This article is written by Ankita Sengupta of the School of Law, KIIT University. This article briefly highlights the reasons behind the delay in disposing of cheque dishonour cases and the steps taken by the Supreme Court of India to overcome it.

Introduction 

Section 138 of the Negotiable Instruments Act, 1881 deals with the protection of the drawee of a cheque from being harassed unnecessarily by making this act a punishable offence. Recently in April 2020 the Supreme Court of India in a suo moto case examined and stated the various reasons as to why there is a need for speedy disposal of cheque bounce cases. In March 2020, the Supreme Court took cognizance of a large number of cheque bounce cases under Section 138 of the NI Act, 1881(hereinafter referred to as “The Act”) and in April 2021 after talking to various persons of stature like the Chief Justice of High Courts and it issued directions for speedy trial of these cases. This article discusses the various reasons and steps taken by the Supreme Court to curb this problem.

Overview of Section 138 of the Negotiable Instruments Act

The requirement of Section 138 of the Act is essential to protect the innocent drawee of a cheque when the cheque bounces due to insufficient funds in the account of the holder. This section was inserted in the 1989 amendment made in the Negotiable Instrument Act,1881 thus holding the account holder criminally liable and making it a punishable offence. Many business transactions are carried out via cheques wherein to keep cheques from getting dishonoured because of any ill intention of the drawer, this Section has been inserted.

A cheque would only attract Section 138 of the Act when the post-dated cheque becomes effective from the date mentioned on the face of the cheque. Prior to this it only remained as a bill of exchange. This was clarified by the Supreme Court in the case of Ashok Yeshwant Badave v. Surendra Madhavrao Nighojakar, (2001) 3 SCC 726. 

The ingredients required for a complaint to be filed under Section 138 of the Act are as follows:

• The cheque has been drawn by the drawer for payment of money to be discharged of existing legal debt or liability.
• Must be presented before the bank within 3 months of the effective date mentioned on the face of the cheque.
• The cheque must be returned to the drawee unpaid either because of insufficient funds or it exceeds the amount mentioned.
• The Drawee must draft a notice to the drawer informing about the cheque bounce within 30 days from the recipient of information from the bank regarding the amount remaining unpaid.
• The Drawer upon receipt of the notice fails to make payment of the amount within 15 days.

On failure of payment within 15 days of the receipt of the notice, the drawee can start prosecution by way of a criminal or civil suit. In the case of MSR Leathers v. S. Palaniappan, (2013) 10 SCC 568 it was held by the Supreme Court that prosecution of accused on the basis of a fresh cause of action arising out of the subsequent presentation of cheques by the drawee even when the original cause of action becomes time-barred due to non fulfilment of payment by the drawer is valid. Thus, a complaint when made in writing can be taken up for cognizance by the trial court within a period of one month from the first cause of action and subsequent causes of action.

Amendments made for speedy disposal of cases

The legislature after noticing that Section 138 is not being able to deal expeditiously with the cases dishonouring of cheque, introduced Section 143 to 147 in the Negotiable Instrument Act vide Amendment 2002 for speedy disposal of cases through summary trial. But no uniform order of disposal has been followed by any magistrate of trial courts. This happened despite the statutory provision and direction of the Supreme Court in the case of Indian Banking Association v. Union of India (2014) 5 SCC 590 to completely dispose of such cases within a stipulated time of 6 months.

The Negotiable Instrument Act,1881 has been time and again amended to bring more changes to enhance quicker disposal of cases as well as to retain the trust of the people in NI. The courts in India are facing the colossal problem of unsolved cases under Section 138 for a long time. To solve this the legislature introduced Section 143A and Section 148 in the NI Act through the Negotiable Instrument (Amendment) Act, 2018.

With the introduction of these two important Sections, the legislature wished to see speedy disposal of cases and a drop in the number of pending cases under Section 138 of the Act. Section 143A of the Act is introduced to direct the drawer of the cheque to pay interim compensation to the drawee at the time of pendency of the case. The Quantum of the interim compensation can be 20% of the amount payable to the drawee. This gives a structure to the case when the case has been pending before the trial court and the accused seeks not guilty. Whereas Section 148 of the Act was introduced giving power to the appellate court in case of appeals to order a payment of 20% of the fine or compensation awarded by the trial court, convicting the accused. This payment will be in addition to the 20% already paid to the complainant. This safeguards the complainant even though the case is on trial and the sessions court or the appellate court is yet to announce final judgment on the same.

The reason behind overloading of cases despite the amendments 

There is a steady increase in the number of complaints being filed under Section 138 of the Act but the rate of disposal of cases is lagging. According to the preliminary report submitted by the Amici Curiae on 11.10.2020, more than 30% of the criminal cases which are pending constitute pending cheque bounce cases, which remain undisposed under Section 138. Because of this, the pendency in criminal cases is also increasing.

The Amici Curiae in its report has identified seven major issues that are mentioned by the State governments and Union Territories. The reasons are as follows:

• Service of Summons

Once the complainant (drawee) has filed a criminal case against the accused (drawer) under Section 138 of the Act and has given statements in the box, the magistrate if deemed necessary can summon the accused to appear before the court. Notwithstanding anything contained in the Code of Criminal procedure, 1973, a person can be summoned under Section 144 of the Negotiable Instrument Act,1881 by the magistrate by directing a copy of the summon at the place of the accused. This practice has caused immense delay because of reasons like unavailability of the accused at the time of the summoned date or the resistance of the accused to appear.

• Conversion of summary trial to summons trial

The general norm of a trial of cases under Section 138 of the Act is summary trial and inclusion of summons trial is an exception. The power to convert a summary trial to a summons trial lies under Section 262-265 of the Code of Criminal Procedure,1973 (hereinafter referred to as “Code”)with the Magistrate of the court if he deems that a requirement of punishment of more than 1 year is necessary after recording substantial reasons for the same. This has caused trials to be converted unnecessarily without proper reasoning by the magistrates to be converted into summary trials. This conversion has caused delays in the speedy disposal of cheque bounce cases in the country.

•  Confusion between Section 145 of the Act and Section 202 of the CrPC

Section 202 of the Code of Criminal Procedure, 1973 mandates the magistrate to conduct an inquiry to justify the issue in the process. If the accused resides outside the jurisdiction of the court, the magistrate under Section 202 of the code of Criminal Procedure, 1973 shall make an inquiry as held in the case of Vijay Dhanuka & Ors. v. Najima Mamtaj & Ors. (2017) 3 SCC 528.

However, this point has been subjected to contrary views in other cases. Section 145 of the Act allows evidence by the complainant to be submitted by the medium of an affidavit and examination done under Section 202 of the Code. This had created confusion and led to differences in conduct by the magistrate in such cases thus leading to a delay.

• Single Trial for Multiple Offences

Section 219 of the Code illustrates that when a person commits more than one offence under Section 138 of the Act within a period of 12 months then a maximum of three cases can be tried jointly in the court. If such is the case when an accused commits a series of offences pertaining to one act of larger conspiracy such offences can be jointly tried under Section 220(1) of the code. 

In the case of Vani Agro Enterprises v. State of Gujarat & Ors. (2000) 1 SCC 285 the court tried four offences jointly of an accused who committed such offences under Section 138 of the Act as per Section 219 of the code. This was allowed by the court but needs legislative amendment to try multiple offences of the same nature committed by an accused under 12 months.

• Mediation

Cases brought under Section 138 of the Act lack a pre-litigation mediation clause. A pre-litigation mediation would release the burden of the court but it hasn’t been implemented yet which has caused a delay in the disposal of such cases.

The recent take of the Supreme Court in the matter 

A division bench of the Supreme Court consisting of the chief justice of India S.A Bobde and Justice DL. Nageswara Rao, concerned with a large number of cases under Section 138 of the Act pending in the courts decided to undertake a suo moto case. This came after Makwana Mangaldas Tulsidas vs The State Of Gujarat, Special Leave Petition (Criminal) No. 5464 of 2016 pertaining to cheque bounce was pending since 2005. Thus, a suo motu writ petition was registered by the Supreme court – “In Re: Expeditious Trial of Cases under Section 138 of N.I. Act 1881”. The court assigned Amici Curiae to the case and issued notices to various Institutions like the RBI, Government, Registrar general of High courts etc to provide information and suggestions to the Amici Curiae for the betterment of the laws.

The Supreme Court has, therefore, after the Preliminary Report being submitted issued guidelines and directions to the High Courts and Trial courts of the country to effectively deal with the pendency of the Cheque Bounce cases.

Suggestions recommended by the Supreme Court 

Taking into view the importance of the issues addressed, the matter was referred to a 5 judge constitutional bench. So the bench after examining the reasons for the delay in disposing of cases issued these important guidelines to accelerate the disposal and hearing of such cases:

1. For the service of summons, under Section 146 of the Act, the bank shall issue dishonour slips against the accused wherein the intimate details of the accused such as mobile number, email ID and postal address will be disclosed. Summons in the electrical form like SMS, Whatsapp shall be made effective thereon. It necessitates the creation of a Nodal Service Agency by the Union of India, Reserve Bank of India and Indian Banks Association for effective e-platform summon service.
2. Due care needs to be taken by the magistrate while converting summary trials to summon trials. It should not be done mechanically without providing reasons for such conversion. The High courts should issue practice directions to the trial courts to record coherent reasons before converting cases under Section 138 of the Act from summary trial to summons trial.
3. Evidence on behalf of the complainant shall be taken on affidavit. The Supreme Court held that in view of Section 145 of the Act, Section 202 (2) of the code is not applicable to witnesses already on oath. The magistrate can take evidence through an affidavit and the physical presence of a witness is not required.
4. The legislature shall make suitable amendments in the Negotiable Instruments Act,1881 for the insertion of provision of one trial for multiple offences committed by an accused within 12 months.
5. Consider delivery of summons in one complaint related to a transaction to be deemed service for other complaints referring to the same transaction. Thus the apex court has directed High courts to issue practice summons to trial courts.
6. The Supreme Court observed the decision of this court in the case of K. M. Mathew v. State of Kerala & Anr. (1992) 1 SCC 217 held that a trial court has no inherent authority to reconsider or rescind an order issuing summons/process.
7. If the complainant is awarded to the satisfaction of the court, the trial court has no authority to dismiss the accused. The Supreme Court outlawed the decision held in Meters and Instruments Private Limited and Another v. Kanchan Mehta (2018) 1 SCC 560 which conferred power on the magistrate under Section 143 of the act to discharge the accused if the complainant is reimbursed according to the satisfaction of the court.

A welcome judgment by the Supreme Court

The Supreme Court has taken the decision to constitute a committee consisting of Hon’ble Mr. Justice R.C. Chavan, former Judge of the Bombay High Court, as the Chairman to consider the various suggestions made by the Amici Curiae and draw upon reasons of delay of cases under Section 138 of the N.I Act. The Committee is further instructed to consider the necessity for the development of additional courts to hear complaints filed under Section 138 of the Act.

This decision of the Supreme Court will likely throw light on the delay prospects of the cheque bounce cases as well as constitute methods to overcome those delays. The committee shall work on any other issue relating to the expeditious disposal of cases under Section 138 and take into consideration the other suggestions put forward by the amici curiae. 

Conclusion 

The Supreme Court of the country has taken precisely correct decisions of the revamping of the approach towards the disposal of cases under Section 138 of the Act. The Indian judicial system is already burdened with humongous pending cases and the setting up of additional courts for this particular matter would take the burden off the criminal courts of India which would increase the quality of justice being delivered. Thus, the apex court has taken all the necessary and change worthy decisions to improve this sector of the Indian Judiciary system. Further,it has issued its interest and decision under Article 141 of the Indian Constitution, thus binding all the courts in India to follow its guidelines which would surely make a difference in the rate of case disposal under Section 138 of the N.I Act.

References 

• https://main.sci.gov.in/supremecourt/2020/9631/9631_2020_31_501_27616_Judgement_16-Apr-2021.pdf (Judgement order)

• https://www.livelaw.in/pdf_upload/pdf_upload-383612.pdf (preliminary report)

• In Re: Expeditious Trial of Cases U/S 138 of N.I. ACT, 1881 – A Welcome Judgment

• To clear dishonored cheque cases, SC bench proposes fast track courts.
• Crossing out cheque bounce cases 

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