Supreme Court Half Yearly Digest 2022 (Jan - Jun) Negotiable Instruments Act, 1881

Code of Criminal Procedure, 1973; Sections 205 (2), 251 and 317 - Negotiable Instruments Act, 1882; Section 138 - The judgment in M/s Bhaskar Industries Ltd. v. M/s Bhiwani Denim Apparels Ltd.: (2001) 7 SCC 401 does not deal with a claim for blanket exemption from personal appearance - Observations therein essentially co-relate with the facts of the said case - In appropriate cases the Magistrate can allow an accused to make even the first appearance through a counsel - Such discretion needs to be exercised only in rare instances and there ought to be good reasons for dispensing with the presence. Mahesh Kumar Kejriwal v. Bhanuj Jindal, 2022 LiveLaw (SC) 394

Code of Criminal Procedure, 1973; Sections 205 (2), 251 and 317 - Negotiable Instruments Act, 1882; Section 138 - SLP against Punjab & Haryana HC judgment which refused petitioner's claim of blanket exemption from personal experience in case under Section 138 NI Act -Dismissed - It is difficult to appreciate that in the case of the present nature, the petitioners seek to avoid appearance even once in terms of the order of the learned Sessions Judge. Mahesh Kumar Kejriwal v. Bhanuj Jindal, 2022 LiveLaw (SC) 394

Covid-19 - Extension of Limitation - Arbitration and Conciliation Act, 1996; Section 23(4), 29A - Commercial Courts Act, 2015; Section 12A - Negotiable Instruments Act, 1881; Section 138 - The period from 15.03.2020 till 28.02.2022 shall also stand excluded in computing the periods prescribed under Sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of Section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings. (Para 5) In Re Cognizance for extension of Limitation, 2022 LiveLaw (SC) 31 : (2022) 3 SCC 117

Insolvency and Bankruptcy Code, 2016; Section 14 - Negotiable Instruments Act, 1881; Section 138 and 141 - Moratorium - Liability of natural persons like a Director of the Company - The moratorium provisions contained in Section 14 of the Insolvency and Bankruptcy Code, 2016 would apply only to the corporate debtor and that the natural persons mentioned in Section 141 of the Act would continue to be statutorily liable under the provisions of the Act. Narinder Garg v. Kotak Mahindra Bank, 2022 LiveLaw (SC) 428 : 2022 (7) SCALE 162

Legal Services Authorities Act, 1987 – Even when the Criminal Court refers the matter under Section 138 of the Negotiable Instruments Act in order to make it executable, it will be treated as if it were a decree. New Okhla Industrial Development Authority (Noida) v. Yunus, 2022 LiveLaw (SC) 123 : AIR 2022 SC 847

Negotiable Instruments Act, 1881 - Section 10 - Definition of 'payment in due course' - Ascertainment of whether the act of payment is in good faith and without negligence is by examination of the circumstances in which payment is made. In other words, antecedent and present circumstances should not afford a reasonable ground for believing that the person to whom payment is made is not entitled to receive payment of the amount mentioned.9 While it would not be advisable or feasible to strait -jacket the circumstances, albeit value of the instrument, other facts that would raise doubts about the reliability and identity of the person entitled to receive payment and genuineness of the instrument in the payer's mind are relevant considerations. (Para 17) Pradeep Kumar v. Post Master General, 2022 LiveLaw (SC) 139 : (2022) 6 SCC 351

Negotiable Instruments Act, 1881 - Section 10 - Definition of 'payment in due course' - The requirement in Section 10 that the payment should be in both good faith and without negligence is cumulative. Thus, mere good faith is not sufficient. (Para 17) Pradeep Kumar v. Post Master General, 2022 LiveLaw (SC) 139 : (2022) 6 SCC 351

Negotiable Instruments Act, 1881 - Section 10 - General Clauses Act, 1897 - Section 3(22) - Section 3(22) of the General Clauses Act which defines 'good faith' as an act done honestly, whether done negligently or not, is not sufficient to hold that the payment made was 'payment in due course' under the NI Act. (Para 18) Pradeep Kumar v. Post Master General, 2022 LiveLaw (SC) 139 : (2022) 6 SCC 351

Negotiable Instruments Act, 1881 - Section 13 - Different principles apply for discharge from liability when the negotiable instrument is payable to bearer or has been indorsed in blank, in which case payment must be made in terms of Section 10, whereas when the negotiable instrument is payable to order, the maker, acceptor or endorser would be discharged from liability when payment is made to the 'holder' of the instrument. (Para 14) Pradeep Kumar v. Post Master General, 2022 LiveLaw (SC) 139 : (2022) 6 SCC 351

Negotiable Instruments Act, 1881 - Section 13 - Kisan Vikas Patra Rules, 1988 - Kisan Vikas Patras (KVPs) are negotiable instruments in terms of Section 13 of the NI Act - It cannot be said that the KVPs are simple bearer instruments payable to anyone who presents the same for encashment and discharge. (Para 12, 29) Pradeep Kumar v. Post Master General, 2022 LiveLaw (SC) 139 : (2022) 6 SCC 351

Negotiable Instruments Act, 1881 - Section 138 and 142 - A.C. Narayanan vs. State of Maharashtra & Anr. (2014) 11 SCC 790 - The employment of the terms "specific assertion as to the knowledge of the power of attorney holder" and such assertion about knowledge should be "said explicitly" as stated in A.C. Narayanan (supra) cannot be understood to mean that the assertion should be in any particular manner, much less only in the manner understood by the accused in the case. All that is necessary is to demonstrate before the learned Magistrate that the complaint filed is in the name of the "payee" and if the person who is prosecuting the complaint is different from the payee, the authorisation therefor and that the contents of the complaint are within his knowledge. What can be treated as an explicit averment, cannot be put in a straitjacket but will have to be gathered from the circumstance and the manner in which it has been averred and conveyed, based on the facts of each case. The manner in which a complaint is drafted may vary from case to case and would also depend on the skills of the person drafting the same which by itself, cannot defeat a substantive right. However, what is necessary to be taken note of is as to whether the contents as available in the pleading would convey the meaning to the effect that the person who has filed the complaint, is stated to be authorized and claims to have knowledge of the same. In addition, the supporting documents which were available on the record by themselves demonstrate the fact that an authorized person, being a witness to the transaction and having knowledge of the case had instituted the complaint on behalf of the "payee" company and therefore, the requirement of Section 142 of N.I. Act was satisfied. (Para 17, 14) TRL Krosaki Refractories Ltd. v. SMS Asia Pvt. Ltd., 2022 LiveLaw (SC) 196 : AIR 2022 SC 1315

Negotiable Instruments Act, 1881 - Section 138 and 142 - Code of Criminal Procedure, 1973 - Section 482 - Entertaining a petition under Section 482 to quash the order taking cognizance by the Magistrate would be unjustified when the issue of proper authorisation and knowledge can only be an issue for trial. (Para 17) TRL Krosaki Refractories Ltd. v. SMS Asia Pvt. Ltd., 2022 LiveLaw (SC) 196 : AIR 2022 SC 1315

Negotiable Instruments Act, 1881 - Section 138 and 142 - When a company is the payee of the cheque based on which a complaint is filed under Section 138 of N.I. Act, the complainant necessarily should be the Company which would be represented by an employee who is authorized. Prima­facie, in such a situation the indication in the complaint and the sworn statement (either orally or by affidavit) to the effect that the complainant (Company) is represented by an authorized person who has knowledge, would be sufficient - Such averment and prima facie material is sufficient for the learned Magistrate to take cognizance and issue process. If at all, there is any serious dispute with regard to the person prosecuting the complaint not being authorized or if it is to be demonstrated that the person who filed the complaint has no knowledge of the transaction and, as such that person could not have instituted and prosecuted the complaint, it would be open for the accused to dispute the position and establish the same during the course of the trial. (Para 17) TRL Krosaki Refractories Ltd. v. SMS Asia Pvt. Ltd., 2022 LiveLaw (SC) 196 : AIR 2022 SC 1315

Negotiable Instruments Act, 1881 - Section 3 - 'Banker' includes any person acting as a banker and any post office savings bank. In terms of this section, a post office savings bank is a banker under the NI Act. (Para 11) Pradeep Kumar v. Post Master General, 2022 LiveLaw (SC) 139 : (2022) 6 SCC 351

Negotiable Instruments Act, 1881 - Section 8 - A holder means a person (i) entitled to possession of a promissory note, bill of exchange or a cheque, and (ii) entitled to sue the maker, acceptor or indorser of the instrument for the recovery of the amount due thereon in his name - The requirements of Section 8 are two -fold, and both requirements have to be satisfied. (Para 15) Pradeep Kumar v. Post Master General, 2022 LiveLaw (SC) 139 : (2022) 6 SCC 351

Negotiable Instruments Act, 1881 - Sections 131 and 131A - The standard of care expected from a collecting banker does not require him to subject the cheque to a minute and microscopic examination, yet disregarding circumstances about the cheque, which on the face of it gives rise to suspicion, may amount to negligence on the part of the collecting banker. Further, the question of good faith and negligence is to be judged from the standpoint of the true owner towards whom the banker owes no contractual liability but statutory duty by these provisions - Allegations of negligence against the paying banker could provide no defence for the collecting banker who has not collected the amount in good faith and without negligence. (Para 20) Pradeep Kumar v. Post Master General, 2022 LiveLaw (SC) 139 : (2022) 6 SCC 351

Negotiable Instruments Act, 1881 - Sections 15 and 16 - 'Indorsement', 'indorsee', 'indorser' and 'indorsement in blank' and 'in full' - Indorsement for the purpose of negotiation is made by the maker or holder of the negotiable instrument when he signs on the back or face of thereof, on a slip of paper annexed thereto or on a stamp paper for the purpose of negotiation. The person signing is called the indorser. If the instrument is signed by the indorser in his name only, it is an indorsement in blank. If the indorser also specifies the person to whom payment is to be made, the indorsement is said to be 'in full', and the person so specified is called the indorsee. (Para 12) Pradeep Kumar v. Post Master General, 2022 LiveLaw (SC) 139 : (2022) 6 SCC 351

Negotiable Instruments Act, 1881 - Sections 8 and 78 - Payment made to a person in possession of the instrument, but not entitled to receive or recover the amount due thereon in his name, is not a valid discharge. (Para 15) Pradeep Kumar v. Post Master General, 2022 LiveLaw (SC) 139 : (2022) 6 SCC 351

Negotiable Instruments Act, 1881, Section 138 - It is surprising that on the one hand, the bank managers have specifically deposed that no such bank account was opened and maintained in their bank while on the other hand the cheque drawn by the respondent in favour of the appellant, was returned with the remark "account frozen" in respect of the same cheque. The bank account has been mentioned on the cheque and the endorsement to the effect "Account Frozen" will presuppose that an account existed". Vikram Singh v. Shyoji Ram, 2022 LiveLaw (SC) 223

Negotiable Instruments Act, 1881; Section 118(a) - Presumption - Every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, endorsed, negotiated or transferred, was accepted, endorsed, negotiated or transferred for consideration. Frost International Ltd. v. Milan Developers & Builders, 2022 LiveLaw (SC) 340 : 2022 (5) SCALE 684

Negotiable Instruments Act, 1881; Section 118(a) - Presumption - Every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, endorsed, negotiated or transferred, was accepted, endorsed, negotiated or transferred for consideration. Frost International Ltd. v. Milan Developers & Builders, 2022 LiveLaw (SC) 340 : 2022 (5) SCALE 684

Negotiable Instruments Act, 1881; Section 138 - Expeditious disposal of cases - Establishment of pilot courts presided over by retired judges in 5 districts of 5 states with the highest pendency (namely, Maharashtra, Rajasthan, Gujarat, Delhi and Uttar Pradesh) directed - Guidelines covering the pilot study issued. In Re: Expeditious Trial of Cases under Section 138 of N.I. Act, 1881, 2022 LiveLaw (SC) 508 : AIR 2022 SC 2481

Negotiable Instruments Act, 1881; Section 141 - The burden is on the prosecution to show that the person prosecuted was in charge of and responsible to the company for conduct of its business. (Para 7) Dilip Hariramani v. Bank of Baroda, 2022 LiveLaw (SC) 457 : AIR 2022 SC 2258

Negotiable Instruments Act, 1881; Section 141 - Vicarious liability in the criminal law in terms of Section 141 of the NI Act cannot be fastened because of the civil liability - Vicarious liability arises only when the company or firm commits the offence as the primary offender - Unless the company or firm has committed the offence as a principal accused, the persons mentioned in sub-section (1) or (2) would not be liable and convicted as vicariously liable. (Para 11-14) Dilip Hariramani v. Bank of Baroda, 2022 LiveLaw (SC) 457 : AIR 2022 SC 2258

Negotiable Instruments Act, 1881; Section 141(1) Proviso - The onus to satisfy the requirements and take benefit of the proviso is on the accused. Still, it does not displace or extricate the initial onus and burden on the prosecution to first establish the requirements of sub-section (1) to Section 141 of the NI Act. (Para 7) Dilip Hariramani v. Bank of Baroda, 2022 LiveLaw (SC) 457 : AIR 2022 SC 2258

Negotiable Instruments Act, 1881; Section 141(2) - The onus under Section 141(2) of the NI Act is on the prosecution and not on the person being prosecuted - Sub-section (2) to Section 141 of the NI Act does not state that the persons enumerated, can be prosecuted and punished merely because of their status or position as a director, manager, secretary or any other officer, unless the offence in question was committed with their consent or connivance or is attributable to any neglect on their part. (Para 8) Dilip Hariramani v. Bank of Baroda, 2022 LiveLaw (SC) 457 : AIR 2022 SC 2258

Negotiable Instruments Act, 1881; Section 8 and 9 - An obligation has been imposed on the transferee of the promissory notes, to be deemed to be a 'Holder in due course', that the notes should have been acquired in good faith; after exercising reasonable care and caution about the holder's title. (Para 11.2) Small Industries Development Bank of India v. Sibco Investment Pvt. Ltd., 2022 LiveLaw (SC) 7 : (2022) 3 SCC 56

Negotiable Instruments Act, 1881; Sections 138, 139 - Appeal against concurrent conviction in a cheque bounce case - Partly allowed - Upheld the conviction - Directed that sentence of imprisonment of one year vacated - Accused appellant sentenced to fine of Rs.5,000/- which he will deposit within a period of one month in the Trial Court. Tedhi Singh v. Narayan Dass Mahant, 2022 LiveLaw (SC) 275 : (2022) 6 SCC 735

Negotiable Instruments Act, 1881; Sections 138, 139 - At the time, when the complainant gives his evidence, unless a case is set up in the reply notice to the statutory notice sent, that the complainant did not have the wherewithal, it cannot be expected of the complainant to initially lead evidence to show that he had the financial capacity - However, the accused has the right to demonstrate that the complainant in a particular case did not have the capacity and therefore, the case of the accused is acceptable which he can do by producing independent materials, namely, by examining his witnesses and producing documents, by pointing to the materials produced by the complainant himself, or through the cross examination of the witnesses of the complainant. (Para 9) Tedhi Singh v. Narayan Dass Mahant, 2022 LiveLaw (SC) 275 : (2022) 6 SCC 735

Negotiable Instruments Act, 1881; Sections 138, 139 - Theory of 'probable defence' - The accused is not expected to discharge an unduly high standard of proof - All which the accused needs to establish is a probable defence. As to whether a probable defence has been established is a matter to be decided on the facts of each case on the conspectus of evidence and circumstances that exist - It becomes the duty of the Courts to consider carefully and appreciate the totality of the evidence and then come to a conclusion whether in the given case, the accused has shown that the case of the complainant is in peril for the reason that the accused has established a probable defence. (Para 7, 9) Tedhi Singh v. Narayan Dass Mahant, 2022 LiveLaw (SC) 275 : (2022) 6 SCC 735