IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MRS. JUSTICE K.HEMA FRIDAY, THE 14TH JULY 2006 / 23RD ASHADHA,1928 CRL. A. No. 282 of 1999() --------------------------------- CC.246/1996 of JUDL. MAGISTRATE OF FIRST CLASS COURT, ADIMALI ............................................ APPELLANT: ------------------ V.K.GEMINI, S/O.KARUNAKARAN, VARAKIL HOUSE, SELLIAMPARA, VELLATHOOVAL P.O. BY ADV. SRI.C.J. JOY RESPONDENTS: ---------------------- 1. CHANDRAN, S/O. KESAVAN, MARUTHOLIL HOUSE, VELLATHOOVAL P.O. 2. STATE OF KERALA, REPRESENTED BY THE PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM. BY PUBLIC PROSECUTOR (SRI. K.J. GEORGE) THIS CRIMINAL APPEAL HAVING BEEN FINALLY HEARD ON 14 /07/ 2006, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K.HEMA, J. -------------------------------------------------- CRL. A. NO. 282 OF 1999-B -------------------------------------------------- Dated this the 14th day of July, 2006 J U D G M E N T Can the complainant ( ie., the “payee” or the “holder in due course”) in a prosecution for offence under section 138 of the Negotiable Instruments Act (the Act, for short) be presumed to be the “holder” of the cheque ? Can the presumption under section 139 of the Act be drawn in favour of the complainant, invariably in all such complaints treating him as the “holder” of the cheque? Can the mere admission of the handwriting and signature in the cheque lead to the presumption under section 139 of the Act that the cheque is received for the discharge of a debt or liability ? These are the main questions which arise for consideration in this appeal. FACTS, BRIEFLY: 2. The appellant filed a complaint before Magistrate's Court, alleging offence under Section 138 of the Negotiable Instruments Act (`the Act', for short), against first respondent herein. The accused-first respondent allegedly borrowed a sum of Rs.60,000/- from complainant and issued a cheque, Ext.P1 for the discharge of the debt. The cheque, on presentation was dishonoured, due to insufficiency of funds. Notice was issued to accused, other legal formalities were complied with, and a complaint was CRL. A. NO. 282 /1999 2 filed against first respondent. PWs. 1 to 3 were examined and Exts.P1 to P7 were marked, on the side of the complainant/appellant. The accused examined DWs. 1 to 3 and marked Exts.D1 and D2 on his side. DEFENCE PLEA : 3. According to accused he had been mentally sick for the past 8 to 9 years prior to the alleged transaction. Because of the peculiarity of the disease, his mental condition was impaired. In such state of mind, he as in the habit of issuing cheques to various persons, without owing anything to them. He used to assume himself to be a very affluent person during such period. But, people used to return such cheques, understanding the peculiar and abnormal habit of the accused. Ex.P1 is one such cheques issued to complainant which was misused by the complaint to file the complaint. The accused actually did not owe any money to complainant and he did not issue any cheque for the discharge of any debt or other liability, as alleged. 4. On an analysis of the evidence, particularly, medical evidence adduced by accused, trial court found that prosecution failed to establish that Ext.P1 cheque was issued by the accused for the discharge of a debt and hence the accused was acquitted. According to learned counsel appearing for appellant, handwriting and signature in the cheque are admitted by the accused and hence the court is bound to draw the presumption under section 139 of the Act that the cheque was issued for the discharge of a debt or liability. The acquittal is therefore, illegal. CRL. A. NO. 282 /1999 3 5. In the light of the above contention, the first question to be decided is whether the mere admission of the handwriting and signature in the cheque would lead to the presumption under section 139 of the Act that the cheque is received for the discharge of a debt or liability ? In my view, it will not. To support my view, a detailed analysis of section 139 of the Act is absolutely essential. Prior to that, a flash-reference to section 138 is also necessary. 6. A reading of section 138 of the Act reveals that one of the main ingredients to be proved in an offence under section 138 of the Act is that `THE CHEQUE IS DRAWN FOR THE DISCHARGE OF A DEBT OR OTHER LIABILITY'. (vide Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd., (2000) 2 SCC 745). This ingredient constitutes two factors: i) the `DRAWING' of the cheque and ii) the specific `PURPOSE' for which the cheque is drawn. Both these factors have to be independently proved to attract the offence under section 138 of the Act. But, does the admission of handwriting and signature in the cheque prove both these factors? DOES ADMISSION PROVE ? 7. The admission of the handwriting and signature of the accused in the cheque may prove one of the above factors ie., the cheque is “DRAWN” by him, provided the court is satisfied that the cheque was written and signed by the drawer voluntarily, and such drawing is not vitiated by any legal grounds. But, the mere proof of `DRAWING' of the CRL. A. NO. 282 /1999 4 cheque will not further prove the relevant `PURPOSE' for which the cheque is drawn. This is because of the simple reason that a cheque can be drawn by a person for various purposes other than for the discharge a debt or other liability also. Therefore, the court cannot, on mere proof of execution of cheque, conclude that such execution was for the discharge of a debt or other liability, unless there is evidence to prove such fact or there is any presumption in law to presume such fact. IS THERE ANY PRESUMPTION? 8. According to learned counsel for appellant there is a presumption under section 139 of the Act that the cheque which bears the admitted handwriting and signature of the accused is issued for the discharge of a debt or other liability. Section 139 reads as follows: “S. 139. Presumption in favour of holder.—It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque, of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability”. 9. Even on a plain reading of section 139 of the Act, it cannot be said that the mere execution/drawing of the cheque (by admission or otherwise) will automatically lead to the presumption that the cheque is drawn for the discharge of a debt or other liability. On the other hand, it is clear from section 139 that to draw the presumption under the said section, certain basic factors referred to in the section are to be established. As held by the Supreme Court, the court must be satisfied of “the existence of facts which have to be present before the presumption can be drawn”. CRL. A. NO. 282 /1999 5 (vide Kali Ram v. State of H.P., (1973) 2 SCC 808 and also Hiten P. Dalal v.Brathindranath Banerjee (2001) 6 SCC 16). THE IMPORTANT ELEMENT U/S 139: 10. Section 139 of the Act reveals that the first and foremost basic factor to be satisfied for drawing the presumption under section 139 of the Act is that the person in whose favour such presumption is drawn is the “HOLDER” of the cheque, as defined under the section. The title to section 139 itself shows that the presumption is in favour of the “holder” of the cheque. Is the complainant, a `HOLDER' ? Can the complainant in every prosecution for an offence under section 138 of the Act be treated as the “holder” of the cheque ? To answer this important question, firstly, Section 142 has to be looked into. 11. Section 142(excluding the irrelevant details for the purpose of answering the issue before me), reads as follows: “section 142. Cognizance of offences.— Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),— (a) no court shall take cognizance of any offence punishable under Section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque; (b) xxxx (c) xxxx” 12. It is clear from a reading of section 142 as well as from section 138 of the Act that in a prosecution for offence under section 138 of the Act, CRL. A. NO. 282 /1999 6 the complainant has to be either the “payee” or the “holder in due course” of the cheque. But, the presumption under section 139 of the Act is available only in favour of the “holder” of the cheque. There is no such presumption in favour of either the “payee” or the “the holder in due course”under section 139 of the Act. So, it may apparently appear that the presumption under section 139, being in favour of the “holder” of the cheque, such presumption shall not be drawn in favour of the complainant, since he is only the “payee” or the “holder in due course”. Can this view be confirmed? To affirm or deny, a deeper probe is necessary and it involves interpretation of certain provisions of the Act. LEGISLATIVE OBJECT: 13. Before proceeding to interpret any provision or expression in an enactment, the legislative object of the statute has to be borne in mind. The court should take care to ensure that such object is not defeated. The interpretation, which is required in this case, is mainly of Sections 138, 142 and 139 of the Act. Those sections were introduced into the Act by adding a new chapter viz., Chapter XVII, as per `the Banking, Public Financial Institutions and Negotiable Instruments Law(Amendment) Act, 1988' (the Amendment Act). The said Act came into force with effect from 1-4-1989. 14. `The Statement of Objects and Reasons' given in the Amendment Act for inserting new Chapter XVII in the Act is as hereunder: “(xi) to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficiency of funds in the accounts or CRL. A. NO. 282 /1999 7 for the reason that it exceeds the arrangements made by the drawer, WITH ADEQUATE SAFEGUARDS TO PREVENT HARASSMENT OF HONEST DRAWERS.” (emphasis supplied) 15. By the introduction of Chapter XVII into the statute-book in 1989, certain LIMITED acts which, till then, constituted only civil liability are seen transformed into criminal liability. This was done with the main object of enhancing the acceptability of cheques in settlement of liabilities. But, while inserting Chapter XVII and making a drawer of the cheque liable for penalties in case of bouncing of cheques, the legislature also took care to ensure that a honest drawer is not subjected to any harassment. So, in `the Statement of Objects and Reasons' itself it is stated that the Amendment Act has provided for `adequate safeguards in the act to prevent harassment of honest drawers'. GENERAL SAFEGUARDS-PRESUMPTION OF INNOCENCE: 16. The general safeguard for an accused in a criminal prosecution is presumption of innocence in his favour. Law intends to punish only the guilty, whose guilt is proved to the hilt. Therefore, an accused in a criminal case is presumed to be innocent, until the guilt is proved beyond reasonable doubt. The presumption of innocence is declared even as a human right by the Supreme Court. (vide Narendra Singh v. State of M.P., [(2004) 10 SCC 699] and P.N. Krishna Lal v. Govt. of Kerala, [1995 Supp (2) SCC 187]. The Criminal Justice System in this country is thus working well on the cardinal principle of presumption of innocence of the accused in a criminal case. This golden presumption or rule has guided the courts CRL. A. NO. 282 /1999 8 across the country in any criminal prosecution. 17. Even in cases where an enactment provides for a presumption of guilt, the courts have to be cautious. A three-judges bench of the Supreme Court held in Kali Ram v. State of H.P., [(1973) 2 SCC 808] held thus: “There are certain cases in which statutory presumptions arise regarding the guilt of the accused, but the burden even in those cases is upon the prosecution to prove the existence of facts which have to be present before the presumption can be drawn”. 18. Thus, in cases where there is a statutory presumption regarding guilt of the accused also, prosecution is bound to prove the guilt beyond reasonable doubt, by establishing the facts necessary for drawing the presumption. I do not find any reason why this rule should be departed from, in cases involving offence under section 138 of the Act. OFFENCE U/S 138 -- A LEGAL FICTION: 19. The offence under section 138 is not a natural crime. It is not a crime like hurt or murder. It is an offence created by a legal fiction in the statute. It is a civil liability transformed into a criminal liability, under restricted conditions by way of an amendment to the Act, which is brought into force only in 1989. Till then, the offending acts referred to in section 138 constituted only a pure civil liability. So, legitimately, the legislature thought it fit to provide for adequate safeguards in the Act to protect honest CRL. A. NO. 282 /1999 9 drawers from unnecessary harassment, while introducing the relevant provisions relating to such offence into the statute book. STRICT INTERPRETATION NEEDED: 20. In this background, I find that the penal provisions of the Act require a strict interpretation so that none shall be harassed or prosecuted baselessly. This is particularly so, since the legislature chimes the bell of caution in `The Statement of Objects and Reasons' to the Amendment Act itself that a honest drawer shall not be harassed. The bell is not a gimmick, it is a melody of a safeguard provided to protect the innocent who is likely to be harassed. 21. In Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd [(2001) 3 SCC 609], the Supreme Court held thus: “It has always to be kept in mind that Section 138 of the Act creates an offence and the law relating to the penal provisions has to be interpreted strictly so that no one can ingeniously or insidiously or guilefully or strategically be prosecuted”. (emphasis supplied). THE THREE EXPRESSIONS: 22. Keeping the above principles in my mind, I shall proceed further with the task of resolving the main legal issue in this case. Can the complainant (who is either the “payee”, “holder in due course”) in a prosecution for offence under section 138 of the Act be treated as the “holder” of the cheque ? The expressions, the “payee”, “holder in due course” and “holder” of the cheque are defined under sections 7 to 9 of the Act. Section 7 of the Act defines “payee” thus: CRL. A. NO. 282 /1999 10 Section 7 - “Payee”—The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the “payee”. Section 8 of the Act defines the “holder” as follows: Section 8 - “Holder”.—The “holder” of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction”. The “holder in due course” is defined under section 9 of the Act is follows: “section 9: Holder in due course”.—“Holder in due course” means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, Or the payee or indorsee thereof, if payable to order, before the amount mentioned in it became payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title”. HOLDER NOT MERE POSSESSOR: 23. I shall first consider who a “holder” of the cheque is. The definition reveals, he is not a person who merely “holds” or “carries” the cheque, as it may apparently appear. The 'holder' is not the person who is in mere possession of the cheque. He is not the one who merely “produces” the cheque in court from his custody. He is not even the person who is only named in the cheque. A “holder” of the cheque has a definite meaning under the Act. Section 8 provides that a “holder” of the cheque is the CRL. A. NO. 282 /1999 11 person who is `ENTITLED' in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. (Where the cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction). ENTITLEMENT, THE BEDROCK: 24. The bedrock of the definition of holder is “entitlement”. Such entitlement is i) to the possession of the cheque and ii) to receive and recover the amount due thereon from the parties to the cheque. Strictly speaking, even the actual possession of the cheque may not be decisive under section 8. Even if a person is in possession of the cheque, if he does not have the entitlement as stated in the section, such person cannot be said to be a “holder”. So also, even if a person is not in actual possession of the cheque, if he is `entitled' to be in possession of the cheque, he can still be brought under the definition of the “holder”. It is not even the physical possession of the cheque, but the `ENTITLEMENT' to be in possession of the cheque which is relevant. 25. `Entitlement' denotes a legal right to have some thing or to do some thing. If the cheque has come to the hands of a person by illegal or dubious means, he will not be legally entitled to the possession thereof. Thus, even the possession of the cheque by a person will not suffice to treat a person as the “holder” of the cheque. The “holder” of the cheque must have the right to have the possession of the cheque, whether he is in actual possession of it or not. CRL. A. NO. 282 /1999 12 ENTITLEMENT, 'IN HIS OWN NAME': 26. it is also relevant to note that the “holder's” entitlement to possession of the cheque and to the recovery or receipt of the amount etc., must be “IN HIS OWN NAME”. That means, even if a person has certain right to possess the cheque and to receive or recover the amount etc., such mere right may not suffice to bring him within the sweep of section 8 of the Act, unless such entitlement is “in his own name” and not in any other person's name. That means any and every entitlement is not enough, but it must be entitlement in his own name. 27. The mere possession of a cheque by a person or even his entitlement to the possession thereof or even his right to receive or recover the amount will not satisfy the requirement under Section 8, unless such entitlement is IN HIS OWN NAME and not on behalf of another. For a person to claim to be a holder of the cheque, he must have the right “in his own name”, to be in possession thereof and to receive or recover the amount due thereon from the parties thereto. (I shall cite an example later, which will clarify this position). AMOUNT MUST BE 'DUE': 28. The next crucial aspect in the definition of `holder' in section 8 relates to the amount. What is referred to in section 8 is “amount DUE thereon”. The relevant expression used in Section 8 is not the “amount STATED thereon” or merely the “amount `(--)' thereon”. Significantly, the word “DUE” appears in between. “Due” indicates `owing' or `become liable CRL. A. NO. 282 /1999 13 to'. So, the amount which the holder of the cheque is entitled in his own name to receive or recover must be, the amount which is “DUE” thereon from the parties to the cheque. 29. Thus, the holder's right must not be merely to receive or recover the amount stated or shown in the cheque but, such amount must be “DUE” thereon from the parties thereto. The parties to the cheque must be bound to pay the amount and the “holder” must be entitled in his own name to receive or recover the amount from them, as due thereon. EXAMPLE - A: 30. In the light of the several peculiar expressions in the definition of `HOLDER' in section 8, I shall better cite an example: A cheque is drawn by `X' for his own purpose, ie., to meet his own requirement. He hands over the same to his servant, `Y' for encashing the same from the bank. ` He shows the name of `Y' in one of the cheques as `payee'. `X' does not owe any money to 'Y'. In this example, Y' is the `payee' as the `person named in the cheque to whom or to whose order the money is by the instrument directed to be paid'. (vide definition of “payee” under section 7 of the Act). But, he is not the `holder in due course', since he is not the person who for “consideration” has become possessor of the cheque. 31. `Y' is not the `holder' of the cheque also. He is not entitled “IN HIS OWN NAME” to possess the cheque. His entitlement to be in possession of the cheque is only `on behalf of' the drawer for the mere purpose of encashing the cheque. If he does not encash the cheque, he has no right CRL. A. NO. 282 /1999 14 `in his own name' to keep the cheque in his possession any longer. He is bound to return the cheque to 'X'. 32. `Y' is also not entitled “IN HIS OWN NAME” to receive or recover the amount stated in the cheque from the drawer, who is one of the parties to the cheque, though he can receive or recover the same from the drawee- bank. 'Y's right to receive or recover the amount in the cheque is only as the 'payee', who is named in the cheque and to whom money is directed to be paid. He can only receive, recover or encash such amount from the bank as the payee. But, he is bound to pay it to the drawer. He cannot receive or recover such amount from the drawer as “due” thereon because no amount is due from `X' to `Y'. So, `Y', cannot claim to be the `holder' of the cheque, since he is not entitled to receive or recover the amount as `DUE', from the drawer who is one of the parties to the cheque. 33. But, later `Y' does not encash the cheque nor does he return the same to `X'. He acts in violation of the understanding between the parties. The drawer `X' therefore, requests the bank to stop payment. `Y' thereafter, presents the cheque to the bank. The cheque is dishonoured as unpaid and `Y' files a false complaint alleging offence under section 138. The court may take cognisance of the offence under section 138, because `Y' the complaint is filed by the `payee'. But, the complainant is not the “holder in due course”. He cannot be treated as the `holder' of the cheque also, since he is not entitled in his own to the possession thereof and to receive or recover the amount due thereon from the parties thereto. CRL. A. NO. 282 /1999 15 HOLDER IN DUE COURSE, IF HOLDER ? 34. The difference in the language used in section 8 and 9 itself is