Citizens' Issues
Bounced cheques: SC ruling makes prosecution easier

The Supreme Court has over-ruled its previous judgements in order provide relief to the holders of bounced cheques under the provisions of the Negotiable Instruments Act

It has been observed lately that the trend of reversing important judicial decisions has been on a rise i.e. a decision is reversed due to a difference in the opinion of the different benches presiding over matters pertaining to the same question of law and sharing the same background as to the facts of the case. Such a practise is being adopted more often by the Supreme Court, which being the highest court of law is regarded as the epitome for all legal issues. The practise of reversing a decision is considered appropriate and necessary only in the wake of adopting a dynamic approach towards law instigated by a constant change in the business dynamics and influenced by external factors.

To cite a recent example of such practise, reference shall be made to the case of Bhatia International Vs Bulk Trading SA1 (Bhatia International), the decision of the Supreme Court by virtue of which it was held that Part I of the Indian Arbitration and Conciliation Act (Arbitration Act), dealing with the power of a court to grant interim relief, could be applied to arbitration disputes with a foreign seat unless the parties specifically opted out of such an arrangement, was overruled by a subsequent decision of the court in Bharat Aluminium Co Vs Kaiser Aluminium Technical Services Inc2. In this landmark judgment, a constitutional bench of the Supreme Court held that Part I of the Arbitration Act will have no effect on international commercial arbitration held outside India unless it has been agreed that such awards shall be enforceable in India in accordance with the provisions contained in Part II of the Arbitration Act. Thus, in case of an international commercial arbitration, no application for interim relief will be maintainable as the application of Part I of the Arbitration Act is limited only to arbitrations taking place within India.

Such inconsistency should be discouraged in the course of imparting justice on substantial matters of law. Moreover, in a country where high reliance is placed on judicial precedents both by the citizens as well as the courts, difference in the opinion will prejudicially affect the rights of the parties directly involved, thus, consequentially acting to the detriment of the society and causing a significant decline in the faith held by the citizens on our judicial system.

SC over-rules prior decision: Assigns true intent to Section 138 of NI Act

The Supreme Court while deciding the scope of Section 138\142 of the Negotiable Instruments Act, 1881 (hereinafter referred to as ‘NI Act’), has over-ruled its previous decision thus importing true character to the intent of the legislature. Section 138 aims to promote better compliances in terms of honouring cheques and discharging liabilities by imposing a penalty for any default committed in this respect. It is a medium of speedy remedy provided for the protection of the holder/payee of the cheque, where the debtor seeks to discharge his obligation through cheque but does not intend to honour it.
However, the current practice adopted by the courts and the time spent to arrive at a final decision has inadvertently failed to meet the intent of the Legislature behind this provision and made it worthless in the statute books. The case to be dealt with subsequently is an apt example depicting the inability of the courts to provide speedy remedy as in this case, the aggrieved party had to strive for a period of ten years (approximately) before they could be accorded relief.

As per the proviso to the Section, there are three essential pre-requisites which are to be fulfilled for the application of this Section:

  1. The cheque is to be presented for payment within six months from the date it is drawn or within its validity period, whichever is earlier;
  2. The payee/holder in due course has to give a written notice to the drawer within 30 days from the intimation of dishonour from the bank, demanding the payment of money.
  3. The drawer fails to make the payment of the money within 15 days from the receipt of the notice.

Further Section 142 of the NI Act requires the complaint to be made within one month of the date on which the “cause of action” arises under clause (c) of the proviso to Section 138 i.e. failure of the drawer to make payment within 15 days of receipt of notice by the holder/payee.

So, an essential question which arose for determination is when does a “cause of action” arise and whether a payee/holder can in due course initiate proceedings under Section 138 after a subsequent dishonour of cheque by the drawer if he has not initiated any action on earlier cause of action?

These questions have been a matter of debate in various rulings. The matter of Sadanandan Bhadran Vs Madhavan Sunil Kumar3(hereinafter referred to as ‘Sadanandan’s case’), decided by the apex court was a landmark judgment  before it was over-ruled in Msr Leathers Vs  Palaniappan and Anr.4(‘Msr Leathers’) by the Supreme Court itself.


The facts of both the cases being essentially the same are that the holder/payee had served notice under clause (b) of proviso to Section 138 on the first default by the drawer, yet did not file a complaint despite failure of the accused to make payment of the amount covered by the cheques, on assurance being given by the drawer that the cheques will be honoured on being presented again. However, even on subsequent presentation of the cheque for encashment by the holder/payee, the cheques were dishonoured again for want of insufficient funds. Notice was served by the payee and on failure of the drawer to pay the money; complaint was filed under Section 138.

In Sadanandan’s case5, the scope of Section 138\142 of the NI Act was given a limited meaning wherein the Supreme Court held that the “cause of action” under clause (c) of the proviso to Section 138 can arise only once and failure of the aggrieved holder/payee of the dishonoured cheque to file a complaint within 30 days of the first cause of action shall be treated as an absolution of his right. The apex court in this case adjudged that the subsequent presentation of cheques and the default committed thereby shall hold no relevance despite the fulfilment of all the preconditions stipulated for an offence to take place under Section 138 of the NI Act.

However, the recent judgment of the Supreme Court in Msr Leathers6 has brought out the essence of Section 138 of the NI Act, totally in sync with the intent of the legislature and the very object of Section 138, i.e. to impart credibility to negotiable instruments in business transactions and uphold the efficacy of and faith in the banking system. In the instant case, the question before the Supreme Court was similar to that in Sadanandan’s case (supra). The court negated its earlier ruling, observing the following:

  1. Sections 138 and 142 do not in any manner restrict the right of the holder/payee to present the cheque for encashment several times within a period of six months of it issue or the validity period whichever is earlier.
  1. There is nothing in the Act that prohibits the payee/holder in due course to demand the money by serving a fresh notice in case there is second/successive default by the drawer of the cheques. Taking a practical approach, the court commented that it is the right of the payee and not the obligation to initiate the prosecution proceedings; the payee may defer prosecution on bona fide grounds i.e. either on his own volition with an intent to avoid proceedings or on an assurance by the drawer of the cheque that the same will be encashed if given some time. It also opined that:

There is in our opinion no real or qualitative difference between a case where default is committed and prosecution immediately launched and another where the prosecution is deferred till the cheque presented again gets dishonoured for the second or successive time.” (emphasis supplied)

  1. Coming to the expression “cause of action”, the Supreme Court remarked that the cause of action under Section 142 will arise no sooner than when the drawer of the cheque fails to discharge its obligation by making payment to the payee/holder of the cheque within 15 days of the receipt of the notice required to be sent in terms of clause (b) of proviso to Section 138 of the Act. For the dishonour to culminate into the commission of an offence, all the three requirements stated under the proviso to Section 138 are to be met. Further the apex court refused to accept that the cause of action can arise only once and observed that a fresh cause of action may arise on every subsequent dishonour of cheque provided other requirements as mentioned earlier are duly complied with.
  1. Nothing in Section 142 suggests that expiry of the limitation would absolve the drawer of the criminal liability if the cheques continues to get dishonoured by the bank on subsequent presentations.

Therefore, based on the above observations, the Supreme Court upheld that the prosecution based upon second or successive dishonour of the cheque is also permissible so long as the same satisfies the requirements stipulated in the proviso to Section 138 of the Negotiable Instruments Act.


The landmark judgments of the Supreme Court over-ruling its previous decisions are inevitable in as much they have given effect to the true intention of the legislature by adopting a fair and just approach and fulfilling the purpose for which the statutes have been enacted that is to protect the interests of different classes of people. However, the frequent negation of earlier judgments is not a healthy approach and should be discouraged unless a substantial question of law is involved or it is mandatory to do so in the interests of promoting justice and equity.

(The writers can be reached at [email protected] and [email protected], respectively.)



Madras HC looking into 500 petitions against judicial officers

Warning that the higher judiciary would be compelled to take drastic action of suspending the judicial officer if it continued to receive petitions, the Chief Justice of Madras HC pointed out to the recent case of Ramanathapuram District Judge, who was suspended on five counts, including corruption and sleeping during hearings

Chennai: Issuing a stern warning against corruption in judiciary, Madras High Court Chief Justice MY Eqbal on Thursday said 500 petitions against judicial officers were under the Court's scrutiny and anyone coming under a cloud should better quit, reports PTI.


In a candid talk while administering oath of office to the newly appointed civil judges, he said the common opinion of general public was not appreciative and Judicial officers are also equally blamed along with any other government servants.


"At present there are about 500 petitions under the scrutiny of High Court as against about 900 judicial officers working now. In all the complaints we are not taking drastic action of suspension or removal from service, but we will be keeping a watch of all the petitions received," he said.


Warning that the higher judiciary would be compelled to take drastic action of suspending the judicial officer if it continued to receive petitions, he pointed out to the recent case of Ramanathapuram District Judge, suspended on five counts, including corruption and sleeping during hearings.


"If we receive petitions continuously, then we will be compelled to take the drastic action of suspending the Judicial Officer, whether they are at the higher level in the cadre of District Judge or lower level in the cadre of Civil Judge Junior division," the Chief Justice said.


There were complaints about some judicial officers of the last batch which were being carefully scrutinised, he said.


Observing that judiciary is the last resort of an affected common man and every one looks upon a judicial officer with utmost respect and reverence, he said that respect and reverence must be kept up.


"If anybody raises a little finger against any judicial officer making allegation of corruption or favouritism, then it is better to quit the job and can resume practice again instead of continuing as judicial officer," he said.


"I have to say these harsh words because nowadays the common opinion of the general public is not appreciative.


Judicial officers also are equally blamed along with any other government servants," he said.



Vaibhav Dhoka

4 years ago

Public is fed up with judicial corruption and instead of warning STERN action is need of hour.There is rampant corruption in JUDICIARY from tot to bottom.Corruption causes delay in already delayed justice.

Vadra-DLF sweeheart deals: What can minority shareholders do?

Minority shareholders are empowered under the Companies Act to force the management to correct its actions and/or reverse the transactions. Will institutional investors take the lead or sit like the three monkeys

‘Vadra-gate’ has not just rocked the Congress and its ruling ‘dynarchy’, but also the share price of real estate mogul, DLF. It has also eroded investors’ confidence in the company and its management. Since the disclosure of the sweet deals, a select section of media has targeted the First Family and raised the issue of corruption and nepotism. At the same time, an equally important issue has gone totally unnoticed—safeguarding the rights of minority shareholders of DLF.


Any retail investor—“mango people” in this “banana republic” as per First Son–in–Law of the nation—would just accept it as “the way this country works” and sell whatever shares he holds in DLF. Very few people, except for chartered accountants, company secretaries and lawyers would know that they have adequate rights to force the management to correct its actions and/or reverse the transactions. 


Here, DLF has advanced interest-free loans to Robert Vadra’s companies. This is also evident from the financial statements filed by his companies with the Registrar of Companies (RoC). DLF has not yet confirmed whether these interest-free loans can be returned. According to Arvind Kejriwal’s first set of revelations, DLF sold properties to Vadra’s companies at deeply discounted rates. His second round of attack gave justification of the benefits accrued to DLF and its shareholders (including minority shareholders) for which Vadra was remunerated in form of interest-free loans and properties sold at a deep discount. However, DLF maintains that there are no convolute arrangements and transactions between DLF, the ruling Congress party in Haryana state and Vadra.


A shareholder is not at a loss if DLF is benefited by dealing through Vadra and compensating him for his services. However, if whatever DLF says—that it has not received any benefits from the ruling Congress government—is true, then it’s a bigger cause to worry. In that case, following issues arise:


  • •  Why did the DLF management dole out interest-free loans and sell properties at deep discount to Vadra’s companies, if the company did not gain any economic benefits from Vadra?
  • •  If DLF’s majority shareholders and management play golf with Vadra and have built up a personal friendship or relationship with him and his family, they can lend him money from their personal accounts or any unlisted companies owned by KP Singh’s family, and not from a listed company that is also co-owned by many other investors, including minority shareholders.
  • •  Whether these loans are returnable or non returnable?
  • •  Even if loans were given to Vadra’s companies from DLF, why didn’t DLF charge interest?
  • •  In such case, who will pay the interest and repay the loans extended to Vadra’s companies—Vadra’s companies or promoters of DLF?
  • •  Whether various properties are sold to Vadra’s companies at a deep discount? There is a need to verify all relevant facts in that case. In case properties are sold at a deep discount, is it justified?
  • •  Why was high advance paid to Vadra in select joint venture (JV) deals?
  • •  It is important to note that the Punjab & Haryana High Court has ruled against DLF and stated that there is a nexus between Haryana government and DLF. This case is, however, currently sub-judice as the Supreme Court is hearing the case. However, given the severity of charges, it is important for shareholders to know the transactions in detail and discuss the legal validity.


In such situations minority investors have rights under a few provisions of Companies Act, 1956, to bring management down to discuss these issues and also propose resolutions to force corrective actions. Section 169 of Companies Act requires the board of directors of the company to call for an extraordinary general meeting (EGM) of the company on the requisition of shareholders of the company. Here the Companies Act stipulates that shareholders collectively holding 10% of total equity of the company must make this application. This requisition must mention matters which need to be considered in the meeting and submitted at registered office of the company.


If the board does not call for a meeting within 45 days from the date of the deposit of a valid requisition, the requisitionists themselves can call for an extraordinary general meeting. In case of failure of the board of directors to call for an extraordinary general meeting and hence requisitionists calling for the same, any reasonable expenses incurred by the requisitionists shall be repaid to the requisitionists by the company. The company has the right to retain expenses of such meetings from fees or other remuneration paid to the directors.


It may sound difficult and impractical to collect requisitions from thousands of minority shareholders of DLF who would collectively hold 10% of shares of the company. In such a case, a group of DLF investors can approach the National Company Law Tribunal and seek order from the Tribunal calling for an EGM, under Section 186 of the Companies Act. It is important for retail investors to know that this National Company Law Tribunal is very much like a civil court and has similar powers to issue orders and pass judgments, which have to be accepted by everyone.


In this case, as per the provisions of Section 186, the Tribunal either on its own motion or on the application by any shareholder of the company can pass an order calling for an EGM. The order shall also specify the manner in which the said meeting should be held.


As this story is being written there are no evidences that the National Company Law Tribunal has taken cognizance of these issues and has suo moto demanded an inquiry. It is yet to be seen how the National Company Law Tribunal takes action, if in case minority shareholders file a petition with the Tribunal, demanding an EGM to take corrective action to safeguard their interests.


However shady and difficult this DLF-Vadra issue may be, it has the potential of setting precedents and rules on corporate governance and igniting investor empowerment and shareholder activism in the country.


(Sumeet Mehta is a chartered accountant by qualification and managing director of

Paradigm Advisors—a boutique research and advisory firm.




4 years ago

Wonderfully written article. Kudos for this eye opener for minority shareholders. Things must not stop at simply pointing out rights. The writer or any other legal luminary must petition National Company law Tribunal. Who will bell the cat?

Narsimha Murty

4 years ago

I shall join the group that would take up the issue with CLB or any regulatory/judicial body in the DLF-Vadra issue

SL Narula

4 years ago

Excellent writing on DLF-Vadra case. I only wish that minority shareholders take some action to correct the wrong doings by DLF.

Jitendra Joshi

4 years ago

Who dares INC n invite IT raid?
This is mera BHARAT Mahan....Minority or Major Investor, I would hail him like AK if anyone dares and initiates just what you suggest...National Redressal by Stock Exchanges is long way away to come here to BHARAT... as most money in it are via Tax free heaven places which belongs to promoters itself... Cheers....

Vinod Kothari

4 years ago

I am sorry - but there are several factual supplements to this article that I as a practitioner in corporate laws need to make.

First - there is no National Company Law Tribunal as yet - it has not been constituted as yet. Hence, it is the CLB and not NCLT.

Second, if shareholders want to press for a redressal against allegations against any company, the right remedy will be section 398 - relief against mismanagement. A significant number of shareholders need to join in the action - because it is either shareholders holding at least 10% of voting power, or 100 shareholders. So, presumably 100 minority shareholders may join in action and file a case under section 398.
There are wide ranging powers that the CLB enjoys under sec 402.
There are yet other remedies - one of which is a straight suit for breach of trust.
I just need to add that I have no opinions on the present controversy and my comments above are just generic on the rights of minority shareholders.



In Reply to Vinod Kothari 4 years ago

Rightly stated

nagesh kini

4 years ago

There exist precise provisions that require the company's statutory auditors to state transactions in their report. The ROC needs to be asked this. The auditors will not respond citing client confidentiality.
The Accounting Regulator ICAI has a committee for misbehaviour, it can be tapped too in addition to SEBI.


Dayananda Kamath k

In Reply to nagesh kini 4 years ago

icai is also like sebi they want to protect their turf and veted interests. i have filed a complaint with them since 2005 but no avil till date. particularly regarding bank aucits. and how they are ignoring basic things of audit.

Vaidya Dattatraya Vasudeo

4 years ago

Some organisaton, like MoneyLife, can take a lead in the matter. Is it necessary that the person must be share holder at the time of transaction ? Can the present share holders take action.


Dayananda Kamath k

In Reply to Vaidya Dattatraya Vasudeo 4 years ago

yes present share holder also can initiate action because you are directly effected by these ommisions and commissions on behalf of the company.

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