KUSUM INGOTS AND ALLOYS LTD. versus PENNAR PETERSON SECURITIES LTD. AND ORS.

Citation: [2000] 1 S.C.R. 1120 · Decided: 23-02-2000 · Supreme Court of India · Bench: K.T. THOMAS · Disposal: Disposed off
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Judgment (excerpt)

A 
KLSUM INGOTS AND ALLOYS LTD. 
v. 
PENNAR PETERSON SECURITIES LTD. AND ORS. 
FEBRUARY 23, 2000 
B 
[K.T. THOMAS AND D.P. MOHAPATRA, JJ.] 
Criminal Law : 
Negotiable Instruments Act, 188I : 
C 
Section 138--lngredients of-Dishonour of cheque-Criminal proceed-
ing~~Against sick company and its directors-Maintainability of-Cheques 
issued by company dishonoured-But before completion of offence under 
S.138 drawer company was declared sick by BIFR under S.22 of SICA: -Held: 
S.22 does not bar criminal proceedings if the ingredients of S.138 are made 
D out-However, if a ban order regarding deposal of assets of the company is 
passed by BIFR under S.22 of SICA before the date of drawal of cheque or 
before expiry of notice period under Cl.(b) of proviso to S.I38, offence under 
S.138 not completed-Hence, in such a case criminal proceedings not main-
tainable. 
E 
Sick Industrial Companies (Special Provisions) Act, 1985: Section 22. 
Scope and ambit of-Held : Does not bar payment of money by the 
company or its directors to other persons for satisfaction of their legally 
enforceable dues. 
F 
Dishonour of cheque-Criminal proceeding~~Against company or its 
directors-Held : S.22 deals only with proceedings for recovery of money-It 
does not bar criminal proceedings against a company or its directors for 
dishonour of cheque. 
The appellant-company issued post dated cheques in favour of the 
G respondent-complainant in course of business of the company. When the 
complainant presented the cheques in the bank they were returned without 
payment. Then the complainant issued notice to the compaDy and/or its 
Directors stating the facts of dishonour of the cheques and demanding 
payment. Since no payment was made within the period of 15 days stipu-
H lated under Clause (b) of proviso to Section l3B of the Negotiable Instru-
1120 
Kl:SUM INGOTS AND ALLOYS LTD. v. PENN AR PEIBRSON SECURIT1ES LTD. 1121 
ments Act, 1881, the payee filed a complaint against the company and/or A 
its Directors alleging, inter a/ia, that they had committed an offence under 
Section 138 of the NI Act. Before the cheques were presented in the bank 
or after the bank declined to honour the cheques the drawer company was 
declared sick under the provisions of the Sick Industrial Companies 
(Special Provisions) Act, 1985 (SICA) by the Board of Industrial and 
Financial Reconstruction (BIFR). 
B 
On receipt of the summons from the Court in a criminal case 
registered on the basis of the complaint, the accused company and/or its 
Directors filed petitions under Section 482 of the Criminal Procedure 
Code, 1973 or under Article 127 of the Constitution seeking quashing of C 
the complaint/proceeding in the criminal case, mainly on the ground that 
in view of the provisions in Section 22 of SICA the criminal case instituted 
against them for commission of the alleged offence under Section 138 of 
the NI Act is misconceived and compelling the accused to race trial in the 
case would amount to abuse of the process of the Court. The High Court 
dismissed the petition. Hence this appeal. 
D 
Disposing of the appeal, this Court 
HELD : 1.1. The object of bringing Section 138 of the Negotiable 
Instruments Act, 1881 on statute is to inculcate faith in the efficacy of E 
banking operations and credibility in transacting business on negotiable 
instruments. l 1128-H) 
Electronics Trade & Technology Development Corps. Ltd. v. Indian 
Technologists & Engineers (Electronics) Pvt. Ltd., [1996) 2 SCC 739, relied 
on. 
1.2. The ingredients which are to be satisfied for making out a case 
under Section 138 of the NI Act are : 
F 
(i) a person must have drawn a cheque on an account maintained 
by him in a bank for payment of money to another person from out of that G 
account for the discharge of any debt or other liability; [1131-f<') 
(ii) that cheque has been presented to the bank within a period of 
six months form the date on which it is drawn or within the period of its 
validity whichever is earlier; [1131-G) 
H 
A 
B 
c 
D 
1122 
SUPREME COURT REPORTS 
(2000] I S.C.R. 
(iii) that cheque is returned by the bank unpaid, either because of 
the amount of money standing to the credit of the account is insufficient 
to honour the cheque or that it exceeds the amount arranged to be paid 
from that account by an agreement made with the bank; [1131-H] 
(iv) the payee or the holder in due course of the cheque makes a 
demand for the payment of the said amount of money by givin
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