Modi Cement v. Kuchil Kumar Nandi 1998 (Case Summary)
In this landmark case, the Hon’ble Supreme Court decided on the maintainability of Criminal Complaint under section 138 of the Negotiable Instruments Act,1881. The court interpreted whether the remark “payment stopped by the drawer” by the Bank, while returning the Cheque unpaid to the payee will come under the ambit of “Dishonour of cheque” and can the Drawer of the Cheque can be prosecuted under section 138 of the Act.
Facts of Modi Cement v. Kuchil Kumar Nandi
- The Appellant company is a public limited company doing business of manufacturing and selling cement under the name of “Modi Cement” throughout India.
- The Respondent/Accused is the Sole proprietor of multiple business concerns like “Dubey Constructions” & “Nandi Constructions” etc.
- The Appellant alleged that the Respondent/Accused purchased Modi cement on credit. After taking Accounts, the total liability on Respondent was Rs. 1,10,53,520/- towards the cement supplied by the Appellant.
- In partial discharge of the said liability, the Respondent issued three cheques of Rs. 2,00,000/- each.
- Appellant presented the said cheques in the bank for encashment but the Banker of the Respondent returned the said cheques as unpaid with an endorsements “payment stopped by the drawer”. It was discovered, the Bank was instructed by the Respondent to stop the payment of the said cheques.
- The Appellant sent a Legal Notice demanding in compliance of the provisions of the Act, which were ignored by the Respondent. Consequently, the Appellant filed three criminal complaints under section 138 of the Act against the Respondent.
- The Respondent thereafter, filed a petition under section 482 of the Cr.PC in the High Court of Calcutta seeking quashing of the above-mentioned criminal complaints filed by the Appellant.
Issues framed
- Whether the Remark “payment stopped by the drawer” can be considered as Dishonour as per section 138 of the Act?
- Whether the Drawer who stops the payment of the cheque, can be prosecuted and tried under section 138 of the Negotiable Instruments Act?
Subordinate Court Judgment
The High Court of Calcutta allowed the petitions filed by the Respondent seeking Quashing of the Criminal Complaints filed by the Appellants. The court held analysing the provisions of the Act, held that the complainant has not pleaded in the complaint that the cheques were returned by the bank due to insufficient balance.
It was further held that mere endorsement of the Bank “Payment Stopped” was not sufficient to entertain the criminal complaints for Dishonour of cheque. Therefore, the criminal complaints against the Respondent were quashed.
The Complainant, being aggrieved by the High Court’s order Appealed to the Hon’ble Supreme Court of India.
Judgment of Modi Cement v. Kuchil Kumar Nandi
The Hon’ble Supreme Court analysed the scope of section 138 of the Negotiable Instruments Act, 1881 and also put light on other relevant provisions involved in a cheque Dishonour case such as Section 139, 142 of the Act.
The court allowed the Appeal, while quashing and setting aside the order of the High Court, it was held that:
“21. It is needless to emphasize that the Court taking cognizance of the complaint under Section 138 of the Act is required to be satisfied as to whether a prima facie case is made out under the said provision. The drawer of the cheque undoubtedly gets an opportunity under Section 139 of the Act to rebut the presumption at the trial. It is for this reason we are of the considered opinion that the complaints of the appellant could not have been dismissed by the High Court at the threshold.”
Finally, the order of the High Court was set aside by the Supreme Court and restoration of the Criminal complaint was ordered. This judgment answered the crucial question of interpretation and held that a criminal complaint under section 138 of the Negotiable Instruments Act can sustain even if the cheque is returned by the Bank with endorsements as “Payment Stopped”.