Supreme Court of India

GOA PLAST (P.) LTD.versusCHICO URSULA DSOUZA

Citation: 2003 INSC 658
Decided: 20 November 2003
Disposal: Disposed off
Bench: B P SINGH

Holding

A cheque stopped on the drawer's instruction is deemed to have been issued for the discharge of a debt, and the drawer commits an offence under Section 138 unless the presumption under Section 139 is disproved by competent evidence.

Summary

The former managing director of Goaplast (P) Ltd issued ten post‑dated cheques to the company to repay misappropriated funds, but the first cheque was returned unpaid after the drawer instructed the bank to stop payment. The company gave statutory notice and filed a complaint under Section 142 of the Negotiable Instruments Act, seeking conviction of the drawer under Section 138. The trial court and the High Court acquitted the drawer, holding that the plaintiff failed to prove liability and that the presumption under Section 139 was rebutted by a letter denying liability. The Supreme Court held that the stop‑payment instruction does not defeat the operation of Section 138; the presumption in favour of the holder under Section 139 stands unless disproved by evidence, and the relationship between the parties is irrelevant. Consequently, the drawer was deemed to have committed an offence and was ordered to pay a fine of twice the cheque amount and face imprisonment if defaulted.

Issues considered

Whether a cheque stopped on the drawer's instruction attracts liability under Section 138 of the Negotiable Instruments Act.
Whether the presumption under Section 139 that the cheque was issued for the discharge of a debt is rebutted by a mere denial letter.
Whether the existence of a mercantile relationship between drawer and drawee is material to an offence under Section 138.
Whether the complainant must prove the underlying debt or can rely on the statutory presumption.

Legislation cited

Negotiable Instruments Act, 1881s. 138, s. 139, s. 140, s. 142

Subjects

Negotiable Instruments ActSection 138Section 139stop paymentpresumptioncheque dishonourcriminal liabilitymercantile relationshipdeemed offence

Judgment

GOA PLAST (P.) LTD. A
v.
CHICO URSULA D'SOUZA

NOVEMBER 20, 2003

[B.P. SINGH AND DR. AR. LAKSHMANAN, JJ.] B

Negotiable Instruments Act, 1881:

Ss. 138, 139 and 142-Dishonour of cheque-Instructions by drawer
to stop payment-Liability of drawer-Presumption in favour of drawee- C
Absence of mercantile relationship between parties-Relevancy of-Object
and ingredients of ss. 138 and 139-Held, cheque issued by drawer having
been returned to drawee unpaid because of stop payment instructions, drawer
shall be deemed to have committed offence punishable u/s 138-s. J39 creates
a presumption, unless contrary is proved, that holder of cheque received it D
for discharge of debt or any other liability-Drawer failed to rebut the
presumption-For cases filed under s.142 relationship between drawer and
drawee is not material because liability admitted is one which can be legally
enforced by way of suit.

The respondent, a former Managing Director of the appellant-company, E
issued some post-dated cheques in favour of the appellant-company towards
the liability of the amount misappropriated from the funds of the company.
The first cheque deposited by the Company for encashment was dishonoured
by the bank on the ground that the respondent had issued instr1,1ction to stop
payment After due notice to the respondent, a complaint under s.142 of the
Negotiable Instruments Act, 1881 was filed against him for offence punishable F
under section 138 of the Act. The respondent wrote a letter dated 12.2.1993
to the Company denying his liability to pay the aforesaid sum and stated
therein that a third person was responsible for the unexplained expenditure
of the Company. The trial court acquitted the respondent holding that the
complainant failed to prove the liability and that the respondent had rebutted G
the presumption under s.139 of the Act The appeal of the Company was also
dismissed by the High Court Aggrieved, the company filed the present appeal.

It was contended for the appellant-company that mere issuance of cheque
in favour of the company was sufficientlto show that the respondent owed
~5 H
836 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A liability to the company and once the cheque was dishonoured nothing further
was required to be proved by the complainant; and that the presumption had
to be rebutted by leading evidence and not by mere explanation or statement.

Disposing of the appeal, the Court

B HELD: I.I. Section 138 of the Negotiable Instruments Act, 1881 will
be attracted in the facts of the case and a case for punishment under the
provisions is made out The cheque issued by the respondent had been stopped
for payment on his instructions and the cheque was returned to the appellant
unpaid. The respondent shall be deemed to have committed an offence.
1849-C-DI
c
1.2. The High Court and the trial court have clearly misunderstood the
object behind Section 138 of the Act. Sections 138 and 139 of the Act were
enacted in view of the fact that cheques were issued for payment of admitted
liability but the drawer used to dishonour the said liability by issuing
instructions to the Bank for stop payment. To avoid the aforesaid and to create
D an element of credibility and dependability, the aforesaid sections were enacted
which provide a criminal remedy of penalty if the ingredients of the sections
are satisfied. (841-E-Fl
Modi Cements Ltd. v. Kuchil Kumar Nandi, 11998) 3 SCC 249, relied
on.
E
2.1. The High Court and the trial court failed to give effectto Section 139
of the Act which creates a presumption, unless the contrary is proved, that the
holder of cheque received the cheque for discharge in whole or in part of any
debt or other liability. The courts below treated the proof adduced by the
respondent, namely, the letter dated 12.2.1993 denying the liability and stating
F therein that some other person is liable for it, as sufficient to rebut the
presumption under Section 139 of the Act Neither the said letter is proved nor
its contents nor is the document produced in the proceedings of the Court.
However, in the said letter the respondent did not deny the liability as such but
merely shifted it on third person. The veracity of the contents of the letter could
G only be verified ifthe contents of the letter were proved. Both the Courts have
ignored the admission of the liability by the respondent who said that the liability
did exist but he was not responsible for it. The Courts below have also not
considered that the accused had admitted that he was the Managing Director of
the appellant-Company when the liability arose.1841-B-D; 844-DI

H Hiten P. Dalal v. Bratindranath Banerjee, (2001 f 6 SCC 16; K.N. Beena
GOA PLAST (P) LTD. v. CHICO URSULA D'SOUZA 837
v. Muniyappan and Anr., 1200118 SCC 458; Goap/ast (P) Ltd v. Chico Ursula A
D'Souza and Anr., 120031 3 SCC 232 and MMTC Ltd. and Anr. v. Medchi
Chemicals and Pharma (P) Ltd. and Anr., 1200211 SCC 234, relied on.

2.2. The High Court and the trial court also failed to notice that the
respondent was otherwise admitting the liability when the cheques were being
issued. This was sufficient evidence to prove that there was a liability and as B
per the presumption under s. 139 of the Act, the cheques issued, therefore,
were towards the liability even as per the version of the respondent.
(844-A-B)

3. For the cases filed under Section 142 of the Act for offence committed
under the Act the relationship between the drawer and the drawee is not C
material because the liability admitted is one which can be legally enforced
by way of suit. The High Court has failed to appreciate that on the facts of the
case, the liability was a legally enforceable debt or liability as per the
explanation to Section 138 of the Act. Therefore, the relationship between
the appellant and the respondent was not -at all a factor germane to the D
proceedings for an offence under Section 138 of the Act. The findings of the
High Court that Section 138 of the Act has application only in the case of
transactions involving mercantile relationship and that the appellant has failed
to prove the liability are perverse. (842-G-H; 843-B; 844-FI

4. Keeping in view the object and ingredients under the provisions, in E
particular sections 138 and 139 of the Act, the plea for a lesser sentence and
a lenient view cannot be countenanced. The transaction in question took place
between the parties in the year 1993, therefore, Section 138 of the Act, as it
stood at the relevant time, would be applicable to the present case. One month's
time is granted to the respondent to pay twice the amount of the cheque by F
way of Demand Draft drawn in favour of the appellant. (849-E-F; 850-CI

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 1968
of 1996.

From the Judgment and Order dated 12.1.96 of the Bombay High Court, G
Panaji Bench at Goa in Crl. A. No. 37 of 1995.

Dhruv Mehta and Mohit Chaudhary for S.K. Mehta for the Appellant.

A.K. Sanghi for the Respondent.

The Judgment of the Court was delivered by H
838 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A DR. AR. LAKSHMANAN, J. This appeal is preferred by the appellant/
complainant against the order of the High Court of Judicature at Bombay,
Panaji Bench in Criminal Appeal No. 37/1995 whereby the High Court confirmed
the order of acquittal dated 25.08.1995 passed by the Judicial Magistrate, First
Class in Pvt. N.C. Case No. 149/93/8 for offence punishable under Section 138.
of the Negotiable Instruments Act.
B
The brief facts leading to the filing of the present appeal are as follows:

The respondent issued 10 post-dated cheques of Rs. 40,000 each in
favour of the appellant totalling Rs.4 lakhs for payment towards the liability
of the amount misappropriated from the funds of the appellant-Company. The
C respondent wrote a letter to the appellant denying liability to pay the aforesaid
sum for the reasons given in the letter dated 12.02.1993 (Annexure P-1 ). The
appellant deposited the first cheque for encashment. The said cheque was
dishonoured by the Bank on the ground that the respondent had issued
instructions to stop payment. The appellant sent a legal notice to the
D respondent regarding the dishonour of the cheque demanding payment of Rs.
40,000 within 15 days. As the respondent did not comply with the aforesaid
notice, a complaint was filed against the respondent under Section 142 of the
Negotiable Instruments Act (hereinafter referred to as "the Act") for offence
punishable under Section 138 of the Act. According to the appellant, the
respondent/accused was working as Managing Director of the appellant-
E Company. The services of the respondent were discontinued from the month
of July, 1992. The appellant examined its General Manager on their behalf to
prove the complaint. The respondent in defence did not examine any witness.
The respondent also did not step in the witness box so as to subject himself
to the cross-examination. He only brought on record the letter dated 12.02.1993
p written by him to the Company. True copy of the advice from the Bank dated
12.04.1993, true copy of the complaint dated 06.03.1996 and true copy of the
deposition have been marked as Annexures P-2, P-3 and P-4.

The learned Judicial Magistrate, First Class vide order dated 25.08.1995
acquitted the respondent holding that the petitioner failed to prove the
G liability and also holding that the respondent had rebutted the statutory
presumption under Section 139 of the Act. Aggrieved by the said order, the
appellant preferred Criminal Appeal No. 37 of 1995 to the High Court of
·Judicature at Bombay which also dismissed the appeal holding that the
appellant had failed to prove the liability on the part of the respondent to pay
H the sum in question. Aggrieved by the judgment and order dated 12.01.1996
GOA PLAST (P) LTD. v. CHICO URSULA D'SOUZA [LAKSHMANAN, J.] 839

ofthe High Court of Bombay in Criminal Appeal No. 37/1995, the present A
appeal was preferred by the appellant.

We heard Shri Dhruv Mehta, learned counsel appearing for the appellant
and Shri A.K. Sanghi, learned counsel appearing for the respondent.

Shri Dhruv Mehta, learned counsel appearing for the appellant, submitted B
that the presumption has to be rebutted by leading evidence and not by mere
explanation or statement and that mere issuance of a cheque in favour of the
appellant-Company is sufficient to show that the respondent/accused owes
liabilities of the appellant-Company. While construing the provisions of Section
13 8 of the Act, besides the fact that the cheque issued by the respondent
was dishonoured, nothing further is required to be proved by the complainant C
and it is for the accused to rebut the presumption under Section 139 of the
Act. He would further submit that merely by sending a letter or a communication
to the appellant-Company is not sufficient unless and until the presumption
is rebutted by leading evidence and that the presumption cannot be said to
be rebutted. Shri Dhruv Mehta would further urge that it was in cum bent on D
the respondent/accused to examine Rajan Kinnerkar as the respondent stated
in his letter dated 12.02.1993 that Rajan Kinnerkar was responsible for the
financial transactions of the Company and, therefore, he is responsible for the
unexplained expenditure of the Company's Accounts. It was further contended
that as soon as the respondent/accused presented or delivered the cheques
to the appellant-Company, he admitted the liability and the cheque on E
presentation to the Bank being dishonoured, the ingredients of Section 138
of the Act are satisfied and the accused committed an offence punishable
under Section 13 8 of the Act.

Shri A.K. Sanghi, learned counsel appearing for the respondent/accused, F
submitted that the appellant/complainant scrupulously avoided in the complaint
and in the examination-in-chief of P.W. I to state the relationship with the
respondent/accused and there is also no whisper in the complaint as well as
in the evidence led on behalf of the appellant regarding the receipt of the
letter dated 12.02.1993. It was further submitted that the appellant has not
placed before the trial Court any details or statement as to how the respondent G
is liable for any dues alleged to be against the respondent. Shri A.K. Sanghi
would further submit that mere presentation or delivery of the cheque, in the
instant case, to the appellant by the respondent will not amount to acceptance
of the debt or liability and on the contrary, the respondent has given the
entire history in his letter dated 12.02.1993 before presentation of the cheque H
840 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A in the month of April, 1993 to the Bank. It was furthpt ~tilted that the very
letter was drafted by Rajan Kinnerkar and it was prepared, as directed by the
appellant, as per the draft and, therefore, the respondent has rightly and
specifically disowned the liability of Rs. 4 lakhs much less Rs.40,000 involved
in the instant appeal.

B Before we advert to the respective contentions of the learned counsel
appearing on either side, it is beneficial to quote Section 138 and Section 139
of the Act as it stood at the relevant time. Sections 138 and 139 of the Act
read as under:

"138. Dishonour of cheque for insufficiency, etc., of funds in the
c 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
D 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 extend to
one year, or with fine which may extend to twice the amount of the
E 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
p 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 fifteen days of the receipt of information by him
G 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."

H "139. Presumption in favour of holder - It shall be presumed, unless
GOA PLAST (P) LTD. v. CHICO URSULA D'SOUZA [LAKSHMANAN, J.] 84)

the contrary is proved, that the holder of a cheque received the A
cheque of the nature referred to in Section 138 for the discharge, in
whole or in part, of any debt or other liability."

We have perused the pleadings, annexures, the order passed by the
learned Judicial Magistrate and the judgment rendered by the High Court. In
our view, the High Court and the learned Judicial Magistrate failed to give B
effect to Section 139 of the Act which creates a presumption unless the
contrary is proved that the holder of cheque received the cheque for discharge
in whole or in part of any debt or other liability. We have perused the contents
of the letter dated 12.02.1993. Neitherthe said letter is proved nor its contents
nor is the document produced in the proceedings of the Court. It is pertinent C
to note that in the said letter, the respondent/complainant did not, however,
deny the liability as such but merely shifted it on third person. The veracity
of the contents of the letter could only be verified if the contents of the letter
were proved. The High Court and the learned Judicial Magistrate have ignored
the admission of the liability by the respondent who said that the liability did
exist but he was not responsible for it. While considering this, the High Court D
and the learned Magistrate treated the proof adduced by the respondent,
namely, the letter, denying the liability and that some other person is liable
as sufficient to rebut the presumption under Section 139 of the Act. As
already noticed, the appellant examined its General Manager on his side. The
respondent did not examine any witness and also did not step in the witness E
box so as to step himself for the cross-examination. The respondent has
brought on record the letter dated 12.02.1993 written by him to the Company.

In our view, the High Court and the learned Judicial Magistrate have
clearly misunderstood the object behind Section 138 of the Act. Sections 138
and 139 of the Act were enacted in view of the fact that cheques were issued p
for payment of admitted liability but the drawer used to dishonour the said
liability by issuing instructions to the Bank for stop payment. To avoid the
aforesaid and to create an element of credibility and dependability, the aforesaid
Sections were enacted which provide a criminal remedy of penalty if the
ingredients of the Sections are satisfied. The High Court, in our view, gave
an interpretation which would defeat the very purpose for which the provisions G
were enacted. The impugned judgment wrongly interpreted Section 139 of the
Act which is a presumption in favour of the holder. Reading the judgment
with Section 139 of the Act, it would appear that the High Court ha~ read in
to Section 139 of the Act what is not contained in the Section. Many passages
of the judgments of the High Court and of the learned Judicial Magistrate are H
842 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A direct off shoot of the wrong interpretation placed upon Section 139 of the
Act and the High Court and the learned Judicial Magistrate dwelt on extraneous
factors and principles in order to bring the present case out of the purview
of Section 138 of the Act.

The High Court while discussing the object of the Chapter dealing with
B offences relating with dishonour of the cheque and extensively quoting
commentary by Author Dr. P.W. Rege, however, has failed to consider the
important aspect which is discussed at paragraph 16 which reads as under:

"It is true that Negotiable Instruments Act has not failed to provide
a remedy for the aggrieved party; but the foregoing provisions of the
c Act lay down a procedure which is in the first place very elaborate
and since the remedy would be merely of a civil nature, the process
to seek civil justice, in the second place becomes notoriously dilatory.
To ensure promptitude in remedy against defaulters, therefore, was
the only .way in which the element of credibility and dependability
D could be re-introduced in the practice ofI
issuing negotiable instruments
in the form of cheques. The best ·vay to do this was to provide a
criminal remedy of penalty, which is just the thing that is sought to
be done by the Amending Act."

To fulfil the objective, the Legislature while amending the Act has made
E the following procedure:
"(i) Under Section 138 a deeming offence is created.
(ii) In Section 139, a presumption is ingrained that the holder of the
cheque received it in discharge of liability.
F (iiO Disallowing a defence in Section 140 that drawer has no reason
to believe that cheque would be dishonoured.
(iv) An explanation is provided to Section 138 to define the words
"debt or other liability" to mean a legally enforceable debt or
ot'ler liability."
G If the aforesaid are borne in mind then the findings of the High Court
are legally perverse, namely, that Section 138 of the Act has application only
in the case of transactions involving Mercantile relationship and the second
being that the appellant has failed to prove the liability. Paragraph 18 of the
judgment of the High Court contains both the findings which reads as under:
H
GOA PLAST(P) LTD. v. CHICO URSULA D'SOUZA [LAKSHMANAN, J.] 843

"In this case no evidence or history being traced to show the A
relationship between the complainant and respondent accused. From
the cross-examination it transpired that the respondent accused was
working as the Manager of the Factory. Thus, relation were Master
and Servant or employee or employer there being no business or
commercial or mercantile relation between the parties."
B
The High Court, in our opinion, has failed to appreciate that on the facts
of the instant case, the liability was a legally enforceable debt or liability as
per the explanation to Section 138 of the Act, therefore, the relationship
between the appellant and the respondent was not at all a factor germane to
the proceedings for an offence under Section 138 of the Act. The liability was C
legally enforceable debt is clear from the finding of the High Court at paragraph
19 which is quoted below:

"The Appellant-Company has attempted to short circuit the suit by
compelling the accused respondent to pay the amount."

Both the Courts, in our view, failed to consider the important aspect as D
to the stop payment instructions issued by the respondent. Ordinarily, the
stop payment instructions are issued to the Bank by the account holder when
there is no sufficient amount in the account. In the present case, the reason
for stopping the payment, however, can be manifold. It is essential that to
issue stop payment instructions, there must be funds in the accounts in the E
first place. On this aspect, the Courts below have failed to see whether as on
the date of signing of the cheque dated 20.07 .1992, the date of presentation
of the cheque dated 10.01.1993, the date of writing of letter dated 12.02.1993
. and the date on which stop payment instructions were issued to the Bank,
the respondent has sufficient funds in the account. Both the Courts below
have held that after issuing the letter, the respondent has stopped the payment, F
therefore, no ma/a fide can be attributed. It is pertinent to notice that the
appellant made an application to the Bank Manager to ascertain whether or
not there was sufficient amount in the account for the payment dated 02.06.1995.
The learned Judicial Magistrate disallowed the said application without hearing
the complainant holding that there is no dispute about the dishonour of the G
cheque by the accused, therefore, no purpose will be served by the Bank
Manager as the dishonour is not in issue. Had the Bank Manager been
examined it would have been clear whether the account had sufficient amount
to pay the amount of the cheque or not. It would have enabled also to know
on what date stop payment order was sent by the drawer to the Bank. The
learned Magistrate committed a serious mistake in not allowing the application H
844 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A and the proceedings passed thereon have suffered from serious infirmity
going to the root of the matter. The High Court and the learned Judicial
Magistrate have also not noticed that the respondent was otherwise admitting
the liability when the cheques were being issued. This was sufficient evidence
to prove that there was a liability and as per the presumption under Section
139 of the Act, the cheques issued, therefore, were towards the liability even
B as per the version of the respondent. The relevant Section which is Section
138 of the Act giving the ingredients of the offence. In the opening words
of the Section it is stated:

"Where any cheques drawn by a person on an account maintained
by him with a bank for payment of any amount of money to any
c person from out of that account for the discharge in whole or in part,
of any debt or other liability."

Both the Courts below have ignored the admission of the liability by
the respondent who stated that the liability did exist but he was not responsible
D for it. While considering this, the Courts below treated the proof adduced by
the respondent, namely, letter denying liability and that some other person is
liable for it, as sufficient to rebut the presumption under Section 139 of the
Act. The Courts below have also not considered that the accused had admitted
that he was the Managing Director of the appellant-Company when the
liability arose.
E
Another reason given by the Courts below to reject the complaint was
that the appellant has suppressed the fact about the letter dated 12.02.1993.
In our view, there is no obligation on the part of the appellant to reply to such
letter as per the scheme of Section 138 of the Act.

F Certain comments were made by the High Court in regard to the
relationship of the parties. For the cases filed under Section 142 of the Act
for offence committed under the Act the relationship between the drawer and
the drawee is not material because the liability admitted is one which can be
legally enforced by way of suit.
G We have perused the complaint also. On the point of pleadings in the
complaint, the complainant narrated all the necessary facts required to
constitute offence under Section 138 of the Act, therefore, there was no
question of suppression of facts in the case as held by the learned Judicial
Magistrate and the findings endorsed by the High Court. The complainant
H narrated that the respondent owed the appellant a sum of Rs.40,000. The
GOA PLAST (P) LTD. v. CHICO URSULA D'SOUZA [LAKSHMANAN, J.] 845
· appellant has received post-dated cheque for the said amount. The cheque A
was presented to the Bank and was returned with the remark 'stop payment'.
The statutory notice was issued and was received by the respondent. The
respondent not having complied with the demand made, complaint was filed.

We shall now advert to the rulings cited at the time of hearing. Learned
counsel relied upon paragraphs 13 to 16 of the judgment of this Court in the B
case of Modi Cements Ltd. v. Kuchil Kumar Nandi, [1998) 3 SCC 249 (three-
Judge Bench), which read as under:

"It was, however, contended on behalf of the respondent that the
decision in Electronics Trade & Technology Development Corpn.
Ltd does not support the appellant as far as the facts that emerged
c·
in the present cases inasmuch as the drawer had intimated to the bank
on 8-8-1984 to stop the payment whereas the cheques were presented
for encashment on 9-8-1994 although the same were drawn on 23-2-
1994, 26-2-1994 and 28-2-1994. The learned counsel for the respondent
strongly relied upon the following observations in Electronics Trade D
and Technology Development Corpn. Ltd. : [SCC p. 742, para 6).

"Suppose after the cheque is issued to the payee or to the holder
in due course and before it is presented for encashment, notice is
issued to him not to present the same for encashment and yet the
payee or holder in due course presents the cheque to the bank for E
payment and when it is returned on instructions, Section 138 does
not get attracted. "

(emphasis supplied)

The learned counsel for the appellant submitted that if the attention F
of the Court was drawn to the provisions of Section 139 of the Act
which according to him, had an important bearing on the point in
issue, the Court would certainly not have made the above observations.
The said section reads as under:

"139. Presumption in favour of holder. - It shall be presumed, G
unless the contrary is proved, that the holder of a cheque received
the cheque, of the nature referred to in Section 138 for the discharge,
in whole or in part, of any debt or other liability."

According to the learned counsel if the observations of this Court
in Electronics Trade & Technology Development Corpn. Ltd. to the H
846 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A effect, (SCC p. 742, para 6)

"[s]uppose after the cheque is issued to the payee or to the
holder in due course and before it is presented for encashment, notice
is issued to him not to present the same for encashment and yet the
payee or holder in due course presents the cheque to the bank for
B payment and when it is returned on instructions, Section 138 does not
get attracted"

is accepted as good law, the very object of introducing Section
138 in the Act would be defeated.

c We see great force in the above submission because 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 drawee
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 object of Chapter XVII, which is intituled
D as "OF PENALTIES IN CASE OF DISHONOUR OF CERTAIN
CHEQUES FOR INSUFFICIENCY OF FUNDS IN THE ACCOUNTS"
and contains Sections 13 8 to 142, is to promote the efficacy of banking
operations and to ensure credibility in transacting business through
cheques. It is for this reason we are of the considered view that the
E observations of this Court in Electronics Trade & Technology
Development Corpn. ltd. in para 6 to the effect "Suppose after the
cheque is issued to the payee or to the holder in due course and
before it is presented for encashment, notice is issued to him not to
present the same for encashment and yet the payee or holder in due
course presents the cheque to the bank for payment and when it is
F returned on instructions, Section 138 does not get attracted", does
not fit in with the object and purpose for which the above chapter has
been brought on the statute-book."

Learned counsel relied on paragraph 38 of the judgment of this Court
G in the case of Hiten P. Dalal v. Bratindranath Banerjee, [2001] 6 SCC 16
which reads as under:

"The burden was on the appellant to disapprove (sic disprove) the
presumptions under Sections 138 and 139, a burden which he failed
to discharge at all. The averment in the written statement of the
H appellant was not enough. Incidentally, the defence in the written
GOA PLAST (P) LTD. v. CHICO URSULA D'SOUZA [LAKSHMANAN, J .] 847

statement that the four cheques were given for intended transactions A
was not the answer given by the appellant to the notice under Section
138. Then he had said that the cheques were given to assist the Bank
for restructuring (Ext.H). It was necessary for the appellant at least to
show on the basis of acceptable evidence either that his explanation
in the written statement was so probable that a prudent man ought
to accept it or to establish that the effect of the material brought on B
record, in its totality, rendered the existence of the fact presumed,
improbable. (Vide Tri/ok Chand Jain v. State of Delhi, [1975] 4 SCC
761. The appellant has done neither. In the absence of any such proof
the presumption under Sections 138 and 139 must prevail."

Learned counsel also relied on paragraph 7 of the judgment of this
c
Court in the case of K.N. Beena v. Muniyappan and Anr., [2001] 8 SCC 458
which reads as under :

"In this case admittedly the !st respondent has led no evidence except
some formal evidence. The High Court appears to have proceeded on D
the basis that the denials/averments in his reply dated 21.5.1993 were
sufficient to shift the burden of proof on to the appellant complainant
to prove that the cheque was issued for a debt or liability. This is an
entirely erroneous approach. The !st respondent had to prove in the
trial, by leading cogent evidence, that there was no debt or liability.
The 1st respondent not having led any evidence could not be said to E
have discharged the burden of proving that the cheque was not
issued for a debt or liability, the conviction as awarded by the
Magistrate was correct. The High Court erroneously set aside that
conviction."

Learned counsel placed reliance on paragraph 6 of the judgment of this F
Court in the case of Goaplast (P) Ltd. v. Chico Ursula D 'Souza and Anr.,
[2003] 3 sec 232 which reads as under:

"In the present case the issue is very different. The issue is regarding
payment of a post-dated cheque being countermanded before the date
mentioned on the fact of the cheque. For the purpose of considering G
the issue, it is relevant to see Section 139 of the Act which creates
a presumption in favour of the holder of a cheque. The said section
provides that:

"139. It shall be presumed, unless the contrary is proved, that the H
848 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A holder of a cheque received the cheque, of the nature referred to in
Section 138 for the discharge, in whole or in part, of any debt or other
liability."

Thus it has to be presumed that a cheque is issued in discharge of
any debt or other liability. The presumption can be rebutted by
B adducing evidence and the burden of proof is on the person who
wants to rebut the presumptio~. This presumption coupled with the
object of Chapter XVII of the Act which is to promote the efficacy
of banking operation and to ensure credibility in business transactions
through banks persuades us to take a view that by countermanding
payment of post-dated cheque, a party should not be allowed to get
c away from the penal provision of Section 13 8 of the Act. 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
D giving instructions to banks to stop payment of a cheque after
issuing the same against a debt or liability, a drawer will easily avoid
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
E 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, [1998] 3 SCC 249. On same facts is the decision of this
Court in Ashok Yeshwant Badave v. Surendra Madhavrao Nighojakar,
[2001] 3 SCC 726. The decision in Modi case overruled an earlier
F decision of this Court in Electronics Trade & Technology Development
Corpn. Ltd v. Indian Technologists & Engineers (Electronics) (P)
Ltd, [1996] 2 SCC 739 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
G by accepting the cheque. If stoppage of payment before the due date
of the cheque is allowed to take the 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."
H
GOA PLAST (P) LTD. v. CHICO URSULA D'SOUZA [LAKSHMANAN, J.] 849
Reliance was also placed on paragraph 17 of the judgment of this Court A
in the case of MM T.C. ltd. and Anr. v. Medch/ Chemicals and Pharma (P)
ltd and Anr., [2002] I SCC 234 which reads as under:

"There is therefore no requirement that the complainant must
specifically allege in the complaint that there was a subsisting liability.
The burden of proving that there was no existing debt or liability was B
on the respondents. Thus they have to discharge in the trial. At this
stage, merely on the basis of averments in the petitions filed by them
the High Court could not have concluded that there was no existing
debt or liability."

We are unable to agree with the reasonings adopted by the Courts C
below. The judgments of the High Court and the learned Judicial Magistrate·
are set aside. We hold that Section 138 of the Act will be attracted in the facts
of the case and a case for punishment under the provisions is made out.

In the instant case, the cheque issued by the respondent has been
stopped for payment on his instructions and the cheque was returned to the D
appellant unpaid. In view of our discussion in the foregoing paragraphs and
on the consideration of the facts and circumstances of the case and the law
on the subject, we hold that the respondent shall be deemed to have committed
an offence. When the matter was taken up for further hearing on 17.11.2003,
learned counsel for the respondent submitted that this Court may consider E
the case of the respondent and the reason for his inability to pay the amount
and may consider imposing lesser sentence by taking a lenient view. We are
unable to countenance the said submission for the various reasons stated
supra. We have no doubt that the respondent has committed an offence
punishable under the provisions of Section 138 of the Act and is liable to be
punished. The transaction in question took place between the parties in the F
year 1993, therefore, Section 138, as it stood at the relevant time, would be
applicable to the present case. Section 138 provides imprisonment for a term
which may extend to one year, or with fine which may extend to twice the
amount of the cheque, or with both. Section 138 has now been amended and
the penalty of imprisonment for a term which may extend to one year has been G
substituted to two years as provided by the Amending Act of 2002 and the
fine which may extend to twice of the amount of the cheque. This has been
prescribed as the punishment for the offence under Section 13 8 of the Act.

The object and the ingredients under the provisions, in particular,
Sections 138 & 139 of the Act cannot be ignored. Proper and smooth H
850 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A functioning of all business transactions, particularly, of cheques as instruments,
primarily depends upon the integrity and honesty of the parties. In our
country, in a large number of commercial transactions, it was noted that the
cheques were issued even merely as a device not only to stall but even to
defraud the creditors. The sanctity and credibility of issuance of cheques in
commercial transactions was eroded to a large extent. Undoubtedly, dishonour
B of a cheque by the Bank causes incalculable loss, injury and inconvenience
to the payee and the entire credibility of the business transactions within and
outside the country suffers a serious set back. The Parliament, in order to
restore the credibility of cheques as a trustworthy substitute for cash payment
enacted the aforesaid provisions. The remedy available in a Civil Court is a
C long drawn matter and an unscrupulous drawer normally takes various pleas
to defeat the genuine claim of the payee.

We, therefore, grant one month's time from this date to the respondent
herein to pay a sum of Rs._ 80,000 (twice the amount of the cheque) by way
of Demand Draft drawn in favour of the appellant and payable at Goa (in the
D address given in the paper book). In default thereof, the respondent shall
suffer simple imprisonment for six months.

In the result, the appeal stands disposed of.

RP. Appeal disposed of.

·'-

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