P.J.Agro Tech Limited & Ors vs Water Base Limited

supplements, vaccines etc. The Appellant Nos.2 and 2

3 are the Managing Director and Chairperson of the

Appellant No.1 Company, which is based in Hyderabad

in the State of Andhra Pradesh. In order to

utilize the dealer network of the Appellant No.1

Company, the Respondent No.1 Company approached the

Appellants for distribution of prawn feed

manufactured by it. Inasmuch as, the said venture

did not turn out to be very successful, the

Appellant No.1 Company took a decision to

discontinue its dealings with the Respondent No.1

Company. In furtherance of the above, the Appellant

Company settled all its outstandings with the

Respondent No.1 Company and also gave an

authorization letter to the Respondent No.1 Company

to collect all other dues directly from the

customers of the Appellant No.1 Company, who had

bought the feed but were yet to pay the price

therefor. The concerned customers were also

informed about the aforesaid decision. Thereafter, 3

on 4th October, 2001, the Appellant Company

requested the Respondent No.1 Company to coordinate

with one K. Balashankar Reddy, the then General

Manager at Nellore, for collecting the dues which

were still outstanding. From the contents of the

said letter it appears that the Respondent Company

had accepted the said offer. However, in the course

of making collections from the customers directly,

it was found that some of its employees had

conspired with the said K. Balashankar Reddy and

had misappropriated some amounts of money and the

same was intimated by the Respondent No.1 Company

to the Appellant Company which asked the former to

take action against the said Balashankar Reddy and

its concerned employees.

3. Subsequently, however, the Appellant and the

Proforma Respondents received a notice dated 13th

December, 2002, from the Respondent No.1 Company

purporting to be a notice under Section 138 of the 4 Negotiable Instruments Act, 1881, hereinafter

referred to as "the 1881 Act", wherein it was

stated that a cheque issued by K. Balashankar Reddy

on 25th November, 2002, drawn on the State Bank of

Hyderabad, Nellore Branch, had been returned

dishonoured with the endorsement "Account closed".

The notice also demanded repayment of the cheque

amount from the Appellants.

4. On receiving the said notice, the Appellants

replied to the same on 26th December, 2002, stating

that they never had any account with the State Bank

of Hyderabad and the cheque in question had not

been issued by the Appellant No.1 Company.

Apparently, there was no response to the reply sent

on behalf of the Appellants and instead the

Appellants were served with summons from the Court

of XVIIIth Metropolitan Magistrate, Saidapet,

Chennai, in Complaint Case No.1142 of 2003 based on

the complaint which had been filed by the 5

Respondent No.1 on 23rd January, 2003. The

Appellants entered appearance in the aforesaid

complaint case and upon obtaining copies of the

complaint, they were surprised to learn that the

same had been filed against the Appellants on the

basis of a personal cheque issued by the Accused

No.11, K. Balashankar Reddy, from out of his

personal savings bank account. The said summons

was challenged by the Appellants and the Proforma

Respondents before the High Court on the ground

that the Company did not have any account with the

State Bank of Hyderabad and that the cheque had

been issued by K. Balashankar Reddy (Accused No.11)

from out of his personal savings bank account and

that none of the Directors had signed the said

cheque. It was contended that the complaint was an

abuse of the process of Court and had been filed

with the sole motive of extracting money from the

Appellants. On 14th September, 2006, the High Court 6

dismissed the said petition holding that the cheque

which had been issued by K. Balashankar Reddy was

to meet the liability of the Appellant No.1 Company

and its Directors on their request and that as a

result they had rightly been prosecuted under

Section 138 of the 1881 Act. The said order of the

High Court dismissing the Appellants' petition has

been challenged in the instant Appeal essentially

on the ground that the High Court had erred in

allowing the complaint proceedings to continue

although the same were not maintainable against the

Appellants and the Proforma Respondents who were

not the drawers of the cheque, nor was the cheque

issued from any of their banks.

5. Appearing for the Appellants, Mr. Siddharth

Dave, learned Advocate, submitted that both the

learned Magistrate as well as the High Court had

failed to consider in their proper perspective the

provisions of Section 138 of the Negotiable 7 Instruments Act, 1881. It was pointed out by Mr.

Dave that in order to attract the provisions of

Section 138 of the 1881 Act, it was necessary that

a cheque would have to be drawn by a person on an

account maintained by him with his banker and if

the said cheque was dishonoured, it would be deemed

that such person had committed an offence and

would, without prejudice to any other provision of

the 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. Mr. Dave urged that in order to

maintain an action against a person under Section

138 of the 1881 Act, it would be necessary to show

that the cheque had been issued by such person on

an account maintained by him, which fact was absent

in the instant case as far as the Appellants are

concerned. It was reiterated that the cheque in

question had been drawn by the Respondent No.11 in 8

his personal capacity on his bank and upon

dishonour thereof, only he could be prosecuted

under Section 138 of the 1881 Act. It was further

submitted that the proceedings against the Company

and its Directors were not maintainable and the

High Court had erred in law in not quashing the

same.

6. The stand taken on behalf of the Appellants was

vehemently opposed on behalf of the Respondent No.1

Company and a spirited attempt was made to involve

the Appellant No.1 Company and its Directors for

dishonour of the cheque which had been issued by

the Respondent No.11 from his own bank, which did

not attract the provisions of Section 138 of the

1881 Act against the Appellant No.1 Company and its

Directors. It was urged that since the cheque had

been issued by the Respondent No.11 to liquidate

the dues of the Appellant Company and its

Directors, the High Court had quite justifiably 9

refused to quash the complaint filed by the

Respondent No.1 Company.

7. From the submissions made on behalf of the

respective parties, it is quite apparent that the

short point for decision in this Appeal is whether

a complaint under Section 138 of the 1881 Act would

be maintainable against a person who was not the

drawer of the cheque from an account maintained by

him, which ultimately came to be dishonoured on

presentation.

8. Since the provisions of Section 138 of the 1881

Act have fallen for consideration in this Appeal,

the same are extracted hereinbelow :-

"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 10

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 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 fifteen days of the receipt of the said notice.

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

From a reading of the said Section, it is very

clear that in order to attract the provisions

thereof a cheque which is dishonoured will have to

be drawn by a person on an account maintained by

him with the 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. It is only such a cheque which

is dishonoured which would attract the provisions

of Section 138 of the above Act against the drawer

of the cheque.

9. In the instant case, the cheque which had been

dishonoured may have been issued by the Respondent

No.11 for discharging the dues of the Appellant

No.1 Company and its Directors to the Respondent 12

No.1 Company and the Respondent Company may have a

good case against the Appellant No.1 Company for

recovery of its dues before other fora, but it

would not be sufficient to attract the provisions

of Section 138 of the 1881 Act. The Appellant

Company and its Directors cannot be made liable

under Section 138 of the 1881 Act for a default

committed by the Respondent No.11. An action in

respect of a criminal or a quasi-criminal provision

has to be strictly construed in keeping with the

provisions alleged to have been violated. The

proceedings in such matters are in personam and

cannot be used to foist an offence on some other

person, who under the statute was not liable for

the commission of such offence.

10. Having regard to the above, we allow the Appeal

and set aside the order passed by the High Court

and quash the complaint filed by the Respondent

No.1 Company as far as the Appellants and other 13

Proforma Respondents are concerned. In the event,

any of the Appellants and/or Proforma Respondents

have been released on bail, they shall stand

discharged from their bail bonds forthwith.

11. The Appeal is allowed to the aforesaid extent.

................................................J. (ALTAMAS KABIR)

................................................J. (DR.MUKUNDAKAM SHARMA) New Delhi Dated: 28.7.2010