Section 138: Supreme Court says revision court cannot examine the defence of accused and direct dropping of proceedings [Read the Order]

May 16, 2016:

Supreme Court has said that revision court cannot examine the defence of accused before the evidence and drop the proceedings against accused in a cheque bounce case.

A three judges bench of Justice Sabharwal, Justice Srikrishna and Justice Kapadia had passed the order in a case titled as State Farm Corpn. of India Ltd. vs M/s. Nijjer Agro Foods Ltd. on 21.07.2005.

In commercial transaction between the parties, payment was to be made and was secured by post dated cheques with condition that if the debtor gives demand drafts before the scheduled dates, the cheques should be returned. Apparendtly the debtor given the demand draft but the creditor instead of returning the cheques presented the same for encashment and then filed complaint under Section 138 NI Act.

Two complaints under Section 138 of the Negotiable Instruments Act were filed by the appellant against the respondents. In those complaints, the Metropolitan Magistrate, New Delhi issued summons to the respondents. An application filed by them for dropping the proceedings was dismissed in terms of the order of learned Magistrate, dated 26th April, 1999, holding that whether the cheques were issued for discharge of debt/liability can be decided only after recording evidence.

It was also held by the Magistrate that whether the respondents have made payment by way of bank drafts in lieu of the cheques which are subject matter of complaints can also be decided at the trial and not at the stage of summoning and by way of an application seeking to drop the criminal complaint proceedings.

Delhi High Court however found otherwise and observed "The question before the learned trial court was whether there was any liability of the petitioner towards these cheques in question or not. Merely because some amount or remaining balance payment was due from the petitioner does not mean that respondent No. 1 was entitled to recover those payments by virtue of the aforesaid two cheques given by the petitioner as security which were replaceable by way of demand drafts....... Once the payment against those cheques was made by way of demand drafts the liability qua these cheques ceased to exist and therefore the respondent No. 1 was not entitled to present those cheques even if some amount or balance amount was due from the petitioner".

High Court set aside the order of magistrate and directed dropping of proceedings. This order then was challenged by the complainant before the Supreme Court which found "Quite strangely the High Court, by impugned judgment dated 14th October, 2003, while exercising revisional jurisdiction, examined the defence on merits and allowed the criminal revision petition filed by the respondents and reversed the decision of the Magistrate declining to drop the proceedings by holding that by making payment of Rs.40 lacs, the respondents had discharged their liability. It was no stage to examine the defence of the respondents".

However, the Supreme Court clarified "Though, at this stage, we are not going into the merits, but we may only note that the subject matter of the two complaints are four cheques in all amounting to Rs.76,55,917.47 ps. According to the respondents, they made payment of Rs.40 lacs by six bank drafts after the issue of some of the cheques. Whether the said payment has been made or it is towards some of the amounts covered by the cheques are all the questions which can be decided only at the trial of the complaint cases under Section 138 of the Negotiable Instruments Act and could not have been made the basis of allowing the revision petition. The approach of the High Court is clearly erroneous".

Supreme Court then set aside the High Court order and restored the complaint case.

Read the order of the High Court here:

Read the order of Supreme Court here:

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