cheque
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This article is written by Aayushi Swaroop, a student of the National University of Study and Research in Law, Ranchi. The article talks about the dishonouring of cheques and the various aspects to it. From, the types of cheques, to the reason behind dishonouring, the punishment and penalties, the inclusions and exceptions- everything has been incorporated in this article. 

Table of Contents

Introduction

A cheque is a medium of exchange that promotes cashless transactions in an economy. The use of cheques as a medium of exchange has increased with time. People prefer to give cheques in transactions, instead of carrying currencies. Carrying currencies, especially when the amount is too large, is a risky business. Since cheques are mere paper issued by the bank authority to make payments, it, therefore, becomes a convenient way to carry out transactions as the chances of occurrence of theft or being robbed, reduces.

When the payee receives the mentioned amount by producing the cheque before the bank, the cheque is said to have been honoured by the bank. In case the bank refuses to pay the amount in exchange of his cheque, the cheque is said to have been dishonoured by the bank. Dishonouring of cheques or cheque bounce is when a ‘Payee’, that is, the person who is to receive the payment via cheque, fails to meet with the requirement of the bank, that is, there isn’t sufficient funds in the bank or the amount mentioned in the cheque exceeds the amount of money present in the bank. The maker of a cheque is called a ‘Drawer’, while the person directed to pay (the bank) is called ‘Drawee’, and the person in whose name the cheque is being signed is called the Payee.

It was by the Banking, Public Financial Institution and Negotiable Instruments Laws (Amendment) Act, 1988 (66 of 1988) that chapter XVII was incorporated in the Act dealing with the dishonouring of cheques or cheque bounce. 

Cheque

A cheque is a document which orders a bank to pay or transfer a certain sum of money, mentioned on the cheque, from the account of the person issuing the cheque to the person whose name the cheque bears. 

Section 6 of the Negotiable Instruments Act, 1881 defines cheque as a bill of exchange which is drawn on a specified banker and would not be payable unless on demand. A cheque is inclusive of an electronic image of a truncated cheque and a cheque in electronic form. 

  • A ‘cheque in electronic form’ refers to the exact mirror image of the paper cheque which is generated, written and signed in a secure manner. The digital signature, either with or without a biometric signature, and asymmetric crypto-system, ensure minimum safety standards.
  • Cheque truncation’ refers to a system of cheque clearance where a physical paper cheque is converted into an electronic form through digitalization. It is done to transmit the cheque to the paying bank. 

There are three parties to a cheque

  1. The person who issues the cheque is called the drawer.
  2. The person on whom the cheque is drawn, which is always the banker, is called drawee.
  3. The person to whom the payment is being made is called the payee. 

Characteristics of a cheque [36]

A cheque, although it has many features in common with bills of exchange and in many ways is governed by the same rules and principles [1] and in the enactments also, the general term ‘bill’ considers cheques under its head [2], it differs from bills in some respects. 

  1. Where a cheque is always drawn on a bank or a banker and can be drawn on demand without any days of grace [3], a bill of exchange is a negotiable instrument in writing, instructing a third party to pay a stated sum of money at the mentioned future date or on-demand.  Thus a bill of exchange which is drawn on a banker, if it is not payable on demand, then, it would not be called a cheque [4]. 

For example, when the District Board Engineer issues an order on Government Treasury, it is not called a cheque as the Government is not a bank carrying out business for profits. [5]

  1. Since there is no requirement of acceptance along with the prompt demand, there is also no privity of contract between the banker and the payee. Therefore, the payee cannot sue the bank when a cheque is not honoured by them. 
  2. A cheque is supposed to be drawn upon funds in the hands of the banker. [6]
  3. The person who issues the cheque is not discharged by the failure of the holder of the check to present it in due time. This is subject to an exception where the drawer has sustained damage due to the delay as laid down under Section 84 of the Negotiable Instruments Act, 1881. 

These differences were marked in the case of Ramchurn v. Luchmeechund [7].

Components of a cheque

A is comprised of the following requisites:

  • Date of cheque issue

The drawer of the cheque has to mention the date on which he is issuing the cheque. And from the date mentioned over there, the cheque remains valid for a period of 3 months.

  • Name of the payee

A cheque has to carry the official name of the person to whom the payment has to be made, that is, the payee. Name is for the identity of the person.

  • The option of ‘or bearer’

It is optional to fill the ‘or bearer’ slot mentioned on the cheque. It has to be filled when the payment being made via cheque is not to be received by a specific person but by whoever receives it (the ‘bearer’).

  • Sum of money

This is the most important part, where the drawer cites the amount of money he has to pay. The limit upon this option is that the amount being mentioned should not exceed what has been agreed upon with the bank or should also not exceed the amount present in the drawer’s account.

  • Amount in numbers

The sum of money that has been mentioned in words has to be written in digits as well. This provision has been included so as to ensure that both, the amount mentioned in numbers and words matches, so as to ensure the bank with the amount of money, the drawer is asking for. Sometimes it so happens that one wants to draw 1000 rupees and mistakenly adds one extra zero. This way, there could occur many false transactions. Hence, this provision has been introduced. 

Section 18 of the N.I. Act states that in case of discrepancy between the amount mentioned in digits and the amount mentioned in words, the number written in words shall prevail. 

  • Pre-printed account number

A cheque already carries the account number of the person signing the amount. This has been included for the banks to easily find out from whose account the payment has to be made. 

  • Signature of the drawer

The cheque being issued has to be signed by the person issuing it. This way the cheque gets authorized and is ready to be presented before the bank for encashing it.

  • Pre-printed cheque number and MICR code

The bottom of the cheque carries the MICR code and cheque number in printed form so that the cheque cannot be manipulated.

Types of cheque

  • Bearer cheque 

It refers to those cheques which can be drawn by the person whose name is written on the cheque. Since in this case, the bank does not ask for the identification of the person when the cheque is presented to it, bearer cheque involves great risk, as anybody who mistakenly finds this cheque would be able to withdraw the money. 

For example, if Katappa endorses a cheque to his friend, Bahu Mali, Bahu Mali would be able to collect the amount from the bank.

  • Order cheque

This is a cheque in which the word ‘bearer’ has been removed and replaced with ‘or order’ to ensure that it is payable only to the person mentioned therein as the payee, or to any other person to whom the cheque has been endorsed. The bank, in this case, could complete the transaction only when it identifies the payee, to its satisfaction, as the same person whose name the cheque carries.

Section 15 of the Negotiable Instruments Act, 1881 defines endorsement as an act where the holder of the cheque signs on the back of the cheque or any other negotiable instrument, with the intention of transferring the rights therein is called endorsing a cheque. 

  • Crossed cheque

A cheque that carries two parallel lines on either the top right or top left corner of the cheque is referred to as a crossed cheque. Along with the two parallel lines, words like ‘& CO.’, or ‘account payee’, or ‘not negotiable’ may be written. No cash transaction takes place when a crossed cheque is presented. The payment is directly transferred to the payee’s bank. 

  • Uncrossed/Open cheque

A cheque which does not have a cross on it is called an open or uncrossed cheque. It can either be a bearer cheque or an ordered cheque, where the payment could be encashed at any bank and the payment could be received, either at the counter of the bank or could be transferred directly to the account of the payee.

  • Anti-dated cheque 

When the person issuing the cheque mentions a date earlier than the date on which it is being presented to the bank than the cheque is called a anti-dated cheque. An anti-dated cheque is valid only up to 6 months from the date mentioned therein. For example, I am to issue a cheque to Dr. Gareeb Gulati today, 17th July, 2019, but I mention the date on the cheque as 31st July, 2019. 

When suppose a contract is delayed anti-dated cheques can be issued to avoid any unnecessary trouble to the party. 

  • Post-dated cheque

While issuing the cheque, when the drawer mentions a future date rather than the date on which is it being issued, then such cheques are called post-date cheques. For example, if a check is being issued on 5th September, 2017 and carries a date of 6th September, 2018, then it would be called a post-dated check and the payee can withdraw it only after 6th September, 2018.

So, in cases where the person issuing the cheque does not have sufficient balance in his account, but is bound by a contract to pay the amount., then he could issue a post-dated cheque. 

  • Stale cheque

As per the Reserve Bank of India’s (RBI) guidelines, which is into effect from 1st April, 2012, a cheque is valid only up to 3 months from the date of the cheque. Once the duration expires, the bank would not collect the cheque as banks do not collect stale cheques.

  • Mutilated cheque

When a torn cheque is presented before the bank, divided into two or more pieces, it is called a mutilated cheque. In this case, the bank will not accept the cheque. But under certain circumstances, like if the cheque is mildly torn, the bank may accept it, though with the drawer’s confirmation for crediting the same.

  • Blank cheque

A cheque which carries only the signature of the person issuing the cheque and does not contain all the requisites, like the amount to be paid, date, etc. is called a blank cheque. A blank cheque is referred to as carte blanche in legal parlance.

This type of cheque comes in to picture when the payment is to be made based upon an uncertain future event. Or it can even be used for the purpose of gifts. For example, Kabir, a father, out of love of her daughter, Naina, becoming a doctor, gives her a blank cheque, saying she could fill it with whatever amount she likes. However, the problem with blank cheques is that one could easily be used for illicit purposes. In the above example, Naina could sign an amount which is not reasonable and take away all the amount her father had in the bank. 

In order to avoid crimes like illicit use of blank cheque, one should follow these instructions:

    • Use ‘A/c payee’ instead of ‘or bearer’

In case a blank cheque is being signed is required that one writes ‘A/c payee’ on the right-hand side top corner of the cheque. It should be written between two parallel lines crossing the sides. And the option of ‘or bearer’ has to be removed. This is done in order to ensure that the blank cheque is being given to a specific person and not to anybody who finds the cheque, as is the case in when ‘on bearer’ is written on the cheque.

    • Write the name of the payee in closed space

After the name of the payee has been written, it is important that horizontal line encloses it. This is so that nobody could add a name or surname and falsely issue the money in his own name. 

    • The amount written in words should end with only

The amount that is to be paid when written in words should end with only to make it definite. Also, any extra space should not be between the words, and also not while writing the digits. For example, while writing the digits, the digits after a point, i.e. paisa, should be determined with ‘/’ and not space. 

    • Do not sign on the MICR band

It is very important to put one’s signature just above the name and ensure that the MICR band is not affected. If not followed then the cheque would not be read by the bank and would further lead to the dishonouring of the cheque by the bank.

    • Make sure you mention the date

In case a person leaves the column of date, then there is a high possibility that someone could use it as per his/her own convenience and mention the date at the time when he knows that your account would not be having sufficient fund to discharge the liability. This would lead to dishonouring of the cheque. 

    • Do not overwrite

Most of the cheques get dishonoured due to overriding. One must avoid overwriting on cheques. 

  • Self cheque

A self cheque is one where the account holder’s name is mentioned on the cheque and can be used to encash money in physical form from the branch where the drawer has an account. 

  • Pay yourself cheque

It is a crossed cheque issued in the bank’s name in order for the bank to deduct money from the account of the drawer in exchange for buying bank’s products like drafts, pay orders, fixed deposit receipts, etc. 

  • Travellers’ cheque

The cheques which are used by a person while he is travelling is called traveller’s cheque. These cheques can be encashed in any other country where foreign currencies are acceptable. 

  • Banker’s cheque

They cheques which are issued by banks itself guaranteeing payment, and which cannot be dishonoured as the money is paid to the bank beforehand, are called banker’s cheques.

  • Cheque Cancel

A cheque on which the word ‘cancelled’ is hand-written between two parallel lines crossing the cheque is called a cancelled cheque. It is bereft of any requisites and is presented as a proof of having an account with the bank. 

Need for a cancelled cheque

  • A cancelled cheque is required at the time of opening a savings account or current account in the bank.
  • When a person desires to have an Electronic Clearance Service (ECS) from the account, he will have to produce a cancelled cheque before the bank.
  • A cancelled cheque is required for KYC (Know Your Customer) purposes.
  • If a person has to withdraw funds from  Employee Provident Fund, one will have to present a cancelled cheque.
  • The person who is applying for a loan, attach a cancelled cheque in order to send the request for processing the loan amount. 
  • When a person wants to buy an insurance policy, he is required to submit a cancelled cheque along with other documents.
  • A cancelled cheque has to be submitted while opening a Demat account, that is, an account for transacting money. A Demat account is where an investor keeps his share in electronic form. Since the stocks in this account remains dematerialized is also known a dematerialized account. (Dematerialization refers to the process of converting physical shares into electronic form.)
  • When repayment of a loan is made by availing the facility of EMIs (Equated Monthly Installment), one is required to present cancelled cheque when finalising the method of repayment using EMIs.

E-Cheque

E-cheque was developed by a consortium of Silicon Valley IT researchers and merchant bankers in their quest for improved methods of transaction which is safe and secure. Since its development, it has been in wide use, with crores of transactions taking place every day. 

Meaning

With the rapid advancement in payment technologies, e-commerce transactions have experienced tremendous growth. One such payment method, where payment is made via the internet or any other data network, is the use of e-cheque. An e-cheque is a document in electronic form which acts as a substitute for physical paper cheques. E-cheques carry signatures in digital form, that is, e-signatures. 

Therefore, it is a mode of payment via the internet where no physical paper is required and payments could be made using cheques in electronic form. This method is known to be a faster and safer way of making payments as it comes with several security features, like, authentication, public-key cryptography, digital signatures and encryption, etc.

E-cheque advantages and disadvantages

Among many competitions cropping up, one competition is between cash and electronic money. The public demand for a virtual wallet is on the rise. The various advantages and disadvantages associated with this method are stated below:

Advantages to the customer

  • Since there is no physical movement of the cheques, customers do not have to worry about their cheques getting lost in the process. It thus reduces the possibility of loss of cheques.
  • E-cheques are a swifter way of making payments and so the payment gets cleared within a span of 3-4 working days. It, therefore, saves one’s time.
  • This method of exchange is more secure than physically carrying cheques as there is a risk of becoming a victim of theft or robbery.
  • This method is cost-effective as it does not involve much use of a resource, or use of many resources.
  • Since the electronic payment method keeps a record of all the previous transactions and one could access the history of their payments within seconds and control their expenses.
  • The customer is required to pay a very low commission in comparison to UPT (Unattended Payment Terminal). Here UPT refers to the self-service solutions, that is, where the customers could activate the transactions themselves.
  • This method has a comprehensible user interface which makes it a user friendly method. It reaches people from every corner of the world.
  • Any person, from anywhere, at any time, can make use of this method provided there is internet facility. This also makes it a convenient method of making payments.

Advantages to the bank

  • The paper clearing process becomes less risky and convenient as everything is done online.
  • Advance methods of verification and reconciliation, therefore, fewer chances of making mistakes.
  • There are no geographical restrictions.
  • Since there is no physical carrying of cheques, therefore, it is cost effective and also saves the time of the banks.
  • Since the accounting servers look into the cheques getting honoured, there are no cases of dishonouring of cheques.
  • E-cheques reduces the cost of processing as it does not require any manpower to process and also there is no fee for depositing or transacting money. 
  • Setting up an e-cheque platform is less resource consuming. It reduces the use of fuel thereby helping in the reduction of emissions of greenhouse gases which is was created while transporting paper cheques. 

Disadvantages of e-cheque

  • Not many people are technologically sound and therefore could not avail this facility.
  • Increased chances of misuse of these methods, hacking, online frauds, etc.
  • The major challenge posed by banks are the thousands of unauthorized transactions that take place without any traceable records.
  • Since here transactions are made via the internet, the possibility of network failure remains high, which leads to delayed payments.
  • It is not necessary that both the payer and the payee should have access to e-cheques facility.
  • The total number of transactions per day and the total amount of money which can be drawn in a single transaction and per day is subject to restrictions.

Reasons for Dishonour of Cheque

  • Insufficient amount in the account to meet the payment amount.
  • If, before presenting the cheque to the bank, the drawer closes his account.
  • Overwriting on the cheques.
  • Absence of signature or mismatching of signature with the specimen’s signature which the bank is having.
  • On the order of the drawer to stop the payment on that cheque.
  • Absence of the payee’s name or if it is not written clearly.
  • If there is no match found between the amounts mentioned in figures and digits.
  • Absence of the account number or if it is not clearly written.
  • If any court orders to stop the payment on the cheque.
  • Upon the death or unsoundness of mind or insolvency of the drawer.
  • If the changes made on the cheque are not approved by the drawer.
  • Absence of date or mentioning of incorrect date.
  • When the date mentioned has expired the duration of 3 months.
  • If the cheque comes in tormented state, i.e. torn, wet or spotted.

Section 138 of the Negotiable Instruments Act

The section states that when a person who has an account with the bank wants to make a payment from that account to some other person for the discharge, in whole or in part, of any debt or other liability, and that is returned by the bank is it called dishonouring of the cheque. The reason for returning the payment could be insufficient bank balance to meet the payment requirement or when the mentioned amount exceeds the value supposed to paid from that account by an agreement made with the bank. Such a person would be punished with imprisonment which may extend up to 2 years, or with fine which may extend to twice the amount of the cheque, or with both. 

This provision would not be applicable if:

  • The cheque has been presented to the bank within the period of six months from the date of the cheque or within the period of its validity (which is 3 months), whichever is earlier;
  • The payee or the holder, within 30 days of the receipt of information by him from the bank regarding the return of the cheques as unpaid, makes a demand for payment from the drawer of the cheque, for the mentioned amount by giving a notice, or in writing, in the due course of the cheque, as the case may be; and
  • The drawer of the cheque fails to make a payment to the payee of the said amount or, as the case may be, to the holder in due course of the cheque, within 15 days of the receipt of the said notice. 

Essentials for actions under the provision

Following are the conditions that need to be met to constitute an offence within the ambit of this section.

  1. The cheque that has been issued must be for the purpose of discharging, in whole or in part, any debt or any other liability.
  2. It is required that cheques be presented to the bank before the period of 6 months or within the period of its validity (which is 3 months), whichever comes earlier.
  3. Within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid should the payee or the holder give a notice in writing. This should be done by the payee or the holder in due course.
  4. Once the drawer has received the receipt of notice by the payee or the holder in due course, the drawer should have failed to make payment for the amount mentioned in the cheque, within the period of 15 days from the date of receiving the receipt of the said notice. 
  5. A complaint should be filed within one month from the date of expiry of the grace time of 15 days, after the non-payment of the amount due on the dishonoured cheque. This should be done before a Metropolitan Magistrate or any authority not below the rank of Judicial Magistrate of the first class. If the complainant satisfies the court that he had sufficient cause for not making a complaint within such period, the court may take cognizance of it. This has been mentioned under Section 142 of the Negotiable Instruments Act, 1881.  
  6. The offences that fall within this Act are compoundable offences. Compoundable offences are the ones where the party could agree to make a compromise and may choose to drop the charges which they have levied. 
  7. One of the essentials of this section is that the debts that is to be recovered is legal. 

Legally Recoverable Debts

Section 138 of the Negotiable Instruments Act, 1881 incorporates the term “debt or other liability”, which refers to legally enforceable debt or other liability. [42]

For example, if a cheque which has been dishonoured was issued against a time barred debt, then no liability would arise under Section 138, as the debt was not legally recoverable. Also, in cases where a cheque is being issued as a gift or a donation or for any other charitable purpose, it would not be covered under the ambit of this section [Mohan Krishna v. Union of India]. 

Summary of the essentials 

  • It is necessary that the cheque gets dishonoured 

According to Section 138 of the N.I. Act, it is necessary that the cheque is dishonoured by the bank. This is to ensure that the payee gets his payment without any hazard. The given provisions do not apply to the dishonour of other negotiable instruments. 

  • The purpose of the cheque is to discharge a legally recoverable debt

A cheque is issued by the drawer for the purpose of discharging, either the full amount of a partial sum of money, of the debt that he holds towards the payee. The term debt in this situation refers to those debts which are legally enforceable. In case the drawer issues a cheque as a gift or for the purpose of charity, then such cheques cannot be dishonoured as they are not for the reason of discharging legally enforceable debts. Hence, no liability would arise under Section 138 of the N.I. Act.

  • Validity period

For the cheques to get honoured, it is necessary that it be produced during its validity period, that is, within 3 months from the date on which it was drawn.. 

  • Insufficient funds

In the case where the amount mentioned on the cheque exceeds the bank balance, the cheque would get dishonoured. Also, if the sum of money mentioned on the cheque exceeds the limit of the sum of money that was supposed to be withdrawn as per the agreement with the bank, the cheque would not be honoured by the bank.

  • Special remarks

If a cheque comes with either, ‘account closed’, or ‘refer to the drawer’ or, ‘stop payment’, written on it, then by virtue of Section 138, the cheque would not be honoured by the bank. 

  • Failure to pay within 15 days

If the drawer fails to make the payment within the validity period and the payee issue a notice warning the drawer to pay it within 15 days, and still the drawer does not pay the money, the liability shall arise within the scope of Section 138 of the NI Act.

Legal Notice for Cheque Dishonour

Legal notice of dishonour of cheque refers to the information which the payee gives to the drawer, about the fact that the cheque has been dishonoured. (What a bank sends to the payee intimating the latter of the dishonour of the cheque is called a ‘return memo’.) This notice serves the one who is to be held liable for not following the rules and regulations laid down in the principle. The notice acts as a warning for the offender, bringing to his notice his liability.

If the authority delays the giving of the notice, then the plaintiff might be discharged from his liability with respect to the dishonouring of the cheque. 

Notice of dishonour by whom

The notice of dishonouring of cheque(s) is released by a party when he wanted to hold some prior party liable for the dishonouring of the cheque(s). The party giving the notice could be

  • The holder, or
  • A party to the instrument who remains liable for it.

The notice may be sent by the payee or the holder of the cheque in due course.

Service of notice

Under Section 27 of the General Clauses Act, 1897 there is a presumption regarding the service of notice, according to which, the service of notice would come into effect only when it has been sent to the correct address by registered post. As per the provision, if a person is filing a case under Section 138 of the Negotiable Instruments Act, 1881, it is not necessary for him to state in the complaint that the service of notice given to the accused was either evaded by him or that he had a role to play in the return of the notice unserved. However, stating the same may help strengthen the Complainant’s case by giving an impression of the Drawer’s guilt to the court.

In the case where the notice could not be served or delivered as the house of the drawer was locked, Section 27 of the General Clauses Act, 1881 would apply to a notice sent by post as decided in the case of V. Raja Kumari v. P. Subbarama Naidu & Anr.  [8]. The court also clarified that the burden of proof for the claim that the notice was not really served and that no liability could arise for not being responsible for the non-service would be on the drawer.

There are certain guidelines which were laid down regarding the rule that the notice would be considered as served if provided the court with proper reasons like unavailability of the person at the house, doors locked, or shop closed, etc. the guidelines were laid down in the case of (at present in) Kalamba Jail v. Gautam Umed Parmar [9]:

  1. Service of notice cannot be put to question if the notice has been sent to the correct address of the drawer, fulfilling the requirement under Section 138(b) of the N.I. Act, 1881.
  2. There is no need for emphasizing on the mode or manner of issuing a notice to the drawer.
  3. For filing of the case, the court must be convinced that a case under the given section is applicable and that it meets the statutory requirements.
  4. The drawer can then defend himself by stating that he did not have the knowledge of the notice which was delivered to him or that the notice was never tendered or, the postman’s notice is false or fake or, that the notice was delivered at the wrong address altogether. 

Essential Documents for filing the complaint

Under Section 142 of the Negotiable Instruments Act, 1881, there is only one eligibility requirement for filing a complaint and that is, the complaint is filed by the payee or the holder in due course. The complainant should be a corporeal person, capable of making a physical appearance in the court. [10]

The basic documents required for filing the complaint

  • The complaint should have been filed under Section 138 of the Negotiable Instruments Act, 1881, containing an outline of the facts.
  • There is also a requirement for pre-summoning evidence by way of Affidavit.
  • At the time of filing the complaint, the complainant should produce a list of witnesses.
  • All the documents essential to the case should be submitted along with the list of the documents being submitted.
  • At the time of filing the complaint, the client should handover a Vakalatnama in favour of his counsel which is to empower the advocate to act on behalf of his client.
  • The notice of demand (legal notice issued by the payee to the drawer under Section 138) along with the original cheque return memo has to be presented with the complaint.

Other supporting documents required for filing the complaint

  • Where a party to the case is a company , a copy of a board resolution is required which authorises the complainant’s advocate for representing its case in the legal proceedings.
  • The original, and no photocopied, or scanned document, of the dishonoured cheque, has to be submitted.
  • A Copy of the legal notice has to be provided.
  • A copy of the return memo has to be provided.

Limitation Period

From the date of issuance of receipt of the notice by the drawer, a 15 days period (‘Notice Period’) is given in order to make the payment of the amount of the dishonoured cheque. Pursuant to clause (b) of Section 142 of the Negotiable Instruments Act, 1881, if a complaint is registered under Section 138 of the Act, it should have been filed within one month of the expiry of these 15 days. However, the court has the power to overlook the delay in case the complainant provides a reasonable argument for such a delay.

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Jurisdiction of Courts

In an amendment made to the N.I. Act in 2015, that is, the Negotiable Instruments (Amendment) Act, 2015, it was laid down that the jurisdiction of filing a complaint under section 138 of the Act would be the place where the drawee bank is situated. The court, in the case of Dashrath Rupsingh Rathod v. State of Maharashtra & Anr. [11], stated that, “Logically, the place, site or venue where the judicial inquiry of the case and the trial of the offence should take place should be restricted to the area where the drawee bank is situated.” But, later, after the amendments, in the case of Sh. Vikram Monga v. Sh. Sanjay Dhingra [37], the court in para 13 has specified that the Section 142(2) lays down: The offence under Section 138 of the N.I. Act would be inquired into and would be tried only by the court whose local jurisdiction:

  1. In case where the cheque is delivered to encash it from the account, then the case would be filed in that branch where in due course, the holder or the payee, as the case may be, was maintaining an account; or
  2. In case where the cheque has been issued by the drawer otherwise through an account, then at that place where the branch of bank is located in which the drawer in the due course has been maintaining an account.

How to initiate the case under the section

  • After the cheque has bounced, the payee would warn the drawer of the cheque that he would initiate a proceeding under the N.I. Act, if the drawer does not clear the payment within a period of 15 days from the date of receipt of legal notice.
  • In case drawer doesn’t make the payment within these 15 days, then the payee is entitled to initiate complaint proceedings under Section 138 of the N.I. Act within 1 month of the end of such period.
    • There exists no format for drafting such notices, as it is just to inform the drawer that a case is being filed against him for making a default on payment.
    • The constituents of the demand notice would be:
  1. A statement clarifying that the cheque was presented to the bank within its validity period (3 months).
  2. Statement describing the debt and the circumstances surrounding the manner of incurring such debt.
  3. The demand notice should also contain all the information regarding the dishonoured cheque, like why it was dishonoured, etc.
  4. The sum of money that the drawer needs to pay within 15 days of receiving such notice.

Court Fees

There exists no blanket provision for court fees across states. Different states charge different court fees. The fees which the court charges is not much in such cases. Depending upon the amount stated in the cheque, the court fees may vary.

In Delhi, the court fees for cheque bounce matters is merely Rs 2, for which a court stamp is required to be applied to the Complaint. In the state of Madhya Pradesh, the following schedule of fees is applicable.

Amount mentioned on the cheque

Court fees

Upto Rs. 1,00,000

5% of the amount of dishonoured cheque, subject to minimum Rs. 200

More than Rs. 1,00,000 and less than Rs. 5,00,000

Minimum Rs. 5,000 + 4% on amount in excess of Rs. 1,00,000

More than Rs. 5,00,000

Minimum Rs. 21,000 + 3% on the amount in excess of Rs. 5,00,000 subject to maximum Rs. 1,50,000.

Procedure after the complaint has been admitted and the court has taken cognizance of the case

  • The court would issue a summons in favour of the person being accused, for appearing in the court on the date specified by the court itself.
  • In case, if the person being accused by dishonouring of cheque, fails to appear before the court on the specified date, then the court has the power to issue a bailable warrant upon the request of the complainant.
  • In case, the person being accused of the offence does not make an appearance even after issuance of a bailable-warrant, then the court may order to issue non-bailable warrant against him.

Scheme of Prosecution under Section 138

The procedure prescribed under Section 138 of the Act talks about the punishment in cases of dishonouring of cheques but does not lay down the process to be followed during the investigation of the said offence.

In order for the parties to initiate prosecution, the payee or holder in due course claiming payment is required to file a written complaint before the appropriate authority having territorial jurisdiction. 

The complaint filed should mention all allegations that the payee seeks to make against the drawer of the dishonoured cheque and those allegations should be based on the following ingredients that constitute the offence of dishonouring of cheque under Section 138 of the N.I. Act:

  • That, it has to be proved that the person had issued a cheque while having a bank account with the respective bank;
  • That, when the signed cheque was produced before the bank, the bank without making any payment, returned it;
  • That, the cheque was presented within the period of 6 months from the date when it was drawn, or within its validity period, whichever is earlier;
  • That, the payee, on receiving an intimation from the bank regarding dishonour of cheque (through a return memo), sent him a  notice in writing, asking for the payment of the amount mentioned in the cheque;
  • The notice being issued by the payee should have been sent to the drawer within a period of 30 days from the date of the receipt of the information by the payee from the bank, regarding non- payment of the amount mentioned on the cheque and for the return of the cheque;
  • That, if in those 15 days from the date of the receipt, the drawer of the cheque does not make the payment, he would be held liable for the dishonouring of the cheque under Section 138.

Redressal for defendant in case under Section 138

Filing of Summary Suit

The process of filing a summary suit is an alternative remedy being civil in nature available to the creditor of a debt for the recovery of the debt amount, which the creditor may opt for when the limitation under Section 138 runs out or otherwise. Under Order XXXVII of the Code of Civil procedure, 1908 the plaintiff has the right to file a ‘summary suit’ which ensures that the defendant does not get any chance to defend himself unless he seeks permission from the court to do so. A summary suit may be filed for promissory notes, cheques, etc and is widely used in civil matters. It doesn’t give rise to criminal charges as the purpose of issuing it is only to recover the amount from the defendant at the earliest possible time.

Cognizance of Offence

Conditions essential

It is Section 142 of the Negotiable Instruments Act, 1881 that deals with cognizance of offences. It states that the following conditions need to be met to hold the drawer liable for the offence of dishonoring a cheque:

  • The person who is to be paid, i.e., the payee or the holder, is required to file a written complaint in due course of time.
  • Pursuant to what has been mentioned in Section 138(c), one needs to file a complaint within a period of 1 month from the date on which the cause of action arises.
  • Section 138 of the N.I. Act, empowers only the Metropolitan Magistrate or a Judicial Magistrate of the First Class  to handle cases of the dishonoring of cheques.

Liability of Drawer of Dishonoured Cheque

Section 143 of the N.I. Act, 1881 gives the court the power to try Section 138 cases summarily. 

Section 143 of the Act states that: 

  1. Overriding what has been mentioned in the Code of Criminal Procedure, 1973 (2 of 1974), all the cases registered under this section will be tried by a First Class Judicial Magistrate or by the Metropolitan Magistrate and the provisions of sections 262 to 265 (both inclusive) of the said Code shall, as far as may be, apply to such trials.
  2. The High Court holds the power to appoint a second class Magistrate to try summarily any offence who could punish with fine and imprisonment both. But, the term of imprisonment should not exceed a period of 6 months.
  3. If in any case, the Magistrate finds that the accused should be punished for a term more than 1 year than in that case he could recall for a witness and hear or rehear the case in the same manner as laid down in the Code of Criminal Procedure, 1973.
  4. The Section also asks for a continued trial, that is, the trial should continue consistently until a decision had been made by the court. This is done in the interest of justice. It is subject to restrictions on the ground that if the court finds that a case needs adjournment for reasons of being recorded in writing.
  5. Every trial being carried under this section should be conducted at a faster rate along with efficiency and shall be able to conclude a trial within 6 months from the date of filing of the suit.
  6. The Magistrate may send a copy of the summons, issued in the name of the accused or a witness, to their place of residence or place where they carry out their business, either through courier services or speed post, as directed by the Court.

Amendments to the Negotiable Instruments Act

The Negotiable Instruments (Amendment) Act, 2015

The following provisions were included after the amendment to the Act in 2015:

  1. The compensation for loss caused should not exceed 20% of the amount mentioned in the cheque.
  2. In case the drawer is exempted from all the charges then the payee will have to return the money which he had received as compensation. The compensation has to be paid along with the RBI’s Prevailing interest rate, to the drawer.
  3. The compensation should be paid within 60 days from the date the court orders to do the same. This period can further be extended to 30 days if the court is satisfied with the reason for seeking such an extension.

The Negotiable Instruments (Amendment) Act, 2018

This Amendment was another attempt to reduce the number of cases of dishonouring of cheques. The Amendment laid down that there should be provision for interim relief and repayment of deposits.

Interim Relief/ Interim Compensation

In the case of dishonour of cheques it was the complainant who had to face the expenses of the lengthy process of court proceedings, therefore it was introduced via 2018 Amendment that the complainant should be given interim compensation. This would make the drawer take the case seriously.

Duration

It has been provided that the compensation be paid within 60 days from the date of passing an order by a competent court. It further allows an extension for 30 days, when the court is satisfied with the reason for doing so. 

Repayment of interim compensation

Within 60 days from the passing of the order by the court which may extend to 30 days when provided the court with a satisfactory reason, the complainant is required to repay the interim compensation, only when the drawer of the cheque has been acquitted of all the charges. The interim compensation has to be repaid along with an interest at the bank rate as published by the RBI. 

Repayment of deposit 

The Appellate Court has the power to ask for the repayment of the deposit at any time when the appeal is pending before the court. In case where the appellant gets acquitted of all the charges, he would be able to receive the deposit from the complainant along with the rate of interest specified by the RBI. The repayment of the deposit has to be made within 60 days from the date of the order by the Appellate Court. This can further be exceeded by 30 days if the court is given satisfactory reasons for doing so. 

Purpose

Purposes which the Negotiable Instruments (Amendment) Act, 2018 was meant to fulfill:

  • To find out why there was an undue delay in the final resolution of the cases of cheque bounce.
  • To ensure that the payee, that is the person in whose name the cheque was issued, gets relief.
  • To make sure that no frivolous and unnecessary litigations are taking place.
  • To ensure that the parties to a litigation do not have to spend a lot of time and money.

Hereafter, Section 143-A was inserted in the N.I. Act, 1881 which states that:

  • The court, in cases of dishonouring of cheques, holds the power to ask the person who is issuing the cheque, i.e. the drawer, to give interim compensation to the drawee.
  • The compensation amount would be 20% of the amount mentioned in the cheque. 
  • The court holds the power to ask the drawer of the cheque to pay the interim compensation either in the summary trial or summons case, where he pleads that he is not guilty or in any other case after the charges have been framed.

Under Section 143 of the N.I. Act it was laid down that:

  • Summary trials can take place in cases of cheque bounce as per the Section 262 to 265 of the Criminal Procedure Code, 1973. 
  • The offence would be punishable with imprisonment with will  not exceed the period of 1 year and fine that would exceed Rs. 5,000.
  • If either at the beginning of the trial or during the period of its continuance if the magistrate realize that the case is not suitable for summary trial as the punishment would increase the term of 1 year, then the offence would be tried as summons case. 
  • It was also made known that a person can either go for a civil suit in case he wants mere repayment (with interest) (Summary Suit) or can file a complaint under criminal law (Section 138). 

Section 148

The Appellate Court under this section has the power to direct payment pending the appeal against conviction, under section 138 of the N.I. Act. The court has the power to order a minimum of 20 % of the fine or compensation awarded by the trial court. And this minimum 20% of the amount shall be paid along with the amount that has already been paid by the person who has filed an appeal under section 143-A. The amount deposited can be recovered anytime while the appeal is pending, on the ground that payment has to be made to the complainant.

Section 138 NI Act Punishment

  • The punishment for committing the offence is to pay a fine with may be twice the amount of money that has been mentioned in the cheque or imprisonment up to 2 years. It was by virtue of the Negotiable Instruments (Amendment) Act, 2002, to the Act that the period of imprisonment was increased to 2 years.
  • In a case where the offender is a company or a firm or any other financial institution, every one of those people would be held liable who was having the power to exercise control over the business conduct. 

Nature of the Offence

  • Under the civil suit, the holder of the cheque can file a case for recovery of the sum of money which the drawer was supposed to pay to him.
  • Under the Negotiable Instruments Act, 1881 the criminal liability of the offender of dishonouring of cheques is laid down in the provisions laid down from Section 138 to 142. Criminal liability arises in cases where the cheque has been dishonoured because of insufficiency of funds or for exceeding the limit which is supposed to be paid, as per what has been mentioned in the agreement with the bank.

Speedy Disposal 

As laid down in the case of M/S Meters and Instruments Private Limited v. Kanchan Mehta [16], an accused under Section 138 of the N.I. Act can be discharged from his liability without taking any consent from the complainant, when the court is satisfied that the complainant has been compensated adequately. 

The guidelines which were laid down by the Supreme Court in the particular case are:

  • Any offence which falls under the ambit of Section 138 of the N.I. Act would be dealt with in accordance with the provisions under Criminal Procedure Code, 1973.
  • Under Section 258 of the Criminal Procedure Code, 1973, the court holds the power to discharge the offender if the court is satisfied that the complainant has received adequate compensation. 
  • The primary nature of the object under Section 138 is to compensate the plaintiff. The offender receives punitive punishment only when there is negligence while enforcing the compensatory damage, like delay in compensating the plaintiff. 
  • Compounding of an offence needs to have the consent of both the parties. But, there is an exception which says that if the court is satisfied with the fact that the plaintiff has received adequate compensation, then the court can exempt the accused from his liabilities.
  • Under Chapter XVII of the Act, the procedure for the trial of cases would be done summarily. 
  • The Magistrate has been given the power under Section 143(2) of the N.I. Act that it can pass an order stating that the particular case could not follow the rule of summary trial, as the term of punishment would go beyond the specified limit of one year. 
  • In case the above mentioned order has been passed in a particular case, it has to be first rectified the court had the jurisdiction to pass such orders within the scope of Section 357(3) of the Criminal Procedure Code, 1973. It has also to be ensured that the said court has awarded compensation and punishment with imprisonment within the scope of Section 64 of the Indian Penal Code, 1860 and recovery under Section 431 of the Criminal Procedure Code, 1973.
  • If any other evidence apart from affidavit and bank’s slip is being submitted to the court, it has to be recorded as preliminary evidence by the Magistrate. 
  • Such affidavits can be produced before the court anytime during the period when the proceedings are going on. 

Landmark judgements under Section 138 of NI Act

  • In Krishna Janardhan Bhat v. Dattatraya G. Hegde [30] laid down the essentials required for filing a case for dishonouring of cheque(s). These ingredients comprise of- existence of some legally enforceable debts, the cheque be paid in due course of validation, and the cheque, when presented before the bank, should have been returned unpaid to the payee, due to insufficiency of funds in the account or for exceeding the limit of the sum of money mentioned in an agreement with the bank. 
  • In K.A. Abbas H.S.A. v. Sabu Joseph & Anr. [31] a case for dishonouring of a cheque, with an amount of 5 lakhs rupees, under Section 138 of the N.I. Act, was filed against Mr. Abbas. The cheque had bounced due to insufficiency of the sum in the bank account. The defendant was asked to pay a compensation of 5 lakhs rupees to the plaintiff by the High Court of Kerala. Upon an appeal, the Supreme Court complied with the order passed by the High Court of Kerala. Monetary compensation to the plaintiff was allowed to ensure that they are being taken care of under the Criminal Justice System, as mentioned in Section 157(3) of the Criminal Procedure Code, 1973.
  • In Dashrath Rupsingh Rathod v. State of Maharashtra [32], the three judge bench of the Supreme Court said that in order to file a complaint under Section 138 of the N.I. Act, on the grounds of dishonoring of cheques, the complainant can file the case in the courts under whose jurisdiction the offence has been committed. 

Supreme Court Latest Judgements on Section 138 NI Act

  • Section 141 

In Himanshu v. B. Shivamurthy & Anr. [29] the appellant was the Director of the company, named Lakshmi Cement and Ceramics Industries Ltd. She claimed that she had signed the cheque in the capacity of the Director of the company and so the company should be held liable and her. The court for this matter referred to the Section 141 of the N.I. Act, which stated that calling the company before the court to present his argument was crucial to the process of prosecution in such cases. The mentioned section basically talks about the concept of vicarious liability in cases of dishonouring of cheques under Section 138 of the N.I. Act. An important point within the scope of Section 141 of the N.I. Act is that it will hold liable every one of those people who at the time of the commission of the offence was holding the power for conducting the business of the company.

  • Mediation

In the case of Dayawati v. Yogesh Kumar Gosain, [17] the court has marked that: the cases falling within the ambit of Section 138 of the N.I. Act, marked as criminal compoundable cases, can be sent to the mediation centre. This case also laid down the procedure to be followed and also demarcated the contents of settlement while transferring the case to mediation.

  • Promoting digital mechanism for dispute resolution

In the case of M/s Meters and Instruments Private Limited & Anr. v. Kanchan Mehta, [18] the court has ordered for speedy disposal of cases. The court has said that in cases where an online platform can be a better measure for dispute resolution, the case should be dealt online without any appearance of the parties. An example could be, traffic challans. The court emphasized on the point that the advancement in technologies must be put to use to avoid overcrowding in courts. 

  • Dishonoured cheque has to be complemented with other factors to  constitute an offence

In the case of Smt. Asha Baldwa v. Ram Gopal, [19] the petitioner defended herself by stating that, it is not sufficient reason to produce a dishonoured cheque and claim compensation, it is also necessary that the rule laid down under Section 141(2) of the Negotiable Instruments Act, 1881 be satisfied which says that the Company or its Partners or the directors can be held liable only when the had the knowledge of such offence, or when they have attributed to it or consented to it, or there has been any negligence on their part, or any person working under them, like the manager, secretary, etc.

Important holdings:

  • Any person who is not directly responsible for the commission of such offence either to the company or the directors, should have consented to the commission of such an offence.
  • It has to be proved that the only role assigned to the petitioner was to hand over the cheques, and that she had not consented to the commission of the offence of dishonouring of that cheque. 
  • The case clarified that the purpose of the rule laid down under Section 138 of the N.I. Act is that the person making the promise should abide by it. As per Section 139 of the N.I. Act, the court shall assume that the cheque delivered is of the same nature, that is to discharging either the entire amount of debt which he is liable to pay or a partial amount, as has been described in Section 138 of the N.I. Act. 
  • No third party would be held liable for the offence committed under Section 138 of the N.I. Act, other than in cases where the offender is a company or a firm, or any other financial corporation.

Therefore, in the present case the court held that Asha was not liable as she had no role to play, as although she was the one who handed over the cheques, she had no knowledge about the offence.

  • No evidence on behalf of the defendant

In the case of Kishan Rao v. Shankargouda, [20], the defendant in the Trial Court could not produce any evidence which could eliminate the doubt that there is no liability or debt on his part. The Trial Court passed the order of conviction against the defendant. When an appeal was made in the High Court, the Court subsided the conviction and review the case and found that the defendant was to be held liable since he has no evidence to defend himself. But the act of keeping aside the Trial Court’s order of conviction was questioned. When a further appeal was made in the Supreme Court, the Court clarified that the High Court cannot overlook the judgement delivered by the Trail court, in order to review a case. The Supreme Court complied with the order of the High Court and the defendant was held liable as he had not produced any evidence in his defence.

  • Fake signature 

The Supreme Court, in the case of Canara bank v. Canara Sales corporation & Ors. [21] had stated that in the case where the cheque presented before the bank carries a fake signature, the bank in no capacity can honour the cheque, and if it does so it would be held liable. 

  • Where Directors are vicariously liable

In Jayalakshmi Nataraj v. Jeena & Co. [22], the court held the Managing Director vicariously liable for dishonouring of cheque under section 138 of the N.I. Act stating that no plea on the ground that Jayalakshmi did not participate in day-to-day administration of the company and that she does not have the knowledge of the company’s doing, would be accepted.

Recent Amendments to the NI Act

There had been earlier Amendments to the act. The recent Amendment made in 2015 has made changes to the provisions related to the jurisdiction of the courts. It says, where the parties to a case were living far away from each other and faced difficulty in penal actions, the holder of the cheque can now file the suit in the area where he resides or at the place where the cheque was tendered. This provision was incorporated in order to reduce the expenses and to make drawers of the cheque more conscious while signing a cheque. It also asked that the cases of the same nature to be filed or transferred to those courts which have jurisdiction in that matter as per the newly implemented Section 142A. [38]

The Amendment made to the Negotiable Instruments Act, 2018, known as the Negotiable Instruments (Amendment) Act, 2018, which came into effect on 1st September, 2018 gives the court the permission to levy not more than 20% of the amount mentioned in the cheque on the offender within a period of 60 days from the date when trial court issues order for paying such compensation.

The Amendment also asks for the payment to be made either during the summary trial or when the summons is delivered, wherever the drawer is held liable for dishonouring a cheque.

Moreover, the Amendment also gave the Appellate Court the power to impose a minimum of 20% of fine or compensation on the accused in addition to the interim compensation which has already been levied on him. 

Miscellaneous

  • Liability of  joint account holder

    • We are all well versed of the phrase, “no one shall be held liable for the acts of another person”. Therefore, under Section 138 of the N.I. Act, 1881, it is only the drawer of the cheque who would be held liable in case there is a joint account holder(s). This provision was laid down in the case of Mrs. Aparna A. Shah v. Sheth Developers Pvt. Ltd. and Anr. [12]. 
    • Jugesh Sehgal v. Shamsher Singh Gogi [13], the court laid the essentials to constitute an offence under section 138 of the Act. One such ingredient says that no criminal liability would arise in case the loss has been caused by the action of some third party. The legal principle of vicarious liability arises only in exceptional cases.
  • Liability when the companies

    • As laid down in the case of N. Rangachary v. Bharat Sanchar Nigam Ltd. [14], In the person who is at fault is a corporate legal entity, that is, either a firm or a company, etc.in that case, the person who would be in charge and responsible for all the business conduct taking place in the company, shall be held guilty of the offence and would receive punishment accordingly.
    • The person being prosecuted under the given circumstances can plead innocence on the ground that- (1) he didn’t have the knowledge of an offence being committed, or (2) that he had exercised due diligence to ensure that the cheque is cleared and that it does not get dishonoured.

Exception

In the case where the company or the firm, or any such financial corporation, is at default and the person responsible for such business conduct of the company has been appointed by the Central Government or the State Government, then he cannot be prosecuted for the offence.

Therefore, the company and the person handling its business can be prosecuted either jointly or independently as laid down in the case of Sheoram Agarwal v. State of Madhya Pradesh [15].

  • Vicarious liability

Section 141 of the N.I. Act, 1881 acts as a general exception to the rule of criminal law which says that some third person can be held liable for the acts of another person. And the person would be vicariously liable for the acts of another person. 

  • Liability of independent directors 

Under the Negotiable Instruments Act, 1881, there is no provision stating that the directors of the company would be held liable for any mistake during business transactions of the company. This is so because it is not the directors who manage the business conduct of the company. A Director can only be held liable if there exist facts which are a contract to the usual nature of the powers exercised by the directors.

  • Redressal for person holding bounced cheque issued by a company

The Director can defend himself by stating that the cheque that had bounced was issued by the company without its knowledge to the board of directors of the company, or that no authorization was sought from the board of directors of the company. It was in N. Rangachary v. Bharat Sanchar Nigam Ltd. [23] that the court said, it is not possible for the holder to know of the company’s day to day affairs or management. Also, it was stated that the directors of the company are the ones in charge of the company’s affairs. Therefore the plaintiff will have the right to hold all the directors of the company liable for the dishonouring of the cheque(s). 

  • Issuance of notice to directors of the company

It was in Krishna Texport and Capital market Ltd. v. Ila.A. Agarwal and Ors. [24] that the court laid down, that there is no need for issuing a notice to the Director(s) of the company. Whether the name of all the Directors or those who are in power to regulate the conduction of business in the company, on whom the court has levied charges, shall be included in the complaint filed before the court.

Liability in case of offence by Partnerships.

It was in Katta Sujatha v. Fertilizers & Chemicals Travancore Ltd. [25] that the Supreme Court laid down that if a partner has been vested with the power to control or monitor or manage the conduct of business of the firm or has consented to the commission of the offence of dishonouring of cheques would be held liable under Section 138 of the N.I. Act.

Filing of case by holder of power of attorney

The conditions under which the person having the power of attorney can file a case of dishonouring of cheques under Section 138 of the N.I. Act was laid down in the case of G. Kamalakar v. M/s Surana Securities Ltd. & Anr. [26]. It says:

  • A case can either be initiated or disposed of by the person having the power of attorney, given that the principal has the knowledge of the same.
  • The person having the power of attorney can testify on behalf of his principal, the physical presence of the principal is not required.
  • The principal should legally empower the person having the power of attorney to file a case under Section 138 of the N.I. Act.

Cheque reported lost

The High Court of Kerala in K. Sadanandan v. Satheesh Kumar [27] has laid down that in case the bank returns a cheque stating the reason that it has been lost, it would not invite liability under Section 138 of the Negotiable Instruments Act, 1881. A liability would only arise when a bank returns the cheque because of non-payment. The reason for non-payment on the part of the bank could be:

  • The sum of money present in the account is insufficient to meet the debt requirement
  • The sum of money mentioned on the cheque has exceeded the limit decided in an agreement with the bank.

Before instituting a case under this case, it has to be rectified by the court that all the essentials required to constitute a crime under Section 138 of the N.I. Act has been met.

Dishonour of Cheque issued as security for repayment of loan

In Sampelly Satyanarayana Rao v. India Renewable Energy Development Agency Limited, [28] the Supreme Court has pronounced that any post-dated cheque which has been marked as a security in a loan agreement, is presented before the bank for repayment of the loan and is dishonoured, then the liability would arise under Section 138 of the N.I. Act, 1881. The term ‘security’ here refers to the cheques signed for the purpose of repayment of the loans. When the instalment of the cheque is delayed or remains due then the repayment of the loan also becomes due. 

Death of party

Death of the complainant 

  • When the original complainant dies, the proceedings would not stop and the case would be his son who would be continuing with the complaint filed taking cognizance of the offence. [39] 
  • In case if the complainant died at the time of producing evidence in court in order to defend himself, it would be his heirs who would be continuing with the prosecution. [40] 

Death of the accused

In case of death of the accused, the legal heirs would not be allowed to continue the prosecution. [41] 

Successive presentation of cheques 

A payee is allowed to present cheques any number of times in the court of law. Every time he presents a cheque and it gets dishonoured he would have the fresh right favouring him. Although, the payee would not have the right to course of action every time he presents the cheque and it gets dishonoured. So, the can choose to produce cheques again and again before the court during the validity period if that cheque without going for any peremptory action under Section 138(b) of the N.I. Act.

Showing intent

Earlier an offender in case of dishonouring of cheques could not be held liable unless the element of mens rea was involved in the commission of the offence, as per the requirement under Section 415 and 420 of the Indian Penal Code, 1860. It was only after the Banking, Public Financial Institutions and Negotiable Instrument Laws (Amendment) Act, 1988, Chapter XVII, dealing with dishonouring of cheques, incorporated under Section 138-142 were established in the Act of 1981. 

In Mayuri Pulse Mills and Ors. v. Union of India and Ors. [33] the High Court of Bombay had said that the element of men rea is not a necessary element to constitute a crime under Section 138 of the Negotiable Instruments Act, 1881. Although the Latin maxim actus non facit reum nisi mens sit rea, (which means, the commission of the crime is complete when bad intention is complemented with wrongful conduct on the part of the offender of the crime), is the essence of constituting an offence under the Indian Penal Code, 1860, the same is not required in case of dishonouring of cheques. The court under the case pronounced that in some cases it is not necessary for the element of mens rea to be present in the commission of the crime. In such situations, the legislature can impose either strict or absolute liability on the offender of the crime. 

The decision made in the given case implies that mere offence pf dishonouring of the cheque would constitute an offence under Section 138 of the N.I. Act, 1881.

In B. Mohan Krishna v. Union of India [34] the court had laid down that the offender of the crime shall not willingly absent from instituting the element of mens rea while committing the crime. If he does so then he would be violating Article 14 of the Constitution of India.

The line “such person shall be deemed to have committed an offence” [35] under Section 138 of the N.I. Act, implies that the given section calls for strict liability in case of the cases of dishonouring of the cheques. If the offence is committed out of any other grounds other than what has been mentioned in Section 138 of the N.I. Act, 1881, then the case would not involve the application of Section 138 of the N.I. Act. 

Conclusion

The cheque bounce cases had seen tremendous rise with as much as 40 lakhs cases pending before the courts as said by the Supreme Court of India. But, after the amendments made in 2015 and 2018 which came with a promise to dispose of the cases at the earliest and also ensure that the victims get relief,  has brought transparency in the system by preventing the people from defaulting on their payments. Therefore, the process under Section 138 has helped in facilitating commercial transactions, as people now feel more secure. This has also helped in keeping up with the modern banking system. 

References

  1. (1883) 9 AC 95, 107: 50 LT 457: 6 Digest 115, 773.
  2. (1922) 1 AC 1, 12: 91 LJKB 1: 125 LT 737: 66 SJ 9: 38 TLR 30
  3. Supra note 1.
  4. 1994 79 Comp Cas 150 (SC)
  5. 1920 Mad 1011: 43 Mad 816; AIR 1967 AP 126
  6. Bhashyam & Adiga, The Negotiable Instruments Act, pg. 118 17th ed. (Bharat Law House, New Delhi, 2003)
  7. (1854) 9 Moore PC 46, 54, 69. 
  8. (2004) 8 SCC 774
  9. Crl. Revision Application No. 435 of 2011 on 2013
  10. Supra note 6 at 724
  11. 2014
  12. 1st July, 2013
  13. 10th July, 2009
  14. 19th April, 2007
  15. 1984 A.I.R. 1824, 1985 SCR (1) 719
  16. Criminal Appeal No. 1731 of 2017
  17. 17th October, 2017
  18. Supra note 16.
  19. 13th September, 2017
  20. 2nd July, 2018
  21. 1987 A.I.R. 1603, 1987 SCR (2) 1138
  22. 1996 86 CompCas 265 Mad
  23. Supra note 14.
  24. 6th May, 2015.
  25. (2002) 7 SCC 655
  26. 2008 CriLJ 1221
  27. Crl. Rev. Pet. No. 2016 of 2003
  28. 19th September, 2016
  29. (Criminal Appeal No. 1465 of 2009)
  30. 11th January, 2008
  31. 11th May, 2010
  32. Supra note 11.
  33. (1994) 96 BOMLR 953, 1996 86 CompCas 121 Bom
  34. 1995 (1) ALT 468, 1995 (1) ALT Cri 332, 1996 86 CompCas 487 AP, 1996 CriLJ 636
  35. Section 138, the Negotiable Instruments Act, 1881
  36. Bhashyam & Adiga, The Negotiable Instruments Act, pg. 117 (Bharat Law House, New Delhi, 2003)
  37. 14th March, 2018
  38. https://www.business-standard.com/article/opinion/the-negotiable-instruments-amendment-bill-2015-115080900761_1.html 
  39. {Source: A.I.R. 2007 (DOC) 271 (A.P.); 2006 (3) CIVIL COURT CASES 294}
  40.  {Source: A.I.R. 2007 (DOC) 222 (RAJ); 2007 (1) RAJ L W 4}
  41. {Source: A.I.R. 2007 (DOC) 222 (RAJ); 2007 (1) RAJ L W 4}
  42. Bhashyam & Adiga, The Negotiable Instruments Act, pg. 117 (Bharat Law House, New Delhi, 2003)

 

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