In N. Harihara Krishnan v. J.
Thomas [N. Harihara Krishnan v. J. Thomas,
(2018) 13 SCC 663 adverting to the ingredients of Section 138 of the Negotiable
Instruments Act, the Hon’ble Apex Court observed as follows:
“Obviously such complaints must contain
the factual allegations constituting each of the ingredients of the offence
under Section 138. Those ingredients are: (1) that a person drew a
cheque on an account maintained by him with the banker; (2) that such a
cheque when presented to the bank is returned by the bank unpaid; (3)
that such a cheque was presented to the bank within a period of six months from
the date it was drawn or within the period of its validity whichever is
earlier; (4) that the payee demanded in writing from the drawer of the
cheque the payment of the amount of money due under the cheque to payee; and (5)
such a notice of payment is made within a period of 30 days from the date of
the receipt of the information by the payee from the bank regarding the return
of the cheque as unpaid.”
The provisions of Section 141
postulate that if the person committing an offence under Section 138 is a
company, every person, who at the time when the offence was committed was in
charge of or was responsible to the company for the conduct of the business of
the company as well as the company, shall be deemed to be guilty of the offence
and shall be liable to be proceeded against and punished.
In the absence of the company
being arraigned as an accused, a complaint against the appellant was therefore
not maintainable. The appellant had signed the cheque as a Director of the
company and for and on its behalf. Moreover, in the absence of a notice of
demand being served on the company and without compliance with the proviso to
Section 138, the High Court was in error in holding that the company could now
be arraigned as an accused. Himanshu
v. B. Shivamurthy, (2019) 3
of Section 138 of the Negotiable Instruments Act is to infuse credibility to
negotiable instruments including cheques and to encourage and promote the use
of negotiable instruments including cheques in financial transactions. The
penal provision of Section 138 of the Negotiable Instruments Act is intended to
be a deterrent to callous issuance of negotiable instruments such as cheques
without serious intention to honour the promise implicit in the issuance of the
Having regard to the object of Section
138 of the Negotiable Instruments Act, a prosecution based on a second or
successive default in payment of the cheque amount is not impermissible simply
because no statutory notice had been issued after the first default and no
proceeding for prosecution had been initiated. As held in MSR Leathers v. S.
Palaniappan, (2013) 1 SCC 177, there is no real or qualitative difference
between a case where default is committed and prosecution immediately launched
and another where the prosecution is deferred till the cheque presented again
gets dishonoured for the second time or successive times. Bir Singh v. Mukesh Kumar,
(2019) 4 SCC 197.
In MMTC Ltd. v. Medchl Chemicals and Pharma (P) Ltd., (2002) 1 SCC 234, it was held as under:
“Even when the cheque is dishonoured by reason of stop-payment instructions by virtue of Section 139 of the Negotiable Instruments Act, the court has to presume that the cheque was received by the holder for the discharge, in whole or in part, of any debt or liability. Of course this is a rebuttable presumption. The accused can thus show that the “stop-payment” instructions were not issued because of insufficiency or paucity of funds. If the accused shows that in his account there were sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then offence under Section 138 would not be made out. The important thing is that the burden of so proving would be on the accused. A court cannot quash the complaint on this ground.” Pulsive Technologies Private Limited v. State of Gujarat, (2014) 13 SCC 18.
The Explanation appended to Section 138 of the Negotiable Instruments Act, 1881 explains the meaning of the expression “debt or other liability” for the purpose of Section 138. This expression means a legally enforceable debt or other liability. Section 138 treats dishonoured cheque as an offence, if the cheque has been issued in discharge of any debt or other liability. The Explanation leaves no manner of doubt that to attract an offence under Section 138, there should be a legally enforceable debt or other liability subsisting on the date of the drawal of the cheque. In other words, drawal of the cheque in discharge of an existing or past adjudicated liability is sine qua non for bringing an offence under Section 138. If a cheque is issued as an advance payment for purchase of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or otherwise, and material or goods for which purchase order was placed is not supplied, the cheque cannot be held to have been drawn for an existing debt or liability. The payment by cheque cannot be held to have been drawn for an existing debt or liability. The payment by cheque in the nature of advance payment indicates that at the time of drawal of cheque, there was no existing liability.
In Swastik Coaters (P) Ltd. v. Deepak Brothers, 1997 Cri LJ 1942 it was held as under:
“Explanation to Section 138 of the Negotiable Instruments Act clearly makes it clear that the cheque shall be relatable to an enforceable debt or liability and as on the date of the issuing of the cheque there was no existing liability in the sense that the title in the property had not passed on to the accused since the goods were not delivered.”
In Balaji Seafoods Exports (India) Ltd. v. Mac Industries Ltd., (1999) 1 CTC 6, it was held:
“Section 138 of the Negotiable Instruments Act makes it clear that where the cheque drawn by a person on 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 arrangement made with that bank, such person shall be deemed to have committed an offence under section 138 of the Act. The Explanation reads that for the purposes of this section, ‘debt or other liability’ means a legally enforceable debt or liability.”
In Magnum Avaition (P) Ltd. v. State, (2010) 172 DLT 91, it was held:
“The purpose of making or enabling Section 138 of the Negotiable Instruments Act was to enhance the acceptability of cheque in settlement of commercial transactions, to infuse trust into commercial transactions and to make a cheque as a reliable negotiable instrument and to see that the cheques of business transactions are not dishonoured. The purpose of Negotiable Instruments Act is to make an orderly statement of rules of law relating to negotiable instruments and to ensure that mercantile instruments should be equated with goods passing from one hand to other. The sole purpose of the Act would stand defeated if after placing order and giving advance payments, the stop payments are issued and orders are cancelled on the ground of pricing.
But, if a cheque is issued as an advance payment for purchase of the goods and for any reason whatsoever purchase order is not carried to its logical conclusion either because of its cancellation or otherwise and material or goods for which purchase order was placed is not supplied by the supplier, the cheque cannot be said to have been drawn for an existing debt or liability. Indus Airways (P) Ltd. v. Magnum Aviation (P) Ltd., (2014) 12 SCC 539.