Cheque stopped/Acctt. closed---Can I file 138 NIA or Order 37 or both ?
Querist :
Anonymous
(Querist) 30 December 2010
This query is : Resolved
My borrower is one of my friend--a Govt. employee.
I fear that the cheque she issued me--must have been stopped or the account must have been closed---Can I file a case under 138 NIA or Order 37 or both.
Please suggest the best way out for quick recovery.
Guest
(Expert) 30 December 2010
you are asking two remedies under civil and criminal law.
1. issue notice within one month from the date of dishonour
2. file private complaint i/s 138 NI act within 45 days*(may vary according to receipt of RPAD or Reply notice) from date of legal notice
3. wait for {2 years 11 months} from the date of cheque. if your amount cannot be realised by criminal procedure.
file a recovery of money suit under order 37 for summary procedure. It should be filed within three years from the date of cheque.
B K Raghavendra Rao
(Expert) 30 December 2010
When you present the cheque to the bank, the banker would either honour the cheque and make payment of the cheque amount or would return the cheque with a cheque return memo with specific reason for not honouring. From that Memo you would know whether the cheque has been returned as the account has been closed or the stop payment orders have been issued. In either case you may file cheque bounce case.
Querist :
Anonymous
(Querist) 30 December 2010
S. Ganesan, Sir, why not file Order 37 simultaneously?
One point unanswered, chque stopped/ Acctt. closed----Can I file 138 NIA and Order 37 yet ??????????
Kiran Kumar
(Expert) 30 December 2010
dear friend in 2009, the Hon'ble SC has given strict interpretation to S.138 of NI Act in Raj Kumar Khurana's case.
Now, in case the cheque is returned for the reasons payment stopped or account closed then the provisions of S.138 NI will not come into play.
You will have to file complaint under other relevant provisions of IPC.
otherwise, you may file civil suit simultaneously. Both Civil and Criminal proceedings can run together, there is no specific bar.
Querist :
Anonymous
(Querist) 31 December 2010
Kiran Ji, By Civil suit,do you mean order 37 or some other section and by criminal proceedings,you mean which section--if not 138 NIA???
abhishek
(Expert) 31 December 2010
Hi,
First of all put the cheque to get it honour or dishonour. if the cheque will come back dishonour with remarks stop payment or account closed you can file an complain under S 138 or/and file an suit under O 37.
Querist :
Anonymous
(Querist) 31 December 2010
Mr. Abhishek ,please clarify Mr. Kiran is saying that if cheque is returned with stop payment or account closed --no 138 NIA is attracted??
Advocate. Arunagiri
(Expert) 31 December 2010
You have both the options.
Civil case for recovery of money.
Criminal case for cheque bounce. The SC had made it very clear that if the cheque is returned for the stop payment, so you can not initiate prosecution u/s 138. There should be an endorsement that the cheque is returned for insufficiency of funds.
The banker will accept the stop payment request, only if the sufficient balance is available in the account to honour the cheque.
Account closed and the cheque returned, is a cheque bounce case only. Once the account is closed, the account holder withdraws all the money from the account. So, the cheque is bounced for insufficient of funds only.
See the decision of the SC in NEPC case: -
Negotiable Instruments Act, 1881-Sections 138 and 140-Cheques- Dishonour of-Cheque returned with an endorsement `account closed'- Applicability of section 138-Held, Account closed would mean that the cheque is returned as unpaid on the ground that..
Full decision is enclosed.
VIJAY K. TEOTIA
(Expert) 31 December 2010
I think you have both the options. even you can initiate both proceedings simultaneously. civil proceeding is for recovery whereas proceedings under NI Act is of criminal nature for punishment. further if there is instruction for stop payment then provisions of 138 NI Act will not be attracted provided the amount of cheque was available in the bank on the date of cheque.
Querist :
Anonymous
(Querist) 31 December 2010
Arunagiri Ji and Vijay Tiotia Ji and Kiran Ji ---
I am yet confused---what about this very recent judgement which again seems to be declaring that cheque stopped/acctt. closed won't attract 138 NIA.
http://www.lawyersclubindia.com/judiciary/138-Ni-Act-wont-attract-2400.asp
Querist :
Anonymous
(Querist) 31 December 2010
Court
Madras High Court
Brief
Whather 138 Attract in case : Account closed by Bank
Citation
R.S. Raman vs Trushar J. Seth
Judgement
A. Packiaraj, J.
1. The petitioner has been convicted u/s 417 IPC and sentenced to undergo three months simple imprisonment and to pay a compensation of Rs. 1,50,000/- by the Judicial Magistrate No. V, Coimbatore in C.C. No. 241 of 1999, against which, he preferred an appeal in C.A. No. 88 of 2001 before the II Additional Sessions Judge, Coimbatore, who confirmed the conviction and dismissed the appeal.
2. A complaint had been filed by the respondent against the accused for an offence u/s 138 Negotiable Instruments Act and the Magistrate also took cognizance of the same for an offence u/s 138 Negotiable Instruments Act and had read over the substance of the complaint to the accused whether he has committed an offence u/s 138 Negotiable Instruments Act for which he had denied. But surprisingly, the Magistrate has convicted him u/s 417 IPC.
3. The averments in the complaint and the evidence of the complainant is to the effect that he being the proprietor of Artee Foams, the petitioner (accused) was doing a hotel business and as such, he borrowed a sum of Rs. 1,50,000/- on various dates. The petitioner agreed to pay the amount back with interest at the rate of 30% per annum and executed a promissory note. Despite several demands, the accused did not pay either the principal or the interest. Then on 12.05.1999, he is alleged to have given a cheque for Rs. 2,04,000/- drawn on Nedungadi Bank for the discharge of the amount. The complainant presented a cheque on 14.05.1999 through South Indian Bank, Gandhi Puram Branch and the same was returned on the ground of account closed. A lawyer's notice as contemplated under the Act was issued on 22.05.1998 to the accused calling upon him to pay the cheque amount. The accused had received the notice on 28.05.1999 but sent a reply on 04.06.1999 denying the averments and he also did not pay the cash. Hence the prosecution was launched.
4. To support the case of PW-1, PW-2 and PW-3 Managers of Nedungadi Bank and South Indian Bank were examined to speak about the dishonour of the cheque. The evidence of PW-2, Manager of Nedungadi Bank is to the effect that the account was closed suo motu by the management as early as 11.03.1998.
5. The case of the accused is that he does not know the complainant at all. He had not borrowed any amount from him. One Sivanandam, who was formerly employed under the accused was terminated by him and that he assisted the accused in his business he used to attend payment of income tax and sales tax on behalf of the accused. And when he left his services, he took about 25 signed cheques and 10 signed promissory notes with him. He has also taken with him Rs.10 stamp papers with the signature of the accused. One of the cheque allegedly taken by Sivanandam had been used in this case. Therefore, he had also sent a notice to Sivanandam and he had received a reply from him, marked as Ex.D-3, wherein the said Sivanandam had admitted to have taken the cheques and promised to return the cheques, with the salary of the accused.
6. Then again the accused also took a plea of alibi stating that on 23.04.1998 he was admitted in K.G. Hospital on the complaint of chest pain and he was there till 1.5.1998. DW-1 Doctor attached to the said hospital had been examined to establish the same. The discharge summary has been marked as Ex.D-1. On 30.04.1998, he was subjected to echo-cardiograph test and the report is Ex.D-2. Therefore, according to the accused, he could not have been in a position to borrow the amount on 30.04.1998.
7. Though factually, the courts did not accept these contentions, but they held that in order to convict a person u/s 138 Negotiable Instruments Act, the cheque must have been returned for want of sufficient funds in the bank. But here in the present case, the cheque had been returned for the reason that the account had already been closed not at the instance of the accused but suo motu by the officials.
8. However, ultimately the courts have come to the conclusion that the offence u/s 138 has not been made out since PW-2 bank official would state that the account of the petitioner was closed on 11.03.1998.
9. It is pertinent to note that the complainant has not come by way of appeal against this finding. Therefore, it may not be necessary for me to go into that aspect whether an offence u/s 138 is made out or not. But the fact remains that the courts below have convicted the accused u/s 417 IPC though substance of the charge read over to the accused is only for offence u/s 138 Negotiable Instruments Act. Therefore, the learned counsel for the petitioner would argue that without the substance of the offence to be convicted not read over to the accused, he cannot be convicted under another section. Consequently, no offence u/s 417 IPC is made out.
10. In other words, the accused has been called upon to answer the charge relating to the commission of offence u/s 138 Negotiable Instruments Act for which he had pleaded not guilty and proceeded with the trial and tried to establish no offence u/s 138 NIA is made out. In fact, even on the finding of the learned Magistrate, no offence u/s 138 N.I.A has been made out. But surprisingly, the magistrate has convicted him u/s 417 IPC. The ingredients of section 138 N.I.A and section 417 IPC are totally different. No doubt, the Magistrate has power to alter the charge at any stage. But sufficient opportunities should have been given to the accused to answer the particular charge. It may be said that this being a summons case, there is no framing of charge. However the provisions under the Cr.P.C specify that the substance of the charge should be read over to the accused. In the present case when the Magistrate has thought it fit that he should convict him u/s 417 IPC, he ought to have given sufficient notice to the accused to answer the said substance. But he has not done so. Conviction has necessarily to be set aside on that account.
11. Yet another ground raised by the learned counsel is that even taking it for granted that the entire allegations is accepted, an offence u/s 417 IPC is not made out. Punishment for cheating and the offence of cheating has been defined u/s 415 IPC, which reads as follows:-
"Section 415 IPC:- Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat"."
12. After referring to the section, the learned counsel submits that the essential ingredients of cheating is that while deceiving a person, the accused should have fraudulently or dishonestly induced the person so deceived to deliver any property to any person or to consent that any person shall retain any property or intentionally induce a person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived.
13. So the essential ingredients are :-
i) to deliver a property;
ii) to consent that any person shall retain any property; and
iii) by inducing a person so deceived should do or omit to do anything which he would not do or commit if he were not so deceived.
14. One of the three ingredients has to necessarily be satisfied to convict a person under this section. As far as the first ingredient is concerned, when the cheque was issued, no property was delivered. As a matter of fact, the money was, even according to the prosecution, paid long ago and therefore, at the time of presentation of cheque, there was no inducement for him to part with any property.
15. As far as the second ingredient is concerned, that person shall retain any property because of this inducement. This ingredient is also conspicuously absent since it is no body's case that at the time of issuance of the cheque, the complainant had retained any property or consented to retain any property.
16. The third ingredient is that the complainant must have induced to do or omitted to do anything which he would not have done if he were not so deceived. So by giving a cheque on that particular date, there is absolutely no iota of evidence from the prosecution side that he omitted to do, what he is supposed to do, because of the inducement made by the accused by giving the cheque. In other words, there is nothing to show that if the accused has not given any cheque on that particular date, what the complainant would do or omit to do is not at all evidenced.
17. I fully agree with the contention of the learned counsel for the petitioner and I see that at the time of issuance of the cheque, none of the first two ingredients are there and in respect of the third ingredient, if there had been some evidence from PW-1 that he did not do a particular thing because of the cheque having been given, it would have been a different matter. I hold that the offence u/s 415 IPC has not been made out and consequently, he cannot be convicted u/s 417 IPC either.
18. In the result, the revision is allowed and the accused is acquitted. Fine amount if paid, shall be returned to the accused.
DEFENSE ADVOCATE.-firmaction@g
(Expert) 31 December 2010
Mr ARUNAGIRI has not fully read the citation posted by him. It clearly says that account closed will also attract NI 138.
While the citation posted about Madras HC is the intelligent effort on the part of the person raising querry to raise an imp point of defference.
The Madras HC says that on the date of issue of cheque account was not there , it was not closed after issue of cheque. morever no delevery of any property against issue of cheque is proved and hence acquital.
Ajay Bansal
(Expert) 31 December 2010
See A.I.R. Manual.
malipeddi jaggarao
(Expert) 31 December 2010
First of all the query is hypothetical without any cause of action. Cheque is not presented but he presumes that the cheque must have been stopped or account must have been closed. The query does not deserve any merit for reply. However, it has opened an interesting discussion and thanks to Mr.Arunagiri and Mr.Shasikumar for throwing more light on Section 138 of NI Act.
Querist :
Anonymous
(Querist) 01 January 2011
Mr. malipeddi jaggarao, respected sir, highly disagree with Ur response---hypothetical!!!
Remember Einstien said imagination is more important than reality!!
All inventions are imagined first.
And my hypothesis is not impractical, everyday people issue cheques and when do not feel like paying ---go and stop their cheques or close their accounts---so what is the remedy for such ppl--that is the purpose of this discussion--which is yet not resolved.
Querist :
Anonymous
(Querist) 01 January 2011
I am posting here by a very interesting Supreme Court judgement--declaring that stop payment won't attract 138----
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 913 OF 2009
[Arising out of SLP (Crl.) No. 8059 of 2007]
Raj Kumar Khurana ...Appellant
Versus
State of (NCT of Delhi) and Anr. ...Respondents
JUDGMENT
S.B. SINHA, J :
1. Leave granted.
2. 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") is
the question involved in this appeal. It arises out of a judgment and order
dated 18.09.2007 passed by the High Court of Delhi in Criminal M.C. No.
2890 of 2007.
2
3. The said question arises in the following factual matrix.
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 also given to the bank. He lodged a
First Information Report with regard thereto, stating:
"...On my return to Digras, I found that the
cheques and the stamp worth Rs. 50 bearing only
my signatures had been stolen, therefore, to
prevent any misuse of my cheques, I sent a written
information to State Bank, Branch Digras and
subsequently on 21-04-01 I filed a complaint in
Police Station Digras...."
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".
Respondent No. 2 thereafter upon issuance of notices in terms of the
proviso appended to Section 138 of the Act filed a complaint petition in the
Court of Chief Metropolitan Magistrate, Delhi, inter alia, alleging:
3
"5. That the above said cheque in question was
presented by the complainant for encashment
through its bearers, namely State Bank of India,
Azadpur Branch, Delhi - 33, but the same was
returned as dishonoured with the remarks "SAID
CHEQUE REPORTED LOST BY THE
DRAWER". This intimation was received by the
complainant from the bankers on 27.7.2001 and
accordingly a notice dt. 3.8.2001 was sent to the
accused requesting the accused to make payment
of the above said cheque amount and on 17.8.2001
the accused sent reply through his Advocate
denying his liability falsely taking the plea that the
cheque in question was lost as stolen by the
complainant...
6. That the accused has taken the above said
false pleas knowing it fully well that he does not
intend to make payment of the said cheque
amount, and the complainant is thus compelled to
file this complaint.
7. That the issuance of the cheque by the
accused and informing wrongly his own bankers
about the loss/ theft of the cheque, with no
intention to make payment thereof, rather showing
that right from the time he issued the cheque, he
had intention to cheat and defraud the complainant
by making false representations and thus the
accused has willfully committed an offence
punishable under Sections 138 and 142 of the
Negotiable Instruments Act read with Section 420
IPC and is liable to be punished accordingly."
4. It is not in dispute that the Superintendent of Police, Digras has issued
a certificate showing that FIR No. 57 of 2003 arising out of the First
4
Information Report filed by the appellant before the Station House Officer,
Digras had been closed.
It is furthermore not in dispute that the appellant in the meanwhile
filed a complaint petition under Section 380 read with Sections 34, 467, 468
and 471 as also Sections 420 and 120B of the Indian Penal Code in the
Court of Judicial Magistrate First Class and the same is pending
adjudication.
Admittedly, the appellant had lodged a First Information Report under
Sections 369, 495, 498, 420 and 34 of the Indian Penal Code with the Police
Station Digras against the respondent No. 2 and his brother, wherein also a
closer report has been submitted.
Appellant has filed another criminal complaint against the respondent
No. 2 under Section 409 of the Indian Penal Code which has also been
dismissed on the ground that the dispute is of civil nature.
5. Appellant has moreover filed a suit for recovery of a sum of
Rs.31,40,131.43 in the Court of Civil Judge, Sr. Division, Darwha, Madhya
Pradesh against the respondent No. 2 and his brother. Several other
5
applications were filed by the appellant before the said court to which we
need not advert to.
6. Appellant filed an application under Section 482 of the Code in the
High Court of Delhi praying for quashing of the proceedings under Section
138 of the Act on or about 6.09.2007 on the premise that the same was not
maintainable. By reason of the impugned judgment, the said application has
been dismissed.
7. Mr. M.N. Krishnamani, learned senior counsel appearing on behalf of
the appellant, would submit that the High Court committed a serious error in
passing the impugned judgment insofar as it failed to take into consideration
that the complaint petition even if given face value and taken to be correct in
its entirety does not disclose an offence under Section 138 of the Act.
8. Mr. Gulshan Rai Nagpal, learned counsel appearing on behalf of the
respondent No. 2, on the other hand, would contend that the appellant had
lodged a false First Information Report with regard to the purported theft of
the cheques which having been found to be not true and, thus, it is evident
that he had resorted to various proceedings to pre-empt the drawee of the
cheques to obtain lawful payments due from him.
6
9. Section 138 of the Act reads as under:
"138 - Dishonour of cheque 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 that bank,
such person shall be deemed to have committed an
offence and shall, without prejudice to any other
provisions of this Act, be punished with
imprisonment for a term which may be extended to
two years, or with fine which may extend to twice
the amount of the cheque, or with both: Provided
that nothing contained in this section shall apply
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 thirty days of the receipt of
information by hi m 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
7
or, as the case may be, to the holder in due course
of the cheque, within fifteen 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."
10. A bare perusal of the aforementioned provision 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.
In State of A.P. and Anr. v. A.P. Pensioners Association and Ors.
[(2005) 13 SCC 161], this Court held:
"...In other words, all the consequences ordinarily
flowing from a rule would be given effect to if the
rule otherwise does not limit the operation thereof.
If the rule itself provides a limitation on its
operation, the consequences flowing from the legal
fiction have to be understood in the light of the
limitations prescribed. Thus, it is not possible to
construe the legal fiction as simply as suggested by
Mr. Lalit."
11. Section 138 of the Act moreover provides for a penal provision. A
penal provision created by reason of a legal fiction must receive strict
8
construction. [See R. Kalyani v. Janak C. Mehta and Ors. (2009) 1 SCC 516
and DCM Financial Services Ltd. v. J.N. Sareen and Anr. (2008) 8 SCC 1].
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.
Before a proceeding thereunder is initiated, all the legal requirements
therefor must be complied with. The court must be satisfied that all the
ingredients of commission of an offence under the said provision have been
complied with.
The parameters for invoking the provisions of Section 138 of the Act,
thus, being limited, we are of the opinion that 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.
12. The court while exercising its jurisdiction for taking cognizance of an
offence under Section 138 of the Act was required to consider only the
allegations made in the complaint petition and the evidence of the
9
complainant and his witnesses, if any. It could not have taken into
consideration the result of the complaint petition filed by the respondent No.
2 or the closer report filed by the Superintendent of Police in the First
Information Report lodged by the appellant against him.
13. Before us a contention has been raised that the appellant did not have
sufficient funds in his bank account. Such an allegation has not been made
in the complaint petition. 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.
14. Keeping in view the facts and circumstances of the case, we are of the
opinion that the complaint petition does not disclose an offence punishable
under Section 138 of the Act.
15. For the reasons aforementioned, the impugned judgment being
unsustainable is set aside. The appeal is allowed.
...............................J.
[S.B. Sinha]
10
................................J.
[Dr. Mukundakam Sharma]
New Delhi;
May 5, 2009
Querist :
Anonymous
(Querist) 01 January 2011
Here is a very interesting discussion on LCI on the same subject--
http://www.lawyersclubindia.com/forum/Re-Important-Judgment-on-NI-Act-7698.asp?1=1&offset=1
please go through and then post your precious views also hereby............
M V Gupta
(Expert) 13 March 2011
A very interesting discussion. The verious citations given would be useful to the legal fraternity.
Gulshan Tanwar
(Expert) 13 March 2011
I agree with Arun and further you can lodge your complaint under S.138 read with s.420/415/406 Cr.P.C. but dont rush to file case under 420/415/406 --- that will be given hammer by the judge as well as the accused.
S.138 wont be attracted in your case and this thing is to be decided by the Court and play this tactic before the Court and the Court will give the reasons to allow or reject the same and then proceed with the reasons of the case, that will save your time which is the thing needed most and also file recovery suit under O.37 CPC for the same, dont wait to file 0.37 suit.
