Mohan, Proprietor Sri Arthi Textiles, TiruchengodeNamakkal District v. K.V.Mani

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 8.07.2009CORAM:THE HONOURABLE MR.JUSTICE ARUNA JAGADEESANCrl.OP.No.8546/2006Mohan, PropreitorSri Arthi Textiles, TiruchengodeNamakkal District PetitionerVsK.V.ManiRespondentPrayer:- This Criminal Original Petition is filed to call for therecords of the complaint relating to the criminal proceedings inCC.No.918/2005 on the file of the learned Judicial Magistrate I,Erode and quash the same. For Petitioner: Mr.N.ManokaranFor Respondents: Mr.V.AyyaduraiORDER The Petitioner, who is the accused in CC.No.916/2005 hasfiled this Criminal Original Petition to quash the proceedings.

The Respondent has filed the private complaint under Section 138 of the Negotiable Instruments Act against the Petitioner. The Petitioner had issued three cheques, bearingNos.1890385, 1890386 and 1890388 dated 25.3.2005, 18.3.2005/- and11.3.2005 for Rs.40,000/-, Rs.35,000/- and Rs.39,000/- respectivelydrawn on M/s.Lord Krishna Bank Limited, Erode in favour of oneA.R.Chellappan. The above said cheques were discounted with the Respondent and thereafter, he had presented those cheques forpayment and they were returned unpaid with an endorsement "ExceedsArrangement". Thereafter, the Respondent had issued a legal noticeon 8.8.2005, demanding the payment of Rs.1,14,000/- and as the Petitioner failed to pay the amount, the complaint has been filed.

The learned counsel for the Petitioner has submitted that Respondent cannot be considered as "a holder in due course", asthere is no proper endorsement as required under Section 50 of the Negotiable Instruments Act. It is submitted by him that theendorsement found on the reverse of the cheques are blank andcryptic and no details of endorsement are stated. Since therequirement of Section 50 of the Negotiable Instruments Act are notcomplied with, the Respondent cannot be construed as "a holder indue course". He would further contend that in the absence of anendorsement made on the instrument in the manner prescribed under https://hcservices.ecourts.gov.in/hcservices/ Section 50 of the Negotiable Instruments Act, he cannot be "aholder in due course" and therefore, the complaint filed by suchholder in due course is not maintainable. The learned counsel drewthe attention of this court to the decisions of this court renderedin the case of Ashok Kumar Vs. K.Gunasekaran, Proprietor of VijayFabrics (2005-1-DCR-323), Mukesh Chandra Guptha Vs. Anil Kumar Jain(2006-2-TNLR-693-Mad) and M.N.Thangaraj Vs. Sri VenkatachalapathiTex by its Partners V.S.Gopal and others (2007-2-MWN(Cr)80-DCC) insupport of the above said contentions.

At the very outset, it is relevant to point that thefacts relating to the above said decisions are distinguishable, inasmuch as in those cases, after full trial, the accused wasacquitted and the same was challenged on the ground that there wasno proper endorsement as required under Section 50 of the Negotiable Instruments Act, since the complainant had failed toprove satisfactorily passing of consideration. On suchcircumstances, this court held that there was no privity ofcontract between the complainant and the accused and therefore, favoured acquittal of the accused.

In the instant case, the Petitioner seeks to quash thecomplaint at the preliminary stage even before the complainant hadadduced evidence to prove his case that he is "a holder in duecourse" for consideration and he could maintain the complaint.

The complaint under Section 138 of the NegotiableInstruments Act can be lodged either by a payee or "a holder in duecourse". Only when the complainant failed to satisfactorily provepassing of consideration or the endorsement of the cheque is not inaccordance with Section 50 of the Negotiable Instruments Act, thenthe presumption that the holder of the cheque in question is "aholder in due course" would not be drawn in favour of thecomplainant. A reading of Section 50 of the Act is very clear thatthe possession of the instrument is prima facie evidence that theholder is the owner thereof and is entitled to all the rightsthereon.

The first part of Section 50 of the NegotiableInstruments Act reads thus, "the endorsement of a negotiableinstrument followed by delivery transfers to the endorsee theproperty therein with the right of further negotiation. From theabove, it is clear that the endorsement of an instrument anddelivery thereof cloth the transferee with the right to present itfor acceptance, if necessary and demand payment of the same on itsdue date and on dishonour, he has the right to sue on the Petitioner in his own name and against all the parties to theinstrument.

The second part of the Section 50 of the NegotiableInstruments Act reads as below:- https://hcservices.ecourts.gov.in/hcservices/

But the endorsement may, by express words, restrict orexclude such right, or may merely constitute the endorsee and agentto endorse the instrument, or to receive its contents for theendorser, or for some other specified person.

The second part deals with the endorsement and the illustrationtherein states the kinds of endorsement that would be made ondifferent negotiable instruments payable to the bearer. Hence, itpostulates that a person, who becomes a holder of an instrument, isentitled to transfer the same to others by way of furthernegotiation and unless the instrument is in such form in itsinception, it is not negotiable or it is restricted from beingendorsed. How such a restriction can be made is indicated in thelatter portion of the Section. In the first portion of Section 50of the Negotiable Instruments Act, endorsement alone does not vestthe property in the instrument to the transferee nor to have thefact that the endorsement must be followed by delivery.

In Section 118 of the Negotiable Instruments Act in clause(g), the phrase "that holder is a holder in due course" has beendefined as follows:-"that the holder of a negotiable instrument is a holder indue course: provided that, where the instrument has beenobtained from its lawful owners, or from any person inlawful custody thereof, by means of an offence or fraud, orhas been obtained from the maker or acceptor thereof bymeans of an offence or fraud, or for unlawfulconsideration, the burden of proving that the holder is aholder in due course lies upon him. "

Whether the Petitioner cannot be considered as "a holderin due course" within the meaning of the Act is a question of factand will have to be investigated as to whether the requisites givenin the definition have been fulfilled or not, which can only bedone after the evidence has been recorded and all the circumstancescome to light, in such evidence. This view gains support fromthe decisions rendered by the Allahabad High Court in the case of Anil Kumar Jaiswal Vs. State of UP and another (III-2007—BC-240).In the said decision, the High Court of Allahabad has endorsed theview of the Magistrate that only after evidence is recorded, itwill be possible for the court to decide as to whether thecomplainant is the holder of the cheques in question within themeaning of the Act. Therefore, the contentions raised by thelearned counsel for the Petitioner cannot be considered at thisstage and no interference is warranted by this court.