Submission of Final Draft towards fulfillment of assessment of Banking and Negotiable

Instruments Act

JURISDICTIONAL TUSSLE BETWEEN SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT,

1881 AND THE INDIAN PENAL CODE, 1860

Submitted to: Submitted by:

MR. SANGRAM JADHAV BHAVYA SOLANKI

ROLL NO.: 2018 009

1
 TABLE OF CONTENTS
I. INTRODUCTION ................................................................................................................... 3
II. RELEVANT PROVISIONS ...................................................................................................... 3
1. Section 138 of the NI Act, 1881 .............................................................................. 3
2. Section 420 of the IPC ............................................................................................. 4
3. Section 405 of IPC ................................................................................................... 5
4. Article 20(2) ............................................................................................................ 5
5. Section 300(1) of CrPC ........................................................................................... 6
III. CASE ANALYSIS: J. VEDHASINGH V. R.M. GOVINDAN ..................................................... 6
1. Citation:........................................................................................................................... 6
2. Bench: J.K. Maheshwari, J. ............................................................................................ 6
3. Facts: ............................................................................................................................... 6
4. Case Travel ..................................................................................................................... 7
5. Contentions ..................................................................................................................... 7
6. Judicial Analysis ............................................................................................................. 8
7. Final Judgment .............................................................................................................. 10
IV. ANALYSIS ...................................................................................................................... 10
1. Legal Outlook ............................................................................................................... 10
a. Mens Rea ............................................................................................................... 11
b. Punishment ............................................................................................................ 12
c. Bail-ability................................................................................................................. 12
d. Cognizable ............................................................................................................. 12
e. Compoundable .......................................................................................................... 12
f. Cause of action .......................................................................................................... 13
g. Burden of proof and Standard of Proof ................................................................. 13
h. Limitation date....................................................................................................... 13
i. Procedure of Trial...................................................................................................... 14
j. Jurisdiction ................................................................................................................ 14
2. Jurisprudential Outlook ................................................................................................. 14
V. FINAL WORDS ................................................................................................................... 16
VI. BIBLIOGRAPHY .............................................................................................................. 18

2
 I. INTRODUCTION
Recently, the Supreme Court, in the case of J. Vedhasingh v. R.M. Govindam,1 (“J.
Vedhasingh”) referred to a larger bench, the issue of whether an accused can be tried separately
under the Negotiable Instruments Act, 1881 (“NI Act”) and the Indian Penal Code, 1860
(“IPC”) for the same set of allegations, irrespective of any prior acquittals or convictions. Past
verdicts on this point have been largely incoherent. Section 138 of the NI Act deals with
‘Dishonor of cheques’ while Section 420 of the IPC deals with ‘Cheating and dishonestly
inducing delivery of property’, and Section 405 of the IPC deals with ‘Criminal Breach of
Trust’. In many instances, proceedings under the latter charges have been quashed based on
the short point that Section 138 proceedings under the NI Act were already pending or had
taken place.

Section 300 of the Criminal Procedure Code, 1973 (“CrPC”) provides that a person once
convicted or acquitted cannot be tried again for the same offence. On the one hand, it can be
argued that this rule is attracted only where there is a similarity in offences. Understandably,
sections 138 and 420/ 405 differ materially in terms of the requirement of mens rea,
presumptions drawn, and the punishment imposed. On the other hand, it can be contended that
invoking criminal jurisdiction herein will amount to an abuse of process. Further, Section 300
of CrPC has a wider ambit than Article 20(2) of the Indian Constitution.

As an attempt to reconcile these divergent viewpoints, the current paper, firstly, analyzes the
elements of Section 138 of the NI Act, Section 420 and 405 of the IPC, Article 20(2) of the
Indian Constitution, and Section 300 of CrPC, secondly, reviews the judicial interpretation of
J. Vedhasingh while conducting a survey of case laws interpreting this jurisdictional tussle,
thirdly, discusses the legal and jurisprudential viability of permitting concurrent jurisdiction,
and, lastly, attempts to anticipate the final verdict of the Supreme Court on the issue.

II. RELEVANT PROVISIONS

1. Section 138 of the NI Act, 1881
Chapter XVII of the NI Act was incorporated for penalties in case of dishonour of cheques.
The objective of the Chapter was to, firstly, promote the usage and credibility of cheques,

1
Criminal Appeal No. Of 2022 Arising Out Of Slp (Crl.) No.2864 Of 2019.

3
secondly, expedite the resolution of cases related to dishonoured cheques and, thirdly, impose
stricter penalties on those who commit such offenses.2

To constitute an offence under Section 138, three conditions must be met: (a) the accused must
have drawn the cheque on their account with a bank, (b) the cheque must be issued to discharge
a debt or liability, and (c) the cheque must be returned unpaid due to insufficient funds or
exceeding the arrangement made with the bank. The commission of the offence occurs as soon
as the cheque is returned unpaid.

Further, more conditions include (i) presenting the cheque to the bank within six months from
the date of issuance or the period of its validity, whichever is earlier 3; (ii) issuing a written
notice demanding payment by the payee or holder of the cheque within 30 days of receiving
information from the bank of the cheque's return4; and (iii) the drawer's failure to pay the
amount owed to the payee or holder of the cheque within fifteen days of receiving the notice.5
Legal action may be initiated by the payee within 30 days after the expiration of the 15-day
time limit for payment.6

2. Section 420 of the IPC

Section 420 is a criminal offense that deals with cheating and dishonestly inducing delivery of
property. In the matter of Archana Rana v. State of Uttar Pradesh,7 the Court observed that
the ingredients to constitute an offence under Section 420 are as follows:

i. “a person must commit the offence of cheating under Section 415; and
ii. the person cheated must be dishonestly induced to
a) deliver property to any person; or
b) make, alter or destroy valuable security or anything signed or sealed and
capable of being converted into valuable security.”

Cheating is defined under Section 415 of the IPC. The ingredients to constitute an offence of
cheating are as follows:

i. “There should be fraudulent or dishonest inducement of a person by deceiving him.

2
Indra Kumar Patodia v. Reliance Industries Ltd., (2012) 13 SCC 1.
3
Section 138, proviso (a), NI Act.
4
Section 138, proviso (b), NI Act.
5
Section 138, proviso (c), NI Act.
6
Section 142 (b), NI Act.
7
(2021) 3 SCC 751.

4
 ii. The person who was induced should be intentionally induced to deliver any
property to any person or to consent that any person shall retain any property, or
iii. The person who was induced should be intentionally induced to do or to omit to do
anything which he would not do or omit if he were not so deceived.”

The case of Sonbhandra Coke Products v. State of UP8 established that the act of cheating
can only be considered an offense if it can be proven that the deceived person has suffered
harm or damage as a result.

The offense of cheating covers certain instances where there is no transfer of property resulting
from the deception, as well as cases where such a transfer does take place. Section 417 of IPC
generally addresses these situations. However, when property is indeed transferred, the specific
provision is section 420.9

3. Section 405 of IPC

Section 405 defines criminal breach of trust and Section 406 specifies its punishment.

The section has the following requisites:

a. “Entrusting any person with property or with any dominion over property;
b. The person entrusted dishonestly misappropriating or converting to his own use that
property; or
c. Dishonestly using or disposing of that property or wilfully suffering any other person so to
do in violation (i) of any direction of law prescribing the mode in which such trust is to be
discharged, or (ii) of any legal contract made touching the discharge of such trust.”

4. Article 20(2)
Article 20(2) of the Indian Constitution states that no person can be punished for the same
offense more than once. Based on Supreme Court rulings, this provision only applies in cases
where the individual has already undergone prosecution and punishment during a previous trial.
Therefore, the protection provided by Article 20(2) is restricted to preventing double conviction
and the plea of autrefois convict.10

8
1994 CrLJ 657 (All).
9
RATANLAL & DHIRAJLAL, INDIAN PENAL CODE, (36th ed., 2020).
10
Maqbool Hossain v. State of Bombay, (1953) SCR 730.

5
 5. Section 300(1) of CrPC
The concept of autrefois acquit is governed by ordinary law and is not subject to any
constitutional restrictions. However, both Section 300(1) of the CrPC and Article 20(2) of the
Indian Constitution are based on the principle of protecting individuals from being tried for the
same offense twice, also known as ‘double jeopardy’11. In order to apply the principles of
autrefois convict and autrefois acquit, the accused person must satisfy12 certain conditions,
which must be established in subsequent legal proceedings.

a) “The accused person had previously been tried by a Court for an offence.
b) Such Court was competent to try that offence.
c) Accused was either convicted or acquitted of that offence, at the former trial.
d) Such conviction or acquittal still remains in force when a subsequent proceeding has
been brought against him.
e) At the subsequent proceeding he is being tried again—
(i) for the same offence; or
(ii) on the same facts for any other offence for which a different charge
might have been made under s. 221(1)-(2).”

If the foregoing conditions are not present, then the bar under s. 300(1) cannot be raised by
arguing that the accused's plea aligns with the 'spirit' of s. 300.13

III. CASE ANALYSIS: J. VEDHASINGH V. R.M. GOVINDAN

1. Citation:
2. Bench: J.K. Maheshwari, J.
3. Facts:
The Appellant’s claim was that the respondents had asked him to invest money in the
development of some sites, promising to divide the profits between them. To formalize this
agreement, the parties had signed a profit-sharing agreement. The Appellant made the
investment, but the profits were not shared and he was not given any piece of land. The

11
Mohammad Safi v. State of W.B., AIR 1966 SC 69.
12
Asst. Collector v. Malwani, (1969) 2 SCR 432.
13
Jai Dev v. State of Punjab, (1968) SCD 539.

6
Appellant demanded repayment and subsequently, he was handed over a cheque. However, the
cheque was dishonoured due to insufficient funds in the account.

4. Case Travel
The appellant issued a demand notice and lodged a complaint under Section 138 of the
Negotiable Instruments Act, 1881. Other proceedings were also registered for offenses under
Sections 120B, 406, 420, and 34 of the IPC.

• Madras High Court order dated December 06, 2018

Displeased with this, the respondents sought to have them dismissed by filing a petition with
the High Court of Madras. The High Court granted the petition and dismissed the proceedings
because there were already proceedings under Section 138 of the N.I. Act for the same cause
of action and on the same facts and grounds that were registered earlier. As per the court,
continuing the present proceedings for offenses under sections 406, 420, 120B, and 34 of IPC
would be an abuse of the court's process.

• The Supreme Court of India

The appellant challenged the High Court's order.

5. Contentions
• Appellant’s Contentions

Firstly, the defence of double jeopardy or the bar of Section 300(1) of Cr.P.C. would only be
applicable if the earlier offense and the later offense have the same ingredients. The identity of
the allegations is not relevant, but rather the identity of the offense's ingredients is significant.
It was submitted that this is not the case since an offense under S. 138 of the NI Act does not
require proving mens rea. However, S. 420 requires mens rea in the form of fraudulent and
dishonest intent.

The judgment of Sangeetaben Mahendrabhai Patel v. State of Gujarat and Anr14

(“Sangeetaben”) , has been cited to support this argument, which has also been relied upon in
the case of M/s V.S. Reddy and Sons v. Muthyala Ramalinga Reddy and Anr15 (“V.S.
Reddy”).

14
(2012) 7 SCC 621.
15
(Crl Appeal No. 1285 of 2015).

7
• Respondent’s Contentions

According to the judgment of Kolla Veera Raghav Rao v. Gorantla Venkateswara Rao and
Anr16 (“Kolla Veera”), if the offenses are distinct, but the facts are the same, Section 300(1)
of the Cr.P.C. prohibits prosecution under Section 420 of the IPC.

Additionally, in the case of G. Sagar Suri and Anr. v. State of UP and Others17 (“G. Sagar
Suri”), the accused was allegedly involved in offenses under Section 138 of the NI Act as well
as Sections 406 and 420 of IPC. Following the filing of a complaint under Section 138 of the
NI Act, a petition was submitted to the High Court under Section 482 seeking the quashing of
the complaint, which was denied. The special leave petition was then granted by this Court,
directing that prosecution under Sections 420 and 406 is untenable and quashing the same.

6. Judicial Analysis
To give a recap, the cases of Sangeetaben and V.S. Reddy were cited by the Appellants. As a
counter, the respondents had referred to the cases of Kolla Veera and G. Sagar Suri. The Court
analysed the foregoing cases one by one, and gave its observations on them.

1. Sangeetaben (Held: S. 138 does not exclude action under the IPC)
1.1.Distinguished itself from G. Sagar Suri and Kolla Veera

In Sangeetaben, the Courts had referred to G. Sagar Suri (which was also cited by the
Respondents of Vedha Singh). In G. Sagar Suri, the court had quashed the criminal
proceedings under Sections 406/420 IPC, stating that it would be an abuse of process of law.
The issue of whether the ingredients of both offenses were the same was neither raised nor
decided. Therefore, the ruling of that case was held not to be applicable to Sangeetaben.
Further, Sangeetaben noted that the position remained unchanged in Kolla Veera (cited by
Respondents). Kolla Veera established that if someone has been convicted under Section 138
of the NI Act, then it is not possible to try them under Section 420 of the IPC or any other
provisions of the IPC or any other statute, as this would violate Article 20(2) of the Constitution
and Section 300(1) CrPC.

1.2.Difference between Article 20(2) and Article 300(1) of CrPC

16
(2011) 2 SCC 703.
17
(2000) 2 SCC 636.

8
Kolla Veera had pointed out the distinction between the language used in Article 20(2) of the
Constitution of India and Section 300(1) of the CrPC.

Article 20(2) requires a person to be prosecuted as well as punished for the same offence to get
barred by the rule of jeopardy. However, in Section 300(1) of CrPC, a person could either be
acquitted/ convicted of an offence by a court of competent jurisdiction to not be tried again for
the same offence or for any other offence based on the same facts. Therefore, Section 300(1)
of the CrPC is broader in scope than Article 20(2) of the Constitution, as it not only precludes
prosecution for the same offence but also prohibits trial and conviction for a different offence
that relies on the same set of facts. In Kolla Veera, although the charges were distinct, the
underlying facts were identical so Section 300(1) of CrPC was made applicable. Consequently,
the prosecution under Section 420 of the IPC was barred by Section 300(1) of the CrPC.

1.3.Difference in Ingredients of S. 138 and S. 420

Sangeetaben noted the following:

• Mens rea: In the prosecution under Section 138 of the NI Act, it is not necessary to prove
mens rea or fraudulent intent at the time of issuing the cheque. Conversely, in IPC, the issue
of mens rea may be relevant.
• Punishment: The offence punishable under Section 420 of the IPC is a serious one, carrying
a sentence of up to 7 years.
• Presumptions: In a case under the NI Act, there is a legal presumption that the cheque was
issued to discharge an antecedent liability, and this presumption can only be rebutted by
the person who draws the cheque. However, such a requirement does not exist for IPC
offences.
• Penalty: In a case under the NI Act, any fines imposed must be used to pay the legally
enforceable liability, which is not a requirement for IPC offences.
• Process: Only a complaint can initiate a case under the NI Act, but this is not necessary for
an IPC case.

Sangeetaben noted that while there may be some overlapping of facts in both cases, the
ingredients of the offences are entirely different, and therefore, the subsequent case is not
barred by any of the aforementioned statutory provisions.

1.4.Law of precedent

9
The decisions presented by both parties were all issued by benches consisting of two judges.
Therefore, the court noted in Vedha Singh that it is a well-established legal principle that if a
particular matter has already been resolved in a prior decision by a bench of the same
composition, any contradictory stance in a subsequent ruling should not be taken under the
pretext that the matter was not raised or addressed in the earlier verdict. As per District
Manager, APSRTC, Vijaywada v. K. Sivaji18 and Chandra Prakash v. State of U.P.19,where
contradictory judgments have been issued by benches of two judges of equal authority, the
pertinent legal issue should be referred to a larger bench to prevent any confusion and ensure
consistency in the application of the law.

7. Final Judgment
In order to prevent additional confusion and ensure uniformity, the Court referred the matter to
a larger bench for a final determination. It framed the following issues:

“1) Is the law correctly stated in the cases of G. Sagar Suri and Kolla Veera, or is the
conflicting view in the case of Sangeetaben as followed in V.S. Reddy and Sons the
correct proposition of law?

2) Can an accused be tried for both an offence under the NI Act, which is a special
enactment, and offences under the IPC, regardless of prior conviction or acquittal, and
would the bar of Section 300(1) Cr.P.C. apply to such a trial if the allegations of fact
are similar?”

IV. ANALYSIS
1. Legal Outlook
To satisfy Section 300(1), the following needs to be mainly proved, firstly, “(1) the accused
person had previously been tried by a Court for an offence, secondly, (2) accused was either
convicted or acquitted of that offence, at the former trial, and thirdly, (3) at the subsequent
proceeding he is being tried again—

(iii) for the same offence; or

18
(2001) 2 SCC 135.
19
2002 AIR SCW 1573.

10
 (iv) on the same facts for any other offence for which a different charge
might have been made under s. 221(1)-(2).”

As for the first two conditions, they will only get invoked when a trial under the IPC reaches
some conclusion. In this case, conviction or acquittal are yet to happen. Therefore, it is not a
subsequent proceeding, but a parallel proceeding and cannot be barred on the pretext that it
goes against the “spirit” of double jeopardy.20

Assuming for the benefit of the discussion that the accused had already been convicted under
Section 138, in order to not get tried again, it needs to be shown that the offences are the same
in the subsequent proceeding.

Whether Section 138 and Section 405/ 420 are the same offence?
The author agrees with the observations made in Sangeetaben that the offences may overlap
in their cause of action, but differ significantly in terms of their elements. To further add on to
the identified points of distinction:

a. Mens Rea
It is well established that Section 138 is a strict liability offence. It does not require the showing
of mens rea. Further, the offence is committed as soon as the cheque returns unpaid, regardless
of whether it was due to a dishonest intention at the time when the inducement was made, or
simply a failure to have sufficient funds in the account.

With regard to IPC offences, the key requirement of Section 420 is to prove the presence of
dishonest or fraudulent intention at the time the inducement was made.21 It is essential that the
intention to deceive was already present at the time the inducement was made, and simply
failing to fulfil a promise later on cannot automatically be considered as evidence of cheating.22
Further, under Section 405, the misappropriation of the property entrusted to him must be
dishonest.

A difference in the approaches of the sections can be noted from the scenario wherein a wife
signs a cheque to discharge husband’s liability but the husband provides the cheque. Herein,
only the wife will be liable under Section 138 regardless of the husband being the actual

20
Jai Dev v. State of Punjab, (1968) SCD 539.
21
Annamalai v State of Karnataka, 2011 Cr LJ 692 (SC); HICEL Pharma Ltd v. State of AP, 2000 Cr LJ
2566 (AP); Rajendra Vasantrao Khoda, v Laxmikant, 2000 Cr LJ 1196 (Bom) (a complaint as to dishonour of
cheque was not quashed, ingredients of cheating being made out.)
22
SN Palantikar v State of Bihar, AIR 2001 SC.

11
beneficiary23. However, this may not be the case under Section 420 of the IPC where the
husband may be held up for cheating if his intentions were deceptive.24

b. Punishment
Section 420 of the IPC carries a potential prison sentence of up to seven years and also fine.
Section 406 gives a maximum punishment of three years or fine or both. On the other hand,
section 138 stipulates a punishment of imprisonment for up to two years, a fine of up to twice
the amount of the check, or both.

c. Bail-ability
S. 138 is a bailable offence. However, S. 420 and S. 405 are non-bailable offences so bail can
be granted only as a matter of discretion of the court.25 This shows that the gravity of S. 138 is
considered to be less than S. 420.

d. Cognizable
S. 420 and S. 405 are cognizable26 meanwhile S. 138 is a non-cognizable offence. Therefore,
the police can arrest without warrant in the former.

e. Compoundable
Cheating and Breach of Trust can be resolved through compounding or settlement under
Section 320 of the CrPC upon approval by the court.27 Further, the compounding of a
compoundable offense while the accused is on trial or when the accused has been convicted by
a court and an appeal against the conviction is pending cannot be done without the court's
permission.28

With regard to Section 138, it is eligible for compounding29 and can even be compounded after
conviction.30 Furthermore, if parties to a legal proceeding have agreed to compound it, the High
Courts cannot interfere with such compounding and impose their own decisions on the
parties.31 In the case of Damodar S. Prabhu v. Sayed Babalal H32, the Hon'ble Supreme Court

23
M. Jaishankar v. Sree Gokulam Chits and Finance Corpn. (P) Ltd., 2020 SCC OnLine Mad 5550.
24
Devender Kumar Singla v Baldev Krishna Singla, AIR 2004 SC 3084.
25
Schedule I, CrPC.
26
Schedule I, CrPC.
27
Section 320 (2), CrPC.
28
320(5), CrPC.
29
Section 147, NI Act.
30
K.M. Ibrahim v. K.P. Mohammed, (2010) 1 SCC 798.
31
B.V. Seshaiah v. The State of Telangana & B. Vamsi Krishna v. State of Telangana,
Criminal Appeals arising out of Special Leave Petition (Crl) No.7099/2018) & arising out of Special Leave
Petition (Crl) No.7100/2018.
32
2010 (5) SCJ 31.

12
established guidelines for compounding the offence under Section 138 of the Negotiable
Instruments Act, 1881. One of the guidelines was that the court may permit compounding of
the offence without imposing any costs if the accused makes an application for compounding
at the first or second hearing. The court encouraged compounding of the offence at the trial's
initial stages as charges would be levied if the application for compounding is made later on.

f. Cause of action
In the case of Dashrath Rupsingh Rathod v. State of Maharashtra33, the Court has ruled that
the act of dishonouring a cheque issued by the drawer on an account maintained with a bank to
discharge a debt or liability, either in full or in part, constitutes an offense under Section 138.
However, the proviso to Section 138 stipulates that the prosecution and cognizance of the
offense can be deferred until the complainant has a cause of action to initiate proceedings, as
was observed in the case of Vinay Kumar Shailendra v. Delhi High Court Legal Services
Committee34. This provision allows the drawer of the dishonoured cheque an opportunity to
make payment before being prosecuted, even though the offense is considered complete as
soon as the cheque is dishonoured, as deemed appropriate by the Parliament. There is no such
provision under the offences of IPC.

g. Burden of proof and Standard of Proof

The Supreme Court, in the case of Rangappa v. Mohan35, ruled that if a cheque is related to
the accused's account, and the accused acknowledges and admits their signature on the cheque,
then the presumption under Section 139 of the NI Act and Section 118 of the NI Act must be
in favour of the complainant. This presumption is mandatory, but the accused has the right to
rebut it by demonstrating a preponderance of probabilities36. Therefore, the burden of proof to
some extent is on the accused. Under S. 420 and 406, burden of proof is on the prosecution,
and the standard is beyond reasonable doubt.

h. Limitation date
Limitation to file complaint under S. 138 is one month from the date of cause of action. As for
S. 420, there is no limitation period for taking cognizance.37

33
AIR 2014 SC 3519.
34
2015 (129) SCL 180.
35
(2010) 11 SCC 441
36
S. 139, NI Act.
37
S. 468, CrPC.

13
 i. Procedure of Trial
Usually, cases falling under Chapter XVII of the Act are tried in a summary manner. However,
the Magistrate has the discretion to decide that it is not appropriate to conduct a summary trial
if the potential sentence is more than one year, as per the second proviso to Section 143. In
addition, the Magistrate can use their discretion if they deem that the compensation provided
under Section 357(3) is insufficient considering the cheque amount, accused's financial ability
and conduct, or any other relevant factors. It is important to note that until the stage of
submitting the defense statement, the Court must treat the case as a summary trial. The option
to convert it to a regular summons case can only be considered after a thorough examination
of all aspects of the case as outlined in the guidelines.38

On the other hand, offences under the IPC are not conducted via summary trials.

j. Jurisdiction
According to the provisions of the Negotiable Instruments (Amendment) Act 2015, a complaint
regarding the dishonour of a cheque under Section 138 of the Negotiable Instruments Act can
be filed in a court located within the local jurisdiction of the bank branch where the payee or
holder of the cheque maintains their account.

Moreover, Section 177 read with Section 181(4) states that a criminal breach of trust can be
investigated or tried in a court located where the offence was committed or where the accused
received or retained any part of the property. Additionally, as per Section 182(1), any offence
of cheating and dishonestly inducing delivery of property can be investigated or tried by a court
located where the property was delivered by the deceived person or where the accused received
it.

This may be of relevance because in the age of digitisation, clients often do not care to transfer
their bank accounts. It could result in undue hardships if the jurisdiction depends on the branch
of the bank.39 CrPC, on the other hand, is more flexible as per where the offence happened.

2. Jurisprudential Outlook
1. Different aspects of the offense have been criminalised:

38
Re: Expeditious Trial of Cases under Section 138 OF N.I. ACT 1881, Suo Motu Writ Petition (Crl.) No.2 Of
2020.
39
Territorial Jurisdictional Constraints of Cheque Bounce Cases, SCC Online (January 03, 2022),
https://www.scconline.com/blog/post/2022/01/03/territorial-jurisdictional-constraints-of-cheque-bounce-cases/.

14
Section 138 is popularly referred to as a “civil offense with a criminal cloak”40. In contrast,
Section 420 of the IPC pertains to dishonestly inducing delivery of property through cheating
which is criminal in nature and crucially involves the aspect of a deceptive mens rea.

2. Difference in Objectives:

The case of Damodar S. Prabhu v. Sayed Babalal H.41, highlights the need to prioritize the
compensatory aspect of the remedy over the punitive aspect in cases of dishonored cheques. In
Modi Cement Limited v. Kuchil Kumar Nandi42, the Court expressed the view that the
fundamental objective of Section 138 is to enhance the effectiveness of banking operations and
to establish trustworthiness in business transactions conducted through cheques. The
legislation pertains to the laws of the commercial world, designed specifically to simplify trade
and commerce activities by affording recognition to credit instruments that can be readily
converted into cash and easily transferred from one party to another.43 So, even courts may
prefer repayment over imprisonment. In fact, The Hon'ble Supreme Court ruled in the case of
Meters and Instruments Private Limited v. Kanchan Mehta44 that the Magistrate has the
power to halt proceedings against the accused at any stage if the accused has provided adequate
compensation to the complainant. In such a situation, the accused can also be discharged.45

On the other hand, the objective of Section 420 of the IPC is to ensure the protection of property
rights and prevent individuals from being taken advantage of through dishonest and fraudulent
behaviour. It aims to deter others from committing similar offenses by imposing significant
penalties on those found guilty of cheating. It is not motivated by commercial objectives of
promoting the ease of doing business.

Therefore, parallel proceedings should be permitted to promote the specific goals of the NI
Act, which incorporates strict liability.46

40
P. Mohanraj v. Shah Brother Ispat Pvt. Ltd., 2021 SCC OnLine SC 152.
41
(2010) 5 SCC 663.
42
AIR 1998 SC 1057.
43
Dalmia Cement Bharat Limited v. M/S. Galaxy traders and Agencies Limited, 2001(1) RCR(Crl.) 646 (SC).
44
(2018) 1 SCC 560.
45
Section 258, CrPC.
46
Dalmia Cement Bharat Limited v. M/S. Galaxy traders and Agencies Limited, 2001(1) RCR(Crl.) 646 (SC).

15
 V. FINAL WORDS
To summarize, the difference between the offenses under the IPC and Section 138 of the NI
Act lies in the concept of mens rea. Without the element of mens rea, the IPC offense resembles
a civil liability for breaching a contract with a criminal consequence under Section 138 of the
NI Act. The presence of mens rea is a crucial factor that sets apart the two offenses and
distinguishes their objectives. The NI Act aims to promote the reliability and trustworthiness
of cheques, while the IPC aims to discourage acts of deception and dishonesty.

To this extent, the author concedes with the observations of Sangeetaben in so far as they note
the differences in ingredients of Section 138 of the NI Act, and the offenses under the IPC.
Owing to these differences, the offences become distinct in nature and therefore, cannot attract
the prohibition on subsequent proceedings under Section 300(1) of the CrPC. However, the
author diverges with Sangeetaben on the point where it subverts the authority of G. Sagar Suri
for the sole reason that the issue of similarity in the nature of offenses was neither raised nor
discussed. Therefore, to bring a conclusive end to the series of contradictory High Court
judgments, Vedha Singh has appropriately referred the matter to a larger bench of the Supreme
Court.

That being said, the Courts may consider approaching the issue of limiting the action against
dishonour of cheques to the Special Act only as public policy concern so as to avoid “forum
shopping”47. In recent years, there has been a significant increase in financial transactions,
leading to a rise in payment defaults and resulting disputes. According to a report presented to
the Hon'ble Supreme Court by amici curiae, Adv. Sidharth Luthra and Adv. K Parameshwar,
more than 8% of the total criminal cases pending are related to cheque dishonour, with a total
of 35.16 lakh such cases awaiting resolution.48

The IPC offenses can also not be prioritized over the NI Act because the compensatory nature
of the remedy should always hold priority over its punitive aspect. It should not be the scenario
that an NI Act proceeding gets barred due to a previous trial under the IPC.

47
Kamini Sharma, Forum Shopping and Power of High Court u/s 482 CrPC, SCC BLOG (April 14, 2022),
https://www.scconline.com/blog/post/2022/04/14/forum-shopping-civil-complaint-criminal-case-section-482-
supreme-court-legal-research-updates-news-high-courts/.
48
Re: Expeditious Trial of Cases under Section 138 OF N.I. ACT 1881, Suo Motu Writ Petition (Crl.) No.2 Of
2020, https://www.livelaw.in/pdf_upload/pdf_upload-383612.pdf.

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As for an aggrieved party of cheque dishonor cases, it is also pertinent to note the various
advantages and disadvantages of filing cases under either or both of the set of provisions under
the NI Act, and the IPC.

The benefits of going under Section 138 are as follows:

• Section 138 is a strict liability offense as well as does not need to show a dishonest intention
specifically at the time of issuance of cheque. Meanwhile, Section 420 requires showing
dishonest intention from the very start when the inducement was made.

• Section 138 offers easy compounding and settlement as compared to its IPC counterparts.
It can be compounded at any stage, even post-conviction. In this sense, it furthers the
intention of recovery of money and promotes ease of doing business.

• Owing to the deferral of cause of action, the drawer gets the opportunity to avoid
prosecution via payment.

• The standard of proof is very low under Section 138 compared to its IPC counterparts and
the presumption is in the favour of the complainant.

• There is also the provision of summary trial. Further, the High Court of Telangana has
provided a timeline as a reference point, stipulating that each case of cheque dishonour
must be completed within six months, and a verdict should be announced within three days
after the final arguments have concluded.49

There are also certain benefits of going under Section 420:

• Section 138 holds only the drawer of the cheque liable, and no third-party beneficiary. On
the other hand, if a third-party beneficiary is using the drawer as a tool to commit cheating,
it can be held up under S. 420 of the IPC.

• S. 420 and S. 406 attract a higher term of imprisonment. Further, S. 420 and 405 are
cognizable. S. 420 is also non-bailable.

• There is a limitation of one month from the date cause of action arises under S. 138. There
is no limitation period for S. 420 for taking cognizance.
•

49
Re: Expeditious Trial of Cases under Section 138 OF N.I. ACT 1881, Suo Motu Writ Petition (Crl.) No.2 Of
2020.

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Finally, the outcome of the case of Vedha Singh is likely to allow parallel or subsequent
proceedings under both, the NI Act and the IPC. The same has previously been held in a series
of cases even as earlier as 1994.50 Even as latest as 2022, it has been observed that gravity of
complaint under Section 138 of the NI Act cannot be equated with offences under IPC.51

VI. BIBLIOGRAPHY

Primary Sources

Legislations

• The Negotiable Instruments Act, 1881.

• The Indian Penal Code, 1860.
• The Criminal Procedure Code, 1973.

Case Laws

• J. Vedhasingh v. R.M. Govindam, Criminal Appeal No. Of 2022 Arising Out Of Slp (Crl.)
No.2864 Of 2019.
• Sangeetaben Mahendrabhai Patel v. State of Gujarat and Anr, (2012) 7 SCC 621.
• M/s V.S. Reddy and Sons v. Muthyala Ramalinga Reddy and Anr, (Crl Appeal No. 1285 of
2015).
• Kolla Veera Raghav Rao v. Gorantla Venkateswara Rao and Anr, (2011) 2 SCC 703.
• G. Sagar Suri and Anr. v. State of UP and Others, (2000) 2 SCC 636.
• Indra Kumar Patodia v. Reliance Industries Ltd., (2012) 13 SCC 1.
• Archana Rana v. State of Uttar Pradesh, (2021) 3 SCC 751.
• Sonbhandra Coke Products v. State of UP, 1994 CrLJ 657 (All).
• Maqbool Hossain v. State of Bombay, (1953) SCR 730.
• Mohammad Safi v. State of W.B., AIR 1966 SC 69.
• Asst. Collector v. Malwani, (1969) 2 SCR 432.
• Jai Dev v. State of Punjab, (1968) SCD 539.
• Vijaywada v. K. Sivaji, (2001) 2 SCC 135.

50
Rajan Singhal v. State of U.T. Chandigarh, 2015 (4) RCR (Criminal) 809 (P&H).
51
Triyambak S. Hegde v. Sripad, (2022) 1 SCC 742.

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• Chandra Prakash v. State of U.P., 2002 AIR SCW 1573.
• . Jai Dev v. State of Punjab, (1968) SCD 539.
• Annamalai v State of Karnataka, 2011 Cr LJ 692 (SC).
• HICEL Pharma Ltd v. State of AP, 2000 Cr LJ 2566 (AP)
• Rajendra Vasantrao Khoda, v Laxmikant, 2000 Cr LJ 1196 (Bom).
• SN Palantikar v State of Bihar, AIR 2001 SC.
• M. Jaishankar v. Sree Gokulam Chits and Finance Corpn. (P) Ltd., 2020 SCC OnLine Mad
5550.
• Devender Kumar Singla v Baldev Krishna Singla, AIR 2004 SC 3084.
• K.M. Ibrahim v. K.P. Mohammed, (2010) 1 SCC 798.
• B.V. Seshaiah v. The State of Telangana & B. Vamsi Krishna v. State of Telangana,
Criminal Appeals arising out of Special Leave Petition (Crl) No.7099/2018) & arising out
of Special Leave Petition (Crl) No.7100/2018.
• Triyambak S. Hegde v. Sripad, (2022) 1 SCC 742.
• Rajan Singhal v. State of U.T. Chandigarh, 2015 (4) RCR (Criminal) 809 (P&H).
• Re: Expeditious Trial of Cases under Section 138 OF N.I. ACT 1881, Suo Motu Writ
Petition (Crl.) No.2 Of 2020.
• Dalmia Cement Bharat Limited v. M/S. Galaxy traders and Agencies Limited, 2001(1)
RCR(Crl.) 646 (SC).
• P. Mohanraj v. Shah Brother Ispat Pvt. Ltd., 2021 SCC OnLine SC 152.

Secondary Sources

• Ruzela Da Cruz, Decriminalisation of Section 138 of the Negotiable Instruments Act, 1881,
2 Jus Corpus L.J. 866 (2022).
• Aparna Das, Apurba Pattanayak & Suvangi Ray, Critical Analysis of Section 138 of
Negotiable Instruments Act, 1881, 4 INT'l J.L. MGMT. & HUMAN. 432 (2021).
• Abdel Ghany & Abdullah Qazi, Dishonour of Cheques in India, 6 CT. UNCOURT 13
(2019).
• RATANLAL & DHIRAJLAL, INDIAN PENAL CODE, (36th ed., 2020).
• Kamini Sharma, Forum Shopping and Power of High Court u/s 482 CrPC, SCC BLOG
(April 14, 2022), https://www.scconline.com/blog/post/2022/04/14/forum-shopping-civil-

19
 complaint-criminal-case-section-482-supreme-court-legal-research-updates-news-high-
courts/.
• Territorial Jurisdictional Constraints of Cheque Bounce Cases, SCC Online (January 03,
2022), https://www.scconline.com/blog/post/2022/01/03/territorial-jurisdictional-
constraints-of-cheque-bounce-cases/.

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