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of <h1>Supreme Court: 'Account Closed' Cheque Triggers Section 138</h1> <h3>NEPC Micon Ltd. Versus Magma Leasing Ltd.</h3> The Supreme Court held that the closure of an account, indicated by the return of a cheque with the endorsement 'account closed,' falls within the purview ... - Issues Involved:1. Whether the closure of the account falls within the purview of Section 138 of the Negotiable Instruments Act, 1881.2. Interpretation of Section 138 in the context of penal provisions.3. Legislative intent and purpose behind Section 138.Summary:Issue 1: Whether the closure of the account falls within the purview of Section 138 of the Negotiable Instruments Act, 1881.The Appellants argued that the return of cheques with the endorsement 'account closed' does not fall under Section 138 of the Negotiable Instruments Act, 1881, which envisages only two situations: (i) insufficient funds, or (ii) exceeding the amount arranged to be paid from that account. The Court, however, held that the closure of the account implies that there were no funds in the account at the relevant time, thus falling within the purview of Section 138. The expression 'the amount of money standing to the credit of that account is insufficient to honour the cheque' includes the scenario where the account is closed, as it means there was no amount in the credit of 'that account' when the cheque was presented.Issue 2: Interpretation of Section 138 in the context of penal provisions.The Court emphasized that even though Section 138 is a penal provision, it should not be interpreted in a manner that defeats its purpose. The Court referred to the principle that penal statutes should be construed to suppress the mischief and advance the remedy. The Court cited various precedents, including Kanwar Singh v. Delhi Administration and Swantraj v. State of Maharashtra, to support the view that the interpretation should not allow dishonest persons to escape penal consequences by closing their accounts before cheque presentation.Issue 3: Legislative intent and purpose behind Section 138.The Court highlighted that the legislative intent behind Section 138 is to promote the efficacy of banking operations and ensure credibility in commercial transactions through cheques. The Court referred to the decision in Modi Cements Ltd. v. Kuchil Kumar Nandi, which held that Section 138 aims to inculcate faith in banking operations and prevent the misuse of cheques. The Court concluded that interpreting Section 138 to include the closure of accounts within its ambit aligns with the legislative purpose of maintaining the credibility of cheques in commercial transactions.Conclusion:The Supreme Court dismissed the appeal, holding that the return of a cheque with the endorsement 'account closed' falls within the purview of Section 138 of the Negotiable Instruments Act, 1881. The Court emphasized that the interpretation should align with the legislative intent to suppress the mischief and advance the remedy, thereby ensuring the efficacy and credibility of banking operations in commercial transactions.
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