This article is written by P. Lalita Sowmya Priya, final year student of law ( BA.LLB) from Vivekananda Institute of Professional Studies, IP University New Delhi.
Bouncing of a cheque in technical terms is referred to as “Dishonour of a cheque” which is the cheque being returned by the bank on which it was drawn, by the Drawer in favour of the payee, due to insufficiency of funds. Now there can be many explanations for a cheque being returned, those reasons are stated in a memo sent by the bank along with the cheque. Among other things, the ‘insufficiency of funds’ must most definitely be proved, to prove the guilt of the drawer of the cheque as that is what constitutes ‘dishonour’ of the cheque. Section 138 of the Negotiable Instruments Act, 1881 lays down that any person found guilty of the offence of dishonour of cheque shall without prejudice to any other provisions of this Act, be punished with imprisonment for [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both. There is an alternate remedy available to the persons concerned under section 420 of the Indian Penal Code, 1860 which enunciates the offence of ‘cheating’.
Here are a few pointers to be kept in mind while drafting a legal notice for bouncing of cheque:
Constituents of section 138
To draft a legal notice it is imperative to understand the ingredients of the offence that is being alleged by means of such a notice. Drafting a legal notice for the bouncing of a cheque would require an understanding as to what constitutes the offence of dishonour of cheque. The ingredients of the offence as enunciated under Sec.138 of the Negotiable Instruments Act, 1881 are:
The cheque must have been drawn for discharge of existing debt or liability.
The legal Notice must elaborate on the existence of a debt or a liability arising out of any transaction between the two parties. It must be stated in a chronological manner as to how the transaction was brought about by the parties and a brief insight into the terms and conditions of transaction with regard to payment and specific performance of the contract.
Cheque must be presented within 6 months or within validity period whichever is earlier.
The cheque should be presented within six months at paying bank. Cheque should be presented within 6 months (or) within validity whichever is sooner, at the paying bank, not at collecting bank.[1]
Cheque must be returned unpaid due to insufficient funds or it exceeds the amount arranged.
In Yogendra Kumar Gupta v. Ram Prakash Agrawal[2], it was observed that the reasons for dishonour of cheque are wholly irrelevant if despite receipt of the notice of demand for unpaid amount, the amount remains unpaid then the Drawer of such cheque is responsible under section 138 of the Negotiable Instruments Act, 1881.
Act of dishonour is informed to the Drawer by notice within 30 days.
The act of dishonour must be communicated to the Drawer, within 30 days of receipt of the dishonoured cheque, through Registered post, under Postal Certificate or Speed Post although such communication i.e. a legal notice can also be sent through post, courier, fax, e-mails etc. The Kerela High court in Ravi v. Kuttappan[3] observed that the dispatch of notice within 30 days is the requirement of law and that the date of receipt of notice is not crucial or relevant.
Drawer of cheque must fail to make payment within 15 days of receipt of the notice.
In Haryana State Small Industries Vs Laxmi Agro[4] Industries the Punjab and Haryana High Court enunciated that the offence of dishonour of cheque is committed when the Drawer fails to make payment to the payee within 15 days of receipt of the notice for demand of payment due. The cause of action arises at the time of receipt of notice by Drawer and it is complete when Drawer fails to make payment within 15 days of receipt of notice. The court also observed that the offence is deemed to have been committed only from the date of the expiry of notice period.
Presumption, as under section 139, with regard to the offence under section 138
Section 139 of the Act lays down the principles of presumption with regard to guilt of a person accused of dishonour of cheque under section 138 of the NI Act, 1881. It says that the Presumption as to the reason for the bouncing or return of a cheque shall always be considered to be insufficiency of funds in the bank unless the drawer of such cheque can prove otherwise. The Himachal Pradesh High Court in Nexus Health and Beauty Care Private Limited and Another v. M/s. National Electrical Office, through its Proprietor, Solan[5], observed that,
“‘It is held that the presumption under Section 139 is attracted in such a case also. The authority shows that even when the cheque is dishonoured by reason of stop-payment instructions by virtue of Section 139 the Court has to presume that the cheque was received by the holder for the discharge, in whole or in part, of any debt or liability. Of course this is a rebuttable presumption. The accused can thus show that the “stop-payment” instructions were not issued because of insufficiency or paucity of funds. If the accused shows that in his account there were sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop-payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then offence under section 138 would not be made out. The important thing is that the burden of so proving would be on the accused.”
Though in another case where even despite bouncing of the cheque, the court acquitted the accused freeing him from all charges under section 138 of the Act. In Vijay Chaudhary v. Dhyan Chand[6], the Delhi High Court held that,
“The act of attachment of the bank account of the drawer/petitioner cannot be said to be a voluntary act of the drawer. It cannot be said that the petitioner contrived to have the account attached only for the purpose of warding of the penal consequences under Section 138 of the Act. It also cannot be said that after the attachment of the bank account, the same was being maintained by the petitioner. For an account to be maintained by an account holder, it is essential that he is in a position to operate the said account by either depositing monies therein or by withdrawing money therefrom. He should be in a position to give effective instructions to his banker with whom the account is maintained. However, in the present case, once the account has been attached by an order of the Court, the said account could not be operated by the petitioner. He could not have issue any binding instructions to his banker, and the banker was not obliged to honour any of his instructions in relation to the said account, so long as the attachment under the court orders continued. For all the aforesaid reasons, no offence under Section 138 of the Act can be said to have been committed by the accused.”
These are a few instances where presumption under section 139 is tested according to the subjectivity of each case which by meaning implies to the non-uniformity of its applicability to all cases alike and depends on the reason of the bouncing of the cheque. Though, it does not take much to come to a basic ground rule which is adhered to in all cases, which is that as long as the bouncing of the cheque was not due to insufficiency of funds in the account of the drawer, it shall not constitute ‘dishonour’.
[cp_modal display=”inline” id=”cp_id_beb79″][/cp_modal]Drafting a Legal Notice
After having established that the above stated factors or conditions are present in the relevant case, the ingredients must be incorporated within the facts so as to constitute an offence under section 138 of the Negotiable instruments Act, 1881. Incorporation of the law within the facts so as to constitute a certain offence is the art of drafting. So while drafting a legal notice for bouncing of a cheque every ingredient of the offence as laid out in section 138 must be imbibed within the facts being alleged in that notice. It is very important to include all the facts in brief that shall form the crucial part of the complaint.
Therefore, the sender of the notice must, by means of the following steps, incorporate the above mentioned ingredients into the facts of the case. Hence, the sender must:-
- Mention the route through which it is being delivered at the top of the legal notice such as Registered post, under Postal Certificate or Speed Post although such communication i.e. a legal notice can also be sent through post, courier, fax, e-mails
- Address the notice to all parties of the transaction.
- Traditionally, date of dispatch of the notice is the same as that of drafting it and it therefore should be mentioned in the legal notice as it is of utmost importance in order to address the question of limitation.
- Discuss in brief, the agreement between the parties out of which obligations of the parties to transact arose.
- Discuss the terms and conditions of agreement in brief with regard to such transaction between the parties.
- Mention the date on which the cheque was drawn, the bank on which it was drawn, the cheque number and in whose favour it was drawn in the legal notice along with the date on which the cheque was deposited and the date on which it was returned. An example of a tabular form of information with regard to the relevant cheque drawn is given below.
| Date | Cheque No. | Drawn on Bank |
Amount (in INR) |
|
25 January 2015 |
673896 |
Oriental Bank of Commerce Sojati Gate, Jodhpur- 342001 |
2,63,867/- |
- Attach with the mail a copy of the returned cheque along with a copy of the memo containing the reasons for the return of the cheque as sent by the bank.
- Also mention that failure to comply with the relevant notice would lead to the initiation of criminal proceedings against the Drawer, which may result in his/her imprisonment under the relevant provisions of the Indian Penal Code, 1860 and the Negotiable Instruments Act, 1881.
- In conclusion, call upon the Drawer of the cheque to pay the amount due within 15 days of the receipt of the legal notice failing which the sender/payee shall be constrained to take such necessary action as advised against the Drawer in the competent courts of law, at the risk, cost and consequences of the It also should be mentioned that the cost for litigation is without prejudice to the amount so due to the payee which the payee has the right to claim at a certain percentage as interest.
- Mention the name and details of the sender and if the sender is not same as the payee then the details of the payee, on whose behalf this notice is being sent.
The nuances of drafting can involve clever and meticulous use of words which may appear as common but hide within themselves another possible meaning to give the statement a whole new colour. Therefore, the instructions with regard to the drafting technique legal notice can be endless, but the technical requirements as mentioned above remain same in almost all cases of dishonour of cheque under section 138 of the Negotiable Instruments Act, 1881.
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[1] 2000 Crl.L.J. 1152 Guj
[2] 2007(3) Criminal Court Cases 272 (M.P.)
[3] 2007(3) Civil Court Cases 337 (Kerala) : 2007(3) Criminal Court Cases 071 (Kerala)
[4] 2007(1) Civil Court Cases 274 (P&H) (DB) : 2007(1) Criminal Court Cases 269 (P&H) (DB)
[5] 2013ALLMR(Cri)233
[6] 2008(104)DRJ349
