REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 1357 OF 2010
(@ SPECIAL LEAVE PETITION(CRL) No.1361 of 2007)
P.J. Agro Tech Limited & Ors. ... Appellants
Vs.
Water Base Limited ... Respondent
J U D G M E N T
ALTAMAS KABIR, J.
1. Leave granted.
2. The Appellant No.1 herein is an agro-based
company having varied interests in providing feed
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
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 1357 OF 2010
(@ SPECIAL LEAVE PETITION(CRL) No.1361 of 2007)
P.J. Agro Tech Limited & Ors. ... Appellants
Vs.
Water Base Limited ... Respondent
J U D G M E N T
ALTAMAS KABIR, J.
1. Leave granted.
2. The Appellant No.1 herein is an agro-based
company having varied interests in providing feed
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
