IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 29TH DAY OF AUGUST 2019 BEFORE THE HON’BLE MR. JUSTICE JOHN MICHAEL CUNHA CRIMINAL PETITION NO.6816 OF 2015 BETWEEN:
SRI NABHIRAJ AGED ABOUT 64 YEARS, DIRECTOR AZTEC DIGITALS PRIVATE LIMITED RESIDING AT DOOR NO.3-5-498 SIDHOOR, KADRI TEMPLE NEW ROAD, BEJAI ROAD, MANGALORE – 575 004.
(BY SRI: K SHRIHARI, ADVOCATE) ... PETITIONER AND STATE BANK OF INDIA A BANKING CORPORATION CONSTITUTED UNDER THE STATE BANK OF INDIA ACT, 1955 AND HAVING ONE OF ITS LOCAL HEAD OFFICE AT BANGALORE AND AMONGST OTHER PLACES SME BRANCH KODIALBAIL MANGALORE-575003 REPRESENTED BY ITS ASSISTANCE GENERAL MANAGER SRI.RAMESH RAO ... RESPONDENT (BY SRI: G N SATHYAMURTHY, ADVOCATE) THIS CRL.P IS FILED U/S.482 CR.P.C PRAYING TO QUASH THE COMPLAINT IN C.C.No.764/2014 PENDING ON THE FILE OF THE JUDICIAL MAGISTRATE, FIRST CLASS (V-COURT) MANGALURU.
THIS CRL.P COMING ON FOR HEARING THIS DAY, THE COURT MADE THE FOLLOWING:-
O R D E R Heard learned counsel for petitioner and learned counsel for respondent.
This petition is filed seeking to quash the complaint in C.C.No.764/2014 pending on the file of Judicial Magistrate, First Class (V Court), Mangaluru.
2. The respondent – State Bank of India filed a complaint under section 200 Cr.P.C., seeking action under section 138 of the Negotiable Instruments Act, 1881 (“N.I. Act” for short) for dishonour of the cheque issued by the petitioner herein for a sum of Rs.2,50,00,000/- (Rupees Two Crores Fifty Lakhs) drawn on Karnataka Bank Limited, Kadri Road, Pumpwell, Mangalore. According to the complainant, AZTEC Digitals Pvt. Ltd., borrowed a loan from State Bank of India, SME Branch. Towards the discharge of portion of the loan amount, as Director, the petitioner herein/accused issued the aforesaid cheque. The said cheque when presented for collection through Cheque Truncation System, the same was dishonoured on the ground of insufficient fund. Learned Magistrate took cognizance of the above offence and issued summons to the petitioner.
3. Petitioner has approached this court seeking quashment of the proceedings on the ground that averments made in the complaint are bald and vague. The loan facility was availed by the Company and not by the petitioner/ accused. The complainant has no locus standi to file the complaint inasmuch as the cheque in question was issued by the petitioner/accused in favour of the Company. The Company was the “holder in due course” of the said cheque and therefore, the complainant had no right over the cheque in question. There was no transaction between the petitioner/accused and the respondent/complainant and hence, there was no liability in respect of which the cheque could have been issued by the petitioner. In the absence of any indorsement by the Company, the complainant did not answer the description of “payee” or “holder in due course” of this cheque. As such, the complainant did not have any right to demand payment of the aforesaid cheque in view of provisions of section 138(b) of the N.I. Act.
4. Learned counsel for petitioner argued in line with the contentions urged in the petition and by placing reliance on the decision of this Court in KITTUR RANI CHENNAMMA URBAN CO- OP. CREDIT SOCIETY vs. MALLIKARJUN GANGADHAR PASALKAR, LAWS (KAR) 2018 3 341, in Criminal Revision Petition No.2321/2010 decided on 01.03.2018, with reference to paras 9 to 13 thereof, emphasized that the cheque in question having been crossed, the same was not negotiable and it was not a bearer cheque and therefore, the complainant was not entitled to initiate proceedings under section 138 of N.I. Act. It is contended that the Learned Magistrate has erred in taking cognizance of the alleged offence and issuing summons to the petitioner.
5. To counter the above argument, learned counsel for respondent has drawn my attention to the tenor of the cheque and pointed out that the word “bearer” in the cheque is not scored off, as a result, the cheque has remained a bearer cheque. The crossing of the cheque either generally or specially does not affect negotiation. It only mandates the banker to pay the proceeds to any banker if it is crossed generally and to particular banker if it is crossed specially, therefore, the contention urged by learned counsel for petitioner that respondent/complainant is not entitled to sue the drawer of the cheque is not a sound proposition of law. Further, referring to the averments made in the complaint that the cheque in question was issued by the petitioner towards discharge of the loan borrowed by the Company, of which the petitioner was the Director, there was subsisting liability in respect of which the cheque in question was issued by the petitioner. In the light of the said averments and in view of the specific provision contained in section 9 of the N.I. Act, respondent falls within the definition of “holder in due course” and under the said circumstance, respondent/complainant was entitled to proceed against the petitioner for dishonour of the aforesaid cheque. In support of his submission, learned counsel for respondent/complainant has placed reliance on the following decisions:-
1) India Saree House Museum Vs. P.Kapuchand & Others, 1989(2) KLJ 410;
2) B. Sarvothama Vs. S.M.Haneef, (2013) 5 KLJ 89;
3) Simeya Hariramani & Anr. Vs. Bank of Baroda, Balado Bazar, in CRMP.No.956/2017 DD 20.02.2018 - High Court of Chhattisgarh, Bilaspur;
4) Bank of India Vs. State & Others: CRL.M.C.2452/2009 DD 10th Sept., 2010 – High Court of Delhi;
5) Mainuddin Abdul Sattar Shaikh Vs. Vijay D.Salvi, (2015) 9 SCC 622;
6) Anil Sachar & Another Vs. Shree Nath Spinners Pvt. Ltd & Others; (2011) 13 SCC 148; and 7) ICDS Ltd Vs. Beena Shabeer & Another,(2002) 6 SCC 426.
6. I have bestowed my careful thought to the rival contentions urged at the Bar and have gone through the decisions referred to by the respective counsels and the provisions of Negotiable Instruments Act with reference to the averments made in the complaint.
7. In the light of the contentions urged by the parties, questions that arise for consideration are:
1. Whether a “crossed” cheque could be treated as “bearer” cheque, if the word “bearer” is not scored off in the cheque?
2. Whether, the complainant in the instant case is a “holder in due course” within the meaning of Section 9 of the N.I.Act ?
3. Whether the summons issued to the petitioner is contrary to Section 138 of N.I.Act ?
8. To avoid repetition of discussion all these three questions are taken up for consideration together. The first aspect to be noted is that the petitioner does not dispute the fact that the cheque in question was drawn by him on the account maintained by him. The only contention urged by petitioner is that the cheque was drawn in the name of AZTEC Digitals Private Limited and it was crossed and the same having not been indorsed in favour of respondent/complainant, the complainant did not derive any title to the said cheque and therefore it was not entitled to proceed against the petitioner under section 138 of N.I. Act.
9. There is no dispute with regard to the fact that the cheque in question was drawn in the name of AZTEC Digitals Private Limited and the word “bearer” appearing in the cheque was not scored off. We have to therefore proceed on the basis of these undisputed facts. The respondent/complainant has proceeded on the premise that the cheque in question was handed over to it by the petitioner towards discharge of the loan due by AZTEC Digitals Private Limited of which petitioner was one of its Directors, and therefore the complainant was the “holder in due course” as defined under Section 9 of the N.I. Act.
10. Section 9 of the N.I. Act defines the expression “holder in due course”. As per this definition “holder in due course” means, any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof. This definition does not require that in order to claim a right to an instrument as “holder in due course”, the same should have been drawn in the name of the person who is in possession of the instrument. In order to satisfy the requirements of section 9, a person who claims right to the instrument must essentially establish that he became the possessor of the cheque or promissory note for some consideration or that the said cheque was indorsed in his favour by the payee or indorsee. It suffices for the purpose of this definition if any one of the above requirements or preconditions are satisfied. The section uses the disjuncture “or” making it evident that, even without an indorsement, if it is shown that the instrument came in possession of the holder, for valuable consideration, the requirement of Section 9 of N.I. Act is to be held as satisfied.
11. In the instant case, the cheque does not contain any indorsement in favour of the complainant – Bank. Nonetheless there being clear averments in the complaint that the cheque in question was received by the complainant for valuable consideration namely, towards discharge of the debt due by AZTEC Digitals Private Limited of which the petitioner was Director, in my view, complainant falls within the description of “holder in due course” as defined under section 9 of N.I. Act.
12. Indorsement is not the only mode by which a cheque could be negotiated. The term “negotiation” is defined under section 14 of the N.I. Act as under:-
“14. Negotiation.- When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute the person the holder thereof, the instrument is said to be negotiated.”
In view of this provision, even delivery of the instrument for consideration can be valid negotiation.
13(i) It is trite law that consideration in a contract can be furnished by any person even by a third party. The existing debt is always considered as a valid consideration. In INDIA SAREE MUSEUM vs. P.KARPURCHAND, 1991(1) BC 344, this court has ruled that, it is not only the endorsee who becomes a holder in due course but also a person who gets possession of the negotiable instruments for consideration is a holder in due course. Therefore, once it is established to the satisfaction of the court that the cheque was issued towards discharge of the debt of the Company, the Bank could necessarily be considered as the “holder in due course”.
(ii) It is equally settled law that the credit given by a Bank to its customer can be discharged by any third person and when the third person issues the cheque in the name of customer assuring the Bank that it would wipe out the liability payable by the customer, then the cheque in the hands of the Bank is to be treated as for valuable consideration. In that view also, the respondent Bank becomes the “holder in due course”.
(iii) In ANIL SACHAR & Another vs. SHREE NATH SPINNERS PRIVATE LIMITED & Others, (2011) 13 SCC 148, in para 20, it is observed as under:-
“20. We may also refer to the judgment delivered by this Court in ICDS Ltd. In the said judgment this Court has referred to the nature of liability which is incurred by the one who is a drawer of the cheque. If the cheque is given towards any liability or debt which might have been incurred even by someone else, the person who is the drawer of the cheque can be made liable under Section 138 of the Act. The relevant observation made in the aforestated judgment is as under:
“The words ‘any cheque’ and ‘other liability’ occurring in Section 138 are the two key expressions which stand as clarifying the legislative intent so as to bring the factual context within the ambit of the provisions of the statue. These expressions leave no manner of doubt that for whatever reason it may be, the liability under Section 138 cannot be avoided in the event the cheque stands returned by the banker unpaid. Any contra- interpretation would defeat the intent of the legislature. The High Court got carried away by the issue of guarantee and guarantor’s liability and thus has overlooked the true intent and purport of Section 138 of the Act.”
14. Coming to the right of a holder in due course to take recourse to the provisions of Section 138 of N.I. Act is concerned, the first and foremost essential requirement to be satisfied is that the person who is to be made liable for dishonour of the cheque should be a drawer of the cheque and secondly, he should have drawn the cheque on an account maintained by him with a banker for payment of any amount of money to any person from out of that account for discharge, in whole or in part, of any debt or other liability. From a bare reading of section 138 of N.I. Act, it is clear that a person who draws a cheque on the account maintained by him, for discharge of his debt or “other liability” attracts the rigors of Section 138 of the N.I.Act.
15. In the instant case, no doubt, the complainant is not described as “payee” of the aforesaid cheque, nonetheless, the cheque in question has essentially remained a “bearer” cheque. The contention of learned counsel for petitioner that, on account of crossing of the cheque, the cheque in question had lost the character of a bearer cheque and was not negotiable, does not find support either in Banking practice or in the provisions of the N.I. Act.
16. The Andhra Pradesh High Court in INTECH NET LIMITED vs. STATE, 2007 Cr.LJ 216, has held that once the issuance of a cheque is admitted and if the words “or bearer” are not scored off, the person in possession would be a holder in due course and would be entitled to invoke S. 138 NI Act, in case of dishonour of the same.”
17. In one of the decisions rendered by this Court in B.SARVOTHAMA vs. M.HANEEF, (2013) 5 KLJ 89, this court has observed that, “Once a bill of exchange is issued as payable to bearer, it remains always a bearer, held the filed, until the ruling in Forbes Campbell vs. The Official Assignee of Bombay, (1925) 27 Bom. LR 34, which completely upset the ordinary banking practice in India. It was held therein that, where a hundi was drawn in favour of a payee or bearer and was endorsed by the payee to a third person, it ceased to be a bearer hundi and was payable to the third person or his order. It was only with the passage of the Negotiable Instruments (Amendment) Act, 1934, that the principle “ once a bearer, always a bearer” has been finally recognized so far as cheques are concerned and the difference between the English and the Indian Law on this point has been done away with. The amendment introduced as sub- section(2) to S.85 of the NI Act reads thus”
“Where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof, notwithstanding any endorsement whether in full or in blank appearing thereon and not withstanding that any such endorsement purports to restrict or exclude further negotiation.”
The amendment however, does not change the legal position, as held in Fobres (supra), in so far as hundis are concerned.
18. The question whether on account of crossing, cheque ceases to be a “bearer cheque” came up for consideration of Allahabad High Court in DURGA SHAH MOHAN LAL BANKERS vs. GOVERNOR GENERAL IN COUNCIL, AIR 1952 Allahabad 590 and it was held, A cheque is under the law a negotiable Instrument. Its negotiability can be destroyed only if it is marked as “not negotiable” on its face; it is not destroyed by its simply being crossed whether generally or specially. The only effect of crossing a cheque is, as stated in Section 126, Negotiable Instruments Act, that the drawee bank must not pay it otherwise than to any banker if it is crossed generally, or to the particular banker if it is crossed specially. There is no other effect of the crossing. In Carlon v. Ireland, (1856) 25L.J.Q.B. 113, Coleridge J. stated at p.114:
“It may be that the effect of the crossing is to require caution on the part of the person taking it, & to throw upon him the obligation of shewing that he had taken it bona fide, & had given value for it; bat it cannot be carried further without interfering with the negotiability of the instrument.”
Lord Cairns C. said in Smith v. The Union Bank of London, (1875) I.Q.B.D.31 at p .34, that, “Whatever may have been the effect of a crossing, the negotiability of the cheque was not thereby restrained.”
The said decision arose out of a suit for recovery of money filed by plaintiff/appellant therein on the ground that, on 31.5.1940, Lt.Lockyer of the Regiment in his official capacity drew a cheque for Rs.716-13-0 on the Imperial Bank of India, Allahabad Branch, payable to Major Phillips also in his official capacity, or bearer and crossed it geneally. He did not mark it as “not negotiable.” He handed over the cheque to Major Phillips who endorsed it in blank on the back and gave it to Sgt. Pettiford. The contention taken before the Court that the plaintiff should have paid it through a banker and not direct and that the cheque was handed over to Sgt. Pettiford not to be cashed but to be paid into the treasury through Lt. Mausel. In the said context, courts below held as the cheque was payable to bearer and as the payee had already endorsed it in blank, any bearer of it could collect its money through a banker.
19. The above proposition is based on the well settled principle that, merely by crossing the cheque, the cheque does not lose the character of bearer cheque unless the words “or bearer” are scored off or any specific mark is made thereon as “not negotiable”. This view has been followed by this court in B.SARVOTHAMA’s case referred above. In the light of this legal position, the contention urged by the learned counsel for petitioner that on account of crossing of the cheque, the cheque ceased to be a bearer cheque and the proceeds whereof could not have been paid to the holder in due course is liable to be rejected and is accordingly rejected.
20. As the complainant has prima facie established that the cheque in question was drawn by the petitioner on the account maintained by him with his banker and the same was issued to the respondent Bank towards the discharge of “other liability” in view of section 138 of N.I. Act, the petitioner alone is liable for the consequences of dishonour of the said cheque.
21. In the light of the above discussion, I do not find any error or illegality in the impugned order passed by the learned Magistrate issuing summons to the petitioner. Consequently the petition being devoid of merits is liable to be dismissed and is accordingly dismissed. The trial court shall proceed with the trial in accordance with law.
Petition is dismissed.
Sd/- JUDGE Bss