Absence Of Seal Or Signature On Bank Memo In Electronic Clearance System Insufficient To Defeat Cheque Dishonour Prosecution: Karnataka High Court
The Court held that in the era of electronic clearance, the absence of a seal or signature on a bank endorsement does not invalidate proof of dishonour, particularly when statutory presumptions operate in favour of the complainant.
Justice V. Srishananda, Karnataka High Court
The Karnataka High Court has held that the absence of a seal or signature on a bank endorsement does not render a complaint under Section 138 of the Negotiable Instruments Act, 1881 invalid, particularly where the endorsement contains all material particulars and is generated through electronic clearance systems.
The Court observed that such technical objections cannot defeat criminal prosecution for cheque dishonour.
The Court was hearing a criminal revision petition challenging concurrent findings of conviction under Section 138 of the Negotiable Instruments Act, 1881, wherein the accused contended that the bank memo did not contain proper endorsement of dishonour and therefore could not be relied upon.
A Bench of Justice V. Srishananda observed: “ … the first contention on which the learned counsel for the revision petitioner has stated that there could not be any criminal prosecution for dishonor of the cheque, inasmuch as the bank memo did not contain proper endorsement of dishnour cannot be countenanced in law, … likewise, the contention that the seal and signature of the bank was a mandatory requirement when the cheque was sent for manual collection cannot also be accepted”.
“In view of the electronic clearance, the seal and signature are not mandatory and therefore, seal and signature, official mark, etc., cannot be a ground to reject the complaint”, the Bench added.
Advocate Rishi Pal Singh Varma appeared for the Petitioner; Advocate Chandrashekar P. Patil appeared for the Respondents.
Background
The complainant had initiated proceedings under Section 138 of the Negotiable Instruments Act, alleging dishonour of a cheque issued towards repayment of a loan of ₹3,00,000. The cheque, upon presentation, was returned unpaid with the endorsement “funds insufficient”.
The accused challenged the proceedings on the ground that the bank endorsement (Ex.P.2) was defective as it did not bear a seal or signature of the bank, and therefore did not satisfy the requirements under Section 146 of the Act. It was contended that in the absence of proper proof of dishonour, the conviction could not be sustained.
Court’s Observation
The Court examined the evidentiary value of the bank endorsement and noted that Ex.P.2 contained all essential details, including cheque number, sort code, branch details, date of presentation, amount, and reason for dishonour. It held that the endorsement sufficiently established the fact of dishonour and could not be rejected merely on technical grounds.
Rejecting the contention of the accused, the Court observed that the contention that there could not be any criminal prosecution for dishonour of the cheque, since the bank memo did not contain proper endorsement of dishonour, cannot be countenanced in law.
The Court further held that with the introduction of electronic clearance systems, manual verification and physical endorsements have been replaced by computer-generated processes. It was observed that under the electronic clearance, the seal and signature are not mandatory, and therefore absence of such formalities does not invalidate the bank memo.
The Court also relied on Section 146 of the Negotiable Instruments Act to hold that a bank memo carries a statutory presumption of dishonour unless disproved. It was observed that if the accused disputed the correctness of the endorsement, it was open to him to summon the bank officials and establish that the cheque was not dishonoured.
Emphasising the burden on the accused, the Court noted that the complainant enjoys a presumption under Section 139 of the Act, and once execution of the cheque is admitted, the burden shifts to the accused to rebut the presumption. It held that failure to adduce evidence to challenge the bank memo or the underlying transaction further strengthened the prosecution's case.
The Court also noted that the accused had admitted the endorsement and had not taken any steps to challenge it before the bank, thereby rendering his objections an afterthought. It concluded that technical defects in form cannot override substantive compliance with statutory requirements.
“Moreover, while noting that the accused admitted that the endorsement was indeed issued by the banker in respect of dishonour of cheque, the Court held that “the argument that Exhibit P-2 is not in consonance with Section 146 of the Negotiable Instruments Act is only an afterthought inasmuch as DW-1(accused) has specifically admitted in his cross-examination that Exhibit P-2 which is the bank endorsement is in respect of dishonour of Ex.P-1/cheque”.
Conclusion
The High Court held that the bank endorsement was valid proof of dishonour and that the absence of a seal or signature did not vitiate the proceedings under Section 138 of the Negotiable Instruments Act.
Accordingly, the criminal revision petition was dismissed, and the conviction of the accused was upheld.
Cause Title: Jagdish R v. B.S. Ravi (Dead) Through LRs