This article is written by Shreya Mazumdar.  

Introduction

The very act of paying someone by way of cheque without having enough money in the bank may land the drawer of the cheque in jail. Cheques are a part of everyday transactions such as repayment of a loan, payment of salary, business transactions etc. In order to secure proof of payment, cheques are issued and it is one of the most reliable modes of payment for many people. 

A cheque is considered to be a negotiable instrument which can either be open or crossed. An open cheque is the one that is not crossed on the left corner and it is payable at the counter of the drawee bank once the cheque is presented. Whereas a crossed cheque is a cheque which is only payable through a collecting banker and not directly at the counter of the bank.

Over a period of time, there have been various important changes in the way cheques are issued, bounced and dealt with. As there is an increase in trade and commerce, the use of cheque has also increased and also cheque bouncing disputes. Section 138-142 of the Negotiable Instruments Act, 1881 lists out the efficacy of banking operations and to ensure credibility in transacting business through cheques.

This article specifically talks about the cheque bounce and the ways one can recover the amount considering the time taken by the court to conclude the case. This paper also talks about practical legal ways to deal with such a matter.

Section 138 of Negotiable Instruments Act, 1881

Section 138 of the Act mentions the criminal liability as well as civil attached to the dishonour of cheque where the drawer draws a cheque towards discharge of a debt or liability as a whole or in part and this cheque is dishonoured by the bank when presented. In a situation where the cheque is dishonoured, the drawee’s bank will issue a ‘Cheque Return Memo’ to the banker of the drawee mentioning the reason for non-payment. 

The drawee’s banker then gives the dishonoured cheque and the memo to the drawee. It is also upon the drawee to resubmit the cheque once again within a period of three months of the date on it if he believes that it will be honoured if it is presented the second time. Although if the cheque bounces then the drawee has a right to prosecute the drawer.

The intention behind Section 138 of the Act is that when the drawer of the cheque who has no intention to make the payment draws a cheque and it bounces then such an act is punished. Besides civil liability, criminal liability is also imposed by Section 138 of the Act in the event of an unscrupulous drawer of the cheque. 

With respect to the criminal law, the commission of an offence is one thing and prosecution is another thing. The commission of an offence is governed by Section 138 of the Act whereas the prosecution is governed by Section 142 of the Act.

Section 138 of the Act mentions the following:

When there is a cheque drawn by a drawer on an account maintained by him with a banker, in that case, the payment of the amount that has to be made to the drawee from the account of discharge which has to be paid either in whole or in part in order to extinguish a liability is returned by the bank unpaid because there are insufficient funds in the bank account to honour the cheque or that this amount exceeds the amount arranged to be paid from the account by an agreement made with that bank. 

In this case, the drawer is deemed to have committed an offence and will be liable for imprisonment for a term which may extend to two years or with fine which will be twice the amount of cheque or with both.

Conditions are that:

1. The cheque drawn has to be presented to the bank for a period of three months from the date on which it is drawn or within the period of its validity, whichever is earlier;
2. A notice has to be given in writing to the drawer for the payment of the said amount within thirty days of the receipt of information by him from the bank with respect to the return of the unpaid cheque; 
3. After the receipt of the notice, the drawer fails to make the payment of the mentioned amount to the drawee within a period of 15 days.

The ingredients of the offences under Section 138 are:

1. The cheque that is drawn by the accused is on the account maintained by him with a banker;
2. The cheque amount is supposed to be in discharge of a debt or liability;
3. The cheque is returned back unpaid due to insufficiency of funds or that the amount that exceeds the arrangement made with the bank at the very moment the cheque is returned unpaid the offence is committed.

The drawee has to send the notice within 30 days from the date of receiving the “Cheque Return Memo” from the bank. The content of the notice should mention that the cheque amount has to be paid to the payee in a period of 15 days from the date of receipt of the notice by the drawer. In the case where the notice is returned by the sender as unclaimed then, in that case, the commencing date is considered to be 15 days [1]. It will be considered a breach if the drawer fails to make a proper payment within a period of fifteen days of receiving the notice and the drawee has a right to file a criminal complaint. 

The Criminal Offence for Cheque Bounce

The sentence prescribed under Section 138 is for a period of two years or with a fine that may be extended to twice the breached amount or with both. It is a cognizable offence. As per the Negotiable Instruments Act, 1881 the complainant must have filed a complaint of the offence in writing to a court that is not inferior to that of Metropolitan Magistrate or a Judicial Magistrate of the First Class. This complaint must be made within one month of the date on which the cause of action arises. The drawee can register the complaint in the local limit of the jurisdiction where:

1. The cheque is drawn;
2. The cheque is presented;
3. The bank returned the cheque;
4. The notices of demand for payment was served by the drawee.

A non-bailable warrant can be immediately issued against the drawer under Section 417 and Section 420 of Indian Penal Code. In cases where there is more than one cheque that is bounced, the drawee can file a separate suit for each of them which can compound issues for the defaulter. It is a bailable offence, that is, if the drawer does not appear before the court after receiving summons then the court can issue a non-bailable warrant against the drawer and he can be arrested.

Practically mentioning, the court will issue a summons for the accused to appear before the court. In case if the accused is absconding (which happens in a lot of cheque bounce cases), the court will issue a bailable warrant, Even after this if the accused is still absconding, a non-bailable warrant is issued at the police station where the accused resides.

Although there are situations where cheque bounce has a lace of criminal offence covered under section 420 of the Indian Penal Code 1860, criminally breach of trust under section 405 of Indian Penal Code, 1860, criminally misappropriation of property under section 403 of Indian Penal Code, 1860 etc. 

For such cases, a police complaint can be filed in the jurisdiction where the cause of action arises. Although this is a criminal charge that is pressed against the accused and it is not a procedure to get back the breached amount. The reason to press criminal charges is to blacklist the accused and it puts an added pressure on the accused to settle.

Civil Suit for Cheque Bounce

There is also an option for the aggrieved drawee to file a civil suit in order to recover the due amount from the drawer. A summary suit can be filed under Order XXXVII of the Code of Civil Procedure, 1908. A summary suit is contrary to ordinary suit. Order XXXVII of the Code of Civil Procedure, 1908 provides for a summary suit or summary procedure where the accused has to get permission from the court to defend himself. Summary suits can only be filed for recovery cases which can be recovered from cheques, promissory notes or bill of exchange.

Prosecuting under criminal code against the drawer would not prevent the complainant from taking a civil action for recovery of cheque amount or any part of it. It will not jeopardize the rule of double jeopardy. The Supreme Court states that any related pendency of criminal matter would not obstruct the proceedings with a civil suit. Thus, both the proceedings can move simultaneously.

Latest Amendments to Negotiable Instruments Act, 1881 [2]

The changes in the Act as per Negotiable Instruments (Amendment) Act, 2018 are as follows:

• Firstly, the drawer of the cheque shall pay interim compensation to the complainant in a summary trial or a summon case. This applies even if the drawer pleads not guilty to the charges. The compensation may not exceed 20% of the amount of the cheque.
• Secondly, this interim compensation shall be paid within a period of 60 days from the date of the order. In some cases with the discretion of the court, a maximum of thirty-day extension can be given.
• Thirdly, in situations where the drawer of the cheque is acquitted the complainant has to repay the interim compensation with interest to the drawer. 

The intention behind these amendments is to add support to the current provisions under Section 143 to 147 which may impress upon the trial courts to provide a speedy trial along with an interim compensation of 20 per cent of the cheque amount as a partial recovery. This is a positive step taken towards the recovery of bounced cheque amount considering the number of pending cases of cheque bounce in India.

As per the Negotiable Instruments Act, 1881 once the case is filed in the court, a time period would be given to the parties to settle the matter out of court, failing which the defaulter would be sent to jail and conditions will be imposed on him when he is given bail. With the implementation of a new law, the defaulting party also has a condition to defend himself once he deposits the amount in the court.

Conclusion

It can be concluded that cheque bounce can be treated as both civil and criminal offence and such suits can be filed in the respective courts or police stations where the cause of action arises and this certainly does not breach the rule of double jeopardy. Although the Negotiable Act, 1881 does not mention that a complaint can be filed in the police station but in certain cases where there is a lace of criminal intention with the civil suit than in that matter, the case can be filed in the police station where the cause of action arose. 

Furthermore, the amended section 143 A and 148 will add support to the existing scheme of Section 143 to 147 which in effect is a diversion from the provision of the Code of Criminal Procedure and the Evidence Act. The impression that Section 143 and 143A of the Act made is that the complainant can impress and urge upon the trial court to provide for a speedy trial as well as grant an interim compensation of 20% of the amount of cheque as a partial recovery. If the case goes for appeal under Section 148 the Appellate Court can order at least a minimum of 20% of the awarded amount to be deposited to the complainant.

Reference

[1] K. Bhaskaran v. Sankaran Vaidhyan Balan, (2000) 99 Comp Cas 268.

[2] Negotiable Instruments (Amendment) Act, 2018, http://egazette.nic.in/WriteReadData/2018/188048.pdf.