HIGH COURT OF JAMMU & KASHMIR AND LADAKH AT

SRINAGAR

Reserved on: 14.03.2022

Pronounced on:17.03.2022

CRM(M) No.308/2021

MOHAMMAD SHAFI WANI …PETITIONER(S)

Through: Mr. Mudasir Bin Hassan, Advocate.

Vs.

NOOR MOHAMMAD KHAN ….RESPONDENT(S)

Through: Mr. Hilal Ahmad Mir, Advocate.

CORAM:HON‟BLE MR. JUSTICE SANJAY DHAR, JUDGE

JUDGMENT

1) Petitioner has challenged the complaint filed by the respondent

against him for offence under Section 138 of Negotiable Instruments Act

(hereinafter for short “the NI Act”) pending before the Court of Judicial

Magistrate, 1st Class (1st Additional Munsiff), Srinagar. Petitioner has also

challenged order dated 26.07.2019, whereby the learned Magistrate has,

after taking cognizance of the offence, issued process against the

petitioner.

2) It appears from the record that respondent has filed a complaint

against the petitioner alleging that a cheque bearing No.406696 dated

01.03.2019 for an amount of Rs.5.00 lacs, issued by petitioner in his

favour which was drawn on J&K Bank Branch unit Habbak Crossing,
 2 CRM(M) No.308/2021

Srinagar, was returned unpaid by the concerned bank with the remarks

“funds insufficient and drawer’s signature differs”. The respondent is

stated to have served a legal notice of demand upon the petitioner and

when the petitionerfailed to make the payment within the statutory period,

the complaint, which is subject matter of this petition, came to be filed

before the trial Magistrate. The learned Magistrate, after recording the

preliminary evidence, took cognizance of the offence and issued process

against the petitioner in terms of its order dated 26.07.2019. The

complaint and the order issuing process against the petitioner is under

challenge before this Court.

3) The petitioner has urged two grounds, one that the complaint and

the order of issuing process are not legally tenable as the dishonour of

cheque was due to difference in drawer’s signatures and, as such, offence

under Section 138 of NI Act is not made out against the petitioner. The

other ground that has been urged by the petitioner is that the cheque in

question was given by the petitioner to the respondent as a security

pursuant to a memorandum of understanding executed by the parties on

30th November, 2017, and not in discharge of any legally outstanding

amount or in discharge of any debt.

4) I have heard learned counsel for the parties and perused the record.

5) The first question that falls for determination in the instant petition

is as to whether dishonor of a cheque for the reason that there was

difference of signatures appearing on the cheque constitutes an offence

under Section 138 of the NI Act. In order to determine this question, the
 3 CRM(M) No.308/2021

provisions contained in Section 138 are required to be noticed. It reads as

under:-

“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 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
provision 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.
Explanation.—For the purposes of this section, “debt of
other liability” means a legally enforceable debt or other
liability”.

6) From a perusal of the aforesaid provision, it is clear that an offence

under Section 138 of the NI Act is constituted when a 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 of any debt, is returned by the bank unpaid either because the
 4 CRM(M) No.308/2021

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. At first blush, it

appears that it is only in two situations that Section 138 of the NI Act is

attracted, firstly when there are insufficient funds available in the bank

account of the person who is drawing the cheque and secondly where it

exceeds the arrangement. However, the provision has been interpreted by

the Supreme Court in a number of judgments in a manner so as to include

within its ambit even the cases where the dishonor of cheque has taken

place for the reasons other than the aforesaid two reasons.

7) In NEPC Micon Limited And Others vs. Magma Leasing

Limited, ( 1999)4 SCC 253, the Supreme Court rejected the contention

that Section 138 of the NI Act has to be interpreted strictly or in disregard

of the object sought to be achieved by the Statute. Relying upon its earlier

judgment in the case of Kanwar Singh vs Delhi Administration, AIR

1965 SC 871 and Swantraj and Others Vs. State of

Maharashtra 1975(3) SCC 322, the Court held that a narrow

interpretation of Section 138 would defeat the legislative object

underlying the said provision. The Supreme Court relied upon its own

decision in State of Tamil Nadu Vs. M. K. Kandaswami and Others

1974(4) S.C.C. 745, and it was observed that while interpreting a penal

provision which is also remedial in nature a construction that would

defeat its purpose or have the effect of scrapping it from the statute book,

should be avoided and that if more than one constructions are possible,
 5 CRM(M) No.308/2021

the Court should choose to adopt construction that would preserve the

workability and efficacy of the Statute and avoid an interpretation that

would render the provision sterile. The Court, accordingly, held that

when a cheque is returned by the banker of a drawer with the comments

“account closed” the same would constitute an offence under Section

138 of NI Act.

8) In Modi Cements Ltd vs. Kuchil Kumar Nandi, (1998) 3 CC

249, the Supreme Court, while considering the question whether

dishonor of a cheque on account of stoppage of payment by the drawer

would constitute an offence under Section 138 of the NI Act, observed

as under:

“18. The aforesaid propositions in both these

reported judgments, in our considered view, with
great respect are contrary to the spirit and object of
Sections 138 and 139 of the Act. If we are to accept
this proposition it will make Section 138 a dead
letter, for, by giving instructions to the bank to stop
payment immediately after issuing a cheque against
a debt or liability the drawer can easily get rid of
the penal consequences notwithstanding the fact that
a deemed offence was committed. Further the
following observations in para 6 in Electronics
Trade & Technology Development Corpn.
Ltd. “Section 138 intended to prevent dishonesty on
the part of the drawer of negotiable instrument to
draw a cheque without sufficient funds in his
account maintained by him in a bank and induce the
payee or holder in due course to act upon it. Section
138 draws presumption that one commits the offence
if he issues the cheque dishonestly”(emphasis
supplied) in our opinion, do not also lay down the
law correctly.
20. On a careful reading of Section 138 of the act,
we are unable to subscribe to the view that Section
138 of the Act draws presumption of dishonesty
against drawer of the cheque if he without sufficient
funds to his credit in his bank account to honour the
 6 CRM(M) No.308/2021

cheque issues the same and, therefore, this amounts

to an offence under Section 138 of the Act. For the
reasons stated hereinabove, we are unable to share
the views expressed by this Court in the above two
cases and we respectfully differ with the same
regarding interpretation of Section 138 of the Act to
the limit extent as indicated above.”

9) The question whether stop payment instructions, which result in

dishonor of a cheque, would amount to an offence under Section 138 of

the NIA Act, was considered by the Supreme Court in M. M. T. C. Ltd.

Vs. M/S Medchl Chemicals, (2001) 1 SCC 234, and it was held that

same would come within the ambit of definition of offence under Section

138 of the NIA Act. Similar view was taken by the Supreme Court in the

case of Goaplast (P) Ltd vs. Chico Ursula D'Souza, (2003) 3 SCC 232.

10) In the face of foregoing discussion, it is clear that the Supreme

Court has interpreted the provisions contained in Section 138 of the NI

Act in a liberal manner so as to achieve the object for which the said

provision has been enacted. Not only the cases of dishonour of cheques on

account of insufficiency of funds or on account of exceeding of

arrangement but the cases involving dishonour of cheques on account of

“stop payment” and “account closed” have also been brought within the

ambit of offence under the aforesaid provision.

11) In Vinod Tanna vs. Zaheer Siddiqui, (2002) 7 SCC 541, the

Supreme Court, while dealing with a case where the cheque drawn by the

accused was not been honoured by the bank on account of drawer’s

signatures being incomplete, held that dishonour of cheque for the

aforesaid reason would not constitute an offence under Section 138 of

 7 CRM(M) No.308/2021

the NI Act and, accordingly, the criminal proceedings against the accused

were quashed.

12) The aforesaid decision of the Supreme Court came up for

consideration before the same Court in the case of Laxmi Dyechem vs.

State of Gujarat and others, (2012) 13 SCC 375. The Court, after

noticing its earlier decisions on interpretation of the provisions of Section

138 of the NI Act, made the following observations:

“15. A three-Judge Bench of this Court

in Rangappa v. Sri Mohan [(2010) 11 SCC 441:
(2010) 4 SCC (Civ) 477 : (2011) 1 SCC (Cri) 184]
has approved the above decision and held that failure
of the drawer of the cheque to put up a probable
defence for rebutting the presumption that arises
under Section 139 would justify conviction even when
the appellant drawer may have alleged that the
cheque in question had been lost and was being
misused by the complainant.”

13) The Supreme Court in the aforesaid decision did not follow the

ratio laid down in Vinod Tanna’s case and observed that the ratio laid

down in the said case is based upon the ratio laid down by the Supreme

Court in Electronics Trade & Technology Development Corpn.

Ltd. v. Indian Technologists and Engineers (Electronics) (P)

Ltd. (1996) 2 SCC 739, which has been overruled by the Supreme Court

in Modi Cements Ltd (supra). Para 16 of the judgment is relevant to the

context and the same is reproduced as under:

“16. In the case at hand, the High Court relied

upon a decision of this Court in Vinod Tanna‟s
case (supra) in support of its view. We have
carefully gone through the said decision which
relies upon the decision of this Court in
 8 CRM(M) No.308/2021

Electronics Trade & Technology Development

Corporation Ltd. (supra). The view expressed by
this Court in Electronics Trade & Technology
Development Corporation Ltd. (supra) that a
dishonour of the cheque by the drawer after
issue of a notice to the holder asking him not to
present a cheque would not attract Section
138 has been specifically overruled in Modi
Cements Ltd. case (supra). The net effect is that
dishonour on the ground that the payment has
been stopped, regardless whether such stoppage
is with or without notice to the drawer, and
regardless whether the stoppage of payment is
on the ground that the amount lying in the
account was not sufficient to meet the
requirement of the cheque, would attract the
provisions of Section 138.”

14) The Supreme Court on the basis of the aforesaid observations and

the ratio, while dealing with a case in which the cheques were

dishonoured by the bank on the ground that drawer’s signatures were

incomplete and that no image was found or that the signatures did not

match, came to the conclusion that criminal prosecution against the

accused in such cases should be allowed to proceed and the judgment

and orders passed by the High Court quashing the criminal proceedings

were set aside.

15) Both the judgments of the Supreme Court in Vinod Tanna’s case

as well as in Laxmi Dyechem’s case (supra) have been rendered by the

Benches of co-equivalent strength. The judgment rendered in Laxmi

Dyechem’s case is latest in point of time, wherein the ratio laid down in

Vinod Tanna’s case has been termed as per incuriam. Therefore, as per

law of precedents, the ratio laid down in Laxmi Dyechem’s case has to be

followed. Accordingly, as per the ratio laid down in Laxmi

 9 CRM(M) No.308/2021

Dyechem’s case, the contention of the petitioner that in the instant case

offence under Section 138 of the NI Act is not constituted because the

cheque was dishonoured on account of difference in signatures and not for

the reason of insufficiency of funds or exceeding the arrangement,

deserves to be rejected.

16) The other ground which has been urged by the petitioner is that the

cheque in question was not given in discharge of any debt by the

petitioner to the respondent but it was given only as security pursuant to

the memorandum of understanding executed between the parties.

According to the petitioner, since the cheque was not given in discharge

of any debt, as such, offence under Section 138 of the NI Act is not made

out.

17) The law on this aspect of the matter is no longer res integra. The

Supreme Court in the case of I. C. D. S. Ltd. vs. Beena Shabeer &anr.

(2002) 6 SCC 25, while setting aside the judgment of the Kerala High

Court, whereby proceedings against the guarantor were quashed on the

ground that a cheque from the guarantor could not be said to have been

issued for the purposes of discharging any debt or other liability, observed

as under:

“10. The language, however, has been rather specific as

regards the intent of the legislature. The commencement of the
Section stands with the words "Where any cheque". The above
noted three words are of extreme significance, in particular, by
reason of the user of the word "any" the first three words
suggest that in fact for whatever reason if a cheque is drawn
on an account maintained by him with a banker in favour of
another person for the discharge of any debt or other liability,
the highlighted words if read with the first three words at the
commencement of Section 138, leave no manner of doubt that
 10 CRM(M) No.308/2021

for whatever reason it may be, the liability under this provision
cannot be avoided in the event the same stands returned by the
banker unpaid. The legislature has been careful enough to
record not only discharge in whole or in part of any debt but
the same includes other liability as well. This aspect of the
matter has not been appreciated by the High Court, neither
been dealt with or even referred to in the impugned judgment.

11.The issue as regards the co-extensive liability of the

guarantor and the principal debtor, in our view, is totally out of
the purview of Section 138 of the Act, neither the same calls
for any discussion therein. The language of the Statute depicts
the intent of the law-makers to the effect that wherever there is
a default on the part of one in favour of another and in the
event a cheque is issued in discharge of any debt or other
liability there cannot be any restriction or embargo in the
matter of application of the provisions of Section 138 of the
Act: 'Any cheque' and 'other liability' are the two key
expressions which stands as clarifying the legislative intent so
as to bring the factual context within the ambit of the
provisions of the Statute. Any contra interpretation would
defeat the intent of the legislature. The High Court, it seems,
got carried away by the issue of guarantee and guarantor's
liability and thus has overlooked the true intent and purport
of Section 138 of the Act. The judgments recorded in the order
of the High Court do not have any relevance in the contextual
facts and the same thus does not lend any assistance to the
contentions raised by the respondents.”

18) In Sripati Singh vs. State of Jharkhand and Ors., 2021 SCC

Online SC 1002, the Supreme Court has, while dealing with the question

whether dishonor of cheque given as security would constitute an offence

under Section 138 of the NI Act, observed as under:

“16. A cheque issued as security pursuant to a financial

transaction cannot be considered as a worthless piece of paper
under every circumstance. „Security‟ in its true sense is the
state of being safe and the security given for a loan is
something given as a pledge of payment. It is given, deposited
or pledged to make certain the fulfilment of an obligation to
which the parties to the transaction are bound. If in a
transaction, a loan is advanced and the borrower agrees to
repay the amount in a specified timeframe and issues a cheque
as security to secure such repayment; if the loan amount is not
repaid in any other form before the due date or if there is no
other understanding or agreement between the parties to defer
the payment of amount, the cheque which is issued as security
would mature for presentation and the drawee of the cheque
would be entitled to present the same. On such presentation, if
 11 CRM(M) No.308/2021

the same is dishonoured, the consequences contemplated

under Section 138 and the other provisions of N.I. Act would
flow.

17. When a cheque is issued and is treated as „security‟ towards

repayment of an amount with a time period being stipulated for
repayment, all that it ensures is that such cheque which is
issued as „security‟ cannot be presented prior to the loan or the
instalment maturing for repayment towards which such cheque
is issued as security. Further, the borrower would have the
option of repaying the loan amount or such financial liability in
any other form and in that manner if the amount of loan due
and payable has been discharged within the agreed period, the
cheque issued as security cannot thereafter be presented.
Therefore, the prior discharge of the loan or there being an
altered situation due to which there would be understanding
between the parties is a sine qua non to not present the cheque
which was issued as security. These are only the defences that
would be available to the drawer of the cheque in a proceedings
initiated under Section 138 of the N.I. Act. Therefore, there
cannot be a hard and fast rule that a cheque which is issued as
security can never be presented by the drawee of the cheque. If
such is the understanding a cheque would also be reduced to an
„on demand promissory note‟ and in all circumstances, it would
only be a civil litigation to recover the amount, which is not the
intention of the statute. When a cheque is issued even though as
„security‟ the consequence flowing therefrom is also known to
the drawer of the cheque and in the circumstance stated above
if the cheque is presented and dishonoured, the holder of the
cheque/drawee would have the option of initiating the civil
proceedings for recovery or the criminal proceedings for
punishment in the fact situation, but in any event, it is not for
the drawer of the cheque to dictate terms with regard to the
nature of litigation.”

19) In view of the foregoing enunciation of law on the subject, it is

clear that even if it is assumed that the petitioner had issued the cheque in

favour of respondent as a security, still then it cannot be stated that no

offence is made out, once the cheque issued by him has been dishonoured

by the banker.

20) Even otherwise, the questions whether the petitioner had issued the

cheque as a security pursuant to the memorandum of understanding

executed between the parties and whether at the time when the cheque
 12 CRM(M) No.308/2021

was presented for its payment, it was not for discharge of any debt or any

other liability cannot be determined either by the trial Magistrate at the

time of taking of cognizance or by this Court in these proceedings. These

are defences available to the accused/petitioner, veracity whereof can be

determined during the trial of the case. Here it would be apt to quote para

5 of the judgment rendered by the Supreme Court in M/S Womb

Laboratories Pvt. Ltd. vs. Vijay Ahuja and anr., 2019 SCC Online

2086

“5. In our opinion, the High Court has muddled the

entire issue. The averment in the complaint does indicate
that the signed cheques were handed over by the accused
to the complainant. The cheques were given by way of
security, is a matter of defence. Further, it was not for the
discharge of any debt or any liability is also a matter of
defence. The relevant facts to countenance the defence
will have to be proved that such security could not be
treated as debt or other liability of the accused. That
would be a triable issue. We say so because, handing
over of the cheques by way of security per se would not
extricate the accused from the discharge of liability
arising from such cheques.”

21) For the foregoing reasons, the petition is found to be devoid of

merit and the same is, accordingly, dismissed. Interim order dated

29.09.2021 is vacated. The trial Magistrate is directed to proceed further

in the matter in accordance with law.

22) A copy of this order be sent to the learned Magistrate for

information and compliance.

(Sanjay Dhar)
Judge
Srinagar,
17.03.2022
“Bhat Altaf, PS”
Whether the order is speaking: Yes/No
Whether the order is reportable: Yes/No