Case: Nepc Micon Ltd.  Vs. Magma Leasing Ltd

2. NEPC Micon Limited, Appellant No. 1 and its directors approached the High Court for quashing the proceedings in Case No.of 1997 pending on the file of the Metropolitan Magistrate, Calcutta, initiated by Magma Leasing Limited,under Section 138 of the Negotiable Instrument Act, 1881 (hereinafter referred to as "the Act"). It was alleged by the complainant that in discharge of its existing liability, thehad given five cheques dated Ist January, 1997 for various amounts totalling to Rs. 52,25,980/drawn the Canara Bank, Broadway Branch, Madras, in favour of theThese cheques were duly tendered to the bankers, Punjab National Bank, Calcutta for encashment, but were returned by the banker of the accused persons, that is, Canara Bank, Madras with the remark "account closed". Appellants have also challenged before the High Court the order dated 10.12.1997 passed by the Metropolitan Magistrate rejecting their application under Section 258, Criminal Procedure Code for dropping the proceedings. In that application before the Metropolitan Magistrate, appellants have stated that before closing the account on behalf of appellant No. 1, a letter dated 3rd August, 1996 was sent by the second accused to the Chief Manager, Canara Bank, Madras informing them to close their group companys accounts; in case, any of the cheque by mistake comes to the Canara Bank, Madras, then the same be sent back with the note "account closedpayment stopped". That Revision Application under Section 482, Criminal Procedure Code was rejected by High Court by its judgment and order dated 15th June, 1998. Against the Order, the appeal is filed by special leave in which this Court issued notice on 26th March, 1999 for final disposal.

Court's reasoning:
The Court observed that the object of bringing Section 138 on statute appears to be to inculcate faith in the efficacy of banking operations and to ensure credibility in transacting business through cheques. Thereafter, the Court disagreed with other views expressed in aforesaid two cases and held that once the cheque is issued by the drawer a presumption under section 139 must follow and merely because the drawer issues a notice to the drawer or to the bank for stoppage of the payment it will not preclude an action under Section 138 of the Act by the drawee or the holder of a cheque in due course. The Court further held that it will make section 138 a dead letter if the contention that by giving instruction to the Bank to stop payment immediately after issuing a cheque against the debtor or liability the drawer can easily get rid of the penal consequences notwithstanding the fact that deemed offence was committed. Finally, the Court held that Section 138 of the Act gets attracted only when the cheque is dishonoured.13. In view of the aforesaid discussion we are of the opinion that even though Section 138 is a penal statute, it is the duty of the Court to interpret it consistent with the legislative intent and purpose so as to suppress the mischief and advance the remedy. As stated above, section 138 of the Act has created a contractual breach as an offence and the legislative purpose is to promote efficacy of banking and of ensuring that in commercial or contractual transactions cheques are not dishonoured and credibility in transacting business through cheques is maintained. The above interpretation would be in accordance with the principle of interpretation quoted above brush away the cobweb varnish, and show the transactions in their true light (Wilmot C.J.) or (by Maxwell) "to carry out effectively the breach of the statute, it must be so construed as to defeat all attempts to do, or avoid doing, to an indirect or circuitous manner that it has prohibited". Hence, when the cheque is returned by a bank with an endorsement account closed, it would amount to returning the cheque unpaid because "the amount of money standing to the credit of that account is insufficient to honour the cheque" as envisaged in Section 138 of the Act.Inour view, the answer would obviously be in the affirmative because cheque is dishonoured as the amount of money standing to the credit of that account was nil at the relevant time apart from it being closed. Closure of the account would be an eventuality after the entire amount in the account is withdrawn. It means that there was no amount in the credit of "that account" on the relevant date when the cheque was presented for honouring the same. The expression "the amount of money standing to the credit of that account is insufficient to honour the cheque" is a genus of which the expression "that account being closed" is specie. After issuing the cheque drawn on an account maintained, a person, if he closes that account apart from the fact that it may amount to another offence, it would certainly be an offence under Section 138 as there was insufficient or no fund to honour the cheque in that account. Further, cheque is to be drawn by a person for payment of any amount of money due to him on an account maintained by him with a banker and only on "that account" cheque should be drawn. This would be clear by reading the Section along with proviso (a), (b)r view, the answer would obviously be in the affirmative because cheque is dishonoured as the amount of money standing to the credit of that account was nil at the relevant time apart from it being closed. Closure of the account would be an eventuality after the entire amount in the account is withdrawn. It means that there was no amount in the credit of "that account" on the relevant date when the cheque was presented for honouring the same. The expression "the amount of money standing to the credit of that account is insufficient to honour the cheque" is a genus of which the expression "that account being closed" is specie. After issuing the cheque drawn on an account maintained, a person, if he closes that account apart from the fact that it may amount to another offence, it would certainly be an offence under Section 138 as there was insufficient or no fund to honour the cheque in that account. Further, cheque is to be drawn by a person for payment of any amount of money due to him on an account maintained by him with a banker and only on "that account" cheque should be drawn. This would be clear by reading the Section along with proviso (a), (b)n our view even with regard to penal provision, any interpretation, which withdraws life and blood of the provision and makes it ineffective and a dead letter should be averted. If the interpretation, which is sought for, were given, then it would only encourage dishonest persons to issue cheques and before presentation of the cheque close that account and thereby escape from the penal consequences of Section 138.In view of the aforesaid discussion we are of the opinion that even though Section 138 is a penal statute, it is the duty of the Court to interpret it consistent with the legislative intent and purpose so as to suppress the mischief and advance the remedy. As stated above, section 138 of the Act has created a contractual breach as an offence and the legislative purpose is to promote efficacy of banking and of ensuring that in commercial or contractual transactions cheques are not dishonoured and credibility in transacting business through cheques is maintained. The above interpretation would be in accordance with the principle of interpretation quoted above brush away the cobweb varnish, and show the transactions in their true light (Wilmot C.J.) or (by Maxwell) "to carry out effectively the breach of the statute, it must be so construed as to defeat all attempts to do, or avoid doing, to an indirect or circuitous manner that it has prohibited". Hence, when the cheque is returned by a bank with an endorsement account closed, it would amount to returning the cheque unpaid because "the amount of money standing to the credit of that account is insufficient to honour the cheque" as envisaged in Section 138 of the Act.Inour view even with regard to penal provision, any interpretation, which withdraws life and blood of the provision and makes it ineffective and a dead letter should be averted. If the interpretation, which is sought for, were given, then it would only encourage dishonest persons to issue cheques and before presentation of the cheque close that account and thereby escape from the penal consequences of Section 138.