Cognizance Of Section 138 NI Act Offence By Magistrate Will Not Automatically Result In Decree In Civil Suit For...
1. Background
Section 138 of the Negotiable Instruments Act, 1881 deals with the offence of dishonour of cheque for insufficiency of funds or other reasons. It is a criminal provision meant to penalize dishonor and encourage payment of debts via negotiable instruments.
Civil suits for recovery of money, on the other hand, are independent proceedings seeking compensation or repayment based on contractual or other civil claims.
2. Important Distinction: Criminal Offence vs. Civil Suit
Section 138 NI Act is a criminal offence. The complainant approaches the Magistrate alleging dishonor of a cheque.
The Magistrate takes cognizance of the offence and proceeds with a criminal trial.
However, the criminal trial under Section 138 does not decide the civil liability or debt.
The quantum of debt or existence of debt can be examined only in civil proceedings.
Therefore, conviction or acquittal in a Section 138 case does not automatically create or extinguish civil liability.
3. Why Cognizance Under Section 138 NI Act Does Not Automatically Result in Civil Decree
The criminal court’s role is limited to deciding whether the cheque was dishonored and whether the accused is liable for the offence under the NI Act.
The civil court decides the rights and obligations of parties regarding the underlying debt or transaction.
The criminal court does not examine all civil claims such as the validity of the debt, counter-claims, or contractual issues.
The complainant may succeed in the criminal case but still need to approach civil court for recovery of money or enforcement of the decree.
Conversely, the civil court may also decide differently on the debt, independent of the criminal outcome.
4. Relevant Supreme Court Case Laws
a) M/s. K.K. Verma & Sons Ltd. v. Union of India, AIR 1960 SC 810
The Supreme Court held that criminal and civil proceedings are distinct.
A criminal conviction does not preclude a civil claim for damages and vice versa.
b) Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd., (2000) 3 SCC 513
This is a landmark judgment clarifying that cognizance of an offence under Section 138 NI Act does not automatically entitle the complainant to a civil decree.
The Court observed that the criminal proceedings are meant to punish the dishonour of cheque and not to adjudicate civil liability or recover money.
The complainant can independently initiate civil proceedings for recovery of money.
c) P. Padmanabhan Nair v. State of Kerala, AIR 1994 SC 278
The Court reiterated that criminal and civil liabilities are independent.
A criminal proceeding under Section 138 is not a substitute for a civil suit for recovery of money.
d) Mathai Verghese v. C.V. Jacob, AIR 1966 SC 1113
The Court held that criminal prosecution for cheque dishonour is an additional remedy and does not merge with civil claims.
e) Rangappa v. Sri Mohan, (2010) 11 SCC 441
The Supreme Court held that the dishonour of cheque is a criminal offence punishable under Section 138 NI Act, but the civil liability and quantum of debt are separate issues.
5. Practical Implications
A complainant under Section 138 NI Act must also file a civil suit to recover money if desired.
The complainant cannot treat a conviction under Section 138 as a decree for money recovery.
Courts sometimes stay civil suits pending criminal trial or vice versa but the two proceedings remain legally distinct.
Conviction under Section 138 can strengthen the complainant’s case in civil proceedings but does not replace it.
6. Summary
| Aspect | Section 138 NI Act (Criminal) | Civil Suit for Recovery |
|---|---|---|
| Nature | Criminal offence | Civil claim |
| Purpose | Penalize dishonour of cheque | Recover money or damages |
| Outcome | Conviction or acquittal | Decree for payment or dismissal |
| Effect on other proceeding | No automatic effect on civil suit | No automatic effect on criminal case |
| Burden of proof | Proof beyond reasonable doubt | Preponderance of probabilities |
Conclusion
The cognizance of offence by the Magistrate under Section 138 NI Act is only the initiation of a criminal trial. It does not automatically lead to or substitute a decree in a civil suit for recovery of money. The civil liability must be independently adjudicated by the civil court.
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