Businesses and traders depend on cheques especially for those transactions above Rs 2 lakhs. Cheque is one of the most preferred instruments of exchange, business entities usually issue cheques to clear their debts as and when they expect to receive huge profits. Business is a money-making activity with calculated risks and at times one doesn’t receive amount which they were expecting.

Understanding Section 138 and 141 of the NI Act

In cases concerning individuals, section 138 of the NI act allows the complainant to file a complaint against the drawer (the person who owes the liability to pay). A company is a separate legal entity incapable of committing offences^[2], therefore a person who is responsible for the conduct of a company is made vicariously liable^[3].

The cases under section 141 of NI act are complicated because vicarious liability comes into play and there remains a possibility of an innocent being punished for the offence not committed by him. Therefore, it is settled position of law that a clear-cut case must be made out in the complaint against the accused^[4]. Further, the role of the accused must be mentioned in the complaint and it has to be shown that if a director has been named, he was holding that position at a relevant time.^[5]

Summary Trial Under NI Act

The trial process to be followed is a summary trial which is an abridged form of trial whose procedure is governed by Chapter XXI of the CrPC^[6]. The non-obstante clause of the NI Act supersedes CrPC, but the summary trial has to take place as per the procedure laid down under the CrPC. The section 143 of NI Act states that a magistrate must conclude the trial within 6 months from the date of filing of complaint. The summary process was brought into the NI Act vide 2002 amendment to expedite the trial.

In Sunita Palita v M/s Panchami Stone Quarry^[7], the accused appellants had to follow arduous process to get a complaint quashed, filed under section 138 r/w section 141 of the NI Act. The accused were directors of accused company, the averments made against them in the complaint were devoid of any particulars and despite that the trial court didn’t allow them to dispense with their personal attendance under section 205 of CrPC. Further, the only remedy that is to approach the high court under section 482 of CrPC was futile as the high court maintained the trial court’s order. The accused appellants obtained relief from the apex court. It is pertinent to note here that the accused were based in Kolkata and just because they were named in the complaint, they had to personally attend every proceeding before the trial court.

In the case of Rajesh Agarwal v State^[8], the apex court laid down the steps to conduct a summary trial for offence relating to cheque bounce. The procedure outlined in Step I mandates that upon the presentation of the complaint, the magistrate is responsible for examining its contents and taking cognizance, followed by the issuance of process. In Step 2, if the accused is present, they are required to furnish a bail bond and enter their plea of defense, with a subsequent date set for presenting defense evidence. Step 3 specifies that if an application under Section 145(5) of the NI Act has been filed, allowing for the recalling of a complainant's witness, the witness recall shall take place prior to hearing the defense evidence. Step 4 entails the hearing of arguments from both sides, while the final step encompasses the judgment and conclusion of the trial.

The Limitations of Trial Courts in Dismissing Complaints

The quandary arises when a person who has been named in the complaint wasn’t at fault. In the cases where a company acts through several persons, usually the complainant makes directors, company secretaries and authorised signatories, as respondents. However, most of the times these people do not know what is transpiring in the company and it is the issue process that brings into light the criminal proceedings going against them. When the complaint is instituted, the innocent respondents have only one hope, that is dismissal of complaint under section 203 of CrPC, which states that if, after examination of complainant and his witnesses there are no sufficient grounds for proceeding, the magistrate shall dismiss the complaint. However, in India, the trial courts have become mechanical^[9], the magistrates often without scrutinising the complaint proceed with issuance of process.

The trial courts lack the power to review its decision and further whenever the cases are instituted on complaints they cannot be dropped once the issue process has been done^[10]. The section 258 of CrPC states that a judicial magistrate can drop proceedings at any stage given that there are strong reasons to do so, simply reading the section indicates that it does not apply to cases initiated through a complaint. In Adalat Prasad v Rooplal Jindal^[11], it was observed by the supreme court -

“if a Magistrate takes cognizance of an offence and issues process, without there being any allegations against the accused or any material implicating the accused, the order of Magistrate may be vitiated, but the relief, an aggrieved accused can obtain at that stage is not by invoking Section 203 of Cr. P.C. The remedy lies in invoking section 482 Cr. P.C.”

To this date 33.4 lakh cheque bounce are pending before the judiciary. It is pertinent to note that the nature of NI Act is civil but by introduction of section 138, a criminal colour has been given to the NI Act. The ultimate aim of the section is to threaten the drawer to pay back the liability owed towards the payee and it is but natural that a payee will naturally seek recovery of money rather than pursuing litigation to jail the drawer. In Ziavulla Hussain v K.Karunakaran^[12], the apex court gave a bird eye view to the section 138, the offence under 138 doesn’t involve moral turpitude and the punishment under the same is not to seek retribution rather to ensure recovery of money.

It is ironic that trial courts have ignored the intent behind the section and proceeded with the issuance process. At times, the trial courts issue non-bailable warrant if an accused fails to appear before the court. As discussed earlier the inability to get the complaint quashed before trial courts after issuance of process, the accused has to approach the High Court under section 482 of the CrPC and further increasing the burden upon High Courts. Also, the accused who are named in the complaint and had no role in the transaction have to approach the jurisdictional high court. A trial under criminal law proceeds only when there is sufficient material to try the accused, but a proceeding under section 138 of NI act is deviant from this principle. The Madras HC has held that proceedings under section 138 shouldn’t go against the principles of criminal law, however in practice this is not the case.^[13].

Way Forward

When a complaint under section 138 r/w 141 or 142 is instituted before the trial court, the magistrate must look for following essentials in the complaint -

1. Whether the complaint contains specific averments against all or any of the accused named?
2. Whether the accused named in the complaint were authorised signatory and their signatures were present on the cheque?
3. Whether the accused named in the complaint had the actual knowledge of what is transpiring?

The answer to above mentioned questions must result in maintainability of complaint against all or any of the accused. If it is not maintainable against some of them, the complaint against them must be quashed and then issue of process must only be done against whom the complaint is maintainable. The legislature should amend the section 258 of CrPC by adding an exception for NI related matters and allow the quashing of proceedings at any stage.

Views Are Personal.

1. * By Nakshatra Gujrati, the author is a third year BA LLB (Hons.) student at National Law University Odisha. ↑

2. Saloman v. Saloman Co Ltd, [1897] AC 22. ↑

3. The Negotiable Instruments Act, 1881, s. 141. ↑

4. S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89. ↑

5. Ram Lakhan Sharma v. Subhash Chand, 2022 SCC OnLine Del 2198. ↑

6. The Code of Criminal Procedure, 1973. ↑

7. (2022) 10 SCC 152. ↑

8. (2010) SCC OnLine Del 2511 ↑

9. Bhushan Kumar v. State (NCT of Delhi), AIR 2012 SC 1747; Krishan Kumar Variar v. Share Shoppe, (2010) 12 SCC 485 ↑

10. Subramanium Sethuraman v. State of Maharashtra, (2004) 13 SCC 324. ↑

11. (2004) 7 SCC 338. ↑

12. (2017) SCC OnLine Mad 12000. ↑

13. R. Sankaralingam v. Union of India, 1996 SCC OnLine Mad 115. ↑