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If Cheque Of Wife Given In Discharge Of Husband's Liability Gets Dishonoured, Can Prosecution U/S 138 Of Ni Act Be Launched Against Her?

The Madras High Court in the case of M.Jaishankar Vs. M/s.Sree Gokulam Chits and Finance Corporation Private Limited[1], decided recently on 04 December 2020, has answered the question as to whether prosecution under section 138 of Negotiable Instruments Act, 1881 can be initiated against a wife, whose cheque given in discharge of her husband's liability gets dishonoured.

The brief facts of the case are that the Respondent had initiated a prosecution under Section 138 of the NI Act against the Petitioner & his wife. The Petitioner had joined some chit groups floated by the Respondent and was given chit amounts, towards which, he issued some cheques as security. The Petitioner defaulted on the repayment of the chits and he along with his wife came for settlement. His wife issued a cheque in favour of the Respondent.

However, on presentation the said cheque was returned unpaid with the endorsement 'payment stopped by the drawer'. The Petitioner did not make the payment in response to the statutory demand notice and accordingly the Respondent initiated proceedings u/s 138 of NI Act against the Petitioner & his wife. The Court heard the matter in details and finally held thus:

It is trite that if a cheque is issued by a person in discharge of the liability of another person and if the cheque is dishonoured, the person, who issued the cheque can be prosecuted under Section 138 of the NI Act. Just because Jaishankar (A1) was the beneficiary of the loan, he cannot be prosecuted under Section 138 of the NI Act for the dishonour of the cheque issued by his wife Nagalakshmi (A2).

The Court also observed that the said cheque was not issued from the bank account of any juristic entity for invoking vicarious liability provisions viz. Section 141 of the NI Act. Accordingly, the High Court quashed the prosecution against the Petitioner Jaishankar (A1).

The Court directed his wife, Nagalakshmi (A2), to appear before the Judicial Magistrate Court and file a bail petition under Section 436 Cr.P.C. and execute a bond for a sum of Rs.10,000/- with two sureties. The Court also directed her to cooperate in the expeditious disposal of the case and not to adopt any dilatory tactics. The Court also directed that she shall cross-examine the witnesses on the day they are examined-in-chief as held by the Supreme Court in Vinod Kumar vs. State of Punjab[2].

It is relevant that the issue of prosecution of the surety or the guarantor under the provisions of the Negotiable Instruments Act stands finally settled by the Apex Court in ICDS Ltd. v. Beena Shabeer and Anr.[3] wherein the Apex Court held thus:

The language, however, has been rather specific as regards the intent of the legislature. The commencement of the Section stands with the words Where any cheque. The above noted three words are of extreme significance, in particular, by reason of the user of the word any the first three words suggest that in fact for whatever reason if a cheque is drawn on an account maintained by him with a banker in favour of another person for the discharge of any debt or other liability, the highlighted words if read with the first three words at the commencement of Section 138, leave no manner of doubt that for whatever reason it may be, the liability under this provision cannot be avoided in the event the same stands returned by the banker unpaid.

The legislature has been careful enough to record not only discharge in whole or in part of any debt but the same includes other liability as well. This aspect of the matter has not been appreciated by the High Court, neither been dealt with or even referred to in the impugned judgment.

The issue as regards the co-extensive liability of the guarantor and the principal debtor, in our view, is totally out of the purview of Section 138 of the Act, neither the same calls for any discussion therein. The language of the Statute depicts the intent of the law-makers to the effect that wherever there is a default on the part of one in favour of another and in the event a cheque is issued in discharge of any debt or other liability there cannot be any restriction or embargo in the matter of application of the provisions of Section 138 of the Act:
Any cheque and other liability are the two key expressions which stands as clarifying the legislative intent so as to bring the factual context within the ambit of the provisions of the Statute. Any contra interpretation would defeat the intent of the legislature.

The High Court, it seems, 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. The judgments recorded in the order of the High Court do not have any relevance in the contextual facts and the same thus does not lend any assistance to the contentions raised by the respondents.

It is to be noted, however, that both the parties during the course of arguments have made elaborate submissions on Sections 126 and 128 of the Contract Act, but in our view, by reason of the specific language used by the legislature, question of consideration of the matter from the point of view of another Statute would not arise, neither we would like to express any view since that may have some effect as regards the merits.

It is apposite to refer to Jugesh Sehgal v. Shamsher Singh Gogi[4] wherein the Apex Court reiterated the aforesaid principle and held thus:

Considering the language used in Section 138 and taking note of background agreement pursuant to which a cheque is issued by more than one person, we are of the view that it is only the �drawer� of the cheque who can be made liable for the penal action under the provisions of the N.I. Act. It is settled law that strict interpretation is required to be given to penal statutes.

It is germane to refer to the dictum of the Apex Court in M/s.Aparna A.Shah v. M/s.Sheth Developers Pvt. Ltd. and another[5], wherein the Apex Court reiterating the principle that the drawer of the cheque could alone be prosecuted held thus:

22. In the light of the above discussion, we hold that under Section 138 of the Act, it is only the drawer of the cheque who can be prosecuted. In the case on hand, admittedly, the appellant is not a drawer of the cheque and she has not signed the same. A copy of the cheque was brought to our notice, though it contains name of the appellant and her husband, the fact remains that her husband alone put his signature. In addition to the same, a bare reading of the complaint as also the affidavit of examination-in-chief of the complainant and a bare look at the cheque would show that the appellant has not signed the cheque.

23. We also hold that under Section 138 of the N.I. Act, in case of issuance of cheque from joint accounts, a joint account holder cannot be prosecuted unless the cheque has been signed by each and every person who is a joint account holder. The said principle is an exception to Section 141 of the N.I. Act which would have no application in the case on hand.

The proceedings filed under Section 138 cannot be used as an arm twisting tactics to recover the amount allegedly due from the appellant. It cannot be said that the complainant has no remedy against the appellant but certainly not under Section 138. The culpability attached to dishonour of a cheque can, in no case �except in case of Section 141 of the N.I. Act� be extended to those on whose behalf the cheque is issued.

This Court reiterates that it is only the drawer of the cheque who can be made an accused in any proceeding under Section 138 of the Act. Even the High Court has specifically recorded the stand of the appellant that she was not the signatory of the cheque but rejected the contention that the amount was not due and payable by her solely on the ground that the trial is in progress. It is to be noted that only after issuance of process, a person can approach the High Court seeking quashing of the same on various grounds available to him.

Accordingly, the High Court was clearly wrong in holding that the prayer of the appellant cannot even be considered. Further, the High Court itself has directed the Magistrate to carry out the process of admission/denial of documents. In such circumstances, it cannot be concluded that the trial is in advanced stage.�

It is relevant to refer to the case of Delhi High Court in Gita Berry v. Genesis Educational Foundation[6], the petitioner therein was wife and she filed a petition under Section 482 of the Code seeking quashing of the complaint filed under Section 138 of the N.I. Act. The case of the petitioner therein was that the offence under Section 138 of the Act cannot be said to have been made out against her only on the ground that she was a joint account holder along with her husband.

It was pointed out that she has neither drawn nor issued the cheque in question and, therefore, according to her, the complaint against her was not maintainable. The Court pointing out that nothing was elicited from the complainant to the effect that the petitioner was responsible for the cheque in question, quashed the proceedings insofar as the petitioner therein.

In almost similar circumstances the Punjab & Haryana High Court in Smt. Bandeep Kaur v. S. Avneet Singh[7] held that in case the drawer of a cheque fails to make the payment on receipt of a notice, then the provisions of Section 138 of the Act could be attracted against him only. Learned single Judge further held that though the cheque was drawn to a joint bank account which was to be operated by anyone, i.e., the petitioner or by her husband, but the controversial document is the cheque, the liability regarding dishonouring of which can be fastened on the drawer of it. The Court accepted the plea of the petitioner and quashed the proceedings against her and permitted the complainant to proceed further against others.

It would be trite to refer to the Apex Court in Dalmia Cement (Bharat) Ltd vs M/S Galaxy Trades & Agencies Ltd[8] which observed thus:

The law relating to negotiable instrument is the law of commercial world legislated to facilitate the activities in trade and commerce making provision of giving sanctity to the instruments of credit which could be deemed to be convertible into money and easily passable from one person to another. In the absence of such instruments, including a cheque, the trade and commerce activities, in the present day would, are likely to be adversely affected as it is impracticable for the trading community to carry on with it the bulk of the currency in force. The negotiable instruments are in fact the instruments of credit being convertible on account of legality of being negotiated and are easily passable from one hand to another.

To achieve the objectives of the Act, the legislature has, in its wisdom, thought it proper to make such provisions in the Act for conferring such privileges to the mercantile instruments contemplated under it and provide special penalties and procedure in case the obligations under the instruments are not discharged.

The laws relating to the Act are, therefore, required to be interpreted in the light of the objects intended to be achieved by it despite there being deviations from the general law and the procedure provided for the redressal of the grievances to the litigants. Efforts to defeat the objectives of law by resorting to innovative measures and methods are to be discouraged, lest it may affect the commercial and mercantile activities in a smooth and healthy manner, ultimately affecting the economy of the country.

Thus, the Court in such cases has to examine & analyse whether the effort of the accused in such a case is to defeat the objectives of law by resorting to innovative and strange measures. Such attempt on the part of the parties must be discouraged and put to an end to by the Court. It is the bounden duty of the Court to curb such attempts of the parties who deviate the objectives of law contemplated Under Section 138 of the Negotiable Instruments Act. It is no longer Res Integra that a spouse is not liable for the dishonour of cheque issued by his/her spouse u/s 138 of NI Act, 1881.

If a person is not a signatory to the cheque, no liability can be fastened upon him/her for the dishonour of the cheque u/s 138 of the Negotiable Instruments Act. It is also abundantly clear that the ruse/ device created by the accused by issuing cheque of the spouse to avoid prosecution is not sustainable and the Courts would not come to the rescue of the offenders who try to circumvent law by resorting to innovative methods.

  1. Crl.O.P.No.2016 of 2016 and Crl.M.P.No.1007 of 2016
  2. (2015) 3 SCC 220
  3. 2002(6) SCC 426
  4. (2009) 14 SCC 683
  5. AIR 2013 SC 3210
  6. 151 (2009) DLT 155
  7. AIR 2008 (NOC) 1301
  8. 2001(6) SCC 463
Written By: Inder Chand Jain
Ph no: 8279945021, Email: [email protected]

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