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Wednesday, October 3, 2012

Apex Court reverses own verdict on cheque dishonour

The beneficiary of a cheque who chose not to prosecute the drawer after serving the first notice on him can do so after serving on him a notice the second and subsequent times, held the Supreme Court. In MSR Leathers v. Palaniappan and Another, the Court overturned its own verdict delivered in Sadanandan Bhadran’s case in 1998. In that case it had held that if the beneficiary of a cheque after serving notice on the defaulting drawer – within a month of notice of dishonour – to pay up within fifteen days, does not follow it up with a complaint to the magistrate within a month of lapse of the fifteen days’ time to pay up, he forfeits the right to file a complaint with the magistrate if his second and subsequent notices also remain unheeded.

The Apex Court wondered why in the earlier judgement it had not examined the doctrine of waiver of right to prosecute to condone his failure to prosecute hot on the heels of the first default. A beneficiary of cheque might waive his right to prosecute for a variety of reason including the possibility of the drawer landing funds on the second and subsequent occasions. Instead the Apex Court had in the earlier verdict chosen to press in the doctrine of absolution according to which when a person does not prosecute a person in respect of a non-cognizable offence he is deemed to have pardoned the defaulter. Taking a refreshing new look into the issue, the Court pointed out that a beneficiary cannot be presumed to have granted absolution but given more opportunities for the defaulter to pay up. Viewed in this light, the cause of action rose each time, the beneficiary served notice and gave time to pay up. In other words, it did not die with his failure to prosecute after the first notice as was held in the earlier judgement. In any case, the Court pointed out, the law has since been amended to vest the magistrate with the power to file a complaint within a month of failure to pay up within fifteen days of the notice which is a tacit statutory admission of the right to waive prosecution for the time being.

The Apex Court for good measure pointed out that constructive interpretation must be placed on statutes so that its objects are furthered and not stymied by narrow interpretations.

(The author is a New Delhi-based chartered accountant)


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