Wednesday, October 31, 2012

SC reverses its earlier ruling and nods initiation of prosecution on successive dishonour of cheque

In the instant case, the respondent-company issued some cheques in favour of the appellant which were dishonored twice for insufficiency of funds. The appellant presented the issue before the Metropolitan Magistrate. During proceedings, the respondent contended that complaint had not been filed within 30 days of the expiry of the notice based on the first dishonour of the cheque. The Magistrate dismissed the application of respondent. On filing of revision petition before the High Court, it allowed the revision petition and quashed the orders passed by the Magistrate relying upon the decision of the Supreme Court in Sadanandan Bhadran v. Madhavan Sunil Kumar [1998] 6 SCC 514, according to which a complaint based on a second or successive dishonour of the cheque was not maintainable, if no complaint based on an earlier dishonour of cheque, followed by the statutory notice issued on the basis thereof, had been filed. Matter reached to the Supreme Court.

The Supreme Court held in favour of appellant as under:

1) Holder or payee of the cheque has the right to present the same any number of times for encashment during period of six months or during period of its validity, whichever is earlier: Even Sadanandan Bhadran's case (supra) upheld the same;

2) There is nothing in provisions of Act that forbids holder of a cheque to demand amount covered by cheque, by serving fresh notice under clause (b) of proviso to section 138, should there be a second or successive dishonour of cheque on its presentation;

3) So long as the cheque is valid and it is dishonored upon presentation to the bank, the holder's right to prosecute the drawer remains valid and exercisable;

4) By reason of a fresh presentation of a cheque followed by a fresh notice in terms of section 138, the drawer gets an extended period to make the payment and thereby benefits in terms of further opportunity to pay to avoid prosecution. Such fresh opportunity cannot help the defaulter on any juristic principle to get a complete relief from prosecution;

5) There is no real or qualitative difference between a case where default is committed and prosecution immediately launched and another where prosecution is deferred till cheque presented again gets dishonored.

Thus, the decision in Sadanandan Bhadran's case (supra) was overruled and it was held that prosecution based upon second or successive dishonour of the cheque was also permissible so long as the same satisfies the requirements stipulated in the proviso to section 138 - MSR Leathers v. S. Palaniappan [2012] 26 332 (SC)

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