Case Note & Summary
Background — The appeal arose from a criminal complaint filed by the respondent under Section 138 read with Section 149 of the Negotiable Instruments Act, 1881 and Section 420 of the Indian Penal Code read with Sections 190 and 200 of the Code of Criminal Procedure, 1973. The appellant, K.K. Sidharthan, sought quashing of the complaint before the High Court of Kerala, which refused relief, leading to the present appeal. The dispute concerned two post-dated cheques issued by the appellant, each for Rs 3,00,000, drawn on Indian Overseas Bank, Trichur Branch. Facts — The cheques were dated 10.10.1994 and 31.12.1994. When presented, they were returned unpaid on 15.10.1994 with the endorsement 'Payment countermanded by the drawer'. The complaint alleged that the cheques were returned for want of sufficient funds. The appellant contended that he had issued a stop payment instruction through his advocate's letter dated 4.10.1994, and that the first cheque was presented after the instruction had become known to the respondent. A communication from Indian Overseas Bank, Thrissur Branch (at page 64 of the paper book) indicated there was sufficient balance in the account; the cheque numbers tallied with the complaint. The respondent's counsel filed a written submission after the case was reserved for judgment without permission, stating that the cheques were issued against Account No. 562, which lacked cover; this was not part of the record and was not considered. Legal Issues — Whether Section 138 NI Act is attracted when a cheque is dishonoured because of a stop payment instruction rather than insufficiency of funds; whether the complaint disclosed the necessary ingredients; and whether the High Court erred in refusing to quash the complaint. Arguments — The appellant argued that the cheques were not returned for insufficient funds but because of stop payment, supported by bank communication showing sufficient balance. The respondent maintained that the cheques had no cover in a different account and that the complaint alleged insufficiency. Court's Analysis — The Court quoted Section 138 and observed that the provision applies when a cheque is returned due to insufficiency of funds or because it exceeds the arranged amount. It noted the precedent in Electronics Trade and Technology Development Corpn. Ltd. v. Indian Technologists and Engineers (Electronics) (P) Ltd., (1996) 2 SCC 739, which held that even stop payment instructions can attract Section 138. However, on the facts, the bank communication showed sufficient balance, and the cheque was presented after the stop payment instruction had been issued and known. Therefore, the dishonour was not on account of insufficiency of funds. The Court did not address whether the respondent was entitled to receive any amount. Decision — The Supreme Court allowed the appeal and quashed the complaint under Section 138 NI Act, making no order as to costs.
Headnote
A) Negotiable Instruments - Dishonour of Cheque - Section 138 of Negotiable Instruments Act, 1881 - The court examined whether dishonour due to stop payment instruction attracts Section 138. It noted that Section 138 applies when cheque returned unpaid because of insufficiency of funds or amount exceeding arrangement, and that as per Electronics Trade, even stop payment instruction can attract Section 138. However, on facts, bank communication showed sufficient balance and cheque was presented after stop payment instruction, so no offence under Section 138 was made out. Held that the complaint was liable to be quashed (Paras 2-3, 5-6). B) Criminal Procedure - Quashing of Complaint - Sections 190 and 200 of Code of Criminal Procedure, 1973 and Section 420 of Indian Penal Code, 1860 - The court considered whether the complaint disclosed necessary ingredients for offences under Section 420 IPC and Section 138 NI Act. Since the dishonour was not due to insufficiency of funds and the court did not examine any underlying civil liability, it quashed the complaint and left the question of entitlement to any amount open. Held that no case under Section 138 was made out; appeal allowed and complaint quashed (Paras 6-7).
Issue of Consideration
Whether a complaint under Section 138 of the Negotiable Instruments Act, 1881 is maintainable when the cheque was returned unpaid with endorsement 'Payment countermanded by the drawer' and not due to insufficiency of funds; whether the High Court erred in refusing to quash the complaint.
Final Decision
Appeal allowed; complaint under Section 138 of the Negotiable Instruments Act, 1881 quashed; no order as to costs.
Law Points
- Section 138 of Negotiable Instruments Act
- 1881 applies only when cheque dishonoured due to insufficiency of funds or amount exceeding arrangement
- stop payment instructions can attract Section 138 as per Electronics Trade and Technology Development Corpn. Ltd. v. Indian Technologists and Engineers (Electronics) (P) Ltd.
- if bank confirms sufficient balance and cheque presented after stop payment instruction
- no offence under Section 138 is made out and complaint is quashed
