Laxmi Dyechem v. State of Gujarat (2012)

Section 138 names two reasons for the return of a cheque: that the amount standing to the credit of the account is insufficient to honour it, or that it exceeds the amount arranged to be paid from that account by agreement with the bank. Banks, however, return cheques for many other reasons — the account has been closed, the signature does not tally with the specimen, the drawer has stopped payment, the instrument is stale.

Does the section catch those returns? If it does not, the provision can be defeated simply by giving the bank a different reason to dishonour. This case is where that question was fought over a signature mismatch.

It is also the leading illustration of the proper use of s. 482 of the Criminal Procedure Code in cheque cases, and the concurring opinion contains the most careful treatment of the stop payment category in the reports.

The appellant was a proprietorship firm engaged in the sale of chemicals. Over some years it had supplied naphthalene chemicals to the respondent company against various invoices and bills. Its case was that a running account had been opened in its books in the name of the respondent company, in which the value of goods supplied was debited from time to time as per standard accounting practice. A sum of Rs. 4,91,91,035 was, according to the appellant, outstanding.

Cheques were issued and returned. The reason for return was that the signatures of the drawer did not match the specimen signatures available with the bank.

The appellant filed forty complaints under s. 138. The High Court of Gujarat, by orders dated 19 April 2010 and 27 August 2010, quashed all forty, relying on Vinod Tanna v. Zaher Siddiqui.

The High Court's view was that s. 138 is attracted only where a cheque is dishonoured either because the amount standing to the credit of the account maintained by the drawer is insufficient to pay the cheque amount, or because the cheque amount exceeds the amount arranged to be paid from the account by agreement with the bank. Dishonour on the ground that the signatures do not match the specimen, it held, falls in neither contingency, so the prosecution was legally impermissible.

Is s. 138 attracted where a cheque is returned because the drawer's signatures do not match the specimen signatures held by the bank?

The appeals were allowed. The judgment and orders of the High Court were set aside and the special criminal applications filed by the respondents dismissed. The trial court was directed to proceed with the trial of the complaints expeditiously, with the clarification that nothing said in the judgment was to be taken as an expression of any final opinion on the merits, which the trial court was free to examine on its own. No costs.

On liability under s. 141(2). So far as the person responsible for the incriminating act relating to the dishonoured cheque is concerned, he is clearly covered by sub-s. (2) of s. 141 — the sub-section which fastens liability on a director, manager, secretary or other officer where the offence has been committed with his consent or connivance, or is attributable to his neglect.

Gyan Sudha Misra J. agreed substantially with Thakur J. but wrote separately to highlight the treatment of the stop payment category. The analysis is the most complete statement of that subject and deserves separate learning.

The starting point. The return of a cheque by the bank on the ground of stop payment has been held to constitute an offence within s. 138, read with the presumption in s. 118, and that is no longer res integra. But the presumption is a rebuttable presumption under s. 139 itself, since the accused issuing the cheque is at liberty to prove the contrary — s. 139 says expressly that it shall be presumed unless the contrary is proved.

The legislative purpose. In inserting Chapter XVII, ss. 138 to 142, by the amending legislation of 1988, the legislature intended to punish only those who know full well that they have no amount in the bank and yet issue a cheque in discharge of a debt or liability already incurred — which amounts to cheating — and not to punish those who refuse to discharge a debt for a bona fide and sustainable reason.

The consequence. Matters arising out of stop payment instructions do constitute an offence under s. 138, but the offence is subject to s. 139. Where the accused fails to discharge his burden of rebuttal, the offence is made out. But cases in which the drawer has sufficient funds and yet stops payment for bona fide reasons cannot be put on a par with cases where the cheque has bounced for insufficiency of funds or because it exceeds the arrangement, since s. 138 cannot be applied in isolation ignoring s. 139, which envisages a right of rebuttal before an offence can be made out.

What the accused must show. Following M.M.T.C., in order to escape liability the accused has to show that the dishonour was not due to insufficiency of funds but that there was a valid cause — including the absence of any debt or liability — for the stop payment instruction. He must show that there were sufficient funds to clear the amount of the cheque at the time of presentation, and that the stop payment notice was issued for other valid causes, including that there was no existing debt or liability at the time of presentation. The burden of so proving is on the accused, and a court cannot quash a complaint on that ground.

Following Goa Plast. Ordinarily a stop payment instruction is issued when there is no sufficient amount in the account, but the reasons for stopping payment can be manifold and cannot be overlooked. In view of s. 139 it must be presumed that a cheque is issued in discharge of a debt or liability; the presumption can be rebutted by evidence, and the burden is on the person who wants to rebut it. That presumption, coupled with the object of Chapter XVII, leads to the conclusion that by countermanding payment of a post-dated cheque a party should not be allowed to get away from the penal provision. To hold that a stop payment instruction does not constitute an offence, it is essential that there must have been sufficient funds in the account in the first place — on the date of signing the cheque, on the date of presentation, and on the date the stop payment instructions were issued.

The procedural consequence. Although a petition under s. 482 of the Criminal Procedure Code may not be entertained by the High Court for quashing such proceedings, the judicious use of discretion by the trial judge, whether to proceed in the matter or not, is enormous in view of s. 139. If the drawer discharges the burden even at the stage of enquiry, showing that he had bona fide reasons to stop the payment and not to make it within the statutory period of fifteen days, the trial court might be justified in refusing to issue summons, holding that an ingredient of the offence is missing where the account holder has sufficient funds to discharge the debt. The category of stop payment cheques is therefore a category subject to rebuttal, and is an offence only if the drawer fails to discharge the burden of rebuttal. Sections 138 and 139 must be given a harmonious construction, for otherwise s. 139 would be rendered nugatory.

Application to the facts. The present matter did not relate to a stop payment instruction at all, the cheque having been returned for mismatching of signatures. Beyond that, the accused had neither raised nor proved the contrary as envisaged by s. 139 — that the cheques were not for the discharge of a lawful debt — nor made payment within fifteen days of the notice assigning any reason why the cheques had at all been issued if the amount had not been settled. The plea of rebuttal therefore did not come to his rescue.

A complaint under s. 138 is maintainable where a cheque is returned because the drawer's signatures do not match the specimen signatures with the bank; the High Court was wrong to quash the complaints on that ground, and the trials must proceed. A dishonour on stop payment instructions likewise falls within s. 138, subject to the accused's right of rebuttal under s. 139; to escape liability he must show sufficient funds at the material dates and a valid cause, including the absence of any existing debt or liability, for stopping payment.