SC Issues Directions For Speedy Disposal Of Cheque Cases

SC Issues Directions For Speedy Disposal Of Cheque Cases; Court Can Close Proceedings On Satisfaction Of Payment Of Cheque Amount, Cost & Interest…

IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 1731 OF 2017

(ARISING OUT OF SPECIAL LEAVE PETITION (CRL.) NO.5451 OF
2017)
M/S. METERS AND INSTRUMENTS PRIVATE LIMITED
& ANR. …APPELLANTS
VERSUS
KANCHAN MEHTA …RESPONDENT
WITH
CRIMINAL APPEAL NO. 1732 OF 2017
(ARISING OUT OF SPECIAL LEAVE PETITION (CRL.) NO.5441 OF
2017)
WITH
CRIMINAL APPEAL NO. 1733 OF 2017
(ARISING OUT OF SPECIAL LEAVE PETITION (CRL.) NO.5449 OF
2017)
J U D G M E N T
ADARSH KUMAR GOEL, J.
1. Leave granted. These appeals have been preferred against
the order dated 21st April, 2017 of the High Court of Punjab and
Haryana at Chandigarh in CRLM Nos.13631, 13628 and 13630 of
2017. The High Court rejected the prayer of the appellants for
compounding the offence under Section 138 of the Negotiable
2
Instruments Act, 1881 (the Act) on payment of the cheque amount
and in the alternative for exemption from personal appearance.
2. When the matters came up for hearing before this Court
earlier, notice was issued to consider the question “as to how
proceedings for an offence under Section 138 of the Act can be
regulated where the accused is willing to deposit the cheque
amount. Whether in such a case, the proceedings can be closed or
exemption granted from personal appearance or any other order
can be passed.” The Court also appointed Mr. K.V. Viswanathan,
learned senior counsel to assist the Court as amicus and Mr. Rishi
Malhotra, learned counsel to assist the amicus. Accordingly,
learned amicus has made his submissions and also filed written
submissions duly assisted by S/Shri Rishi Malhotra, Ravi
Raghunath, Dhananjay Ray and Sidhant Buxy, advocates. We
place on record our appreciation for the services rendered by
learned amicus and his team.
3. Few Facts: The Respondent Kanchan Mehta filed complaint
dated 15th July, 2016 alleging that the appellants were to pay a
monthly amount to her under an agreement. Cheque dated 31st
March, 2016 was given for Rs.29,319/- in discharge of legal liability
but the same was returned unpaid for want of sufficient funds. In
3
spite of service of legal notice, the amount having not been paid,
the appellants committed the offence under Section 138 of the Act.
The Magistrate vide order dated 24th August, 2016, after
considering the complaint and the preliminary evidence,
summoned the appellants. The Magistrate in the order dated 9th
November, 2016 observed that the case could not be tried
summarily as sentence of more than one year may have to be
passed and be tried as summons case. Notice of accusation dated
9
th November, 2016 was served under Section 251 Cr.P.C.
4. Appellant No.2, who is the Director of appellant No.1, made a
statement that he was ready to make the payment of the cheque
amount. However, the complainant declined to accept the demand
draft. The case was adjourned for evidence. The appellants filed
an application under Section 147 of the Act on 12th January, 2017
relying upon the judgment of this Court in Damodar S. Prabhu
versus Sayed Babalal H.1 The application was dismissed in view
of the judgment of this Court in JIK Industries Ltd. versus
Amarlal versus Jumani2 which required consent of the
complainant for compounding. The High Court did not find any
ground to interfere with the order of the Magistrate. Facts of other
two cases are identical. Hence these appeals.
1 (2010) 5 SCC 663
2 (2012) 3 SCC 255
4
5. We have heard learned counsel for the parties and learned
amicus who has been duly and ably assisted by S/Shri Rishi
Malhotra, Ravi Raghunath, Dhananjay Ray and Sidhant Buxy,
advocates. We proceed to consider the question.
6. The object of introducing Section 138 and other provisions of
Chapter XVII in the Act in the year 19883
was to enhance the
acceptability of cheques in the settlement of liabilities. The drawer
of cheque is made liable to prosecution on dishonour of cheque
with safeguards to prevent harassment of honest drawers. The
Negotiable Instruments (Amendment and Miscellaneous Provisions)
Act, 2002 to amend the Act was brought in, inter-alia, to simplify
the procedure to deal with such matters. The amendment includes
provision for service of summons by Speed Post/Courier, summary
trial and making the offence compoundable.
7. This Court has noted that the object of the statute was to
facilitate smooth functioning of business transactions. The
provision is necessary as in many transactions cheques were
issued merely as a device to defraud the creditors. Dishonour of
cheque causes incalculable loss, injury and inconvenience to the
3 Vide the Banking, Public Financial
Institutions and Negotiable Instruments Laws (Amendment) Act, 1988
5
payee and credibility of business transactions suffers a setback4
.
At the same time, it was also noted that nature of offence under
Section 138 primarily related to a civil wrong and the 2002
amendment specifically made it compoundable5
. The offence was
also described as ‘regulatory offence’. The burden of proof was on
the accused in view of presumption under Section 139 and the
standard of proof was of “preponderance of probabilities”6
. The
object of the provision was described as both punitive as well as
compensatory. The intention of the provision was to ensure that
the complainant received the amount of cheque by way of
compensation. Though proceedings under Section 138 could not
be treated as civil suits for recovery, the scheme of the provision,
providing for punishment with imprisonment or with fine which
could extend to twice the amount of the cheque or to the both,
made the intention of law clear. The complainant could be given
not only the cheque amount but double the amount so as to cover
interest and costs. Section 357(1)(b) of the Cr. P.C. provides for
payment of compensation for the loss caused by the offence out of
the fine7
. Where fine is not imposed, compensation can be
4 Goa Plast (P) Ltd. v. Chico Ursula
D’Souza (2004) 2 SCC 235
5 Vinay Devanna Nayak v. Ryot Sewa
Sahakari Bank Ltd.(2008) 2 SCC 305
6 Rangappa v. Sri Mohan (2010) 11 SCC
441
7 R. Vijayan v. Baby (2012) 1 SCC 260
6
awarded under Section 357(3) Cr.P.C. to the person who suffered
loss. Sentence in default can also be imposed. The object of the
provision is not merely penal but to make the accused honour the
negotiable instruments8
.
8. In view of the above scheme, this Court held that the accused
could make an application for compounding at the first or second
hearing in which case the Court ought to allow the same. If such
application is made later, the accused was required to pay higher
amount towards cost etc9
. This Court has also laid down that even if
the payment of the cheque amount, in terms of proviso (b) to
Section 138 of the Act was not made, the Court could permit such
payment being made immediately after receiving notice/summons
of the court10. The guidelines in Damodar (Supra) have been held
to be flexible as may be necessary in a given situation11
. Since the
concept of compounding involves consent of the complainant, this
Court held that compounding could not be permitted merely by
unilateral payment, without the consent of both the parties.12
8 Lafarge Aggregates & Concrete India
(P) Ltd. v. Sukarsh Azad (2014) 13 SCC 779
9 Damodar S. Prabhu (supra)
10 (2006) 6 SCC 456, (2007) 6 SCC 555
11 Para 23 in Madhya Pradesh State Legal
Services Authority versus Prateek Jain and Anr. (2014) 10 SCC 690
12 Rajneesh Aggarwal v. Amit J. Bhalla
(2001) 1 SCC 631
7
9. While the object of the provision was to lend credibility to
cheque transactions, the effect was that it put enormous burden on
the courts’ dockets. The Law Commission in its 213th Report,
submitted on 24th November, 2008 noted that out of total pendency
of 1.8 crores cases in the country (at that time), 38 lakh cases
(about 20% of total pendency) related to Section 138 of the Act.
This Court dealt with the issue of interpretation of 2002 amendment
which was incorporated for simplified and speedy trials. It was held
that the said provision laid down a special code to do away with all
stages and processes in regular criminal trial13. This Court held that
once evidence was given on affidavit, the extent and nature of
examination of such witness was to be determined by the Court.
The object of Section 145(2) was simpler and swifter trial procedure.
Only requirement is that the evidence must be admissible and
relevant. The affidavit could also prove documents14. The scheme
of Sections 143 to 147 of the Act was a departure from provisions of
Cr.P.C. and the Evidence Act and complaints could be tried in a
summary manner except where the Magistrate feels that sentence
of more than one year may have to be passed. Even in such cases,
the procedure to be followed may not be exactly the same as in
Cr.P.C. The expression “as far as possible” in Section 143 leaves
13 Mandvi Cooperative Bank Ltd. v.
Nimesh B. Thakore(2010) 3 SCC 83, paras 25, 26
14 Para 41, ibid
8
sufficient flexibility for the Magistrate so as not to affect the quick
flow of the trial process. The trial has to proceed on day to day
basis with endeavour to conclude the same within six months.
Affidavit of the complainant can be read as evidence. Bank’s slip or
memo of cheque dishonour can give rise to the presumption of
dishonour of the cheque, unless and until that fact was disproved.
10. Again, this Court considered the matter in J.V. Baharuni and
Anr. etc. versus State of Gujarat and Anr etc.15 and observed
that the procedure prescribed for cases under Section 138 of the Act
was flexible and applicability of Section 326(3) of the Cr.P.C. in not
acting on the evidence already recorded in a summary trial did not
strictly apply to the scheme of Section 143 of the Act16. This Court
observed that the procedure being followed by the Magistrates was
not commensurate with the summary trial provisions and a
successor Magistrate ought not to mechanically order de novo trial.
This Court observed that the Court should make endeavour to
expedite hearing of cases in a time bound manner. The Magistrate
should make attempts to encourage compounding of offence at an
15 (2014) 10 SCC 494
16 Para 43 of J.V. Baharuni (2014) 10
SCC 494
9
early stage of litigation. The compensatory aspect of remedy should
be given priority over the punitive aspect17
.
11. While it is true that in Subramanium Sethuraman versus
State of Maharashtra18 this Court observed that once the plea of
the accused is recorded under Section 252 of the Cr.P.C., the
procedure contemplated under Chapter XX of the Cr.P.C. has to be
followed to take the trial to its logical conclusion, the said judgment
was rendered as per statutory provisions prior to 2002 amendment.
The statutory scheme post 2002 amendment as considered in
Mandvi Cooperative Bank and J.V. Baharuni (supra) has brought
about a change in law and it needs to be recognised. After 2002
amendment, Section 143 of the Act confers implied power on the
Magistrate to discharge the accused if the complainant is
compensated to the satisfaction of the Court, where the accused
tenders the cheque amount with interest and reasonable cost of
litigation as assessed by the Court. Such an interpretation was
consistent with the intention of legislature. The court has to balance
the rights of the complainant and the accused and also to enhance
access to justice. Basic object of the law is to enhance credibility of
the cheque transactions by providing speedy remedy to the
17 Para 60 of J.V. Baharuni (2014) 10
SCC 494
18 (2004)13 SCC 324
10
complainant without intending to punish the drawer of the cheque
whose conduct is reasonable or where compensation to the
complainant meets the ends of justice. Appropriate order can be
passed by the Court in exercise of its inherent power under Section
143 of the Act which is different from compounding by consent of
parties. Thus, Section 258 Cr.P.C. which enables proceedings to be
stopped in a summons case, even though strictly speaking is not
applicable to complaint cases, since the provisions of the Cr.P.C. are
applicable “so far as may be”, the principle of the said provision is
applicable to a complaint case covered by Section 143 of the Act
which contemplates applicability of summary trial provisions, as far
as possible, i.e. with such deviation as may be necessary for speedy
trial in the context.
12. The sentence prescribed under Section 138 of the Act is upto
two years or with fine which may extend to twice the amount or with
both. What needs to be noted is the fact that power under Section
357(3) Cr.P.C. to direct payment of compensation is in addition to
the said prescribed sentence, if sentence of fine is not imposed. The
amount of compensation can be fixed having regard to the extent of
loss suffered by the action of the accused as assessed by the Court.
The direction to pay compensation can be enforced by default
11
sentence under Section 64 IPC and by recovery procedure
prescribed under Section 431 Cr.P.C.19
13. This Court in Indian Bank Association and Ors. versus
Union of India and Ors.20 approved the directions of the Bombay
High Court, Calcutta High Court and Delhi High Court in KSL and
Industries Ltd. v. Mannalal Khandelwal21, Indo International
Ltd. versus State of Maharashtra22
, Harishchandra Biyani
versus Stock Holding Corporation of India Ltd.23
, Magma
Leasing Ltd. versus State of W.B.24 and Rajesh Agarwal
versus State25 laying down simpler procedure for disposal of cases
under Section 138 of the Act. This Court directed as follows:
“23. Many of the directions given by the various High
Courts, in our view, are worthy of emulation by the criminal
courts all over the country dealing with cases under
Section 138 of the Negotiable Instruments Act, for which
the following directions are being given:
23.1. The Metropolitan Magistrate/Judicial Magistrate
(MM/JM), on the day when the complaint under Section 138
of the Act is presented, shall scrutinise the complaint and,
if the complaint is accompanied by the affidavit, and the
affidavit and the documents, if any, are found to be in
order, take cognizance and direct issuance of summons.
19 Hari Kishan v. Sukhbir Singh (1988) 4
SCC 551; Suganthi Suresh Kumar v. Jagdeeshan (2002) 2 SCC 420; K.A. Abbas H.S.A. v. Sabu Joseph (2010) 6 SCC
230; R. Mohan v. A.K. Vijaya Kumar (2012) 8 SCC 721; and Kumaran v. State of Kerala (2017) 7 SCC 471
20 (2014) 5 SCC 590
21 2005 Cri LJ 1201 (Bom)
22 2006 Cri LJ 208: (2005) 44 Civil CC
(Bom)
23 (2006) 4 Mah LJ 381
24 (2007) 3 CHN 574
25 ILR (2010) 6 Del 610
12
23.2. The MM/JM should adopt a pragmatic and realistic
approach while issuing summons. Summons must be
properly addressed and sent by post as well as by e-mail
address got from the complainant. The court, in
appropriate cases, may take the assistance of the police or
the nearby court to serve notice on the accused. For notice
of appearance, a short date be fixed. If the summons is
received back unserved, immediate follow-up action be
taken.
23.3. The court may indicate in the summons that if the
accused makes an application for compounding of
offences at the first hearing of the case and, if such an
application is made, the court may pass appropriate
orders at the earliest.
23.4. The court should direct the accused, when he
appears to furnish a bail bond, to ensure his appearance
during trial and ask him to take notice under Section 251
CrPC to enable him to enter his plea of defence and fix the
case for defence evidence, unless an application is made
by the accused under Section 145(2) for recalling a
witness for cross-examination.
23.5. The court concerned must ensure that
examination-in-chief, cross-examination and
re-examination of the complainant must be conducted
within three months of assigning the case. The court has
option of accepting affidavits of the witnesses instead of
examining them in the court. The witnesses to the
complaint and the accused must be available for
cross-examination as and when there is direction to this
effect by the court.
24. We, therefore, direct all the criminal courts in the
country dealing with Section 138 cases to follow the
abovementioned procedures for speedy and expeditious
disposal of cases falling under Section 138 of the
Negotiable Instruments Act. The writ petition is,
accordingly, disposed of, as above.”
14. We may, however, note that this Court held that general
directions ought not to be issued which may deprive the Magistrate
13
to exercise power under Section 205 Cr.P.C.26 We need to clarify
that the judgment of this Court is not a bar to issue directions which
do not affect the exercise of power under Section 205, to require
personal attendance wherever necessary. Needless to say that the
judgment cannot be read as affecting the power of the High Court
under Article 225 of the Constitution read with Articles 227 and 235
to issue directions to subordinate courts without affecting the
prevailing statutory scheme.
15. In Bhaskar Industries Ltd. versus Bhiwani Denim &
Apparels Ltd.27
, this Court considered the issue of hardship caused
in personal attendance by an accused particularly where accused is
located far away from the jurisdiction of the Court where the
complaint is filed. This Court held that even in absence of accused,
evidence can be recorded in presence of counsel under Section 273
Cr.P.C. and Section 317 Cr.P.C. permitted trial to be held in absence
of accused. Section 205 Cr.P.C. specifically enabled the Magistrate
to dispense with the personal appearance. Having regard to the
nature of offence under Section 138, this Court held that the
Magistrates ought to consider exercise of the jurisdiction under
26 TGN Kumar v. State of Kerala (2011) 2
SCC 772
27 (2001) 7 SCC 401
14
Section 205 Cr.P.C. to relieve accused of the hardship without
prejudice to the prosecution proceedings. It was observed :
“15. These are days when prosecutions for the offence
under Section 138 are galloping up in criminal courts.
Due to the increase of inter-State transactions through
the facilities of the banks it is not uncommon that when
prosecutions are instituted in one State the accused
might belong to a different State, sometimes a far
distant State. Not very rarely such accused would be
ladies also. For prosecution under Section 138 of the NI
Act the trial should be that of summons case. When a
magistrate feels that insistence of personal attendance
of the accused in a summons case, in a particular
situation, would inflict enormous hardship and cost to a
particular accused, it is open to the magistrate to
consider how he can relieve such an accused of the
great hardships, without causing prejudice to the
prosecution proceedings.”
16. It is, thus, clear that the trials under Chapter XVII of the Act are
expected normally to be summary trial. Once the complaint is filed
which is accompanied by the dishonored cheque and the bank’s slip
and the affidavit, the Court ought to issue summons. The service of
summons can be by post/e-mail/courier and ought to be properly
monitored. The summons ought to indicate that the accused could
make specified payment by deposit in a particular account before
the specified date and inform the court and the complainant by
e-mail. In such a situation, he may not be required to appear if the
court is satisfied that the payment has not been duly made and if
15
the complainant has no valid objection. If the accused is required to
appear, his statement ought to be recorded forthwith and the case
fixed for defence evidence, unless complaintant’s witnesses are
recalled for examination.
17. Having regard to magnitude of challenge posed by cases filed
under Section 138 of the Act, which constitute about 20% of the
total number of cases filed in the Courts (as per 213th Report of the
Law Commission) and earlier directions of this Court in this regard, it
appears to be necessary that the situation is reviewed by the High
Courts and updated directions are issued. Interactions, action plans
and monitoring are continuing steps mandated by Articles 39A and
21 of the Constitution to achieve the goal of access to justice28. Use
of modern technology needs to be considered not only for paperless
courts but also to reduce overcrowding of courts. There appears to
be need to consider categories of cases which can be partly or
entirely concluded “online” without physical presence of the parties
by simplifying procedures where seriously disputed questions are
not required to be adjudicated. Traffic challans may perhaps be one
such category. Atleast some number of Section 138 cases can be
decided online. If complaint with affidavits and documents can be
filed online, process issued online and accused pays the specified
28 Hussain vs. Union of India (2017)5
SCC 702
16
amount online, it may obviate the need for personal appearance of
the complainant or the accused. Only if the accused contests, need
for appearance of parties may arise which may be through counsel
and wherever viable, video conferencing can be used. Personal
appearances can be dispensed with on suitable self operating
conditions. This is a matter to be considered by the High Courts and
wherever viable, appropriate directions can be issued.
18. From the above discussion following aspects emerge:
i) Offence under Section 138 of the Act is primarily
a civil wrong. Burden of proof is on accused in
view presumption under Section 139 but the
standard of such proof is “preponderance of
probabilities”. The same has to be normally tried
summarily as per provisions of summary trial
under the Cr.P.C. but with such variation as may
be appropriate to proceedings under Chapter
XVII of the Act. Thus read, principle of Section
258 Cr.P.C. will apply and the Court can close the
proceedings and discharge the accused on
satisfaction that the cheque amount with
17
assessed costs and interest is paid and if there is
no reason to proceed with the punitive aspect.
ii) The object of the provision being primarily
compensatory, punitive element being mainly
with the object of enforcing the compensatory
element, compounding at the initial stage has to
be encouraged but is not debarred at later stage
subject to appropriate compensation as may be
found acceptable to the parties or the Court.
iii) Though compounding requires consent of both
parties, even in absence of such consent, the
Court, in the interests of justice, on being
satisfied that the complainant has been duly
compensated, can in its discretion close the
proceedings and discharge the accused.
iv) Procedure for trial of cases under Chapter XVII of
the Act has normally to be summary. The
discretion of the Magistrate under second proviso
to Section 143, to hold that it was undesirable to
try the case summarily as sentence of more than
one year may have to be passed, is to be
18
exercised after considering the further fact that
apart from the sentence of imprisonment, the
Court has jurisdiction under Section 357(3)
Cr.P.C. to award suitable compensation with
default sentence under Section 64 IPC and with
further powers of recovery under Section 431
Cr.P.C. With this approach, prison sentence of
more than one year may not be required in all
cases.
v) Since evidence of the complaint can be given on
affidavit, subject to the Court summoning the
person giving affidavit and examining him and
the bank’s slip being prima facie evidence of the
dishonor of cheque, it is unnecessary for the
Magistrate to record any further preliminary
evidence. Such affidavit evidence can be read as
evidence at all stages of trial or other
proceedings. The manner of examination of the
person giving affidavit can be as per Section 264
Cr.P.C. The scheme is to follow summary
procedure except where exercise of power under
second proviso to Section 143 becomes
19
necessary, where sentence of one year may
have to be awarded and compensation under
Section 357(3) is considered inadequate, having
regard to the amount of the cheque, the financial
capacity and the conduct of the accused or any
other circumstances.
19. In view of the above, we hold that where the cheque amount
with interest and cost as assessed by the Court is paid by a
specified date, the Court is entitled to close the proceedings in
exercise of its powers under Section 143 of the Act read with Section
258 Cr.P.C. As already observed, normal rule for trial of cases under
Chapter XVII of the Act is to follow the summary procedure and
summons trial procedure can be followed where sentence exceeding
one year may be necessary taking into account the fact that
compensation under Section 357(3) Cr.P.C. with sentence of less
than one year will not be adequate, having regard to the amount of
cheque, conduct of the accused and other circumstances.
20. In every complaint under Section 138 of the Act, it may be
desirable that the complainant gives his bank account number and if
possible e-mail ID of the accused. If e-mail ID is available with the
Bank where the accused has an account, such Bank, on being
20
required, should furnish such e-mail ID to the payee of the cheque.
In every summons, issued to the accused, it may be indicated that if
the accused deposits the specified amount, which should be
assessed by the Court having regard to the cheque amount and
interest/cost, by a specified date, the accused need not appear
unless required and proceedings may be closed subject to any valid
objection of the complainant . If the accused complies with such
summons and informs the Court and the complainant by e-mail, the
Court can ascertain the objection, if any, of the complainant and
close the proceedings unless it becomes necessary to proceed with
the case. In such a situation, the accused’s presence can be
required, unless the presence is otherwise exempted subject to such
conditions as may be considered appropriate. The accused, who
wants to contest the case, must be required to disclose specific
defence for such contest. It is open to the Court to ask specific
questions to the accused at that stage. In case the trial is to
proceed, it will be open to the Court to explore the possibility of
settlement. It will also be open to the Court to consider the
provisions of plea bargaining. Subject to this, the trial can be on day
to day basis and endeavour must be to conclude it within six
months. The guilty must be punished at the earliest as per law and
21
the one who obeys the law need not be held up in proceedings for
long unnecessarily.
21. It will be open to the High Courts to consider and lay down
category of cases where proceedings or part thereof can be
conducted online by designated courts or otherwise. The High
Courts may also consider issuing any further updated directions for
dealing with Section 138 cases in the light of judgments of this
Court.
The appeals are disposed of.
It will be open to the appellants to move the Trial Court afresh
for any further order in the light of this judgment.
…………………………………..J.
[ADARSH KUMAR GOEL]
…………………………………..J.
[UDAY UMESH LALIT]
NEW DELHI;
OCTOBER 5, 2017.

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