2012 (6) TMI 519 - SC - Indian Laws

Conviction upheld for dishonoured cheques: Importance of notice service & compensation vs fine clarified.

The High Court upheld the conviction in a case involving dishonoured cheques, emphasizing the importance of proving service of notice under Section 138 of ... Complaint under section 138 of the Negotiable Instruments Act, 1881 - repayment of a loan - Dishonor of cheque - Compensation under S. 357(3) - held that:- Though a complaint under section 138 of the Act is in regard to criminal liability for the offence of dishonouring the cheque and not for the recovery of the cheque amount, (which strictly speaking, has to be enforced by a civil suit), in practice once the criminal complaint is lodged under section 138 of the Act, a civil suit is seldom filed to recover the amount of the cheque. A stage has reached when most of the complainants, in particular the financing institutions (particularly private financiers) view the proceedings under section 138 of the Act, as a proceeding for the recovery of the cheque amount, the punishment of the drawer of the cheque for the offence of dishonour, becoming secondary. As the provisions of Chapter XVII of the Act strongly lean towards grant of reimbursement of the loss by way of compensation, the courts should, unless there are special circumstances, in all cases of conviction, uniformly exercise the power to levy fine upto twice the cheque amount (keeping in view the cheque amount and the simple interest thereon at 9% per annum as the reasonable quantum of loss) and direct payment of such amount as compensation. Nature of proceedings under NI Act - Proceedings under section 138 of the Act cannot be treated as civil suits for recovery of the cheque amount with interest. Uniformity and consistency in decisions - If some courts grant compensation and if some other courts do not grant compensation, the inconsistency, though perfectly acceptable in the eye of law, will give rise to certain amount of uncertainty in the minds of litigants about the functioning of courts. Citizens will not be able to arrange or regulate their affairs in a proper manner as they will not know whether they should simultaneously file a civil suit or not. The problem is aggravated having regard to the fact that in spite of section 143(3) of the Act requiring the complaints in regard to cheque dishonour cases under section 138 of the Act to be concluded within six months from the date of the filing of the complaint, such cases seldom reach finality before three or four years let alone six months. These cases give rise to complications where civil suits have not been filed within three years on account of the pendency of the criminal cases. While it is not the duty of criminal courts to ensure that successful complainants get the cheque amount also, it is their duty to have uniformity and consistency, with other courts dealing with similar cases. Issues Involved:1. Service of notice under Section 138 of the Negotiable Instruments Act.2. Imposition of fine versus compensation under Section 357 of the Code of Criminal Procedure.3. Harmonious interpretation of Section 138 of the Negotiable Instruments Act and Sections 29 and 357 of the Code of Criminal Procedure.4. The role of fine and compensation in cases of cheque dishonour.5. Procedural improvements and legislative recommendations for handling cheque dishonour cases.Issue-Wise Detailed Analysis:1. Service of Notice under Section 138 of the Negotiable Instruments Act:The complainant issued a notice demanding payment after the cheque was dishonoured. The First Additional Sessions Judge acquitted the accused, stating that the complainant failed to prove service of the notice as the postman was not examined. The High Court reversed this, holding that service of notice was duly proved and restored the conviction.2. Imposition of Fine versus Compensation under Section 357 of the Code of Criminal Procedure:The Magistrate sentenced the accused to a fine of Rs. 2000/- and compensation of Rs. 20,000/-. The High Court restored the fine but not the compensation, citing that compensation under Section 357(3) could not coexist with a fine. Section 357(3) allows compensation only when no fine is imposed. This interpretation was supported by precedents like State of Punjab v. Gurmej Singh and Sivasuriyan v. Thangavelu.3. Harmonious Interpretation of Section 138 of the Negotiable Instruments Act and Sections 29 and 357 of the Code of Criminal Procedure:The appellant argued for a harmonious reading of Section 138 of the Act with Sections 29 and 357 of the Code to allow compensation for the loss due to dishonour. However, the Court noted that Section 357(3) is clear that compensation cannot be awarded if a fine is imposed. The maximum fine a First Class Magistrate could impose at the time was Rs. 5,000/-, insufficient to cover the compensation of Rs. 20,000/-.4. The Role of Fine and Compensation in Cases of Cheque Dishonour:The Court acknowledged the difficulty in balancing fine and compensation. It noted that subsequent amendments (Section 143 of the Act) allowed Magistrates to impose fines exceeding Rs. 5,000/-. The Court emphasized that the primary aim of Section 138 is both punitive and compensatory, ensuring the complainant receives the cheque amount as compensation.5. Procedural Improvements and Legislative Recommendations for Handling Cheque Dishonour Cases:The Court highlighted the need for uniformity in awarding compensation and suggested legislative amendments to ensure compensation covers the cheque amount and reasonable interest. It referred to guidelines from Damodar S. Prabhu v. Sayed Babalal H. to encourage early compounding of cases. The Court proposed that uniform compensation should be awarded in all cases of conviction to avoid inconsistencies and ensure the credibility of cheques.Conclusion:The appeal was dismissed, and the High Court's judgment was upheld. The Court appreciated the assistance of the Amicus Curiae and suggested legislative changes to improve the handling of cheque dishonour cases, emphasizing the need for uniformity and consistency in awarding compensation.