 is required to be read and construed. The decision gives too narrow and literal interpretation to section 138.

Aforesaid are the various decisions of the various High Courts in India which have taken the view that the provision of section 138 shall have to be strictly and literally construed and that since the section refers too dishonour of cheques in two specific eventualities referrable to insufficiency of funds in the account of the drawer, no offence can be said to have been made out if there is dishonour of a cheque by the bank with any other endorsement, such as 'refer to drawer', 'account closed', etc. It may be stated that in most of the cases reliance is placed on the decision of the learned single judge of the Karnataka High Court in the case of G. F. Hunasikattimath [1993] 76 Comp Cas 278. It is also required to be noted that the aforesaid decision of the learned single judge of the Karnataka High Court is not approved or is dissented from by the various High Court and the judgment of the learned single judge of the Andhra Pradesh High Court in the case of Union Roadways (P.) Ltd. [1993] 76 Comp Cas 315 is disapproved and overruled by the Division Bench of that very court in subsequent decision. Similarly, the decision of the learned single judge of the Bombay High Court in the case of Omprakash Bhojraj Maniyar [1992] 3 Crimes 307; [1993] 78 Comp Cas 797 is also disapproved and overruled by the subsequent decision of the Division Bench of the Bombay High Court in the case of Rakesh Nemkumar Porwal [1993] 78 Comp Cas 822.

Cases preferring liberal interpretation of section 138 :

Now, I shall proceed to refer to and deal with the other class of decisions of the High Courts in India which have taken the view that section 138 of the Negotiable Instruments Act cannot be and should not be restricted to dishonour of cheques in two contingencies only and that in view of the elaborate scheme of section 138 where full opportunity is provided to the drawer of the cheque either to pay up the amount covered by the cheque and/or to explain the endorsement made in the written memo of the bank, and also in view of the legislative intent and objective it should be liberally construed to cover all cases of dishonour of cheques when the same are referrable to insufficiency of funds in the account or when the drawer has failed to make necessary arrangements for the funds. As per this view, cases of dishonour of cheques with the endorsement 'refer to drawer' and/or 'account closed' would fall within the ambit of the penal provision enacted by section 138.

In the case of Thomas Varghese v. P. Jerome [1993] 76 Comp Cas 380 (Ker), the Division Bench of the Kerala High Court was called upon to decide the question of interpretation of section 138 of the said Act. The accused entered into an agreement for sale of his property with the complainant. Under the agreement, he received Rs. 12,001 in three instalments. Since the contract fell through, he issued a cheque dated December 8, 1989, for payment of the amount. The accused thereafter got a notice issued through his lawyer with a view to denying the liability. By the intervention of the mediators the accused agreed to remit sufficient amount in the bank so as to honour the cheque. Contrary to the agreement, without remitting the amount in the bank for honouring the cheque the accused informed the bank to stop payment of the amount. The cheque was dishonoured by the bank by its memo stating 'payment stopped by the drawer'. The complaint was filed by the complainant on the ground that there were no sufficient funds with the banker of the accused either on the date on which he drew the cheque or subsequently. It was in the aforesaid fact situation that the Division Bench of the Kerala High Court was required to decide as to whether the complaint under section 138 of the Act, read with section 420 of the Indian Penal Code was required to be quashed under section 482 of the Criminal Procedure Code, 1973, on the ground that no offence was made out. The Division Bench of the Kerala High Court examined the scheme of section 138 and observed as under (at page 383) :

'This shows that (i) the drawer of the cheque should have drawn the same on an account maintained by him with the banker, (ii) that cheque must have been drawn for payment of any amount of money to another from out of that account, (iii) the money so drawn must have been for the discharge of the whole or part of any debt or other liability, (iv) the said cheque must be returned by the bank unpaid, (v) the return of the cheque must be either because the amount of money standing to the credit of that account is insufficient to honour the cheque or it exceeds the amount arranged to be paid from that account by an agreement made with the bank. On satisfying these conditions, the drawer of the cheque will be deemed to have committed an offence under the section if the other requisites in the proviso are satisfied. As per the proviso, the cheque should have been presented to the bank within a period of six months from the date on which it was drawn or within the period of its validity, whichever is earlier. The payee should make a demand for the payment of the amount covered by the cheque by giving notice in writing to the drawer within 15 days of the information regarding the return of the cheque. Within 15 days of the receipt of the said notice, the drawer of the cheque might fail to pay the amount covered by the cheque to the payee or the holder in due course of the cheque.'

The Division Bench, thereupon, noticed the contention of the learned counsel appearing for the accused that if the endorsement given by the bank while returning the cheque is anything other than 'insufficient funds in the account of the drawer' or that the 'amount of the cheque exceeds the amount arranged to be paid from that account by agreement made with that bank', the complaint must be thrown out at the threshold. The substance of this aforesaid submission was that the offence under section 138 of the Act would depend on the endorsement made by the banker while returning the cheque unpaid. Rejecting such contention as untenable and unsound the Division Bench made the following pertinent observations (at pages 384-385) :

'According to us, such as approach will defeat the very purpose of the enactment. The offence under the section cannot depend on the endorsement made by the banker while returning the cheque. Irrespective of the endorsement made by the banker, if it is established that in fact the cheque was returned unpaid either because the amount of the money standing to the credit of the account of the drawer 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, the offence will be established. The endorsement made by the banker while returning the cheque cannot be the decisive factor'.

After referring to the decision of the learned single judge of the Karnataka High Court in the case of G.F. Hunasikattimath [1993] 76 Comp Cas 278 the Division Bench while disagreeing with the view of the learned single judge of the Karnataka High Court made further pertinent observations which are as under (at page 385) :

'Section 138 was enacted by the Legislature to enhance the acceptability of cheques. The drawer of the cheque was sought to be made liable in cases of bouncing of cheques due to insufficiency of funds in the account or for the reason that it exceeds the arrangement made by the drawer with the bank. If the cheque has bounced on account of insufficiency of funds in the account of the drawer or for the reason that it exceeds the arrangement made by the drawer, then the drawer must be liable. It cannot solely depend on the endorsement made by the banker. An endorsement by the banker that a cheque is returned due to insufficiency of funds standing in the name of the drawer will tell upon the financial soundness of the drawer. Such an endorsement may adversely affect the reputation of the drawer. Sometimes a banker may be slow to use words such as 'no sufficient funds in the account' etc., because it may have adverse implications on the financial soundness of the drawer of the cheque and consequently affect his reputation also. So if the banker refrains from making such a derogatory endorsement, should the object of the legislation be defeated?'

The Division Bench also noticed that the rule of strict interpretation of penal statutes in favour of an accused is not of rigid or universal application. When it is seen that the scheme and object of the statute are likely to be defeated by the strict interpretation, court must endeavour to resort to that interpretation which furthers the object of the legislation.

In the case of Ess Bee Food Specialities v. Kapoor Brothers [1993] 78 Comp Cas 570 (P&H;) the accused issued two cheques to the complainant as par payment of the price of the goods purchased. The cheques were presented to the banker but were received back with the endorsement 'refer to drawer'. After receipt of information of dishonouring of cheques legal notice was issued and thereafter a complaint was filed. In the proceeding to quash the complaint, it was contended that liability under section 138 would not arise in a case where the cheque is returned with the endorsement 'refer to drawer' and that such an endorsement would not amount to one of the two contingencies referred to by the section. The learned single judge of the Punjab and Haryana High Court rejected the contention holding that the term 'refer to drawer' as a courteous way adopted by the bank to show its inability to honour the cheque for want of funds. It was also found that under the scheme of the Act the offence under section 138 would be complete only upon the failure by the drawer to pay within a fortnight of notice from the payee of the dishonour of the cheque. When the drawer fails to make payment within the period specified in clause (c) of the proviso the offence is complete. This aspect is made further clear in section 142(b) of the Act. Under the said clause, no court shall take cognizance of an offence punishable under section 138 of the Act unless such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138. Normally, the cause of action does not arise until the commission of the offence. When section 142(b) says that the cause of action is the one which arises under clause (c) of the proviso, such cause of action is the omission to make payment within fifteen days of receipt of the notice. I am in complete agreement with the aforesaid view expressed by the learned single judge of the Punjab and Haryana High Court.

18. Similarly, a Division Bench of the Andhra Pradesh High Court in the case of Syed Rasool and Sons v. Aildas and Co. [1993] 78 Comp Cas 738 in a case where a cheque was returned with the endorsement by the bank 'refer to drawer' held that the endorsement was sufficient to fasten liability under section 138. The court examined the entire scheme of sections 138 and 142 of the Negotiable Instruments Act, 1881. The court also examined in detail the practice which the bank would follow while returning the cheque unpaid. I have already referred to the observations of the Division Bench of the Andhra Pradesh High Court in this case hereinabove. From the scheme of the Act the Division Bench of the Andhra Pradesh High Court concluded that the endorsement of the banker simpliciter would not be decisive as to whether the complaint under section 138 has to be entertained or not. The court observed that the endorsement 'refer to drawer' or 'insufficiency of funds' or 'not arranged' or 'account closed' or some other technical words used by the bank ultimately result in dishonouring the cheque on account of fault of the person who has issued cheque in not providing sufficient funds or not arranging funds. Having issued the cheque without having sufficient funds or not arranging for funds or closing the account after issuing the cheque is definitely an act on the part of the drawer of the cheque which ultimately results in dishonouring of the cheque. This again is a matter of evidence which is to be adduced in support of endorsement. Therefore, it cannot be said at the initial stage that the court has no jurisdiction to take cognizance of the complaint.

In the case of Rakesh Nemkumar Porwal [1993] 78 Comp Cas 822, the Division Bench of the Bombay High Court was called upon the decide the question as to whether section 138 should be restrictively construed to confine its application to a narrow category of cases where the return memo reads 'insufficiency of funds'. I have already referred to the reasoning of the Division Bench of the Bombay High Court hereinabove. Based on the scheme of section 138 it is concluded that the circumstances under which the dishonour of cheque is placed are not to be assigned much importance at the initial stage. Law only takes note of the fact that the payment has not been forthcoming. There may be manifold reasons which may have caused that situation. The Legislature has, thereafter, provided a complete procedure and full opportunity to the drawer of the cheque either to make up the payment or to explain the endorsement made by the bankers. The Legislature in fact wanted to provide an antidote for the malignant trade practice of indiscriminately issuing cheques without any compunction or often with full knowledge that they are bound to be dishonoured. The Legislature in fact intended to provide against such a situation so as to assure the persons to whom the cheques are given that payment of such cheques would be realised. It may be mentioned that a similar view is also taken by the learned single judge of the Bombay High Court in the case of Pawankumar v. Ashish Enterprises [1993] 78 Comp Cas 246.

Interpretation of penal provision :

From the aforesaid resume of the divergent judicial opinions on the interpretation of section 138 of the said Act no clear picture emerges. The Karnataka, Madras and Punjab and Haryana High Court have taken the view that section 138 of the Act being a penal provision shall have to be strictly construed. The rule of strict interpretation necessarily implies that the provision shall have to be read as it is without taking any liberty with the words or expressions used and without either adding anything to it or subtracting anything from it. Where penalties for infringement are imposed it is not legitimate to stretch the language of the rule, however beneficent its intention, beyond the fair and ordinary meaning of its language. Clear language is needed to create a crime. In a criminal statute the court must be quite sure that the offence charged is within the letter of law. If the language used by the Legislature while creating a crime is ambiguous or possible of two or more meanings, the benefit of ambiguity must go to the accused. A man is not to be put in peril upon an ambiguity, however much or little the purpose of the Act appeals to the predilection of the court. Consistent with the aforesaid approach, on an interpretation of the penal provision, Mahajan C.J. in the case of Tolaram Relumal v. State of Bombay, AIR 1954 SC 496, held as under (at page 498) : '.... 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. It is not competent to the court to court to stretch the meaning of an expression used by the Legislature in order to carry out the intention of the Legislature.'

On the other hand, the Division Benches of the High Courts of Bombay, Andhra Pradesh and Kerala have preferred a rather liberal and purposive interpretation of section 138 of the said Act to a literal or strict interpretation. They have learned in favour of purposive interpretation as the rule of strict interpretation now-a-days is regarded as of limited application and speaking broadly should apply in the selection of one, when two or more constructions are reasonably open. Those who lean in favour of purposive interpretation of penal provisions so as to supplement and achieve the object of the Legislature rather than to supplant the objective, argue that the rule of strict interpretation exhibits preference for the liberty of the subject. The rule was originally evolved to mitigate the rigour of monstrous sentences for trivial offences. However, it is argued that the court must be vigilant to see that the benefits conferred by welfare legislation are not defeated by subtle devices. It is the duty of the court, in every case, where ingenuity is expended to avoid welfare legislations, to get behind the smoke screen and discover the true state of affairs. In fact, the legislative purpose is required to be kept in mind. The court is, therefore, required to read the statute as a whole. It should, therefore, interpret the provisions of the statute in such a way that all the provisions of the statute carry proper meaning and/or fully to enforce so as to achieve the purpose intended to be achieved. If giving too narrow, strict or literal a meaning to a part of a provision renders the rest of the provision of a statute meaningless, the court should avoid giving too narrow, strict or literal an interpretation. The rest of the provision of the statute cannot be rendered meaningless or redundant as the Legislature ordinarily does not undertake exercise in futility. On the other hand, if by giving a broad or liberal interpretation to the very provision the rest of the provisions can be consistently operated, the court would prefer such interpretation. While interpreting the statute, the court shall have to keep in mind that the provisions of the statute should be so interpreted that the purpose of the legislation is allowed to be achieved rather than defeated or frustrated. In Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155 (CA), Lord Denning L.J. observed as under (at page 164) :

'The English language is not an instrument of mathematical precision. Our literature would be much the poorer if it were. This is where the draftsmen of Acts of Parliament have often been unfairly criticised. A judge, believing himself to be fettered by the supposed rule that he must took to the language and nothing else, laments that the draftsmen have not provided for this or that, or have been guilty of some or other ambiguity. It would certainly save the judge's trouble if the Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears, a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament, and he must do this not only from the language of the statute, but also from a consideration of the social conditions which gave rise to it and of the mischief which it was passed to remedy, and then he must supplement the written word so as to give 'force and life' to the intention of the Legislature... A judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out? He must then do as they would have done. A judge must not alter the material of which the Act is woven, but he can and should iron out the creases'.

The learned author, Justice G.P. Singh in his book Principles of Statutory Interpretation, fifth edition, 1992, at page 503, summed up in the following propositions the content of the strict rule of interpretation of penal statutes :

'1. If the prohibitory words in their known signification cover only some class of persons or some well-defined activity, their import can not be extended to cover other persons or other activities on considerations of policy or object of the statute.

2. If the prohibitory words are reasonably capable of having a wider as also a narrower meaning and if there is no indication in the statute or in its policy or object that the words were used in the wider sense, they would be given the narrower meaning. In other words, where after full consideration it is found that the prohibitory words are equally open to two constructions, one of which covers the subject and the other does not, the benefit of the construction will be given to the subject.

3. If the prohibitory words in their known signification bear a wider meaning which also fits in with the object or policy of the statute, the words will receive that wider meaning and their import will not be restricted even it in some other context they can bear a narrower meaning.

4. If the literal reading of the prohibitory words produces and unintelligible or nonsensical result, but the statute read as whole gives out its meaning clearly, effect will be given to that meaning by curing a mere defect in phraseology and even by rejecting words as surplusage'.

Applying the aforesaid principles to the provisions of section 138 of the said Act, more particularly, in the light of provisos (a), (b) and (c) to section 138 and consistent with the object sought to be achieved by introducing the said provision, I am of the opinion that the said provision cannot be and should not be construed too narrowly or too strictly so as to confine penal liability only in the two specified contingencies of dishonour of cheque. Such an interpretation would render the elaborate scheme provided by the proviso, before institution of complaint, meaningless and ineffective. Furthermore, such interpretation would undoubtedly restrict the provision of statute to only two contingencies thereby failing to provide for the deep-rooted malignant practice of issuance of cheques without providing for necessary funds. Such an interpretation which would frustrate the object of enacting any legal provision shall have to be avoided. In fact, the Division Benches of the Bombay, Andhra Pradesh and Kerala High Courts in the cases of Rakesh Nemkumar Porwal [1993] 78 Comp Cas 822 (Bom), Syed Rasool and Sons [1993] 78 Comp Cas 738 (AP) and Thomas Varghese [1993] 76 Comp Cas 380 respectively have by keeping the aforesaid considerations in mind construed section 138 of the Act so as to handle all cases of dishonour of cheques within its ambit provided that ultimately the cause of dishonour of the cheque is referable to inability of the drawer to provide for sufficient funds or to make arrangement for sufficient funds. In the opinion of all these High Courts the endorsement made by the banker while returning the cheque unpaid is neither relevant nor decisive and it is a matter of evidence to be collected in the trial to find out as to why the cheque was dishonoured.

19. For the reasons aforesaid, I concur with the views taken by the aforesaid Division Benches of Bombay, Andhra Pradesh and Kerala High Courts in the cases referred to hereinabove and I reject the submission of Mr. N. N. Gandhi that section 138 of the said Act should be strictly construed.

20. Jurisdiction of this court under section 482 of the Criminal Procedure Code :

Mr. N. N. Gandhi, learned counsel for the petitioners, strenuously urged before this court that on a literal and strict interpretation of section 138 of the said Act, one of the most essential ingredients for fastening criminal liability is not satisfied. In his submission, as per the averments made in the complaint, the cheque was dishonoured by the banker not for 'insufficiency of funds', but the cheque was dishonoured with the endorsement 'account closed'. Such an endearment would not fall under or satisfy the requirements of any of the two contingencies stipulated by section 138. Therefore, prima facie on reading the complaint itself, no offence is made out, submits Mr. N. N. Gandhi. He, therefore, submits that this is a fit case where the court should exercise its power under section 482 of the Criminal Procedure Code, and that it should quash the proceedings. By reference to the exchange of correspondence between the complainant and the accused which the accused have produced before this court, he further submits that there existed a dispute about the quality of the goods between the accused persons and the suppliers of the goods, and, therefore, in his submission, there was justification for not making the payment against the cheques or hundis. He submitted that it is permissible for the court to refer to such evidence at this stage to quash the proceedings. In support of the said submission, he has invited the attention of this court to the various decisions of the Supreme Court to which reference would be made hereinafter.

21. The nagging question that comes up for examination more often that not is under what circumstances and in what categories of cases, a criminal proceeding can be quashed in the exercise of inherent powers of the High Court under section 482 of the Code. The question has been debated, time and again, before the apex court and has been answered in a number of decisions. However, it is not possible to lay down any precise, clearly defined and sufficiently channelised and inflexible guidelines or rigid formulae. It is also not possible to prepare an exhaustive list of myriad kinds of cases wherein such power should be exercised. A note of caution is always sounded to the effect that the power of quashing a criminal proceedings should be exercised very sparingly and with circumspection and that too in the rarest of rare cases. It is also by now well established that while exercising inherent power under section 482 of the Criminal Procedure Code, the court should not exercise its jurisdiction arbitrarily or should not act according to its whims or caprice. Once a legal and valid complaint is filed containing all the necessary allegations so as to prima facie constitute an offence, the court in its inherent or extraordinary power is not justified in embarking upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the complaint. At the initial stage, when the court is moved to quash the criminal case, the court has to ask the question as to whether the uncontroverted allegations as made prima facie constitute the offence. In absolutely rare cases the court may take into consideration special features of a particular case to whether it is expedient and in the interest of justice to permit a prosecution to continue. This exceptional exercise is permissible on the basis that the court cannot be utilised for any oblique purpose, and where in the opinion of the court the chances of an ultimate conviction are bleak and, therefore, no useful purpose likely to be served by allowing a criminal prosecution to continue. This exceptional exercise is, by and large, to be avoided as once the allegations made in the complaint constitute an offence, law must have its full scope, and such process of law, lawfully set into motion, cannot be stultified by unnecessary judicial interdiction.

22. Mr. N. N. Gandhi, learned counsel appearing for the petitioners, however, strenuously urged that when acts complained of do not strictly and literally fall in the prohibitive penal provision of section 138 of the Negotiable Instruments Act, 1881, it becomes the duty of the court to exercise the power under section 482 of the Code of Criminal Procedure. To make good this submission, he invited the attention of this court to the decision of the apex court in the case of R. K. Kapur v. State of Punjab, AIR 1960 SC 866. In the context of nature and scope of the inherent powers of the court, the Supreme Court observed as under (at p. 869) :

'It is well established that the inherent jurisdiction of the High Court can be exercised to quash proceedings in a proper case either to prevent the abuse of the process of any court or otherwise to secure the ends of justice. Ordinarily, criminal proceedings instituted against an accused person must be tried under the provisions of the Code and the High Court would be reluctant to interfere with the said proceedings at an interlocutory stage. It is not possible, desirable or expedient, to lay down any inflexible rule which would govern the exercise of this inherent jurisdiction. However, we may indicate some categories of cases where the inherent jurisdiction can and should be exercised for quashing the proceedings :

(i) where it may be possible for the High Court to take the view that the institution or continuance of criminal proceedings against an accused person may amount to abuse of the process of the court, or where quashing of the impugned proceedings would secure the ends of justice;

(ii) if the criminal proceeding in question is in respect of an offence alleged to have been committed by an accused person and it manifestly appears that there is a legal bar against the institution or continuance of the said proceeding the High Court would be justified in quashing the proceeding on that ground. Absence of requisite sanction may, for instance, furnish cases under this category;

(iii) cases may also arise where the allegations in the FIR or the complaint, even if they are taken at their face value and accepted in their entirely, do not constitute the offence alleged, in such cases no question of appreciating evidence arises; it is a matter merely of looking at the complaint or the FIR to decide whether the offence alleged is disclosed or not. In such cases it would be legitimate for the High Court to hold that it would be manifestly unjust to allow the process of the criminal court to be issued against the accused person;

(iv) a third category of cases in which the inherent jurisdiction of the High Court can be successfully invoked may also arise. In cases where the allegation made against the accused person do constitute an offence alleged but there is either no legal evidence adduced in support of the case or evidence adduced clearly or manifestly fails to prove the charge. In dealing with this class of cases it is important to bear in mind the distinction between a case were there is no legal evidence or where there is evidence which is manifestly and clearly inconsistent with the accusation made and cases where there is legal evidence which on its appreciation may or may not support the accusation in question. In exercising its jurisdiction under section 561A, the High Court would not embark upon an enquiry as to whether the evidence in question is reliable or not. That is the function of the trial Magistrate and ordinarily it would not be open to any party to invoke the High Court's inherent jurisdiction and contend that on a reasonable appreciation of the evidence the accusation made against the accused would not be sustained.'

23. In the case of Smt. Nagawwa v. Veeranna Shivalingappa Konjalgi, AIR 1976 SC 1947, the Supreme Court was examining the jurisdiction of the High Court to interfere with the exercise of discretion by the Magistrate by issuing process on a complaint. The court found that the Magistrate has been given undoubted discretion in the matter and the jurisdiction has to be judicially exercised by him. Once the Magistrate has exercised his discretion it is not for the High Court or even for the Supreme Court to substitute its own discretion for that of the Magistrate or to examine the case on the merits with a view to find out whether or not the allegations in the complaint, if proved, would ultimately end in the conviction of the accused. The court thereafter proceeded to enumerate the cases where issuance of process by the Magistrate can be quashed. The cases enumerated are as under (headnote) :

'(1) where the allegations made in the complaint or the statement of the witnesses recorded in support of the same taken at their face value make out absolutely no case against the accused or the complaint does not disclose the essential ingredients of an offence which is alleged against the accused;

(2) where the allegations made in the complaint are patently absurd and inherently improbable so that no prudent person can ever reach a conclusion that there is sufficient ground for proceeding against the accused;

(3) where the discretion exercised by the Magistrate in issuing process is capricious and arbitrary having been based either on evidence or on materials which are wholly irrelevant to inadmissible; and

(4) where the complaint suffers from fundamental legal defects, such as, want of sanction, or absence of a complaint by legally competent authority and the like.'

Propositions Nos. 1 and 2, though differently worded, may be covered and they may fall within the ambit of propositions Nos. 3 and 4 propounded by the Supreme Court in the case of R. P. Kapur, AIR 1960 SC 866, as stated hereinabove. Proposition No. 4 squarely falls within the ambit of proposition No. 2 as propounded by the Supreme Court in the case of R. P. Kapur, AIR 1960 SC 866. Proposition No. 3 once again can be consistently read in proposition No. 4 of R. P. Kapur's case, AIR 1960 SC 866, as the court found that the exercise by the Magistrate would be vitiated where either there is no legal evidence adduced in support of the case or the evidence adduced clearly or manifestly fails to prove the charge and in such cases the court may exercise power to quash.

24. In the case of Municipal Corporation of Delhi v. Ram Kishan Rohtagi, AIR 1983 SC 67, the Supreme Court was called upon to decide as to when the power under section 482 for quashing the criminal proceedings can be exercised. The Supreme Court noticed that section 482 of the present Code is the verbatim copy of section 561A of the old Code. This provision confers a separate and independent power on the High Court alone to pass orders ex debito justitiae in cases where grave and substantial injustice has been done or where the process of the court has been seriously abused. Power under section 482 can be exercised only when no other remedy is available to the litigant. Further, the power being an extraordinary one has to be exercised sparingly. The court also referred to the aforesaid propositions laid down by the Supreme Court in the case of Smt Nagawwa, AIR 1976 SC 1947 and referred to the four types of cases where the court can and should exercise the inherent power by quashing the criminal proceedings. Thereafter, the court made the following observations (at page 70) :

'It is, therefore, manifestly clear that proceedings against an accused in the initial stages can be quashed only if on the face of the complaint or the papers accompanying the same, no offence is constituted. In other words, the test is that taking the allegations and the complaint as they are, without adding or subtracting anything, if no offence is made out then the High Court will be justified in quashing the proceedings in exercise of its powers under section 482 of the present Code.'

When ex facie no offence is constituted on the plain reading of complaint, the High Court may be justified in quashing the proceedings.

25. Turning now to some recent decisions of the Supreme Court, in the case of State of Haryana v. Bhajan Lal, AIR 1992 SC 604 after undertaking exhaustive review of the entire case law, Justice Ratnavel Pandian, speaking for the apex court, enumerated the following categories of cases where the High Court may, under section 482 of the Criminal Procedure Code, interfere, though His Lordship added a proviso that the power should be exercised sparingly, that too in the rarest of rare cases (headnote) :

'(1) Where the allegations made in the FIR or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused.

(2) Where the allegations in the FIR and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under section 156(1) of the Code except under an order of a Magistrate within the purview of section 155(2) of the Code.

(3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.

(4) Where the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under section 155(2) of the Code.

(5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can even reach a just conclusion that there is sufficient ground for proceeding against the accused.

(6) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act providing efficacious redress for the grievance of the aggrieved party.

(7) Where a criminal proceeding is manifestly attended with mala fides and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due private and personal grudge.'

In the case of Smt. Chand Dhawan v. Jawahar Lal, AIR 1992 SC 1379, while dealing with the power of the High Court under section 482 of the Criminal Procedure Code, the apex court referred to a few of the aforesaid categories of cases and observed as under (at page 1382) :

'This court has in various decisions examined the scope of the power under section 482 of the Criminal Procedure Code, and has reiterated the principle that the High Court can exercise its inherent jurisdiction of quashing a criminal proceedings only when the allegations made in the complaint do not constitute an offence or that the exercise of power is necessary either to prevent the abuse of the process of the court or otherwise to secure the ends of justice. No inflexible guidelines or rigid formulae can be set out and it depends upon the facts and circumstances of each case whether such power should be exercised. When the allegations in the complaint prima facie constitute the offence against any or all of the respondents in the absence of materials on record to show that the continuance of the proceedings would be an abuse of the process of the court or would defeat the ends of justice, the High Court would not be justified in quashing the complaint.'

Applying the aforesaid propositions of law to the fact situation obtaining before this court and, more particularly, in view of the interpretation of section 138 which this court is inclined to make, it is not possible for this court to agree with the submission of Mr. N. N. Gandhi that no offence is made out or that the averments made in the complaint do not constitute an offence under section 138 of the said Act. The absolutely strict and literal interpretation canvassed by Mr. N. N. Gandhi cannot be and should not be accepted. The Division Benches of the Kerala, Andhra Pradesh and Bombay High Courts have, in my opinion, rightly construed and interpreted section 138 of the said Act. Such interpretation is consistent with the legislative object. It seeks to supplement rather than supplant the legislative object. Such an interpretation does not seek automatically to fasten the criminal liability on an accused as under the scheme of section 138 of the said Act more than sufficient opportunity is provided to the accused person either to pay up the amount covered by the cheque after receipt of notice or to explain the dishonour of cheque and endorsement of banker for such dishonour. An absolutely literal and strict interpretation of the section, in my opinion, would not only frustrate and render meaningless the legislative intent but it would denude the provision of its penal effect.

26. It is, therefore, not possible to agree with Mr. N. N. Gandhi, learned counsel for the petitioners, that the allegations made in the complaint in each case even do not prima facie constitute any offence. As a result, power under section 482 of the Criminal Procedure Code cannot be exercised.

27. The aforesaid were the only submissions made. Since I do not find any substance in any of the submissions made, these applications are liable to be dismissed and are hereby dismissed. Rule in each application is discharged. The trial court is directed to proceed further with the criminal cases in accordance with law and to decide the same expeditiously.