Cheque dishonour strict liability upheld; rebuttable presumptions and SICA protection do not bar prosecution.

Section 138 of the Negotiable Instruments Act was treated as a valid exercise of Parliament's power because its true character concerns banking and cheques, even though it incidentally affects debtor-creditor relations. The court held that exclusion of mens rea does not make the provision arbitrary, since the scheme imposes strict liability with notice and payment safeguards. It also upheld the differential treatment of companies and individuals as based on a reasonable classification, rejected the reading that "fails to make payment" means failure without reasonable cause, and found the section 139 presumption to be a rebuttable rule of evidence that does not offend Article 20(3). Section 22 of the SICA was held not to bar prosecution under section 138.

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Issues: (i) whether section 138 of the Negotiable Instruments Act, 1881, is beyond the legislative competence of Parliament; (ii) whether exclusion of mens rea in section 138 makes the provision arbitrary and violative of Article 14 of the Constitution of India; (iii) whether the different treatment of companies and individuals in fastening criminal liability is discriminatory; (iv) whether the words "fails to make payment" in proviso (c) to section 138 mean failure without reasonable cause; (v) whether the presumption in section 139 violates Article 20(3) of the Constitution of India; and (vi) whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, bars prosecution under section 138.

Issue (i): whether section 138 of the Negotiable Instruments Act, 1881, is beyond the legislative competence of Parliament.

Analysis: The true nature of section 138 is the creation of an offence relating to dishonour of cheques and the consequences flowing from such dishonour. Though it incidentally affects debtor-creditor relations, its pith and substance is referable to banking and cheques, not to money-lending. A Central enactment is not invalid merely because it trenches incidentally upon a State field if, in its true character, it falls within Union legislative power.

Conclusion: The provision is within Parliament's competence and is not ultra vires.

Issue (ii): whether exclusion of mens rea in section 138 makes the provision arbitrary and violative of Article 14 of the Constitution of India.

Analysis: Section 138 creates strict liability by deeming the drawer to have committed an offence upon fulfilment of the statutory conditions. The statute expressly excludes the defence of absence of belief that the cheque would be dishonoured, and the legislative object is to curb the misuse of cheques while protecting honest drawers through the notice-and-payment mechanism. In such a statutory scheme, exclusion of mens rea does not by itself render the law arbitrary.

Conclusion: Exclusion of mens rea under section 138 is not violative of Article 14.

Issue (iii): whether the different treatment of companies and individuals in fastening criminal liability is discriminatory.

Analysis: A company is a distinct legal person and liability in its case necessarily extends to those who were in charge of and responsible for its conduct. The classification between natural persons and juristic persons is based on an intelligible differentia and corresponds to the practical reality of corporate action.

Conclusion: The classification is reasonable and not violative of Article 14.

Issue (iv): whether the words "fails to make payment" in proviso (c) to section 138 mean failure without reasonable cause.

Analysis: The language of section 138 and section 140 shows that the offence is complete on non-payment within the prescribed time after notice, subject only to the statutory requirements. There is no basis to read into proviso (c) a further element of failure without reasonable cause, especially when the statute deliberately excludes the defence of lack of belief regarding dishonour.

Conclusion: The words do not mean failure without reasonable cause.

Issue (v): whether the presumption in section 139 violates Article 20(3) of the Constitution of India.

Analysis: Section 139 creates a rebuttable presumption that the cheque was received in discharge of a debt or liability. This is a rule of evidence and does not compel the accused to testify against himself. The presumption shifts only the evidential burden and remains rebuttable by appropriate evidence.

Conclusion: Section 139 does not violate Article 20(3).

Issue (vi): whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, bars prosecution under section 138.

Analysis: Section 22 suspends specified proceedings such as winding up, execution, distress, recovery proceedings and similar coercive steps against the industrial company, but it does not extend to criminal prosecution under the Negotiable Instruments Act. The section is confined to the proceedings expressly mentioned in it.

Conclusion: Section 22 does not prohibit prosecution under section 138.

Final Conclusion: The challenge to the constitutionality and applicability of sections 138, 139, 140, 141 and 142 failed, and the writ petitions were rejected with the impugned prosecutions left to proceed subject to the interpretative guidelines stated in the judgment.

Ratio Decidendi: A statutory offence creating strict liability for dishonour of cheques, supported by a rebuttable evidentiary presumption and statutory safeguards, is constitutionally valid where its true character falls within Parliament's competence and the statute expressly excludes contrary defences.

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