Holding

A bank's refusal to honour a cheque because it is reported lost does not attract the penal provisions of Section 138 of the Negotiable Instruments Act.

Summary

The appellant claimed that two blank cheques were stolen and reported the loss to his bank. The cheques were later filled and presented for payment, but the bank returned them with the remark that they were reported lost by the drawer. The respondent filed a complaint under Section 138 of the Negotiable Instruments Act alleging an offence. The Supreme Court examined whether a bank's refusal to honour a cheque on the ground of a loss report falls within the ambit of Section 138, which creates a legal fiction for dishonour due to insufficient funds or amount exceeding the arrangement. The Court held that the legal fiction must be strictly construed and does not cover refusal on the basis of a loss report. Consequently, the complaint did not disclose an offence under Section 138 and the appeal was allowed, setting aside the lower court's judgment.

Issues considered

Whether the return of a cheque by a bank on the ground that it was reported lost by the drawer attracts the penal provisions of Section 138 of the Negotiable Instruments Act, 1881.
Whether the legal fiction created by Section 138 can be extended to cover a cheque dishonoured because of a loss report.
Whether a court taking cognizance of an offence under Section 138 may consider evidence beyond the complaint petition and the complainant's testimony.

Legislation cited

Indian Penal Code, 1860s. 1208, s. 142, s. 34, s. 369, s. 380, s. 409, s. 420, s. 467, s. 468, s. 471, s. 495, s. 498
Negotiable Instruments Act, 1881s. 138

Subjects

Negotiable Instruments ActSection 138cheque dishonourlegal fictionpenal provisionbank refusalcriminal liabilitystrict construction

Judgment

[2009] 7 S. C.R. 434

A RAJ KUMAR KHURANA
1
---
V.
STATE OF (NCT OF DELHI) & ANR.
Criminal Appeal No. 913 of 2009
MAY 5, 2009
B
[S.B. SINHA AND DR. MUKUNDAKAM SHARMA, JJ.]
Negotiable Instruments Act, 1881:
"
s. 138 - Refusal of bank to honour the cheque on the
c ground that it was reported lost by the drawer would not attract
the penal provisions contained in section 138 of the Act -
lntprpretation of Statues - Legal fiction.

The question which arose for consideration in the
present appeal was whether the return of a cheque by
D the bank on the ground that it was reported lost by the
drawer would attract the penal provisions contained in
section 138 of the Negotiable Instruments Act, 1881.
Allowing the appeal, the Court
E HELD:1.1. A bare perusal of section 138 of Negotiable
Instruments Act, 1881 would clearly show that by reason
thereof a legal fiction has been created. A legal fiction,
although is required to be given full effect, has its own -~
limitations. It cannot be taken recourse to for any purpose
...
F other than the .one mentioned in the statute itself. [Para
1O] [440-B-C]
State of A.P. and Anr. v. AP Pensioners Association and
Ors. 2005 13 SCC 161; R Ka/yani v. Janak C Mehta and Ors.
2009(1) SCC 516; DCM Financial Services Ltd. v. J.N. Sareen
G and Anr. 2008 8 sec 1 - relied on.
j
'
1.2. Section 138 of the Act moreover provides for a
penal provision. A penal provision created by reason of a
legal fiction must receive strict construction. Such a penal --
H 434
_, .,,.....~

RAJ KUMAR KHURANA V. STATE OF 435
(NCT OF DELHI) & ANR
~ ·~

provision, en-acted in terms of the legal fiction drawn A
would be attracted when a cheque is returned by the bank
unpaid. Such non-payment may either be: (i) because of
the amount of money standing to the credit of that account
is insufficient to honour the cheque, or (ii) it exceeds the
amount arranged to be paid from that account by an B
agreement made with that bank. Before a proceeding
thereunder is initiated, all the legal requirements therefor
y
"" must be complied with. The court must be satisfied that
all the ingredients of commission of an offence under the
said provision have been complied with. The parameters
for invoking the provisions of Section 138 of the Act, thus,
c
being limited, refusal on the part of the bank to honour
the cheque would not bring the matter within the mischief
of the provisions of Section 138 of the Act. [Para 11] (440- ·
E-H; 441-A-B]
D
2. The court while exercising its jurisdiction for taking
cognizance of an offence under Section 138 of the Act
was required to consider only the allegations made in the
complaint petition and the evidence of the complainant
and his witnesses, if any. It could not have taken into
consideration the result of the complaint petition filed by E
the respondent No. 2 or the closure report filed by the
Superintendent of Police in the First Information Report
lodged by the appellant against him. Keeping in view the
facts and circumstances of the case, the complaint petition
does not disclose an offence punishable under Section. F
138 of the Act. (Para 12 & 14] [441-B-F]
Case Law Reference
2005 (13) sec 161 relied on Para 10
G
.; 2oos (1) sec 516 relied on Para 11
it
2008 (8) sec 1 relied on Para 11
CRIMINALAPPELLATE JURISDICTION: Criminal Appeal
No. 913 of 2009
H
436 SUPREME COURT REPORTS . [2009] 7 S.C.R.

A From the Judgement and Order dated 18.09.2007 of the
Hon'ble High Court of Delhi at New Delhi in Criminal M.C. No.
2890 of 2007.
M.N. Krishamani, GP. Capt. Karan Singh Bhati,Aishwarya
Bhati, Himanshu Singh, with him for the Appellant.
B
Gulshan Rai Nagpal, Jai Prakash, for the Respondent.
The Judgement of the Court was delivered by
S.B. SINHA, J.
c 1. Leave granted. .....

2. Whether return of a cheque by the bank on the ground
that it was reported lost by the drawer would attract the penal
provisions contained in Section 138 of the Negotiable
D Instruments Act, 1881 (for short "the Act") is the question involved
in this appeal. It arises out of a judgment and order dated
18.09.2007 passed by the High Court of Delhi in Criminal M.C.
No. 2890 of 2007.
3. The said question arises in the following factual matrix.
E
Appellant kept two blank cheques in his office along with
some stamp papers. They were said to have been stolen from
his office. Information as regards missing of the said cheques
was also given to the bank. He lodged a First Information Report
with regard thereto, stating:
F
"... On my return to Digras, I found that the cheques and the
stamp worth Rs. 50 bearing only my signatures had been
stolen, therefore, to prevent any misuse of my cheques, I
sent a written information to State Bank, Branch Digras
G and subsequently on 21-04-01 I filed a complaint in Police
Station Digras .... "
j ..

The blank cheques were allegedly filled up on 24.06.2001.
They were presented before the bank but the same were returned
dishonoured with the remarks "said cheque repcrted lost by the
H drawer".
RAJ KUMAR KHURANA V. STATE OF 437
(NCT OF DELHI) & ANR. [S.B. SINHA, J.]

~
Respondent No. 2 thereafter upon issuance of notices in A
'·
terms of the proviso appended to Section 138 of the Act filed a
complaint petition in the Court of Chief Metropolitan Magistrate,
-~

Delhi, inter alia, alleging :

"5. That the above said cheque in question was presented
by the complainant for encashment through its bearers, B
namely State Bank of India, Azadpur Branch, Delhi - 33,
but the same was returned as dishonoured with the
:. r remarks "SAID CHEQUE REPORTED LOST BY THE
DRAWER". This intimation was received by the
complainant from the bankers on 27.7.2001 and c
accordingly a notice dt. 3.8.2001 was sent to the accused
requesting the accused to make payment of the above
said cheque amount and' on 17 .8.2001 the accused sent
reply through his Advocate denying his liability falsely taking
the plea that the cheque in question was lost as stolen by D
the complainant ..
6. That the accused has taken the above said false pleas
knowing it fully well that he does not intend to make payment
of the said cheque amount, and the complainant is thus
compelled to file this complaint. E

7. That the issuance of the cheque by the accused and
informing wrongly his own bankers about the loss/ theft of
-1- the cheque, with no intention to make payment thereof,
rather showing that right from the time he issued the F
cheque, he had intention to cheat and defraud the
complainant by making false representations and thus the
accused has willfully committed an offence punishable
under Sections 138 and 142 of the Negotiable Instruments
Act read with Section 420 IPC and is liable to be punished
G
accordingly."
, .<: 4. It is not in dispute that the Superintendent of Police,
Digras has issued a certificate showing that FIR No. 57 of 2003
arising out of the First Information Report filed by the appellant
before the Station House Officer, Digras had been closed. H
438 SUPREME COURT REPORTS [2009] 7 S.C.R.

A It is furthermore not in dispute that the appellant in the ~ '
meanwhile filed a complaint petition under Section 380 read
with Sections 34, 467, 468 and 471 as also Sections 420 and
1208 of the Indian Penal Code in the Court of Judicial "
Magistrate First Class and the same is pending adjudication.
B Admittedly, the "appellant had lodged a First Information
Report under Sections 369, 495, 498, 420 and 34 of the Indian
Penal Code with the Police Station [)igras against the
respondent No. 2 and his brother, wherein also a closer report .., '•

has been submitted.
c
Appellant has filed another criminal complaint against the
respondent t..Jo. 2 under Section 409 of the Indian Penal Code
which has also been dismissed on the ground that the dispute
is of civil nature.
D 5. Appellant has moreover filed a suit for recovery of a
sum of Rs.31,40, 131.43 in the Court of Civil Judge, Sr. Division,
Darwha, Madhya Pradesh against the respondent No. 2 and
his brother. Several other applications were filed by the appellant
before the said court to which we need not advert to.
E 6. Appellant filed an application under Section 482 of the
Code in the High Court of Delhi praying for quashing of the
proceedings under Section 138 of the Act on or about 6.09.2007
on the premise that the same was not maintainable. By reason
of the impugned ju'dgment, the said application has been
..
F dismissed.
7. Mr. M.N. Krishnamani, learned senior counsel
appearing on behalf of the appellant, would submit that the High
Court committed a serious error in passing the impugned
G judgment insofar as it failed to take into consideration that the
complaint petition even if given face value and taken to be correct
in its entirety does not disclose an offence under Section 138 ;J ......
of the Act.
8. Mr. Gulshan Rai Nagpal, learned counsel appearing on
H behalf of the respondent No. 2, on the other hand, would contend
RAJ KUMAR KHURANA V STATE OF 439
(NCT OF DELHI) & ANR. [S.B. SINHA, J.]
A t
that the appellant had lodged a false First Information Report A
with regard to the purported theft of the cheques which having
been found to be not true and, thus, it is evident that he had
resorted to various proceedings to pre-empt the drawee of the
cheques to obtain lawful payments due from him.
9. Section 138 of the Act reads as under: · B

- "( "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 c
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 D
amount arranged to be paid from that account by an
agreement made with that bank, such person shall be
deemed to have committed ah offence and shall, without
prejudice to any other provisions of this Act, be punished
with imprisonment for a term which may be extended to E
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 F
within the period of its valrdity, whichever is earlier;
(b) the payee or the holder in due course of the cheque,
as the case may be, makes a demand for ttie payment of
the said amount of money by giving a notice in writing, to
~
G
4 the drawer of the cheque, ·within thirty days of the receipt
of_informa_tion by hi m from the bank regarding the return
of the cheque as unpaid; and
(c) the drawer of such cheque (ails to make the payment
of the said amount of money to the payee or, as the case H
440 SUPREME COURT REPORTS [2009] 7 S.C.R.
\ '
A may be, to the holder in due course r:>f the cheque, within
fifteen days of the receipt of the said notice.
Explanation.- For the purposes of this section, "debt or
other liability" means a legally enforceable debt or other
liability."
B
10. A bare perusal of the aforementioned provision would
clearly go to show that by reason thereof a legal fiction has been
created. A legal fiction, as is well known, although is required to
'1
-
be given full effect, has its own limitations. It cannot be taken
c recourse to for any purpose other than the one mentioned in the
statute itself.
In State of A.P and Anr. v. A.P Pensioners Association
and Ors. [(2005) 13 SCC 161], this Court held:
"... In other words, all the consequences ordinarily flowing
D "'
from a rule would be given effect to if the rule otherwise
does not limit the operation thereof. If the rule itself provides
a limitation on its operation, the consequences flowing
\

from the legal fiction have to be understood in the light of
the limitations prescribed. Thus, it is not possible to
E construe the legal fiction as simply as suggested by Mr.
Lal it."
11. Section 138 of the Act moreover provides for a penal
provision. A penal provision created by reason of a legal fiction
F must receive strict construction. [See R. Ka/yani v. Janak C.
Mehta and Ors. (2009) 1 SCC 516 and DCM Financial
Services Ltd. v. J.N. Sareen and Anr. (2008) 8 SCC 1]. Such a
penal provision, enacted in terms of the legal fiction drawn would
be attracted when a cheque is returned by the bank unpaid.
G
Such non-payment may either be: (i) because of the amount of
money standing to the credit of that account is insufficient to ~
"
honour the cheque, or (ii) it exceeds the amount arranged to be
paid from that account by an agreement made with that bank.
Before a proceeding thereunder is initiated, all the legal
H requirements therefor must be complied with. The court must
RAJ KUMAR KHURANA V. STATE OF 441
(NCT OF DELHI) & ANR. [S.B. SINHA, J.]

be satisfied that all the ingredient:; of commission of an offence A
under the said provision have been complied with.
The parameters for invoking the provisions of Section 138
of the Act, thus, being limited, we are of the opinion that refusal
on the part of the bank to honour the cheque would not bring the
matter within the mischief of the provisions of Section 138 of 8
· 1heAct.

12. The court while exercising its jurisdiction for taking
cognizance of an offence under Section 138 of the Act was
required to consider only the allegations made in the complaint c
petition and the evidence of the complainant and his witnesses,
if any. It could not have taken into consideration the result of the
complaint petition filed by the respondent No. 2 or the closer
report filed by th~ Superintenderit of Police in the First
Information Report lodged by the appellant against him.
D
13. Before us a contention has been raised that the
appellant did not have sufficient funds in his bank account. Such
an allegation has not been made in the complaint petition. In
any event, it was for the bank only to say so, as the complainant
is not supposed to have knowledge in regard to the amount E
available in the account of the appellant.
14.- Keeping in---V.iew the facts and circumstances of the
-i.. case, we are of the opinion that the complaint petition does not
disclose an offence punishable under Section 138 of the Act.
F
15. For the reasons aforementioned, the impugned
judgment being unsustainable is set aside. The appeal i.s
allowed. -

D.G. Appeal allowed.