SSK/ 1 wp nos. 3801 & 3756/11 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION WRIT PETITITION NO. 3801 OF 2011 Khushroo Dhunjibhoy & 2 Ors. ....Petitioners Versus The State of Maharashtra & Anr. ....Respondents along with WRIT PETITION NO. 3756 OF 2011 Five Stars Shipping Company Pvt. Ltd. & Anr. ....Petitioners Versus The State of Maharashtra & Anr. ....Respondents Mr. Nitin Pradhan with Mr. Shiraj Salekar i/b. J. Sagar Associates, advocates for the petitioners. Mr. R. O. Agarwal with Mr. Meghnath Navlani, advocate for respondent no.2. CORAM : RANJIT MORE, J. DATE : 15TH DECEMBER, 2011. P.C.: Rule. Rule is made returnable forthwith. By consent of the parties, the matters are heard finally. SSK/ 2 wp nos. 3801 & 3756/11 2. Since both the writ petitions arise out of common order dated 1st October, 2011, whereby process was issued against the petitioners in both the writ petitions in Criminal Case No.1758/SS/2011, the said petitions are being disposed of by this common order. 3. Respondent No.2 is the complainant and the petitioners in Writ Petition No. 3801 of 2011 are original accused nos. 2, 3 & 5 and petitioners in Writ Petition No. 3756 of 2011 are original accused nos. 1 & 4 in Criminal Case No.1758/SS/2011. The said criminal case is filed under the provisions of Section 138 read with Section 141 of the Negotiable Instruments Act, 1881(for short “the N.I.Act). (For the sake of brevity, the parties are referred to, as per their nomenclature mentioned in the original complaint). 4. The case of the complainant is as follows: As per the contract executed between the complainant and accused no.1 on 15th May, 2011, the complainant supplied 30,000 WMT +/- 10% Tolerance of Cargo. Regarding quality of the Cargo, the material was to be sampled by Mitra S. K. and complainant undertook to meet the grade as per the contract mentioned above. The result of Mitra S. K. was final and binding. In pursuance of the contract, complainant started the loading of barges as per schedule on 16th May, 2011 and SSK/ 3 wp nos. 3801 & 3756/11 19th May, 2011, and loaded 11 Barges, Total Rs.6,28,42,500/- plus barges cost paid to PVG as per Clause 7, Rs. 29, 676/- MTS @ 150/- per MT, total Rs.44,51,400/- plus (+) demurrage and detection charges on hourly basis of barges of Rs.85,22,200/- total amounting to Rs. 7,58,16,100/-. The accused paid an amount of Rs.4,15,00,000/- leaving the balance of Rs.3,43,16,100/-.The accused gave a cheque of Rs. 2,50,00,000/- as a part payment, bearing Cheque No.438545 dated 31st May, 2011 drawn on Axis Bank Ltd, Worli, Mumbai. The said cheque was deposited in the Bank through Union Bank of India, Santacruz (W) Branch, Mumbai, by the complainant on 31st May, 2011 and the same has been bounced on 1st June, 2011. The complainant received the intimation thereof on 3rd June, 2011 with an endorsement “Payment Stopped by Drawer”. The complainant sent a notice to accused on 24th June, 2011 calling upon them to pay the said amount of cheque within 15 days from the receipt of the said notice. The said notice was received by the accused on 27th June, 2011. However, accused denied the liability. The statutory notice period of 15 days expired on 12th July, 2011, and thereafter, the complaint came to be filed SSK/ 4 wp nos. 3801 & 3756/11 on 2nd August, 2011 for the offence punishable under Section 138 read with Section 141 of the N.I.Act. Learned Metropolitan Magistrate by Order dated 1st October, 2011, after perusing the complaint and going through the documents annexed along with the complaint and statement of complainant on oath came to conclusion that there is sufficient ground to proceed against accused, and hence, issued process against accused under Section 138 of the N.I.Act. 5. The petitioners in both the writ petitions by filing the above writ petitions under Article 227 of the Constitution of India read with provisions of Section 482 of the Code of Criminal Procedure, 1973 are seeking quashing of the criminal proceedings in Criminal Case No. 1758/SS/2011 along with above said order under which the process was issued against them. 6. Mr. Pradhan, learned counsel appearing for the petitioners/accused submitted that under the contract dated 15th May, 2011, the complainant agreed to sell the iron ore fines of specified grade to accused no.1, which was to be supplied/delivered in Goa. In terms of the contract, the complainant was required to supply iron ore of 54% Fe (with rejection below 53% Fe). He submitted that under Clause 7, in the SSK/ 5 wp nos. 3801 & 3756/11 event, the Fe content of the iron ore fines was below 53% Fe, the accused no.1 had the right to reject the cargo and hold the complainant liable and responsible for the losses suffered by accused no.1. He submitted that in pursuance of the contract, accused no.1 paid an advance of Rs.4,00,00,000/- to the complainant and also handed over a post dated cheque dated 31st May, 2011 in a sum of Rs.2,50,00,000/- to the complainant. He further submitted that, however, it was later transpired that the grade of consignment which was loaded on the ship was much below the rejection limit as per the contract, hence, stood capable of being rejected and accused no.1 was entitled to claim damages from the complainant. Accused No.1 also calculated the price which would be payable for a comparable cargo having the same chemical composition as that supplied by the complainant and, accordingly, concluded that no further amounts were payable to the complainant under the contract. In fact, the complainant was liable to repay certain amounts from the advance of Rs.4,00,00,000/- paid by accused no.1 to him under the contract. Lastly, he submitted that as the complainant had defaulted in achieving both the desired quality and quantity as per the contract, no further amount was due and payable by accused no.1 to the SSK/ 6 wp nos. 3801 & 3756/11 complainant, and therefore, accused no.1 called upon its banker to stop payment of the post dated cheque in case presented for payment. Mr. Pradhan, learned counsel, relied upon the statement of Axis Bank showing that on the date on which the cheque was presented by the complainant there was sufficient balance to honour the same. Relying upon the judgments of the Apex Court in DCM Financial Services Ltd. vs. J. N. Sareen & Anr. reported in (2008) 8 SCC 1, Raj Kumar Khurana vs. State of (NCT of Delhi) & Anr. Reported in (2009) 6 SCC 72, Jugesh Sehgal vs. Shamsher Singh Gogi reported in (2009) 14 SCC 683, he submitted that vital ingredients of the offence under Section 138 of the N.I.Act have not been complied with. He submitted that the averment in the complaint that accused directed the bank to stop the payment of the cheque does not constitute an offence, since what constitutes an offence under Section 138 of N.I.Act is return of the cheque by the Bank unpaid because the funds of the accused are insufficient to honour the cheque. In these circumstances, he contended that no offence is made under Section 138 of the N.I.Act and criminal case initiated by the complainant deserves to be quashed. 6. Mr. Agarwal, learned counsel appearing for the respondent no. 2/complainant contested the petitions. He submitted that the provisions SSK/ 7 wp nos. 3801 & 3756/11 of Section 138 of the N.I.Act gets attracted even though the cheque is dishonoured on the instructions of the drawer to the bank to stop- payment. He relied upon the decisions of the Apex Court in M/s. Modi Cements Ltd. vs. Kuchil Kumar Nandi reported in AIR 1998 SCC 1057, MMTC Limited & Anr. vs. Medchl Chemicals and Pharma (P) Ltd. & Anr. reported in (2002) 1 SCC 234, Goa Plast Private Limited vs. Chico Ursula D’Souza reported in (2004) 2 SCC 235, Rangappa vs. Sri Mohan reported in AIR 2010 SC 1898 and Harshendra Kumar D vs. Rebatilata Koley & Ors. reported in (2011) 3 SCC 351. He prayed for dismissal of the writ petitions as the same are devoid of any substance. 7. Having considered the rival submissions of learned counsel appearing for the respective parties and having gone through the complaint along with the annexures thereof, I find no merit in the petitions. The complaint is annexed at Exhibit “A”. The cause title of the complaint discloses that accused no.1 is a Company, accused nos. 2 & 3 are the Managing Directors of accused no.1-Company, accused no.4 is Senior Vice President and Chief Executive of the Company, and accused no.5 is Senior Executive Vice President of Company. The complainant has made specific averment that accused nos.2 to 5 are SSK/ 8 wp nos. 3801 & 3756/11 very actively associated in the affairs of the business of accused no.1- Company and looking after day-to-day functioning of the said Company and are also liable and responsible for the acts and omission done on behalf of the said Company. The main contention of Mr.Pradhan, learned counsel appearing on behalf of the petitioners is that the ingredients of the offence under Section 138 of the N.I.Act have not been complied with. The Apex Court in DCM Financial Services Ltd. (supra), after examining the scheme of Section 138, in Para 16, held that for constituting an offence under Section 138 of the N.I.Act, the following ingredients are to be satisfied : (a) A cheque must be drawn; (b) It must be presented and returned unpaid, inter alia, with the remarks “insufficient funds”; (c) A notice for payment should be served on the accused. (d) The accused has failed to make the payment of the said amount to the payee within 15 days from the date of receipt of notice. 8. The Apex Court in Raj Kumar Khurana (supra) held that Section 138 of the N.I.Act, provides for penal provisions and penal provisions created by legal fiction must receive strict construction. It was further held that such a penal provision, enacted in terms of legal fiction drawn SSK/ 9 wp nos. 3801 & 3756/11 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. 9. The Apex Court in Jugesh Sehgal (supra) held that the following ingredients are required to be fulfilled : (i) a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account; (ii) the cheque should have been issued for the discharge, in whole or in part, of any debt or other liability; (iii) that 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; (iv) that cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of the 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 the bank; SSK/ 10 wp nos. 3801 & 3756/11 (v) the payee or the holder in due course of the cheque 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 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; (vi) the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice; 10. In all the above judgments, the Hon’ble Apex Court was considering the ingredients required to constitute an offence under Section 138 of the N.I.Act. The Apex Court held that all the six ingredients are cumulative, and it is only when all the above ingredients are satisfied, the person who has drawn the cheque is deemed to have committed an offence under Section 138 of the N.I.Act. The Apex Court, however, was not considering the effect of stoppage of payment instructions by the drawer to the drawee bank. This issue came to be considered in M/s. Modi Cements Ltd.(supra). In this case, the Apex Court was considering an appeal from the judgment of the High Court which had held that the complaint under Section 138 of the N.I.Act is untenable since: SSK/ 11 wp nos. 3801 & 3756/11 “(i) The appellant has not pleaded in his complaint that the cheques were 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. The necessary ingredients of Section 138 of the Act having not been pleaded the Court could not have taken cognizance of the offence. (ii) Mere endorsement of the Bank "payment stopped" was not sufficient to entertain the complaint as that was not an ingredient of the offence under Section 138 of the Act.” In this case, the Apex Court relied upon its earlier judgments in Electronics Trade & Technology Development Corporation Ltd., Secunderabad V. Indian Technologists & Engineers (Electronics) (P) Ltd.,(1996) 2 SCC 739 and K. K. Sidharathan v. T.P.Praveena Chandran, (1996) 6 SCC 369 in which it was held that Section 138 gets attracted, even if a cheque is dishonoured because of stop payment instructions to the bank. Their Lordships concluded as follows: “(11) Another two Judge Bench while dealing with the same question in K.K. Sidharthan vs. T.P. Praveena Chandran & Anr.. (1996) 6 SCC 369 observed. "This shows that Section 138 gets attracted in terms if cheque is dishonoured because of insufficient funds or where the amount exceeds the arrangement made with the bank. It has, however, been held SSK/ 12 wp nos. 3801 & 3756/11 by a Bench of this Court in Electronics Trade and Technology Development Corpn. Ltd., vs. Indian Technologists and Engineers (Electronics) (P) Ltd.. that even if a cheque is dishonoured because of ‘stop payment’ instruction to the bank, Section 138 would get attracted". We are in complete agreement with the above legal proposition. 11. Another Division Bench while dealing with the same question in K.K.Sidharthan’s case (supra) observed as under: “ This shows that Section 138 gets attracted in terms if cheque is dishonoured because of insufficient funds or where the amount exceeds the arrangement made with the bank. It has, however, been held by a Bench of this Court in Electronics Trade & Technology Development Corpn. Ltd. v. Indian Technologists and Engineers (Electronics) (P) Ltd. that even if a cheque is dishonoured because of ‘stop payment’ instuction to the bank, Section 138 would get attracted.” 12. The Apex Court in MMTC Limited (supra) held that even if the cheque is dishonoured by reason of “stop-payment” instructions, an offence under Section 138 of the N.I.Act could still be made out. The Apex Court further held that even if the cheque is dishonoured by SSK/ 13 wp nos. 3801 & 3756/11 reason of “stop-payment” instructions by virtue of Section 139 of the N.I.Act, the Court has to presume that the cheque was received by the holder for the discharge, in whole or in part, of any debt or liability. This presumption is, however, rebuttable and the accused can show that the “stop-payment” instructions were not issued because of insufficient or paucity of funds. It was further held that if the accused shows that there are sufficient funds in his account to clear the amount of the cheque at the time of presentation of cheque for encashment at the drawer bank and that the stop-payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then, offence under Section 138 of the N.I.Act would not be made out. 13. The Apex Court in Goa Plast Private Limited (supra) reaffirmed the above view in the following words:- “A contrary view would render section 138 a dead letter and will provide a handle to persons trying to avoid payment under legal obligations undertaken by them through their own acts which in other words can be said to be taking advantage of one's own wrong. If we hold otherwise, by giving instructions to banks to stop payment of a cheque after issuing the same against a debt or liability, a drawer will easily avoid SSK/ 14 wp nos. 3801 & 3756/11 penal consequences under section 138. Once a cheque is issued by a drawer,a presumption under section 139 must follow and merely because the drawer issued notice to the drawee or to the bank for stoppage of payment it will not preclude an action under section 138 of the Act by the drawee or the holder of the cheque in due course. This was the view taken by this Court in (Modi Cements Ltd. v. Kuchil Kumar Nandi)2, 2000 DoCh. (S.C.) 720 : 1999 Bank.J. 83 (S.C.) : 1998 (3) S.C.C. 249. On same facts is the decision of this Court in (Ashok Yeshwant Badave v. Surendra Madhavrao Nighojakar)3, 2001(5) Bom.C.R. (S.C.)456 : 2003 Do.Ch. (S.C.)181 : 2001 Bank.J. (S.C.)458 : 2001 (3) S.C.C. 726. The decision in Modi case overruled an earlier decision of this Court in (Electronics Trade & Technology Development Corporation Ltd .v. Indian Technologists & Engineers (Electronics) (P.) Ltd.)4, 1996(2) Bom.C.R. 150(S.C.) : 2000 DoCh. (S.C.)296: 1996 Bank.J. 408(S.C.) : 1996(2) S.C.C. 739 : A.I.R. 1996 S.C. 2339, which had taken a contrary view. We are in respectful agreement with the view taken in Modi case. The said view is in consonance with the object of the legislation. On the faith of payment by way of a post- dated cheque, the payee alters his position by accepting the cheque. If stoppage of payment before the due date of the cheque is allowed to take the SSK/ 15 wp nos. 3801 & 3756/11 transaction out of the purview of section 138 of the Act, it will shake the confidence which a cheque is otherwise intended to inspire regarding payment being available on the due date.” 14. In recent jugdment of Rangappa (supra), a Three Judge Bench of the Supreme Court was considering a very similar issue viz. Whether the offence under Section 138 of the N.I.Act, 1881 is attracted when a cheque is dishonoured on account of “stop-payment” instructions sent by the accused to the bank in respect of post-dated cheque and the Apex Court in Para 9 observed that ordinarily in cheque bouncing cases, what the courts have to consider is whether the ingredients of the offence enumerated in Section 138 of the N.I.Act, 1881 have been met and if so, whether the accused was able to rebut the statutory presumption contemplated by Section 139 of the Act. The Apex Court, with respect to the facts of the case before it, clarified that Section 138 of the N.I.Act can indeed be attracted when a cheque is dishonoured on account of ‘stop payment’ instructions sent by the accused to his bank in respect of a post-dated cheque, irrespective of insufficiency of funds in the account. SSK/ 16 wp nos. 3801 & 3756/11 15. In the teeth of the above judgments of the Apex Court, I find no merit in the submission of Mr. Pradhan that since the cheque was dishonoured because of “stop-payment” instructions, the ingredients of an offence under Section 138 are not made out. 16. Mr. Pradhan, learned counsel for the petitioners, relying upon the Bank Statement submitted that indeed on the date when the cheque in question was presented by the complainant to the drawee-bank, there were sufficient funds on account of accused no.1 and said instructions were issued as the complainant defaulted the clauses of the agreement. However, this is not sufficient. The accused in order to avoid the liability under Section 138 of the N.I.Act, 1881 must show that in his account, there were sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawee-bank, and “stop-payment” notice was issued because of other valid causes including that there was no existing debt or liability at the time of presentation of the cheque for encashment. The contentions that “stop- payment” instructions were issued as there was no existing debt or liability is a defense which is required to be decided at the time of conclusion of the trial after giving an opportunity to the respective parties to lead evidence. The submission that the “stop-payment” instructions SSK/ 17 wp nos. 3801 & 3756/11 were issued for valid reasons cannot be considered at this stage, and this Court in exercise of powers under Section 482 of the Cr.P.C. cannot go into the same. The Apex Court in Harshendra Kumar D. (supra) held that it is not proper for the High Court to consider the defense of the accused or embark upon an enquiry in respect of merits of the accusations. This submission of the accused that the complainant made default in achieving both the desired quality and quantity as per the contract is strongly denied by the complainant. The accused can substantiate this contention at the trial. 17. Taking over all circumstances into consideration, I find no case is made out for interference. The writ petitions are, accordingly, dismissed. (RANJIT MORE, J.)