Kiran Raj

The Madras High Court has dismissed multiple petitions seeking to quash criminal proceedings initiated under Section 138 of the Negotiable Instruments Act, 1881. The court observed that payments allegedly made by the petitioners were not directly linked to the dishonored cheques, thereby negating the applicability of Section 56 of the Act. Additionally, the court issued comprehensive directions to streamline the adjudication of cheque dishonor cases, citing the increasing backlog and the Supreme Court's mandate for expeditious disposal.

The petitions were filed by M/s. Ultimate Computer Care and its proprietor Apibo, challenging the criminal proceedings initiated by M/s. S.M.K. Systems before the Judicial Magistrate, Aruppukottai. The complainant alleged that the petitioners had issued 23 cheques to discharge a legally enforceable debt of ₹4,72,041. When presented for payment, these cheques were dishonored with the remark "exceeds arrangement."

Following the dishonor, the complainant issued statutory legal notices, but in some cases, the notices were refused, and in others, no reply was received nor was the cheque amount paid. Consequently, nine private complaints were filed, leading to the registration of cases as C.C. Nos. 122, 123, 130, 131, 132, 133, 134, 135, and 136 of 2022 before the trial court. The petitioners approached the High Court under Section 482 of the Code of Criminal Procedure, seeking quashing of these proceedings.

The petitioners contended that they had made part payments during the period from January 11, 2022, to February 22, 2022, amounting to ₹4,47,941, which substantially reduced their liability. Relying on Section 56 of the Negotiable Instruments Act, they argued that the cheques should have been endorsed to reflect these part payments and that presenting them without such endorsement was legally impermissible.

The High Court examined the petitioners' defense in light of the principles laid down in Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel, 2022 (6) CTC 467. It recorded, "Under Section 56 read with Section 15 of the Act, an endorsement may be made by recording the part-payment of the debt in the cheque or in a note appended to the cheque. When such an endorsement is made, the instrument could still be used to negotiate the balance amount."

However, the court found that in the present case, the petitioners had not established a direct correlation between the payments made and the specific cheques issued. It observed, "Unless and otherwise there is a direct correlation between the payment made relatable to the concerned cheque, Section 56 of the Act will not stand attracted."

Further, it noted that the payments claimed by the petitioners appeared to be general business transactions rather than payments specifically linked to the cheques in question. The court stated, "If the payments made are not directly relatable to any cheque that has been issued and those are regular payments made in the course of business, the question of discharge becomes a question of fact which can be dealt with only in the course of trial."

The court also stated that cases under Section 138 of the Negotiable Instruments Act have significantly contributed to judicial backlog. It referred to Indian Bank Assn. v. Union of India, (2014) 5 SCC 590 and Re: Expeditious Trial of Cases Under Section 138 of NI Act, 1881, (2021) 16 SCC 116, where the Supreme Court had issued multiple directions for ensuring swift adjudication of cheque dishonor cases. The court observed, "Despite the Supreme Court’s directions, these cases continue to clog Magistrate Courts due to procedural delays, non-service of summons, and lack of effective oversight mechanisms."

In light of these concerns, the High Court issued  directions to facilitate the expeditious disposal of cheque dishonor cases:

1. Scrutiny at Filing Stage: Complaints under Section 138 of the Act shall be scrutinized at the time of filing to ensure compliance with procedural requirements. The complainant must provide a process memorandum and necessary documents for expeditious service of summons.

2. Issuance of Process: Magistrates must issue process based on verification of affidavits filed by complainants. Calling complainants for oral verification should be limited to exceptional cases where doubts arise regarding the veracity of the complaint.

3. Service of Summons: Summons shall be served via registered post with acknowledgment due (RPAD). In cases where summons are returned unserved, courts must promptly direct the complainant to take corrective measures. Failure to do so may result in dismissal under Section 226 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS).

4. Deemed Service: If the accused refuses to accept summons, courts may declare the summons duly served under Section 144(2) of the Act.

5. Common Proceedings: Where multiple cases arise from a single transaction, service of summons in one case may be deemed as service in all related cases to avoid repetitive procedural delays.

6. Alternative Summons Service: The High Court directed its administrative wing to explore the feasibility of extending the N-STEP facility, currently used in civil cases, for service of summons in cheque dishonor matters.

7. Interim Compensation: Trial courts must consider applications for interim compensation under Section 143A of the Act in a time-bound manner.

8. Expedited Trial Process:

• Courts must adhere to the summary trial procedure outlined in Section 143 of the Act unless the magistrate records reasons for converting the case to a summons trial.

• Examination-in-chief, cross-examination, and re-examination of the complainant should be completed within three months of commencement of trial.

• Adjournments shall not be granted unless in exceptional circumstances and upon imposition of costs.

• Magistrates must fix definite timelines for defense witnesses and ensure compliance.

9. Settlement Facilitation: At the first hearing, courts must inform the accused of the option to settle disputes through mediation. If mediation fails within 30 days, the case shall revert to trial without further delay.

10. Compliance Monitoring: Principal District Judges shall oversee implementation of these directions and submit compliance reports to the Registrar General of the High Court by June 2, 2025.

Case Title: M/s. Ultimate Computer Care & Anr. v. M/s. S.M.K. Systems
Case Numbers: CRL.OP(MD). Nos. 19778, 19790, 19621, 19459, 19575, 19403, 19563, 19614, and 19620 of 2022
Bench: Justice N. Anand Venkatesh

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