NEUTRAL CITATION
R/CR.MA/15339/2020 ORDER DATED: 24/08/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL MISC.APPLICATION NO. 15339 of 2020
With
R/CRIMINAL APPEAL NO. 1506 of 2023
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SHREE HIRANI ENTERPRISE THRO CHIRAGBHAI RAMBHAI HIRANI
Versus
STATE OF GUJARAT
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Appearance:
Mr. Pratik Jasani with MR KUNTAL A JOSHI(6269) for the Applicant(s)
No. 1
MR TEJAS D SHUKLA(5312) for the Respondent(s) No. 2
Ms. Monali Bhatt, Addl. PUBLIC PROSECUTOR for the Respondent(s)
No. 1
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CORAM:HONOURABLE MS. JUSTICE NISHA M. THAKORE
Date : 24/08/2023
ORAL ORDER
1. This application is filed under Section 378(4) of the Code of Criminal Procedure seeking leave against the impugned judgment and order dated 20.02.2020 passed by the learned Additional Chief Judicial Magistrate, Ahmedabad (Rural) in Criminal Case No. 10358 of 2018. By the said judgment and order, the learned Magistrate has proceeded to record the acquittal of present respondent no.2 for the offences punishable under Section 138 of the Negotiable Instruments Act.
2. Heard Mr. Pratik Jasani, learned advocate who has appeared for Mr. Kuntal Joshi, learned advocate for the applicant- original complainant and Mr. Krunal Shah, learned advocate who has appeared with Mr.Tejas Shukla, learned advocate for the respondent -accused. Rule returnable forthwith. Mr. Shah, learned advocate waives service of Rule on behalf of the respondent- accused and Learned Additional Public Page 1 of 11 Downloaded on : Sun Sep 17 02:26:21 IST 2023 NEUTRAL CITATION R/CR.MA/15339/2020 ORDER DATED: 24/08/2023 undefined Prosecutor waives service of Rule on behalf of the respondent State.
3. Learned advocate for the applicant has at the outset submitted that the learned Magistrate has proceeded to record the acquittal mainly on the ground that the offence under Section 138 of the Negotiable Instruments Act is not attracted noticing that part payment of amount of disputed cheque has been realized by the applicant and there was no compliance of Section 56 of the Negotiable Instruments Act. Learned advocate for the applicant has made various attempts to convince the Court that trial Court has committed serious error in interpreting Section 56 of the Negotiable Instruments Act in the facts of the present case. Learned advocate has relied upon the documentary evidence brought on record, more particularly, the legal notice dated 14.09.2018 issued by the complainant calling upon the respondent- accused to make payment of the cheque amount. It is further submitted that from the averments made in the said demand notice, it clearly transpires that in fact the complainant had fairly pointed out to the respondent -accused about realization of the part amount of Rs.8,30,720/- towards outstanding amount of Rs.13,46,224/- on 8.6.2018. By referring to the aforesaid fact, learned advocate has further invited attention of this Court to the reply given by the respondent- accused which is brought on record vide Exh.13 and has submitted that in fact the defence which was raised by the respondent - accused goes to indicate the conduct of the respondent. The respondent had shirked from his liability to Page 2 of 11 Downloaded on : Sun Sep 17 02:26:21 IST 2023 NEUTRAL CITATION R/CR.MA/15339/2020 ORDER DATED: 24/08/2023 undefined make payment on 13.5.2018 as alleged in the legal notice. It is further submitted that further defence with regard to return of four bags with 100 Kg of material was raised to contend that no outstanding amount is to be paid to the complainant. Having noticed such defence of the respondent -accused, complainant was constrained to approach the Court of learned Magistrate by lodging the complaint under Section 138 of the Negotiable Instruments Act.
4. Mr. Pratik Jasani, learned advocate for the applicant has further relied upon the judgment of the High Court of Madras in the case of R.Varatharajan vs. Mohammed Ismail reported in 2022 SCC Online Mad 7908 to contend that even in absence of endorsement being made on the cheque where the part payment was received pending trial, the Court has entertained the complaint. He, therefore, urge this Court to consider the case for admission of appeal and grant of leave to appeal.
5. Mr. Krunal Shah, learned advocate for the respondent- accused has vehemently objected to grant of leave to appeal. By referring to the reasons assigned by the learned Magistrate, learned advocate has submitted that no error has been committed by the learned Magistrate in dismissing the complaint and acquitting the present respondent no.2 for the offence alleged under Section 138 of the Negotiable Instruments Act. At the outset, learned advocate has relied upon the judgment of the Hon'ble Supreme Court in the case of Dashrathbhai Trikambhai Patel vs. Hitesh Mahendrabhai Patel and Anr reported in AIR Page 3 of 11 Downloaded on : Sun Sep 17 02:26:21 IST 2023 NEUTRAL CITATION R/CR.MA/15339/2020 ORDER DATED: 24/08/2023 undefined 2022 SC 4961 to contend that if the cheque that is dishonoured does not represent the enforceable debt at the time of encashment, then the order of acquittal for the offence under Section 138 cannot be faulted with. The Hon'ble Supreme Court had held that the conditions stipulated in the proviso to Section 138 need to be fulfilled in addition to the ingredients of substantive part of Section 138. He, submitted that as against the total outstanding amount of Rs.13,46,224/, indisputably an amount of Rs.8,30,720/- has been paid by RTGS as accepted by the complainant in his demand notice dated 10.08.2018. In such circumstances, when the cheque was presented for realization on the second time on 14.08.2018, the complainant ought to have complied with the provisions of Section 56 of the Negotiable Instruments Act. In absence of any endorsement being made, with regard to part payment being received, disputed cheque, said instrument stood invalid and no offence punishable under Section 138 of the Negotiable Instruments Act can be said to have been attracted. Mr. Shah in support of his submission has also relied upon the judgment of the High Court of Punjab and Haryana High Court in the case of M B Metal Industries vs. Vijay Impex reported in 2015 Law Suit ( P & H) 6385 as well as judgment of the High Court of Calcutta in the case of M/s Pharma Traders & Ors vs. Jagadish Chandra Gupta & Anr reported in 2023 Law Suit (Cal) 654. He urge this Court that no case is made out to consider leave to appeal. He, therefore, prayed for dismissing the appeal.
6. Having heard the learned advocates for the respective Page 4 of 11 Downloaded on : Sun Sep 17 02:26:21 IST 2023 NEUTRAL CITATION R/CR.MA/15339/2020 ORDER DATED: 24/08/2023 undefined parties and having perused the impugned judgment and order, in the opinion of this Court, only question which falls for consideration is whether the cheque presented for encashment in the facts of the case attracts offence punishable under Section 138 of the Negotiable Instruments Act. At this stage, reference to the relevant dates would be significant. It has transpired on record that the case put forward by the complainant in nutshell was that applicant and the respondent were known to each other since last many years. Respondent no.2 had purchased the goods of PVC Plastic Re-grind material of 26 tonnes worth Rs.13,46,224/- and for payment of the said transaction, he had issued cheque bearing no.441664 dated 22.5.2018 drawn on Indus Ind Bank, Nikol Branch, Ahmedabad. It is contended by the complainant that the cheque dated 13.5.2018 was first time presented for realization on 22.5.2018, which was dishonored on 30.05.2018. The concerned Bank had returned the cheque with an endorsement "funds insufficient". Indisputably, the fact has come on record that respondent no.2 has thereafter paid an amount of Rs.8,30,720/- and has further assured the applicant to pay remaining amount by way of RTGS transfer but the same was not paid. It is the case of the applicant that in such circumstances the applicant had once again deposited the said cheque before the concerned Bank on 10.08.2018, which was again dishonored with an endorsement "funds insufficient" on 14.08.2018. The applicant in such circumstances was constrained to issue demand notice upon the respondent no.2 on 14.09.2018, which was duly served and received by the respondent no.2 on 16.09.2018. Such legal notice has been brought on record by the complainant vide Exh.24. It is further Page 5 of 11 Downloaded on : Sun Sep 17 02:26:21 IST 2023 NEUTRAL CITATION R/CR.MA/15339/2020 ORDER DATED: 24/08/2023 undefined contended by the complainant that though the reply was given by the respondent accused, however the accused had tried to shirk away from his responsibility of making payment of remaining amount. On expiry of the stipulated period, the complainant had proceeded to lodge the complaint under Section 138 of the Negotiable Instruments Act, which was registered as Criminal Case No. 10358 of 2018 before the Court of learned Additional Judicial Magistrate, Ahmedabad (Rural), Ahmedabad.
7. From the aforesaid facts, it has emerged on record that against the total outstanding amount of Rs.13,46,224/-, part payment of an amount of Rs. 8,30,720/- has been received by the complainant. The aforesaid fact was in knowledge of the complainant as borne out from the legal notice raised by the complainant after dishonored of the cheque for the second time, which was presented on 14.09.2018. In such circumstances, it was expected from the original complainant to comply with the provision of Section 56 of the Negotiable Instrument Act, which reads as under:
"56. Indorsement for part of sum due.--No writing on a negotiable instrument is valid for the purpose of negotiation if such writing purports to transfer only a part of the amount appearing to be due on the instrument; but where such amount has been partly paid a note to that effect may be endorsed on the instrument, which may then be negotiated for the balance."
8. From the plain reading of the aforesaid provision, it can be inferred that where due amount as the cheque has been partly Page 6 of 11 Downloaded on : Sun Sep 17 02:26:21 IST 2023 NEUTRAL CITATION R/CR.MA/15339/2020 ORDER DATED: 24/08/2023 undefined paid then a note to that effect if endorsed on me instrument maker such instrument valid for the purpose of negotiation for balance amount. In the present case, when admittedly part payment is made after the cheque was drawn and before cheque was presented for realization, it was incumbent upon the complainant to make appropriate endorsement on the cheque acknowledging that part payment was made according to the provision of Section 56 of the Act. As fairly pointed out by learned advocate for the applicant that notice of demand dated 10.08.2018 raised by the complainant did mention about the aforesaid fact. However, the fact remains that the cheque which was presented for realization bears a figure of the whole outstanding amount. Despite, receiving part repayment against the aforesaid sum, in absence of sums endorsement of part payment, cheque cannot be treated as a valid instrument in eye of law in view of Section 56 of the Act. The aforesaid amount does not indicate "legally enforceable debt" so as to attract the offence punishable under Section 138 of the Negotiable Instruments Act as on the date of presentation of the cheque.
9. At this stage, it would be germane to look into the law laid down by the Hon'ble Supreme Court in the case of Dashrathbhai Trikambhai Patel (supra), the Hon'ble Supreme Court after taking into consideration the Section 56 read with Section 15 of the Act has held that the cheque cannot be presented for encashment without referring to the part payment if un- endorsed cheque is dishonoured on presentation, the offence under Section 138 would not be attracted since the cheque does not represent a legally enforceable debt at the time of presentation. The relevant observations as well as final Page 7 of 11 Downloaded on : Sun Sep 17 02:26:21 IST 2023 NEUTRAL CITATION R/CR.MA/15339/2020 ORDER DATED: 24/08/2023 undefined remarkable conclusions of the Hon'ble Supreme Court, on the issue on hand, is reproduced as under:
"26. The appellant contends that the purpose ofSection 138of the Act would be defeated if the dishonour of the cheque issued for security is not included within the purview ofSection 138 where the payment of a part of the cheque amount is made. It was contended that it would lead to a possibility where the drawer of the cheque could evade prosecution underSection 138 by paying a small amount of the debt while defaulting on the remaining payment.Section 56stipulates that if there is an endorsement on a negotiable instrument that a part of the sum mentioned in the cheque has been paid, then the instrument may be negotiated for the balance.Section 56 reads as follows:
"56. Indorsement for part of sum due.- No writing on a negotiable instrument is valid for the purpose of negotiation if such writing purports to transfer only a part of the amount appearing to be due on the instrument; but where such amount has been partly paid a note to that effect may be indorsed on the instrument, which may then be negotiated for the balance."
27.Section 15 defines the phrase 'indorsement' as follows:
"15. Indorsement.- When a maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to indorse the same, and is called the "indorse"."Page 8 of 11 Downloaded on : Sun Sep 17 02:26:21 IST 2023
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28. A Division Bench of the Kerala High Court has held in Joseph Sartho v. Gopinathan12 that since the representation in the cheque was for a sum higher than the amount that was due on the date that it was presented for encashment, the drawer of the cheque cannot be convicted for the offence under Section 138 of the Act. The High Court of Delhi addressed the same issue inAlliance Infrastructure Project Ltd. v. Vinay Mittal13. The High Court observed that when part payment is made after the cheque is drawn, the payee has the option of either taking a new cheque for the reduced amount or by making an endorsement on the cheque acknowledging that a part payment was made according to the provisions ofSection 56of the Act. It was also held that the notice of demand which requires the drawer of the cheque to make payment of the whole amount represented in the cheque despite receiving part repayment against the sum, before the issue of notice, cannot be valid underSection 138(b)of the Act. A similar view was taken by the High Court of Gujarat inShree Corporation v. Anilbhai Puranbhai Bansal14.
29. UnderSection 56read withSection 15of the Act, an endorsement may be made by recording the part-payment of the debt in the cheque or in a note appended to the cheque. When such an endorsement is made, the instrument could still be used to negotiate the balance amount. If the endorsed cheque when presented for encashment of the balance amount is dishonoured, then the drawee can take recourse to the provisions ofSection
138. Thus, when a part- payment of the debt is made after the cheque was drawn but before the cheque is encashed, such payment must be endorsed on the cheque under Section 56 of the Act. The cheque cannot be presented for encashment without recording the part payment. If the unendorsed cheque is dishonoured on presentation, the offence under Section 138 would not be attracted since the cheque does not represent a legally enforceable debt at the time of encashment.
30. In view of the discussion above, we summarise our findings below:
(i) For the commission of an offence under Section 138, the cheque that is dishonoured must represent a legally enforceable debt on the date of maturity or presentation;Page 9 of 11 Downloaded on : Sun Sep 17 02:26:21 IST 2023
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(ii) If the drawer of the cheque pays a part or whole of the sum between the period when the cheque is drawn and when it is encashed upon maturity, then the legally enforceable debt on the date of maturity would not be the sum represented on the cheque;
(iii) When a part or whole of the sum represented on the cheque is paid by the drawer of the cheque, it must be endorsed on the cheque as prescribed in Section 56 of the Act. The cheque endorsed with the payment made may be used to negotiate the balance, if any. If the cheque that is endorsed is dishonoured when it is sought to be encashed upon maturity, then the offence underSection 138 will stand attracted;
(iv) The first respondent has made part- payments after the debt was incurred and before the cheque was encashed upon maturity. The sum of rupees twenty lakhs represented on the cheque was not the 'legally enforceable debt' on the date of maturity. Thus, the first respondent cannot be deemed to have committed an offence under Section 138 of the Act when the cheque was dishonoured for insufficient funds; and
(v) The notice demanding the payment of the 'said amount of money' has been interpreted by judgments of this Court to mean the cheque amount. The conditions stipulated in the provisos to Section 138 need to be fulfilled in addition to the ingredients in the substantive part of Section 138. Since in this case, the first respondent has not committed an offence under Section 138, the validity of the form of the notice need not be decided."
10. The issue is now no more res-integra in view of the aforesaid law laid down by the Hon'ble Supreme Court. In the opinion of this Court, no arguable case is made out for granting leave to appeal. Hence, present application seeking leave to Page 10 of 11 Downloaded on : Sun Sep 17 02:26:21 IST 2023 NEUTRAL CITATION R/CR.MA/15339/2020 ORDER DATED: 24/08/2023 undefined appeal is hereby refused and stands rejected. Rule is discharged.
Order in Criminal Appeal No.1506of 2023 In view of the rejection of application for grant of special leave to appeal, present appeal also stands rejected.
(NISHA M. THAKORE,J) KAUSHIK J. RATHOD Page 11 of 11 Downloaded on : Sun Sep 17 02:26:21 IST 2023