Vijay Kumar Ghai Vs. Pritpal Singh Babbar - Hence, till a decision is taken by the Adjudicating Authority in terms of Sections 100 and 101 of the Code, on the application filed by the petitioner under Section 94(1) thereof, the proceedings before the learned trial court under Section 138 of the Act, would remain stayed.

 HC Chandigarh (04.07.2022) in Vijay Kumar Ghai Vs. Pritpal Singh Babbar [CRM-M-22685-2021 (O&M)] held that

• Hence, till a decision is taken by the Adjudicating Authority in terms of Sections 100 and 101 of the Code, on the application filed by the petitioner under Section 94(1) thereof, the proceedings before the learned trial court under Section 138 of the Act, would remain stayed.

Blogger’s Comments; A personal guarantor of a CD can effectively avoid criminal proceedings under section 138 of N.I. Act., by filing an application under section 94(1). Further after resolution of personal insolvency, the criminal proceedings under section 138 of N.I. Act. will stand abated due to extinguishment of debt qua dishonored cheque, under resolution of personal insolvency.

Excerpts of the order;

# 1. Vide this petition, the petitioner challenges by way of invoking jurisdiction of this court under Section 482 of the Cr.P.C., the order passed by the learned JMIC, Jalandhar, dated 25.05.2021 (copy Annexure P-23), by which his application seeking a stay on the proceedings initiated under Section 138 of the Negotiable Instruments Act, 1881, was dismissed; with that court holding that simply because the petitioner had filed an application under Section 94 of the Insolvency and Bankruptcy Code, 2016 (in short “the IBC” or the “Code”), that would not mean that the proceedings under Section 138 would get automatically stayed even in terms of Section 96 of the said Code, in view of the fact that the cheque in question was issued by the petitioner in his personal capacity and was not in any manner in discharge of any corporate debt in respect of ‘his company’.

 

Thus the entire controversy is as to whether criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881, (hereinafter referred to as the “NI Act” or the “Act”), would also remain stayed in terms of Section 96 of the Code, even where the cheque in question was not issued to discharge a ‘corporate debt’, though issued by a personal guarantor qua a corporate debtor, but is not a cheque qua parties as are adversaries or litigants in any proceedings before the National Company Law Tribunal/Resolution Professional/Interim Resolution Professional.

 

# 2. Before going further, a very brief reference to the complaint under the NI Act, filed by the respondent, needs to be made.

As per the respondent herein, the petitioner had requested him for a loan of Rs.1,00,000/- for his business requirements, with an offer made to repay the same with interest; and keeping in view their friendly relations, the complainant is stated to have given him a loan, vide a demand draft for an amount of Rs.11,00,000/-, issued by the State Bank of Patiala on 05.03.2008.

 

The petitioner is stated to have been paying interest @ Rs.24,700/- per quarter and eventually, to discharge his financial obligation to the respondent-complainant, he issued a cheque dated 20.02.2012 for an amount of Rs.11,00,000/- drawn on the State Bank of India, which cheque however is stated to have been returned by the bank on account of deficiency of funds in the petitioners’ account, vide a memo issued by the bank on 24.02.2012.

 

A legal notice was got issued by the respondent to the petitioner on 02.03.2012 in terms of Section 138 of the Act, but with the amount still not having been paid, the complaint under the same provision was filed by the respondent herein on 21.03.2012, with summons having been issued to the petitioner by the JMIC, Jalandhar, vide an order dated 28.05.2012.

 

The application under Section 94(1) of the Code (copy Annexure P-17) filed by the petitioner, is seen to be dated 04.02.2021, though with the written communication to the National Company Law Tribunal, Chandigarh Bench, by the proposed Interim Resolution Professional (in terms of Rule 9 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016), is shown to be dated 14.12.2020.

 

24. The question before this court therefore is as to whether in the aforesaid circumstances the interim moratorium under Section 96 of the Code would apply to the complaint filed by the respondent herein under Section 138 of the NI Act, or not.

 

As already noticed, learned counsel for the petitioner referred to Sections 78 to 115 of the Code and specifically to the Sections already referred to in this judgment, to submit that once the provisions of the Code are applicable to even individuals, then upon an application under Section 94 having been filed, the interim moratorium stipulated in Section 96(1) of the Code would operate qua all legal proceedings pending in respect of any debt incurred by the applicant, i.e. the petitioner herein.

 

Per contra, learned counsel for the respondent essentially submitted that the respondent in no way being even remotely connected to the liability of the petitioner or his company, i.e. M/s Priknit Retails Ltd., and the cheque issued by the petitioner in favour of the respondent being in respect of a transaction/loan entered into wholly in their own individual capacities, from the personal account of the petitioner, no provision of the Code would apply to any proceedings arising out of such liability of the petitioner, including proceedings under Section 138 of the NI Act.

 

# 26. Therefore, as regards the applicability of the Code, it would cover even individuals in terms of clause (g) of Section 2. Though the said clause itself excludes personal guarantors to corporate debtors, that category of debtors has been specifically referred to in clause (e) of Section 2.

Also, at least in the context of Section 14 of the Code, the Supreme Court in P. Mohanraj (supra) has specifically held that there would be a moratorium even on proceedings under Section 138 of the Act, once the adjudicating authority, on the insolvency commencement date, has ordered that such moratorium be declared.

 

# 27. In that context it needs to be observed that the term “insolvency commencement date” has been defined in Section 5 (12) of the Code to be the date of admission of an application for initiating a corporate insolvency resolution process under Section 7/9/10 as the case may be.

(The said provisions, i.e. Sections 7, 9 and 10, refer to initiation of such process by a financial creditor, operational creditor and a corporate applicant respectively).

Section 5(11) of the Code defines an “initiation date” to be the date on which the applicant makes an application to the adjudicating authority for initiating the corporate insolvency resolution process etc.

 

# 28. What is important to again notice here is that Sections 5, 7, 10 and 14 of the Code all fall within Part-II thereof, with the heading of that Part reading as follows:-

“Insolvency Resolution and Liquidation for corporate persons”

The said Part-II commences with Section 4 of the Code and continues till Section 77-A thereof, after which Part-III of the Code commences from Section 78 and continues till Section 187 thereof.

The heading of Part-III reads as follows:-

“Insolvency Resolution and Bankruptcy for individuals and partnership firms.”

It is also necessary to notice at this stage that the petitioner having filed the application before learned NCLT as a personal guarantor to a corporate debtor, the term ‘personal guarantor’ is defined only in Section 5(22) of the Code which is again reproduced here:-

“5. Definitions

In this Part, unless the context otherwise requires,-

(22) “personal guarantor” means an individual who is the surety in contract of guarantee to a corporate debtor;”

Thus, the said provision is defined only in Part-II of the Code relating to insolvency resolution and liquidation proceedings in respect of corporate persons and is not seen to be defined anywhere in Section 79 of the Code, which comes within the ambit of Part III and which pertains to such process for individuals and partnership firms.

Section 79 thus contains the definitions as would seem to be relevant to Part-III whereas Section 5 contains definitions as would be relevant to Part-II.

 

# 29. Having thus looked at the aforesaid provisions of the Code, let us now examine the other parts of the judgment of the Supreme Court in P. Mohanraj (supra) as have not been already reproduced hereinabove but would have specific significance qua the issue in question.

 

Though paragraph 26 thereof would also have some relevance, that paragraph is not being reproduced as it essentially reproduces Sections 81 and 85 of the Code, after referring to them in the context of Section 14. Thereafter the relevant part of paragraph 27 of that judgment (without reproducing Sections 96 and 101 again), reads as follows:-

• “27. When the language of Section 14 and Section 85 are contrasted, it becomes clear that though the language of Section 85 is only in respect of debts, the moratorium contained in Section 14 is not subject specific. The only light thrown on the subject is by the exception provision contained in Section 14(3) (a) which is that “transactions” are the subject matter of Section 14(1). “Transaction” is, as we have seen, a much wider expression than “debt”, and subsumes it. Also, the expression “proceedings” used by the legislature in Section 14(1)(a) is not trammelled by the word “legal” as a prefix that is contained in the moratorium provisions qua individuals and firms. Likewise, the provisions of Section 96 and Section 101 are moratorium provisions in Chapter III of Part III dealing with the insolvency resolution process of individuals and firms, the same expression, namely, “debts” is used as is used in Section 85. Sections 96 and 101 read as follows:

• xxxxx xxxxx xxxxx

• A legal action or proceeding in respect of any debt would, on its plain language, include a Section 138 proceedings.

• xxxxx xxxxx xxxxx”            (Emphasis applied in this judgment only)

 

Paragraph 28 thereafter reads as follows:-

• “28. When the language of these Sections is juxtaposed against the language of Section 14, it is clear that the width of Section 14 is even greater, given that Section 14 declares a moratorium prohibiting what is mentioned in clauses (a) to (d) thereof in respect of transactions entered into by the corporate debtor, inclusive of transactions relating to debts, as is contained in Sections 81, 85, 96 and 101. Also, Section 14(1)(d) is conspicuous by its absence in any of these sections. Thus, where individuals or firms are concerned, the recovery of any property by an owner or lessor, where such property is occupied by or in possession of the individual or firm can be recovered during the moratorium period, unlike the property of a corporate debtor. For all these reasons, therefore, given the object and context of Section 14, the expression “proceedings” cannot be cut down by any rule of construction and must be given a fair meaning consonant with the object and context. It is conceded before us that criminal proceedings which are not directly related to transactions evidencing debt or liability of the corporate debtor would be outside the scope of this expression.”

 

# 30. Thereafter in paragraph 29 of P. Mohanraj, their Lordships referred to paragraphs 26 and 26.1 of an earlier judgment of the Supreme Court in State Bank of India versus V. Ramakrishnan and another (2018) 17 SCC 394. Those paragraphs read as follows and are extremely significant in the context of Sections 96 and 101 when juxtaposed with Section 14 of the Code:-

• “26. We are also of the opinion that Sections 96 and 101, when contrasted with Section 14, would show that Section 14 cannot possibly apply to a personal guarantor. When an application is filed under Part III, an interim-moratorium or a moratorium is applicable in respect of any debt due. First and foremost, this is a separate moratorium, applicable separately in the case of personal guarantors against whom insolvency resolution processes may be initiated under Part III. Secondly, the protection of the moratorium under these sections is far greater than that of Section 14 in that pending legal proceedings in respect of the debt and not the debtor are stayed. The difference in language between Sections 14 and 101 is for a reason.

• 26.1 Section 14 refers only to debts due by corporate debtors, who are limited liability companies, and it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from an independent and co-extensive liability to pay off the entire outstanding debt, which is why Section 14 is not applied to them. However, insofar as firms and individuals are concerned, guarantees are given in respect of individual debts by persons who have unlimited liability to pay them. And such guarantors may be complete strangers to the debtor — often it could be a personal friend. It is for this reason that the moratorium mentioned in Section 101 would cover such persons, as such moratorium is in relation to the debt and not the debtor”                  (Emphasis applied in this judgment only)

 

# 31. Having referred to the aforesaid paragraphs in V. Ramakrishnan, in P. Mohanraj their Lordships held as follows by way of a comment on the significance of the context of the judgment in V. Ramakrishnan:-

• “These observations, when viewed in context, are correct. However, this case is distinguishable in that the difference between these provisions and Section 14 was not examined qua moratorium provisions as a whole in relation to corporate debtors vis-a-vis individuals/firms.”

 

# 32. In the context of the present case before this court, what is to be observed is that in paragraph 26.1 of V. Ramakrishnan, the Supreme Court has specifically observed that in a vast majority of cases personal guarantees are given by the Directors of the companies (as are in debt), which is the admitted position in the present case as already noticed earlier also. Thus the petitioner herein is a personal guarantor to a corporate debtor, such corporate debtor being the company of which he is a Director.

 

In the aforesaid background the only judgment of the Supreme Court as has been referred to by learned counsel for the parties (actually for the petitioner), as has been pronounced on the subject after the amendment of the Code in 2018, is that in Lalit Kumar Jains‘ case (supra).

 

From that judgment, other than the paragraphs specifically referred to by learned counsel for the petitioner, what needs to be referred to by this court is that part of paragraph 86 as reproduces sub-section (2) of Section 60 of the Code, with that provision again being reproduced here, by highlighting what is considered necessary by this court for the purpose of the present petition:-

• “86. XXXXX XXXXX XXXXX

• The amended Section 60(2) reads as follows:-

• “(2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor shall be filed before the National Company Law Tribunal.”

 

# 33. Thus, even after the amendment of 2018 in the Code, sub-section (2) of Section 60 effectively states (even in terms of sub-section (1) thereof) that an application relating to the insolvency resolution or bankruptcy of a corporate guarantor or a personal guarantor, shall be filed before the NCLT.

 

Further, any application filed by a personal guarantor to a corporate debtor can only be filed if a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before the NCLT.

 

In other words, a plain reading of the aforesaid provision would show that a personal guarantor to a corporate debtor cannot independently seek initiation of insolvency or bankruptcy etc. proceedings even before the NCLT in terms of sub-section (1) of Section 60, unless the corporate debtor itself is already subject to such pending proceedings before the Tribunal.

 

In the present case, as already noticed (in paragraph 23 (iii) of this judgment, supra), the application filed by the present petitioner (copy Annexure P-17), under the provisions of Section 94(1) of the Code read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for personal Guarantors to corporate Debtors) Rules, 2019 (hereinafter referred to as the Rules of 2019), is to initiate “an insolvency resolution process in respect of VIJAY KUMAR GHAI”, which would only be possible, on a bare reading of Section 60 (2), if the company of which he is a Director and stands as a personal guarantor to, i.e. M/s Priknit Retails Ltd., is already in proceedings before the NCLT for insolvency resolution/liquidation, either initiated by itself or initiated by the two banks or the company as have been made respondents by the petitioner in his application, i.e. M/s ICICI Bank, State Bank of India and ASREC (India) Ltd.

 

It is not denied that in fact proceedings under Section 7 of the Code were initiated by the State Bank of India against the petitioners’ company, i.e. M/s Priknit Retails Ltd., upon which an order was initially passed on 11.09.2019 by the learned Tribunal, after which IA no.138 of 2020 was filed by the Resolution Professional appointed by that forum, under the provisions of Sections 23(1) and 34 of the Code, seeking that the corporate debtor (Priknit) be liquidated as per the procedure laid down in the Code, with that application having been allowed and with the Resolution Professional himself having been appointed as the Liquidator on 18.05.2020.

 

Subsequently, Mr. Jagga also produced an order dated 11.05.2022, (after the matter had been put up for rehearing by this court), also passed by the Tribunal, taking on record the progress report in the liquidation proceedings and with the next date of hearing in those proceedings before the Tribunal now being 19.07.2022.

 

Hence, as regards the basic maintainability of the application of the petitioner in view of the already pending proceedings initiated against the corporate debtor, the application would be maintainable (though of course with no comment made by this court as to whether the application under Section 94 (1) should be accepted on merits or rejected, by the Tribunal).

 

# 34. Consequently, the two questions now before this court are:-

• (1) Whether in such circumstances the complaint under Section 138 of the Act of 1881 would also fall within the ambit of the phrases “all the debts” and “any legal actions or proceedings pending in respect of any debt” as occur in clauses (a) and (b)(i) of sub-section (1) respectively of Section 96, or would the aforesaid expressions be limited to any debt as is concerned or linked in any manner to the corporate debtor for whom the petitioner stands as a personal guarantor, with the respondent herein not being in any manner concerned with the debt of either the corporate debtor or the personal guarantee furnished by the petitioner in respect of the corporate debtor;

• (2) If the answer to the aforesaid question is in the affirmative, whether proceedings under Section 138 of the Act would be deemed to have been stayed in terms of Section 96 of the Code in view of the fact that the complaint against the petitioner was filed 8 to 9 years prior to the petitioners’ application under Section 94 and even about 6 years before the initiation of proceedings against the corporate debtor by the State Bank of India under Section 7 of the Code.

 

# 35. As regards the first question, there are two ways of interpreting the phrases “all the debts” and “any legal actions or proceedings pending in respect of any debt” as are referred to in Section 96 of the Code.

 

First, that as per a plain reading of the aforesaid phrases in the provision, once a personal guarantor to a corporate debtor has filed an application under Section 94(1) before the Adjudicating Authority, all legal proceedings in respect of any debt that the personal guarantor is facing, would be covered by the interim moratorium and consequently the proceedings in the complaint filed by the respondent herein under Section 138 of the Act also would remain stayed, such proceedings being in respect of a debt alleged to have been incurred by the petitioner qua the respondent, (with such interim moratorium to continue till the application under Section 94 is either rejected or accepted by the Adjudicating Authority. If the application is admitted, proceedings under Section 138 would remain stayed till the proceedings before the Tribunal are taken to their logical conclusion, in terms of Sections 100 and 101 of the Code).

 

The other interpretation that can be given is that the phrases “all legal proceedings” and “any debt”, only pertain to debts as are relatable to the corporate debtor in any manner; and any other personal debt incurred by the guarantor to a corporate debtor, as has nothing to do with such corporate debtor or corporate debt, would not be affected in any manner by the application filed under Section 94 by the personal guarantor to a corporate debtor and consequently the complaint filed by the respondent herein under Section 138 of the Act can continue wholly independently of the proceedings before the Adjudicating Authority/NCLT.

 

# 36. To further try and understand as to which of the aforesaid two interpretations would apply, the following part of the judgment of the Supreme Court (in paragraph 26.1) of V. Ramakrishnans’ case (supra) would need to be looked at again:-

• “………. and it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from an independent and co-extensive liability to pay off the entire outstanding debt, which is why Section 14 is not applied to them. However, insofar as firms and individuals are concerned, guarantees are given in respect of individual debts by persons who have unlimited liability to pay them. And such guarantors may be complete strangers to the debtor — often it could be a personal friend. It is for this reason that the moratorium mentioned in Section 101 would cover such persons, as such moratorium is in relation to the debt and not the debtor.”

 

Further, the judgment in Lalit Kumar Jains‘ case (supra) may also be again referred to wherein, while upholding the distinction created between other individuals and personal guarantors to corporate debtors vide sub-section (2) of Section 60 of the Code (as regards the forum before which a personal guarantor would be required to apply under Section 94), it was thereafter held in paragraph 100 (Law Finder edition = para 113 SCC edition) as follows:-

• “100. It is clear from the above analysis that Parliamentary intent was to treat personal guarantors differently from other categories of individuals. The intimate connection between such individuals and corporate entities to whom they stood guarantee, as well as the possibility of two separate processes being carried on in different forums, with its attendant uncertain outcomes, led to carving out personal guarantors as a separate species of individuals, for whom the Adjudicating Authority was common with the corporate debtor to whom they had stood guarantee. The fact that the process of insolvency in Part III is to be applied to individuals, whereas the process in relation to corporate debtors, set out in Part II is to be applied to such corporate persons, does not lead to incongruity. On the other hand, there appear to be sound reasons why the forum for adjudicating insolvency processes – the provisions of which are disparate- is to be common, i.e. through the NCLT. As was emphasized during the hearing, the NCLT would be able to consider the whole picture, as it were, about the nature of the assets available, either during the corporate debtor’s insolvency process, or even later; this would facilitate the CoC in framing realistic plans, keeping in mind the prospect of realizing some part of the creditors’ dues from personal guarantors.”  (Emphasis applied in this judgment only).

 

# 37. Hence, it is obviously clear from a reading of the aforesaid part of the said judgment as also from the relevant provisions of the Code as have been reproduced hereinabove, that personal guarantors to corporate debtors are to be treated differently from other categories of individuals who would be covered by Part III of the Code, with it to be again observed that personal guarantors have however only been defined in Section 5(22) falling in Part II thereof and not in Part III.

 

Yet, the rule making authority under Section 239 of the Code (the Central Government) promulgated the Rules of 2019 by invoking jurisdiction under the said provision as also under the other provisions referred to in the preamble to the rules, and stipulated in Rule 6 therein that an application to be made by such a guarantor under the provisions of Section 94(1) would be submitted in terms of the procedure laid down under that Rule.

 

Thus, the application to be made by a personal guarantor to a corporate debtor, even though such a person/individual is referred to in Section 5(22) and Section 60, both falling in Part II of the Code and not in Part III thereof, is to be made under Section 94(1) falling within Part III and with the said application to be made before the NCLT, in terms of Section 60(1) which falls under Part II of the Code.

 

Now in the aforesaid background, if one is to consider Mr. Jaggas’ argument that the petitioner having sought his own insolvency under Section 94, all his debts would necessarily have to be considered by the Tribunal, that would seem to be in consonance with what has been observed in paragraph 100 of Lalit Kumar Jains‘ case (reproduced earlier also, supra), to the effect that:-

• “As was emphasized during the hearing, the NCLT would be able to consider the whole picture, as it were, about the nature of the assets available, either during the corporate debtor’s insolvency process, or even later; this would facilitate the CoC in framing realistic plans, keeping in mind the prospect of realizing some part of the creditors’ dues from personal guarantors.”   (Emphasis applied in this judgment only).

 

# 38. Hence, though in the opinion of this court otherwise a proceeding under Section 138 of the Act, qua a debt as is wholly incurred qua an individual who is not in any manner connected to the corporate debtor that the petitioner stood a personal guarantor for, nor to the corporate debt itself, would need to proceed independently so as not to make the complainant in such proceedings under Section 138 suffer further delays, especially when in the present case he has already suffered a delay of about 10 years since his complaint was initially filed, however, in the light of the aforesaid observations as also the fact that Section 96 of the Code does not specifically carve out any exception qua such a debt as is subject matter of an instrument in the context of which a complaint under Section 138 of the Act has been filed, this court would have to interpret the terms “all the debts” and “any legal action or proceedings pending in respect of any debt” as occur in Section 96 of the Code, to mean that it would cover all such debts including any debt not pertaining to a corporate debtor for whom the accused in such a complaint under Section 138 stood as a personal guarantor to, even in his capacity as a Director of such corporate debtor.

 

This would be further so in the opinion of this court, because a “debt” has been defined in the absolutely generic meaning of the word, in Section 3 (11) of the Code (falling in the preliminary Part-I thereof); and further, as admitted by learned counsel for the respondent, a debt as is subject matter of proceedings under Section 138 of the Act, has not been prescribed to be an “excluded debt” in terms of Section 79(e) of the Code.

 

In this regard, it also needs to be observed here that unless the wordings of a statute are “unworkable” or wholly impractical, nothing extra can be read into a statute or taken away therefrom.

 

# 39. As regards the second question posed to itself by this court in paragraph 34 (supra), it would have to be held that by virtue of the term “any legal action or proceedings pending in respect of any debt (as per Section 96), proceedings under Section 138 of the Act, would be deemed to be stayed irrespective of the fact that such proceedings were initiated far before the application under Section 94 of the Code was filed by the personal guarantor to a corporate debtor.

 

In that very context, as regards the dismissal by the Supreme Court of other appeals and writ petitions as were heard with P. Mohanrajs’ case (as have been pointed to by Mr. Mehta, learned counsel for the respondent), the dismissal would seem to be on account of the fact that the proceedings under Section 138 against the Dire7ctors of the companies as were corporate debtors in those cases, were firstly held to be independent of the proceedings under the Code against the corporate debtor itself and further, there is no interim moratorium referred to in Section 14, with the moratorium mentioned in that provision, being one as has to be declared by the Adjudicating Authority; and consequently the Supreme Court held that such declaration having come at a stage far after the proceedings were initiated under Section 138 of the Act, the moratorium would not apply (obviously also because the Directors were treated different to the corporate debtor itself); which is a wholly different situation to that as is postulated in Section 96, wherein it is an interim moratorium that comes into effect, by which all proceedings qua any debt of the individual/partnership firm etc. would be deemed to have been stayed.

 

# 40. Consequently, even though the respondent herein may suffer longer delays due to the stay that would be deemed to be operating on the proceedings in the complaint filed by him under Section 138 of the Act, by virtue of the interim moratorium stipulated in Section 96 of the Code, there would seem to be no option with this court but to allow the petition and set aside the impugned order passed by the learned JMIC, Jalandhar, dated 25.05.2021. It is therefore ordered accordingly.

 

Hence, till a decision is taken by the Adjudicating Authority in terms of Sections 100 and 101 of the Code, on the application filed by the petitioner under Section 94(1) thereof, the proceedings before the learned trial court under Section 138 of the Act, would remain stayed.

 

# 41. The Adjudicating Authority however is requested to expedite such a decision in view of the fact that the respondent has already suffered a delay of 10 years qua his complaint filed under the Act.

 

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Msr Leathers vs S. Palaniappan And Anr - We overrule the decision in Sadanandan Bhadran’s case (supra) and hold that prosecution based upon second or successive dishonour of the cheque is also permissible so long as the same satisfies the requirements stipulated in the proviso to Section 138 of the Negotiable Instruments Act.

Supreme Court (26.09.2012) in Msr Leathers vs S. Palaniappan And Anr [Criminal Appeal Nos..261-264 of 2002] held that;

• There is, however, nothing in the proviso to Section 138 or Section 142 for that matter, to oblige the holder/payee of a dishonoured cheque to necessarily file a complaint even when he has acquired an indefeasible right to do so. 

• The fact that an offence is complete need not necessarily lead to launch of prosecution especially when the offence is not a cognizable one. It follows that the complainant may, even when he has the immediate right to institute criminal proceedings against the drawer of the cheque, either at the request of the holder/payee of the cheque or on his own volition, refrain from instituting the proceedings based on the cause of action that has accrued to him.

• Suffice it to say that there is nothing in the provisions of the Act that forbids the holder/payee of the cheque to demand by service of a fresh notice under clause (b) of proviso to Section 138 of the Act, the amount covered by the cheque, should there be a second or a successive dishonour of the cheque on its presentation. 

• In the absence of any juristic principle on which such failure to prosecute on the basis of the first default in payment should result in forfeiture, we find it difficult to hold that the payee would lose his right to institute such proceedings on a subsequent default that satisfies all the three requirements of Section 138.  

• Indeed if the legislative intent was to restrict prosecution only to cases arising out of the first dishonour of a cheque nothing prevented it from stipulating so in clause (a) itself. 

• We have, therefore, no manner of doubt that so long as the cheque remains unpaid it is the continuing obligation of the drawer to make good the same by either arranging the funds in the account on which the cheque is drawn or liquidating the liability otherwise.  

• The omission or the failure of the holder to institute prosecution does not, therefore, give any immunity to the drawer so long as the cheque is dishonoured within its validity period and the conditions precedent for prosecution in terms of the proviso to Section 138 are satisfied.

• we overrule the decision in Sadanandan Bhadran’s case (supra) and hold that prosecution based upon second or successive dishonour of the cheque is also permissible so long as the same satisfies the requirements stipulated in the proviso to Section 138 of the Negotiable Instruments Act.

 

Excerpts of the order;

# 1. In Sadanandan Bhadran v. Madhavan Sunil Kumar (1998) 6 SCC 514, this Court was dealing with a case under Section 138 of the Negotiable Instrument Act, 1881 (hereinafter referred to as ‘the Act’) in which the complainant had, after dishonour of a cheque issued in his favour, taken steps to serve upon the accused-drawer of the cheque a notice under clause (b) of proviso to Section 138 of the Act. No complaint was, however, filed by the complainant despite failure of the accused to arrange the payment of the amount covered by the cheque. Instead, the complainant-payee of the cheque had presented the cheque for collection once again, which was dishonoured a second time for want of sufficient funds. Another notice was served on the drawer of the cheque to arrange payment within fifteen days of receipt of said notice. Only after failure of drawer to do so did the payee file a complaint against the former under Section 138 of the Act. 

 

# 2. After entering appearance, the drawer filed an application seeking discharge on the ground that the payee could not create more than one cause of action in respect of a single cheque and the complaint in question having been filed on the basis of the second presentation and resultant second cause of action was not maintainable. The Magistrate accepted that contention relying upon a Division Bench decision of Kerala High Court in Kumaresan v. Ameerappa (1991) 1 Ker L.T. 893 and dismissed the complaint. The order passed by the Magistrate was then questioned before the High Court of Kerala who relying upon Kumaresan’s case (supra) upheld the order passed by the Magistrate. The matter was eventually brought up to this Court by special leave. This Court formulated the following question for determination: “Whether payee or holder of cheque can initiate proceeding of prosecution under Section 138 of Negotiable Instrument Act, 1881 for the second time if he has not initiated any action on earlier cause of action?” 

 

# 3. Answering the question in the negative this Court held that a combined reading of Sections 138 and 142 of the Act left no room for doubt that cause of action under Section 142(b) can arise only once. The conclusion observed by the court is supported not only by Sections 138 and 142 but also by the fact that the dishonour of cheque gives rise to the commission of offence only on the failure to pay money when a notice is served upon the drawer in accordance with clause (b) of the proviso to Section 138. The Court further held that if the concept of successive causes of action were to be accepted the same would make the limitation under Section 142(b) otiose. The Court observed:

• “7. Besides the language of Sections 138 and 142 which clearly postulates only one cause of action, there are other formidable impediments which negate the concept of successive causes of action. One of them is that for dishonour of one cheque, there can be only one offence and such offence is committed by the drawer immediately on his failure to make the payment within fifteen days of the receipt of the notice served in accordance with clause (b) of the proviso to Section 138. That necessarily means that for similar failure after service of fresh notice on subsequent dishonour, the drawer cannot be liable for any offence nor can the first offence be treated as non est so as to give the payee a right to file a complaint treating the second offence as the first one. At that stage, it will not be a question of waiver of the right of the payee to prosecute the drawer but of absolution of the drawer of an offence, which stands already committed by him and which cannot be committed by him again. 

• 8. The other impediment to the acceptance of the concept of successive causes of action is that it will make the period of limitation under clause (c) of Section 142 otiose, for, a payee who failed to file his complaint within one month and thereby forfeited his right to prosecute the drawer, can circumvent the above limitative clause by filing a complaint on the basis of a fresh presentation of the cheque and its dishonour. Since in the interpretation of statutes, the court always presumes that the legislature inserted every part thereof for a purpose and the legislative intention is that every part should have effect, the above conclusion cannot be drawn for that will make the provision for limiting the period of making the complaint nugatory.” 

 

# 4. The Court then tried to reconcile the apparently conflicting provisions of the Act - one enabling the payee to present the cheque and the other giving him opportunity to file a complaint within one month and observed:

• “…..Having given our anxious consideration to this question, we are of the opinion that the above two provisions can be harmonised, with the interpretation that on each presentation of the cheque and its dishonour, a fresh right — and not cause of action — accrues in his favour. He may, therefore, without taking pre-emptory action in exercise of his such right under clause (b) of Section 138, go on presenting the cheque so as to enable him to exercise such right at any point of time during the validity of the cheque. But once he gives a notice under clause (b) of Section 138, he forfeits such right for in case of failure of the drawer to pay the money within the stipulated time, he would be liable for offence and the cause of action for filing the complaint will arise. Needless to say, the period of one month for filing the complaint will be reckoned from the day immediately following the day on which the period of fifteen days from the date of the receipt of the notice by the drawer expires.” 

 

# 5. The Court accordingly dismissed the appeal while affirming the decision of the Kerala High Court in Kumaresan’s case (supra), no matter the same had been in the meantime overruled by a decision of the Full Bench of that Court in S.K.D. Lakshmanan Fireworks Industries v. K.V. Sivarama Krishnan (1995) Cri L J 1384 (Ker). 

 

# 6. When the present appeal first came up for hearing before a bench comprising Markandey Katju and B. Sudershan Reddy, JJ., reliance on behalf of respondents was placed upon the decision of this Court in Sadanandan Bhadran’s case (supra) to argue that the complaint in the instant case had also been filed on the basis of the second dishonour of a cheque after the payee of the cheque had issued a notice to the drawer under clause (b) of the proviso to Section 138 of the Act based on an earlier dishonour. On the ratio of Sadanandan Bhadran’s case (supra) such a complaint was not maintainable, argued the respondents. The Court, however, expressed its reservation about the correctness of the view taken in Sadanandan Bhadran’s case (supra) especially in para 9 thereof and accordingly referred the matter to a larger Bench. That is precisely how the present appeal has come up for hearing before us. It is, therefore, evident that this Court has repeatedly followed the view taken in Sadanandan Bhadran’s case (supra). But a careful reading of these decisions reveals that in these subsequent decisions there had been no addition to the ratio underlying the conclusion in Sadanandan Bhadran’s case (supra). 

 

# 10. Proviso to Section 138, however, is all important and stipulates three distinct conditions precedent, which must be satisfied before the dishonour of a cheque can constitute an offence and become punishable. The first condition is that the cheque ought to have 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. The second condition is that the payee or the holder in due course of the cheque, as the case may be, ought to make 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. The third condition is that the drawer of such a cheque should have failed to make 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. It is only upon the satisfaction of all the three conditions mentioned above and enumerated under the proviso to Section 138 as clauses (a), (b) and (c) thereof that an offence under Section 138 can be said to have been committed by the person issuing the cheque. 

 

# 11. Section 142 of the Negotiable Instruments Act governs taking of cognizance of the offence and starts with a non obstante clause. It provides that no court shall take cognizance of any offence punishable under Section 138 except upon a complaint, in writing, made by the payee or, as the case may be, by the holder in due course and such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to Section 138. In terms of sub-section (c) to Section 142, no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class is competent to try any offence punishable under Section 138. 

 

# 12. A careful reading of the above provisions makes it manifest that a complaint under Section 138 can be filed only after cause of action to do so has accrued in terms of clause (c) of proviso to Section 138 which, as noticed earlier, happens no sooner than when the drawer of the cheque fails to make the payment of the cheque amount to the payee or the holder of the cheque within 15 days of the receipt of the notice required to be sent in terms of clause (b) of proviso to Section 138 of the Act. 

 

# 13. What is important is that neither Section 138 nor Section 142 or any other provision contained in the Act forbids the holder or payee of the cheque from presenting the cheque for encashment on any number of occasions within a period of six months of its issue or within the period of its validity, whichever is earlier. That such presentation will be perfectly legal and justified was not disputed before us even at the Bar by learned counsel appearing for the parties and rightly so in light of the judicial pronouncements on that question which are all unanimous. Even Sadanandan Bhadran’s case (supra) the correctness whereof we are examining, recognized that the holder or the payee of the cheque has the right to present the same any number of times for encashment during the period of six months or during the period of its validity, whichever is earlier. 

 

# 14. Presentation of the cheque and dishonour thereof within the period of its validity or a period of six months is just one of the three requirements that constitutes ‘cause of action’ within the meaning of Sections 138 and 142(b) of the Act, an expression that is more commonly used in civil law than in penal statutes. For a dishonour to culminate into the commission of an offence of which a court may take cognizance, there are two other requirements, namely, (a) service of a notice upon the drawer of the cheque to make payment of the amount covered by the cheque and (b) failure of the drawer to make any such payment within the stipulated period of 15 days of the receipt of such a notice. It is only when the said two conditions are superadded to the dishonour of the cheque that the holder/payee of the cheque acquires the right to institute proceedings for prosecution under Section 138 of the Act, which right remains legally enforceable for a period of 30 days counted from the date on which the cause of action accrued to him. There is, however, nothing in the proviso to Section 138 or Section 142 for that matter, to oblige the holder/payee of a dishonoured cheque to necessarily file a complaint even when he has acquired an indefeasible right to do so. The fact that an offence is complete need not necessarily lead to launch of prosecution especially when the offence is not a cognizable one. It follows that the complainant may, even when he has the immediate right to institute criminal proceedings against the drawer of the cheque, either at the request of the holder/payee of the cheque or on his own volition, refrain from instituting the proceedings based on the cause of action that has accrued to him. Such a decision to defer prosecution may be impelled by several considerations but more importantly it may be induced by an assurance which the drawer extends to the holder of the cheque that given some time the payment covered by the cheques would be arranged, in the process rendering a time consuming and generally expensive legal recourse unnecessary. It may also be induced by a belief that a fresh presentation of the cheque may result in encashment for a variety of reasons including the vicissitudes of trade and business dealings where financial accommodation given by the parties to each other is not an unknown phenomenon. Suffice it to say that there is nothing in the provisions of the Act that forbids the holder/payee of the cheque to demand by service of a fresh notice under clause (b) of proviso to Section 138 of the Act, the amount covered by the cheque, should there be a second or a successive dishonour of the cheque on its presentation. 

 

# 15. Sadanandan Bhadran’s case (supra) holds that while a second or successive presentation of the cheque is legally permissible so long as such presentation is within the period of six months or the validity of the cheque whichever is earlier, the second or subsequent dishonour of the cheque would not entitle the holder/payee to issue a statutory notice to the drawer nor would it entitle him to institute legal proceedings against the drawer in the event he fails to arrange the payment. The decision gives three distinct reasons why that should be so. The first and the foremost of these reasons is the use of the expression “cause of action” in Section 142(b) of the Act which according to the Court has been used in a restrictive sense and must therefore be understood to mean that cause of action under Section 142(b) can arise but once. The second reason cited for the view taken in the Sadanandan Bhadran’s case (supra) is that dishonour of a cheque will lead to commission of only one offence and that the offence is complete no sooner the drawer fails to make the payment of the cheque amount within a period of 15 days of the receipt of the notice served upon him. The Court has not pressed into service the doctrine of “waiver of the right to prosecute” but held that the failure of the holder to institute proceedings would tantamount to “absolution” of the drawer of the offence committed by him. The third and the only other reason is that successive causes of action will militate against the provisions of Section 142(b) and make the said provision otiose. The Court in Sadanandan Bhadran’s case (supra) held that the failure of the drawer/payee to file a complaint within one month resulted in forfeiture of the complainant’s right to prosecute the drawer/payee which forfeiture cannot be circumvented by him by presenting the cheque afresh and inviting a dishonour to be followed by a fresh notice and a delayed complaint on the basis thereof. 

 

# 16. With utmost respect to the Judges who decided Sadanandan Bhadran’s case (supra) we regret our inability to fall in line with the above line of reasoning to hold that while a cheque is presented afresh the right to prosecute the drawer, if the cheque is dishonoured, is forfeited only because the previous dishonour had not resulted in immediate prosecution of the offender even when a notice under clause (b) of proviso to Section 138 had been served upon the drawer. We are conscious of the fact that Sadanandan Bhadran’s case (supra) has been followed in several subsequent decisions of this Court such as in Sil Import, USA v. Exim Aides Silk Exporters, Bangalore, (1999) 4 SCC 567, Uniplas India Ltd. and Ors. v. State (Govt. of NCT Delhi) and Anr., (2001) 6 SCC 8, Dalmia Cement (Bharat) Ltd. v. Galaxy Traders & Agencies Ltd. and Anr., (2001) 6 SCC 463, Prem Chand Vijay Kumar v. Yashpal Singh and Anr., (2005) 4 SCC 417, S.L. Constructions and Anr. v. Alapati Srinivasa Rao and Anr., (2009) 1 SCC 500, Tameshwar Vaishnav v. Ramvishal Gupta, (2010) 2 SCC 329. 

 

# 17. All these decisions have without disturbing or making any addition to the rationale behind the decision in Sadanandan Bhadran’s case (supra) followed the conclusion drawn in the same. We, therefore, propose to deal with the three dimensions that have been highlighted in that case while holding that successive causes of action are not within the comprehension of Sections 138 and 142 of the Act. 

 

# 18. The expression ‘cause of action’ is more commonly and easily understood in the realm of civil laws. The expression is not defined anywhere in the Code of Civil Procedure to which it generally bears relevance but has been universally understood to mean the bundle of facts which the plaintiff must prove in order to entitle him to succeed in the suit. (See State of Madras v. C.P. Agencies AIR 1960 SC 1309; Rajasthan High Court Advocates Association v. U.O.I. & Ors. AIR 2001 SC 416 and Mohamed Khaleel Khan v. Mahaboob Ali Mia AIR 1949 PC 78). 

 

# 19. Section 142 of the Negotiable Instruments Act is perhaps the only penal provision in a statute which uses the expression ‘cause of action’ in relation to the commission of an offence or the institution of a complaint for the prosecution of the offender. A careful reading of Sections 138 and 142, as noticed above, makes it abundantly clear that the cause of action to institute a complaint comprises the three different factual prerequisites for the institution of a complaint to which we have already referred in the earlier part of this order. None of these prerequisites is in itself sufficient to constitute a complete cause of action for an offence under Section 138. For instance if a cheque is not presented within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier, no cause of action would accrue to the holder of the cheque even when the remaining two requirements, namely service of a notice and failure of the drawer to make the payment of the cheque amount are established on facts. So also presentation of the cheque within the stipulated period without service of a notice in terms of Section 138 proviso (b) would give no cause of action to the holder to prosecute the drawer just as the failure of the drawer to make the payment demanded on the basis of a notice that does not satisfy the requirements of clause (b) of proviso to Section 138 would not constitute a complete cause of action. 

 

# 20. The expression ‘cause of action’ appearing in Section 142 (b) of the Act cannot therefore be understood to be limited to any given requirement out of the three requirements that are mandatory for launching a prosecution on the basis of a dishonoured cheque. Having said that, every time a cheque is presented in the manner and within the time stipulated under the proviso to Section 138 followed by a notice within the meaning of clause (b) of proviso to Section 138 and the drawer fails to make the payment of the amount within the stipulated period of fifteen days after the date of receipt of such notice, a cause of action accrues to the holder of the cheque to institute proceedings for prosecution of the drawer. 

 

# 21. There is, in our view, nothing either in Section 138 or Section 142 to curtail the said right of the payee, leave alone a forfeiture of the said right for no better reason than the failure of the holder of the cheque to institute prosecution against the drawer when the cause of action to do so had first arisen. Simply because the prosecution for an offence under Section 138 must on the language of Section 142 be instituted within one month from the date of the failure of the drawer to make the payment does not in our view militate against the accrual of multiple causes of action to the holder of the cheque upon failure of the drawer to make the payment of the cheque amount. In the absence of any juristic principle on which such failure to prosecute on the basis of the first default in payment should result in forfeiture, we find it difficult to hold that the payee would lose his right to institute such proceedings on a subsequent default that satisfies all the three requirements of Section 138. 

 

# 22. That brings us to the question whether an offence punishable under Section 138 can be committed only once as held by this Court in Sadanandan Bhadran’s case (supra). The holder of a cheque as seen earlier can present it before a bank any number of times within the period of six months or during the period of its validity, whichever is earlier. This right of the holder to present the cheque for encashment carries with it a corresponding obligation on the part of the drawer to ensure that the cheque drawn by him is honoured by the bank who stands in the capacity of an agent of the drawer vis-à-vis the holder of the cheque. If the holder of the cheque has a right, as indeed is in the unanimous opinion expressed in the decisions on the subject, there is no reason why the corresponding obligation of the drawer should also not continue every time the cheque is presented for encashment if it satisfies the requirements stipulated in that clause (a) to the proviso to Section 138. There is nothing in that proviso to even remotely suggest that clause (a) would have no application to a cheque presented for the second time if the same has already been dishonoured once. Indeed if the legislative intent was to restrict prosecution only to cases arising out of the first dishonour of a cheque nothing prevented it from stipulating so in clause (a) itself. In the absence of any such provision a dishonour whether based on a second or any successive presentation of a cheque for encashment would be a dishonour within the meaning of Section 138 and clause (a) to proviso thereof. We have, therefore, no manner of doubt that so long as the cheque remains unpaid it is the continuing obligation of the drawer to make good the same by either arranging the funds in the account on which the cheque is drawn or liquidating the liability otherwise. It is true that a dishonour of the cheque can be made a basis for prosecution of the offender but once, but that is far from saying that the holder of the cheque does not have the discretion to choose out of several such defaults, one default, on which to launch such a prosecution. The omission or the failure of the holder to institute prosecution does not, therefore, give any immunity to the drawer so long as the cheque is dishonoured within its validity period and the conditions precedent for prosecution in terms of the proviso to Section 138 are satisfied. 

 

# 23. Coming then to the question whether there is anything in Section 142(b) to suggest that prosecution based on subsequent or successive dishonour is impermissible, we need only mention that the limitation which Sadanandan Bhadran’s case (supra) reads into that provision does not appear to us to arise. We say so because while a complaint based on a default and notice to pay must be filed within a period of one month from the date the cause of action accrues, which implies the date on which the period of 15 days granted to the drawer to arrange the payment expires, there is nothing in Section 142 to suggest that expiry of any such limitation would absolve him of his criminal liability should the cheque continue to get dishonoured by the bank on subsequent presentations. So long as the cheque is valid and so long as it is dishonoured upon presentation to the bank, the holder’s right to prosecute the drawer for the default committed by him remains valid and exercisable. The argument that the holder takes advantage by not filing a prosecution against the drawer has not impressed us. By reason of a fresh presentation of a cheque followed by a fresh notice in terms of Section 138, proviso (b), the drawer gets an extended period to make the payment and thereby benefits in terms of further opportunity to pay to avoid prosecution. Such fresh opportunity cannot help the defaulter on any juristic principle, to get a complete absolution from prosecution. 

 

#  24. Absolution is, at any rate, a theological concept which implies an act of forgiving the sinner of his sins upon confession. The expression has no doubt been used in some judicial pronouncements, but the same stop short of recognizing absolution as a juristic concept. It has always been used or understood in common parlance to convey “setting free from guilt” or “release from a penalty”. The use of the expression “absolution” in Sadanandan Bhadran’s case (supra) at any rate came at a time when proviso to Section 142(b) had not found a place on the statute book. That proviso was added by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 which read as under: “Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period.” 

 

# 25. The Statement of Objects and Reasons appended to the Amendment Bill, 2002 suggests that the introduction of this proviso was recommended by the Standing Committee on Finance and other representatives so as to provide discretion to the Court to waive the period of one month, which has been prescribed for taking cognizance of a case under the Act. This was so recognised judicially also by this Court in Subodh S. Salaskar v. Jayprakash M. Shah & Anr. (2008) 13 SCC 689 where this Court observed: 

• “11. The [Negotiable Instruments] Act was amended in the year 2002 whereby additional powers have been conferred upon the court to take cognizance even after expiry of the period of limitation by conferring on it a discretion to waive the period of one month. 

• xx xx xx xx 

• 24...The provisions of the Act being special in nature, in terms thereof the jurisdiction of the court to take cognizance of an offence under Section 138 of the Act was limited to the period of thirty days in terms of the proviso appended thereto. The Parliament only with a view to obviate the aforementioned difficulties on the part of the complainant inserted proviso to Clause (b) of Section 142 of the Act in 2002. It confers a jurisdiction upon the court to condone the delay...” 

 

# 26. The proviso referred to above now permits the payee to institute prosecution proceedings against a defaulting drawer even after the expiry of the period of one month. If a failure of the payee to file a complaint within a period of one month from the date of expiry of the period of 15 days allowed for this purpose was to result in ‘absolution’, the proviso would not have been added to negate that consequence. The statute as it exists today, therefore, does not provide for ‘absolution’ simply because the period of 30 days has expired or the payee has for some other reasons deferred the filing of the complaint against the defaulter. 

 

# 27. It is trite that the object underlying Section 138 of the Act is to promote and inculcate faith in the efficacy of banking system and its operations, giving credibility to Negotiable Instruments in business transactions and to create an atmosphere of faith and reliance by discouraging people from dishonouring their commitments which are implicit when they pay their dues through cheques. The provision was intended to punish those unscrupulous persons who issued cheques for discharging their liabilities without really intending to honour the promise that goes with the drawing up of such a negotiable instrument. It was intended to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case the cheque was dishonoured and to safeguard and prevent harassment of honest drawers. (See Mosaraf Hossain Khan v. Bhagheeratha Engg. Ltd. (2006) 3 SCC 658, C.C. Alavi Haji v. Palapetty Muhammed & Anr. (2007) 6 SCC 555 and Damodar S. Prabhu v. Sayed Babulal H. (2010) 5 SCC 663). Having said that, we must add that one of the salutary principles of interpretation of statutes is to adopt an interpretation which promotes and advances the object sought to be achieved by the legislation, in preference to an interpretation which defeats such object. This Court has in a long line of decisions recognized purposive interpretation as a sound principle for the Courts to adopt while interpreting statutory provisions. We may only refer to the decisions of this Court in New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar (AIR 1963 SC 1207), where this Court observed: 

• “It is a recognised rule of interpretation of statutes that expressions used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute, and which effectuate the object of the Legislature. If an expression is susceptible of a narrow or technical meaning, as well as a popular meaning, the Court would be justified in assuming that the Legislature used the expression in the sense which would carry out its object and reject that which renders the exercise of its power invalid.” 

 

# 28. Reference may also be made to the decision of this Court in Deputy Custodian, Evacuee Property v. Official Receiver (AIR 1965 SC 951), where this Court observed:

• “The rules of grammar may suggest that when the section says that the property is evacuee property, it prima facie indicates that the property should bear that character at the time when the opinion is formed. But Mr. Ganapathy Iyer for the appellants has strenuously contended that the construction of s. 7(1) should not be based solely or primarily on the mechanical application of the rules of grammar. He urges that the construction for which Mr. Pathak contents and which, in substance, has been accepted by the High Court, would lead to very anomalous results; and his arguments is that it is open to the Court to take into account the obvious aim and object of the statutory provision when attempting the task of construing its words. If it appears that the obvious aim and object of the statutory provisions would be frustrated by accepting the literal construction suggested by the respondent, then it may be open to the Court to enquire whether an alternative construction which would serve the purpose of achieving the aim and object of the Act, is reasonably possible.” 

 

# 29. The decision of this Court in Nathi Devi v. Radha Devi (2005) 2 SCC 271, reiterates the rule of purposive construction in the following words: 

• “Even if there exists some ambiguity in the language or the same is capable of two interpretations, it is trite the interpretation which serves the object and purport of the Act must be given effect to. In such a case the doctrine of purposive construction should be adopted.” 

 

# 30. To the same effect is the decision of this Court in S.P. Jain v. Krishan Mohan Gupta (1987) 1 SCC 191, where this Court observed: 

• “We are of the opinion that law should take a pragmatic view of the matter and respond to the purpose for which it was made and also take cognizance of the current capabilities of technology and life-style of the community. It is well settled that the purpose of law provides a good guide to the interpretation of the meaning of the Act. We agree with the views of Justice Krishna Iyer in Busching Schmitz Private Ltd’s case (supra) that legislative futility is to be ruled out so long as interpretative possibility permits.” 

 

# 31. Applying the above rule of interpretation and the provisions of Section 138, we have no hesitation in holding that a prosecution based on a second or successive default in payment of the cheque amount should not be impermissible simply because no prosecution based on the first default which was followed by a statutory notice and a failure to pay had not been launched. If the entire purpose underlying Section 138 of the Negotiable Instruments Act is to compel the drawers to honour their commitments made in the course of their business or other affairs, there is no reason why a person who has issued a cheque which is dishonoured and who fails to make payment despite statutory notice served upon him should be immune to prosecution simply because the holder of the cheque has not rushed to the court with a complaint based on such default or simply because the drawer has made the holder defer prosecution promising to make arrangements for funds or for any other similar reason. There is in our opinion no real or qualitative difference between a case where default is committed and prosecution immediately launched and another where the prosecution is deferred till the cheque presented again gets dishonoured for the second or successive time. 

 

# 32. The controversy, in our opinion, can be seen from another angle also. If the decision in Sadanandan Bhadran’s case (supra) is correct, there is no option for the holder to defer institution of judicial proceedings even when he may like to do so for so simple and innocuous a reason as to extend certain accommodation to the drawer to arrange the payment of the amount. Apart from the fact that an interpretation which curtails the right of the parties to negotiate a possible settlement without prejudice to the right of holder to institute proceedings within the outer period of limitation stipulated by law should be avoided we see no reason why parties should, by a process of interpretation, be forced to launch complaints where they can or may like to defer such action for good and valid reasons. After all, neither the courts nor the parties stand to gain by institution of proceedings which may become unnecessary if cheque amount is paid by the drawer. The magistracy in this country is over-burdened by an avalanche of cases under Section 138 of Negotiable Instruments Act. If the first default itself must in terms of the decision in Sadanandan Bhadran’s case (supra) result in filing of prosecution, avoidable litigation would become an inevitable bane of the legislation that was intended only to bring solemnity to cheques without forcing parties to resort to proceedings in the courts of law. While there is no empirical data to suggest that the problems of overburdened magistracy and judicial system at the district level is entirely because of the compulsions arising out of the decisions in Sadanandan Bhadran’s case (supra), it is difficult to say that the law declared in that decision has not added to court congestion. 

 

# 33. In the result, we overrule the decision in Sadanandan Bhadran’s case (supra) and hold that prosecution based upon second or successive dishonour of the cheque is also permissible so long as the same satisfies the requirements stipulated in the proviso to Section 138 of the Negotiable Instruments Act. The reference is answered accordingly. The appeals shall now be listed before the regular Bench for hearing and disposal in light of the observations made above. 

 

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