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.)


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    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.

  • User 


    Vaibhav Dhoka

    8 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.

    What a failed Vegas sex pill and the Meningitis outbreak have in common

    Drugs produced at 'compounding' pharmacies - like the steroids suspected of 12 meningitis deaths - are exempt from the safety checks that mass-produced pharmaceuticals receive

    Imagine my surprise when I heard about Vegas Mixx, the latest club drug being promoted in Las Vegas. Marketing materials described it as a combination of Valium, to relax the mind, and Viagra, to stimulate the, well, you know. Vegas Mixx promised to make users perform “Like a Porn Star.”

    I’m no medical expert, but this didn’t sound like a good idea. Valium, a controlled substance, can have serious side effects. And Viagra, well, warnings about erections lasting longer than four hours should give anyone pause.

    Was it legal? When I was a reporter at the Las Vegas Sun, the guys running the local compounding pharmacy that made Vegas Mixx had no problem telling me they were just trying to make a buck. They claimed it was legal. And indeed, the pharmacy never was disciplined by the Nevada State Board of Pharmacy. They only stopped producing the drug because it wasn’t profitable.

    Vegas Mixx turned out to be a bust. But it highlighted an evolution in the drug compounding industry, which has come under intense scrutiny after steroids produced by a Massachusetts company were linked to 12 fungal meningitis deaths and 137 infections in 10 states. The New England Compounding Center, which made the injectable steroids linked to the outbreak, acted more like a drug manufacturer than a traditional compounding pharmacy, said David Miller, executive vice president and CEO of the International Academy of Compounding Pharmacies.


    Compounding pharmacies typically provide custom-made drugs based on individual physician prescriptions tailored to specific patients, who, for example, might be allergic to a mass-produced product. In contrast, the compounding pharmacy that made Vegas Mixx was making and marketing a drug combo before a doctor had prescribed it. The New England Compounding Center shipped more than 17,000 doses of steroid injections to 23 states, according to the Centers for Disease Control.


    Those steroid doses, and other concoctions by compounding pharmacies, are exempt from traditional review and approvalby the Food and Drug Administration, which is charged with assuring the efficacy, purity and safety of manufactured drug compounds and strict adherence to sanitary manufacturing standards.


    An FDA official said in an email that state pharmacy boards are the front lines of enforcing the activities of compounding pharmacies. The FDA can step in, but there have been conflicting court rulings about how federal law applies to compounding pharmacies, the FDA official said. That means compounding pharmacies operating as manufacturers are below the radar of FDA oversight, Miller said, potentially putting patients at risk.

    This could have been prevented. More than a decade ago, David Kessler, former FDA commissionerissued a warning about the future of compounded drugs at a Congressional hearing prior to passage of the Food and Drug Administration Modernization Act of 1997. He said that ambiguity in the law could allow for “large scale manufacturing under the guise of pharmacy compounding,” leading to a “shadow industry” of unapproved generic drugs.


    Provisions in the act designed to clarify FDA oversight of compounding pharmacies — including restrictions on their ability to advertise drugs — were later struck down by courts. Still, the FDA says it can act in some circumstances, such as when a drug is contaminated or mislabeled.

    Miller said he believes only a few rogue compounding pharmacies are operating outside traditional boundaries. The New England Compounding Center “appears to have been acting as a manufacturer without being registered as a manufacturer with the (Food and Drug Administration), or registering with the Massachusetts Board of Pharmacy as a manufacturer,” he said.

    “Something does need to change. That’s something our association is grappling with right now,” he said. In the wake of the outbreak, officials from the academy are in contact with congressional staffers to discuss how to increase oversight without stifling traditional pharmacy practices, Miller added.

    Other cases have raised alarms. In 2007, a Portland Tribune investigation revealed patient deaths that were linked to a bad batch of drugs, used to treat back pain, from a Texas compounding pharmacy. A pharmacist who consults with the advocacy group Public Citizen called the compounding pharmacy industry a “shadow drug industry,” in an interview with the newspaper.

    And this week the Tennessee attorney general filed a complaint against HRC Medical Center, a hormone replacement therapy company that used a compounding pharmacy to produce the testosterone pellets for women. In the past year, I interviewed several women who were treated at HRC facilities, and they complained of testosterone treatments that led to excess facial hair, uncontrollable rage and genital growth. One doctor who reviewed an HRC patient’s medical records on behalf of ProPublica said her testosterone levels were more than four times normal – into the range of a man.

    It's unknown whether the alleged problems at HRC Medical were caused by the providers, by the pharmacy, or both. Officials from HRC Medical did not return calls for comment. But according to the attorney general’s complaint, the hormone pellets the compounding pharmacy supplied to HRC Medical could trigger an unpredictable release of hormones in the blood stream due to their unproven method of manufacturing. The pharmacy's production standards, material handling practices and operating procedures were not FDA approved, the complaint stated.


    Miller said responsibility for the fungal meningitis outbreak goes beyond the compounding pharmacy involved and regulatory gaps. Doctors and medical providers purchased the drugs and should also be held accountable for the patient harm, he said.

    “What due diligence did those facilities do to assure the drugs they were purchasing were appropriate, safe and effective?” he asked.

    Sagar Atre of ProPublica contributed reporting to this story. 



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