s. 138,N.I.Act - when drower says cheque was lost

Whether return of a cheque by the bank on the ground that it was reported lost by the drawer would attract the penal provisions contained in Section 138 of the Negotiable Instruments Act, 1881 (for short "the Act")?

In Raj Kumar Khurana v. State ( NCT) of Delhi decided by apex court on 05/05/09 the appellant kept two blank cheques in his office along with some stamp papers. They were said to have been stolen from his office. Information as regards missing of the said cheques was given to the bank and he lodged a First Information Report with regard thereto.  

The blank cheques were allegedly filled up on 24.06.2001. They were presented before the bank but the same were returned dishonoured with the remarks "said cheque reported lost by the drawer".

After complaint being filed appellant filed an application under Section 482 of the Code in the High Court of Delhi praying for quashing of the proceedings under s. 138 0f N.I.Act  on the premise that the same was not maintainable. The High Court dismissed the application u/s 482.

On appeal the supreme court held that a bare perusal of s. 138 would clearly go to show that by reason thereof a legal fiction has been created. A legal fiction, as is well known, although is required to be given full effect, has its own limitations. It cannot be taken recourse to for any purpose other than the one mentioned in the statute itself .A penal provision created by reason of a legal fiction must receive strict construction. Such a penal provision, enacted in terms of the legal fiction drawn would be attracted when a cheque is returned by the bank unpaid. Such non-payment may either be: (i) because of the amount of money standing to the credit of that account is insufficient to honour the cheque, or (ii) it exceeds the

amount arranged to be paid from that account by an agreement made with that bank.

             The supreme court held that the parameters for invoking the provisions of Section 138 of the Act, thus, being limited, refusal on the part of the bank to honour the cheque would not bring the matter within the mischief of the provisions of Section 138 of the Act.

In this case a contention was also raised that the appellant did not have sufficient funds in his bank account. But  Such an allegation had not been made in the complaint petition.The supreme court said that in any event, it was for the bank only to say so, as the complainant is not supposed to have knowledge in regard to the amount available in the account of the appellant.