Dihonour of Cheque Supreme Court of India Ruling

Topics: Cheque, Negotiable instrument, Supreme Court of the United States Pages: 18 (7041 words) Published: January 10, 2013
Second or successive dishonour of the cheque :New of Supreme Court Ruling The Supreme Court has overruled its own judgment regarding the law on bounced cheques. The Supreme Court as well as high courts have been following the wrong judgment in several cases under the Negotiable Instruments Act. Now it has turned the law around. In this case, the payee did not issue notice to the drawer when the cheques bounced for the first time. He presented them again, and they bounced again. Then only he initiated proceedings under the Act. There were contrary views on whether the proceedings were valid if the payee did not act for the first time. Therefore the question was referred to a larger bench. The issue was “whether the payee or holder of cheque can initiate proceedings of prosecution for the second time if he has not initiated any action on earlier cause of action?” Settling the law, the Supreme Court, in the latest case titled MSR Leathers vs S Palaniappan, stated that prosecution based on the second or successive dishonour of the cheque is also permissible. It overruled the 1998 decision in Sadanandan Bhadran’s case and now ruled that prosecution based upon second or successive dishonour of the cheque is also permissible REPORTABLE

MSR Leathers …Appellant


S. Palaniappan & Anr. …Respondents

1. In Sadanandan Bhadran v. Madhavan Sunil Kumar (1998) 6 SCC 514, this Court was dealing with a case under Section 138 of the Negotiable Instrument Act, 1881 (hereinafter referred to as ‘the Act’) in which the complainant had, after dishonour of a cheque issued in his favour, taken steps to serve upon the accused-drawer of the cheque a notice under clause (b) of proviso to Section 138 of the Act. No complaint was, however, filed by the complainant despite failure of the accused to arrange the payment of the amount covered by the cheque. Instead, the complainant-payee of the cheque had presented the cheque for collection once again, which was dishonoured a second time for want of sufficient funds. Another notice was served on the drawer of the cheque to arrange payment within fifteen days of receipt of said notice. Only after failure of drawer to do so did the payee file a complaint against the former under Section 138 of the Act.

2. After entering appearance, the drawer filed an application seeking discharge on the ground that the payee could not create more than one cause of action in respect of a single cheque and the complaint in question having been filed on the basis of the second presentation and resultant second cause of action was not maintainable. The Magistrate accepted that contention relying upon a Division Bench decision of Kerala High Court in Kumaresan v. Ameerappa (1991) 1 Ker L.T. 893 and dismissed the complaint. The order passed by the Magistrate was then questioned before the High Court of Kerala who relying upon Kumaresan’s case (supra) upheld the order passed by the Magistrate. The matter was eventually brought up to this Court by special leave. This Court formulated the following question for determination:

“Whether payee or holder of cheque can initiate proceeding of prosecution under Section 138 of Negotiable Instrument Act, 1881 for the second time if he has not initiated any action on earlier cause of action?

3. Answering the question in the negative this Court held that a combined reading of Sections 138 and 142 of the Act left no room for doubt that cause of action under Section 142(b) can arise only once. The conclusion observed by the court is supported not only by Sections 138 and 142 but also by the fact that the dishonour of cheque gives rise to the commission of offence only on the failure to pay money when a notice is served upon the drawer in accordance with clause (b) of the proviso to Section 138. The Court further held that if the concept...
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