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IN SUPREME COURT OF INDIA Page 1 of 6

PETITIONER:
NEPC MICON LIMITED AND OTHERS

Vs.

RESPONDENT:
MAGMA LEASING LIMITED

DATE OF JUDGMENT: 26/04/1999

BENCH:
K.T.Thoms, M.B.Shah

JUDGMENT:

Shah, J.

Leave granted.

NEPC Micon Limited, Appellant No. 1 and its directors

approached the High Court for quashing the proceedings in
Case No. C-494 of 1997 pending on the file of the
Metropolitan Magistrate, Calcutta, initiated by Magma
Leasing Limited, Respondent-Company under Section 138 of the
Negotiable Instruments Act, 1881 (hereinafter referred to as
the Act). It was alleged by the complainant that in
discharge of its existing liability, the appellant-Company
had given five cheques dated 1st January, 1997 for various
amounts totalling to Rs. 58,25,980/- drawn on Canara Bank,
Broadway Branch, Madras, in favour of the
Respondent-Company. Those cheques were duly tendered to the
bankers, Punjab National Bank, Calcutta for encashment, but
were returned by the banker of the accused persons, that is,
Canara Bank, Madras with the remark account closed.
Appellants have also challenged before the High Court the
order dated 10.12.1997 passed by the Metropolitan Magistrate
rejecting their application under Section 258, Criminal
Procedure Code for dropping the proceedings. In that
application before the Metropolitan Magistrate, appellants
have stated that before closing the account on behalf of
appellant No. 1, a letter dated 3rd August 1996 was sent by
the second accused to the Chief Manager, Canara Bank, Madras
informing them to close their group companys accounts; in
case, any of the cheque by mistake comes to the Canara Bank,
Madras, then the same be sent back with the note account
closed payment stopped. That Revision Application under
Section 482, Criminal Procedure Code was rejected by High
Court by its judgment and order dated 15th June, 1998.
Against that Order, the present appeal is filed by special
leave in which this Court issued notice on 26th March, 1999
for final disposal. At the time of hearing of this matter,
learned Counsel for the appellants submitted that complaint,
on the face of it, does not make out any offence punishable
under Section 138 of the Negotiable Instruments Act and,
therefore, it deserves to be quashed. He submitted that
cheques were returned by the bank with an endorsement
account closed which is not covered by the section. He
submitted that Section 138 envisages only two situations,
which would fall within its purview, namely, (i) the amount
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of money standing to the credit of the account is
insufficient to honour the cheque; or (ii) that it exceeds
the amount arranged to be paid from that account by an
agreement made with the bank. It is his contention that
there are more than 40 kinds of eventualities where the bank
may return the cheque but the legislature in its wisdom has
specified only the aforesaid two situations and, therefore,
return of the cheque on the ground that the account being
closed would not fall within Section 138. He has fairly
pointed out the conflicting views expressed by the various
High Courts on the aforesaid question. He referred to the
decisions in the case of G. F. Hurasikattimath vs. Sr.
of Kant. 70 Company cases 278 (Karnataka), S.Prasanna vs.
R. Vijayalakshmi 1192 Criminal LJ 1233 (Madras) and Om
Prakash Bharadwaj Maniyar vs. Swati Girish Bhide & Ors.
wherein the Courts have taken the view that Section 138
would not be attracted in a case where cheque is dishonoured
on the ground of closure of account by the drawer of the
cheque in the particular bank on which he has drawn the
cheque as Section 138 is a penal provision and should be
construed strictly. He has also pointed out the decisions
in Shivendra Samsguiri vs. M/s. Adrnio & Anr. [1996 Cr.
L.J. 1816 (Bengal)], Veeraraghavan Vs. Lalita Kr. [1995
Cr. L. J. 1882 (Madras)], M/s. Dada Silk Mills Vs.
Indian Overseas Bank Banking Co. [1994 Cr. L J 2874
(Gujarat)], M/s. G. M. Mittal Stainless Steels Ltd. Vs.
M/s. Nagarjuna Investment Trust Ltd. [1995 (4) Crimes 379
(Andhra Pradesh)], Japahari Vs. Priya [1994 (1) Crimes 3798
(Kerala)] and Rakesh Porwal vs. Varayan Joglekar [1993 Cr.
L.J.688] wherein a contrary view has been taken and the
Courts have held that Section 138 would be applicable in a
case where cheque is dishonoured on the ground that account
by the drawer is closed. For deciding the contention raised
by the learned counsel for the appellant, it would be
necessary to refer to the relevant Sections 138 and 140
which are 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 of a term which
may extend to one year, 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 fifteen 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

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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.

140. Defence which may not be allowed in any

prosecution under Section 138 It shall not be a defence in
a prosecution for an offence under section 138 that the
drawer had no reason to believe when he issued the cheque
that the cheque may be dishonoured on presentment for the
reasons stated in that section.

From Section 138, it is apparent that (i) cheque

should be 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; (ii) the cheque should
be returned by the bank unpaid either because:- (a) the
amount of money standing to the credit of that account is
insufficient to honour the cheque; or (b) it exceeds the
amount arranged to be paid from that account by a person
with the bank. (iii) In such a situation, such person
(drawer of cheque) shall be deemed to have committed an
offence. Further, the offence will be complete only when
the conditions in the proviso (a), (b) and (c) are complied
with. Hence, the question is, in a case where cheque is
returned by the bank unpaid on the ground that the account
is closed, would it mean that cheque is returned as unpaid
on the ground that the amount of money standing to the
credit of that account is insufficient to honour the
cheque. In our view, the answer would obviously be in the
affirmative because cheque is dishonoured as the amount of
money standing to the credit of that account was nil at
the relevant time apart from it being closed. Closure of
the account would be an eventuality after the entire amount
in the account is withdrawn. It means that there was no
amount in the credit of that account on the relevant date
when the cheque was presented for honouring the same. The
expression the amount of money standing to the credit of
that account is insufficient to honour the cheque is a
genus of which the expression that account being closed is
specie. After issuing the cheque drawn on an account
maintained, a person, if he closes that account apart from
the fact that it may amount to another offence, it would
certainly be an offence under Section 138 as there was
insufficient or no fund to honour the cheque in that
account; Further, cheque is to be drawn by a person for
payment of any amount of money due to him on an account
maintained by him with a banker and only on that account
cheque should be drawn. This would be clear by reading the
Section along with provisos (a), (b) & (c ). Secondly,
proviso (c) gives an opportunity to the drawer of the cheque
to pay the amount within 15 days of the receipt of the
notice as contemplated in proviso (b). Further, Section 140
provides that it shall not be a defence in prosecution for
an offence under Section 138 that the drawer has no reason
to believe when he issued the cheque that the cheque may be
dishonoured on presentment for the reasons stated in that
Section. Dishonouring the cheque on the ground that account
is closed is the consequence of the act of the drawer
rendering his account to a cipher. Hence, reading Section
138 and 140 together, it would be clear that dishonour of
the cheque by a bank on the ground that account is closed
would be covered by the phrase the amount of money standing
to the credit of that account is insufficient to honour the
cheque. Learned Counsel for the appellants, however,
submitted that Section 138 being a penal provision, it
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should be strictly interpreted and if there is any omission
by the Legislature, wider meaning should not be given to the
words than what is used in the Section. In our view even
with regard to penal provision, any interpretation, which
withdraws life and blood of the provision and makes it
ineffective and a dead letter should be averted. If the
interpretation, which is sought for, were given, then it
would only encourage dishonest persons to issue cheques and
before presentation of the cheque close that account and
thereby escape from the penal consequences of Section 138.
This Court in the case of Kanwar Singh Vs. Delhi
Administration, (1965) 1 SCR 7 while construing Section 418
(i) of the Delhi Municipal Corporation Act, 1959 observed:
- It is the duty of the Court in construing a statute to
give effect to the intention of the legislature. If,
therefore, giving a literal meaning to a word used by the
draftsman, particularly in a penal statute, would defeat the
object of a legislature, which is to suppress a mischief,
the Court can depart from the dictionary meaning or even the
popular meaning of the word and instead give it a meaning
which will advance the remedy and suppress the mischief.

Further, while interpreting, the statutory provision

rule dealing with penalty under the Drugs and Cosmetics Act,
1940 and the rules in the case of Swantraj and Others Vs.
State of Maharashtra 1975(3) S.C.C. 322, this Court held
that every legislation is a social document and judicial
construction seeks to decipher the statutory mission,
language permitting, making the one from the rule I Heydons
case of suppressing the evil and advancing the remedy.
Court held that what must tilt the balance is the purpose of
the statute, its potential frustration and judicial
avoidance of the mischief by a construction whereby the
means of licensing meet the ends of ensuring pure and potent
remedies for the people. Court observed that this liberty
with language is sanctified by great judges and textbooks.
Maxwell instructs as in these words:

There is no doubt that the office of the Judge is,

to make such construction as will suppress the mischief, and
advance the remedy, and to suppress all evasions for the
continuance of the mischief. To carry out effectively the
object of a statute, it must be so construed as to defeat
all attempts to do, or avoid doing, to an indirect or
circuitous manner that which it has prohibited or enjoyed:
quando aliquid prohibetur, prohibetur et omne pe quod
devenitur ad illud.

The manner of construction has two aspects. One is

that the Courts, mindful of the mischief rule, will not be
astute to narrow the language of a statute so as to allow
persons within its purview to escape its net. The other is
that the statute may be applied to the substance rather than
the mere form of transactions, thus defeating any shifts and
contrivances which parties may have devised in the hope of
thereby falling outside the Act. When the Courts find an
attempt at concealment, they will, in the words of Wilmot,
C.J. brush away the cobweb varnish, and shew the
transactions in their true light.

This benignant rule originated four hundred years ago

in Heydons case, which resolved That for the sure and
true interpretation of all statistics in general (be they
penal or beneficial restrictive or enlarging of the common
law) four things are to be discerned and considered: (1st)
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What was the common law before the making of the Act, (2nd)
What was the mischief and defect for which the common law
did not provide. (3rd) What remedy the Parliament hath
resolved and appointed to cure the disease of the
commonwealth. And, (4th) The true reason of the remedy;
and then the office of all the Judges is always to make such
construction as shall suppress the mischief, and advance the
remedy, and to suppress subtle inventions and evasions for
continuance of the mischief, and pro private commodo, and to
ad force and life to the cure and remedy, according to the
true intent of the makers of the Act, pro bono publico.

Even with regard to the penal provision which is also

remedial one in the case of State of Tamil Nadu Vs.
M.K.Kandaswami and Others 1974(4) S.C.C. 745, the Court
observed that in interpreting such a provision, a
construction which would defeat its purpose and, in effect,
obliterate it from the statute book should be eschewed; if
more than one construction is possible that which preserves
its workability, and efficacy is to be preferred to the one
which would render it otiose or sterile.

In the case of M/s. International Ore and Fertilizers

(India) Pvt. Ltd. Vs. Employees State Insurance
Corporation AIR (1988) S.C. 79, this Court referred to
often quoted passage from the decision in the case of
Seaford Court Estates ltd. Vs. Asher (1949) 2 All ER 155
wherein Lord Denning, L.J. observed: The English language
is not an instrument of mathematical precision. Our
literature would be much poorer if it were. This is where
the draftsmen of Acts of Parliament have often been unfairly
criticized. A Judge, believing himself to be fettered by
the supposed rule that he must look to the language and
nothing else, laments that the draftsmen have not provided
for this or that, or have been guilty of some or other
ambiguity. It would certainly save the judges trouble if
the Acts of Parliament wee drafted with divine pre-science
and perfect clarity. In the absence of it, when a defect
appears, a judge cannot simply fold his hands and blame the
draftsman. He must set to work on the constructive task of
finding the intention of Parliament, and he must do this not
only from the language of the statute, but also from a
consideration of the social conditions which gave rise to it
and of the mischief which it was passed to remedy, and then
he must supplement the written word so as to give force and
life to the intention of legislature. A judge should ask
himself the question how, if the makers of the Act had
themselves come across this ruck in the texture of it, they
would have straightened it out? He must then do so as they
would have done. A judge must not alter the material of
which the Act is woven, but he can and should iron out the
creases (Emphasis supplied)

Lastly, we would refer to the decision by a

Three-Judge Bench of this Court in the case of Modi Cements
Ltd. Vs. Kuchil Kumar Nandi (1998) 3 S.C.C. 249 dealing
with a similar contention and interpreting Section 138 of
the Act. In that case, the Court referred to the earlier
decisions in the case of Electronics Trade and Technology
Development Corporation (1996) 2 SCC 739 and K.K.
Siddharthan Vs. T.P. Praveena Chandran (1996) 6 S.C.C.
369 and agreed that the legal proposition enunciated in the
aforesaid decisions to effect that if the cheque is
dishonoured, because of stop payment instruction to the
bank, Section 138 would get attracted. It also amounts to
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dishonour of the cheque within the meaning of Section 138
when it is returned by the bank with the endorsement like
(I) in this case, referred to the drawer (ii)
instructions for stoppage of payment and stamped (iii)
exceeds agreement. The Court observed that the object of
bringing Section 138 on statute appears to be to inculcate
faith in the efficacy of banking operations and credibility
in transaction in business on negotiable instruments and to
promote the efficacy of banking operations and to ensure
credibility in transacting business through cheques.
Thereafter, the Court disagreed with other views expressed
in aforesaid two cases and held that 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 Court
further held that it will make section 138 a dead letter if
the contention that by giving instruction to the Bank to
stop payment immediately after issuing a cheque against the
debt or liability, the drawer can easily get rid of the
penal consequences notwithstanding the fact that deemed
offence was committed. Finally, the Court held that Section
138 of the Act gets attracted only when the cheque is
dishonoured. In view of the aforesaid discussion we are of
the opinion that even though Section 138 is a penal statute,
it is the duty of the Court to interpret it consistent with
the legislative intent and purpose so as to suppress the
mischief and advance the remedy. As stated above, Section
138 of the Act has created a contractual breach as an
offence and the legislative purpose is to promote efficacy
of banking and of ensuring that in commercial or contractual
transactions cheques are not dishonoured and credibility in
transacting business through cheques is maintained. The
above interpretation would be in accordance with the
principle of interpretation quoted above brush away the
cobweb varnish, and show the transactions in their true
light (Wilmot C. J.) or (by Maxwell) to carry out
effectively the breach of the statute, it must be so
construed as to defeat all attempts to do, or avoid doing,
to an indirect or circuitous manner that it has prohibited.
Hence, when the cheque is returned by a bank with an
endorsement account closed, it would amount to returning
the cheque unpaid because the amount of money standing to
the credit of that account is insufficient to honour the
cheque as envisaged in Section 138 of the Act. In the
result, the appeal is dismissed. However, there shall be no
order as to costs.