It further held that deposit by accused drawer of entire amount covered by cheque during trial does not absolve the accused drawer of the liability of offence, though it can have some effect on sentence to be awarded.

The facts of the case are as follows:
Three cheques were given to the appellant representing different amounts amounting to Rs 232,600. These cheques were presented by the appellant for encashment but the same were returned with the endorsement "Payment stopped by the drawer".

The appellant served notices on the respondent calling upon him to pay the amount of cheques within 15 days of the receipt of the notice.

The respondent failed to make the payment after which complaints were filed by the appellant in the court of chief judicial magistrate who held an inquiry under section 202 of the Code of Criminal procedure and thereafter took cognizance of the offence and directed the issuance of process.

The accused respondent challenged the orders of the magistrate and filed application under section 482 to the high court inter alia stating that stop payment of cheque is not an offence under section 138 of the Act & service of notice as contemplated under proviso (b) to section 138 has not been proved.

The HC dismissed the petitions following the Supreme Court's decision in Modi Cement Ltd v Kuchil Kumar Nandi (1998 AIR SCW 842). The respondent filed application to the magistrate for recalling the issuance of process which was dismissed by the magistrate. Appeals were filed against the order of magistrate.

The HC rejected the contention that the cheques had been issued in the capacity of the director of the company to whom supplies were made, though the complaint has been filed without impleading the company as the accused. It held that criminal prosecution would lie under section 138 of the Act without impleading the company of which the accused is the director as the party.

However, HC concluded that as the notice was issued by the complainant to the accused in his individual capacity and not to the drawer thereof (ie the company), no offence can be said to have committed by the company, M/s Bhall Tectran Industries Ltd and therefore criminal proceedings cannot be proceeded against by taking recourse to section 141 of the Act. It further held that the decision of the SC Bilakchand Gyanchand v A Chinnaswami (1999 AIR SCW 2201) will have no applications to the facts of the case.

The present appeal is against the above decision of the HC. It was urged on behalf of respondent that the drawer of the cheque was the company and the cheque was signed by the respondent in his capacity as director of the company. Notice of dishonour of cheques was issued to the respondent in his individual capacity and no notice was issued to the company which is the real drawer of the cheque and hence criminal proceedings were rightly quashed by the HC.

The SC examined the provisions of sections 138 & 141 of the Act and noted that mere dishonour of a cheque would not raise a cause of action unless the payee makes a demand in writing to the drawer of the cheque for the payment and drawer fails to make the payment of the said amount of money to the payee.

The cheques were signed by the director on behalf of thecompany and appellant had issued notice to the concerned director. Notwithstanding service of the notice, amount was not paid. The object of issuing notice indicating the fact of dishonour of the cheques is to give an opportunity to the drawer to make payment within 15 days so that it will not be necessary for payee to proceed with any criminal action even though the bank dishonored cheques.

When notice was issued to director who had signed the cheques on behalf of company it was incumbent upon him to see that the payments are made within 15 days. It observed "Bearing in mind the object of issuance of such notice, it must be held that the notices cannot be construed in a narrow technical way without examining the substance of the matter".

The SC rejected the high court's views that its decision in Bilkachand Gyanchand & Co 1999 (AIR SCW 2201) has no application as in that case also the managing director of the company had signed cheques which were dishonoured and criminal proceedings were initiated against him.

As regards deposit of the amount covered by the cheques during the pendency of these appeals, the SC observed "so far as the criminal complaint is concerned once the offence is committed any payment made subsequent thereto will not absolve the accused of the liability of criminal offence though in the matter of awarding of sentence, it may have some effect on the court trying the offence. But by no sketch of imagination, a criminal proceeding could be quashed on account of deposit of money in the court or that an order of quashing criminal proceedings, which is otherwise unsustainable in law could be sustained because of the deposit of money in this court. Hence the so called deposit of money by respondent in this court is of no consequence."

Thus the SC allowed the appeal and directed the criminal proceedings would be continued and order of the High Court was set aside.