This article is written by Sneha Mahawar from Ramaiah Institute of Legal Studies. The article discusses the concept of Section 138 – 142 of the Negotiable Instruments Act, 1881. 

Introduction

The term “Negotiable Instrument” is defined in Section 13 of the Negotiable Instruments Act, 1881. The word “negotiable” has derived from the old french word “negociación” which means dealing with people, trafficking, trade, business. The word “instrument” has derived from the old french word “instrumentum” which means equipment or implement. Negotiable Instrument is a legal document, such as a cheque or a bill of exchange, that is freely negotiable. Negotiable Instruments Act, 1881 consists of 17 chapters and 142 Sections. 

The main purpose of Sections 138 – 142 of the Negotiable Instruments Act, 1881 is to promote or raise to importance the ability to produce the desired effect under ideal testing conditions of the banking operations. These sections also aim to ensure the credibility in transacting the business through cheques and other negotiable instruments.

Section 138 of the Negotiable Instruments Act, 1881 

Section 138 of the Negotiable Instruments Act, 1881 states the dishonouring of a cheque for reasons stated insufficiency of funds, stale cheque, post-dated cheque, alteration, irregular signature, frozen account and stop payment instruction, etc. 

When any cheque is drawn by an individual person on a particular bank account which is maintained by him with a banker for the payment of any certain amount of money to another person out of that bank account for the discharge, in whole or in part, of any amount of debt or any other liability which is returned by the bank unpaid either because of the reason of the amount of money standing in the credit of that bank account is insufficient to honour or if it exceeds the amount of money arranged to be paid from that bank account by an agreement made with the bank. 

Hence, such an individual or person shall be deemed to have committed an offence and shall without prejudice to any other stated provisions of the Act, shall be punished with a maximum of imprisonment for up to one year or with a fine which may be extended to twice the amount mentioned in the cheque, or both.

Ingredients 

Section 138 of the Negotiable Instruments Act, 1881 contains the following ingredients-

1. The cheque has to be drawn by the accused on a bank account which is maintained by him with a particular banker in a bank;
2. The amount of money mentioned in the cheque is for discharging the liability either wholly or partially; and
3. The cheque is dishonoured which means it is returned unpaid due to insufficient funds or is returned because the amount contained in the cheque exceeds the arrangement made with the bank. The offence is said to be committed at the exact moment the cheque is returned unpaid to the holder or drawer of the cheque.

Exceptions

The exceptions to such provision are that nothing contained in the section shall apply until-

• the cheque has been presented to the respective bank within the period of its validity or within six months of time from the date on which the cheque was drawn from the bank, whichever is earlier.
• the payee (person who receives the payment) in due course of the cheque has made a demand for the payment of the amount of money by providing notice or in writing to the person who has drawn the cheque. He should within fifteen days of the receipt of information from the bank regarding the returning of the cheque which is unpaid.
• if the drawer fails to make the payment of the said amount of money to the respective payee or the person who is to receive the money within fifteen days of the receipt of information of the notice received.

Case Laws

• ICDS Ltd. v. Beena Shabeer (2002) 6 SCC 426

In this case, the terms ‘any cheque’ and ‘other liability’ is clarified. It was held that as per the provisions which are laid down in Section 138 of the Negotiable Instruments Act, 1881, if any cheque is given towards any liability which has been incurred even by a different individual but the person who draws the cheque is liable for being prosecuted in case a cheque is dishonoured.

• MSR Leathers v. S. Palaniappan (2013) 1 SCC 177

In this case, it was held that dishonour of a negotiable instrument whether based on a second or any successive presentation of a cheque for the encashment of it would be regarded as dishonour within the meaning of Section 138 of the Negotiable Instruments Act, 1881.

Section 139 of the Negotiable Instruments Act, 1881 

Section 139 of the Negotiable Instruments Act, 1881 states the presumption in favour of the holder. It talks about the liability of an individual who has issued a cheque of a certain amount of money and it has been dishonoured. 

Such a person is presumed to be guilty until and unless he proves himself innocent in the eyes of law. It is a presumption under this section that a cheque which is presented for discharging the liability may either be for partial or whole discharge of the liability of debt.

The person accused of such an offence cannot escape the liability by simply stating that it was given as security. If the presumption of liability is disproved then the burden of proof shifts from the respondent to the complainant which means that the complainant has to then prove that the cheque was issued for discharging of the liability of debt.

This presumption is also governed by the Rule of Evidence in Section 118(a) of chapter XIII. 

Case Laws

• Rangappa v. Sri Mohan

In this case, it was held that it proves to be a merit for the complainant if the accused has not replied in the statutory notice to any fact which is noted under Section 138 of the Act.

• Krishi Vikas Kendra v. Mukund

In this case, the accused paid the debt amount partly and therefore a transaction was made. The Court held that the accused or the respondent has the burden of proof and he has to prove his innocence with regard to the dishonoured cheque as per the provisions which are contained in Section 140 of the Negotiable Instruments Act, 1881.

• Dashrath Rupsingh Rathod v. State of Maharashtra (2014) 9 SCC 129

In this case, Section 140 of the Negotiable Instruments Act, 1881 clarifies that this Act will not be valid as a defence to the drawer of the cheque stating that he had no reasoning to believe that the cheque will be dishonoured when he issued the cheque.

• Basalingappa v. Mudibassapa (2019) SCC

In this case, it was held that once execution of a cheque is admitted then Section 139 of the Negotiable Instruments Act, 1881 creates a pre-decided assumption that the holder of a cheque who receives the cheque is in the discharge of liability either wholly or partly and is regarded responsible for such conduct.

Section 140 of the Negotiable Instruments Act, 1881 

Section 140 of the Negotiable Instruments Act, 1881 states the defence which may not be permitted or allowed or valid in any prosecution under Section 138 of the Negotiable Instruments Act, 1881. 

It provides that it is not a defense in the prosecution of an offence under the section 138 that the drawer of the cheque has no reason to believe that when the drawer issued the cheque, the cheque may be dishonoured on presentation of the cheque to the respective banks for the reasons which are stated in the said section.

Case Law

• Sunil Kumar v. Yog Raj

In this case, it was held that a complaint cannot be dismissed or discharged on the ground stating that it was filed before the expiry period of 30 days, as laid down under Section 140 of the Negotiable Instruments Act, 1881. 

Section 141 of the Negotiable Instruments Act, 1881 

Section 141 of the Negotiable Instruments Act, 1881 states the offences by companies. It deals with the dishonouring of cheques drawn by the company. This section extends the liability to every individual who when the offence was committed was responsible for the conduct of the business which also extends towards the key managerial positions like that of the Director.

To attract the provisions contained or mentioned in Section 141 of the Negotiable Instruments Act, 1881 the offence of Section 138 shall have been committed as the principal offence. But it is also provided that no individual or person shall be held liable if that individual is able to prove the fact that the offence was committed without his knowledge on his part and all the reasonable and necessary steps were taken by him that a prudent man would have taken to prevent the happening of the offence.

Case Laws

• Aneeta Hada v. Godfather Travels and Tours Private Limited

In this case, the Court held that the company has to be prosecuted first and then only the person responsible can be vicariously liable.

• National Small Industries Corporation v. Harmeet Singh Paintal (2010) 3 SCC 330

In this case, it was held that as per the provisions laid down in Section 141 of the Negotiable Instruments Act, 1881 the director of a company who is not in charge of the business and is not responsible for the conduct of the business of the company at the specified time shall not be held liable for a criminal offence.

• K.K. Ahuja v. V.K. Vora

In this case, The Supreme Court summarized the provisions contained in Section 141 of the act-

1. If an individual who is accused is the MD or the Joint MD of the company then there is no need of showing that that individual is responsible for the conduct of acts taking place on the behalf of a company because the word ‘managing’ is sufficient to hold that person liable. The only fact to be proved is that he is the managing director of the said company and then the person can be held responsible for the conduct.
2. The director or any other officer of the company who has signed the cheque on the company’s behalf is considered as responsible under this section. There is no need to prove that the person is responsible separately as he has signed the dishonoured cheque he is considered liable.
3. Other officers who are a part of the company can be held liable or considered responsible under the offence of dishonouring of the cheque.
4. Every person mentioned in Section 2(24) of the Companies Act, 2013 it has to be proved whether the person was involved in the conduct of the offence of the company or not.

• Standard Chartered Bank v. State of Maharashtra and others

In this case, the Supreme Court of India held that when there is a role or a reasonable part played by every person in the commission of an offence, a special process to prove their liability has to be established and this process cannot be quashed.

Section 142 of the Negotiable Instruments Act, 1881

Section 142 of the Negotiable Instruments Act, 1881 states the cognizance of offences.

It states that without regarding anything contained in the CPC, 1973-

1. It states that no Court shall take any notice of any offence which is regarded punishable under the provisions mentioned in Section 138 of the Negotiable Instruments Act, 1881  unless in a complaint which is in writing made by the holder of the cheque. 
2. It states that any such complaint which is made within 30 days of the date on which the cause of such action arises under the provisions contained in Section 138 of the Negotiable Instruments Act, 1881.
3. It further states that no Court which is inferior to the Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence which is punishable under the provisions laid down in Section 138 of the Negotiable Instruments Act, 1881.

Conclusion

Thus, the Negotiable Instruments Act, 1881 deals with all the provisions of the negotiable instruments which play an indispensable role in the modern world of commercial transactions which is due to the development and growth in the fields of banking, trading and various other commercial sectors. This Act contains liabilities, duties and rights of both the drawer and the drawee. This Act gives clarity to the businesses, trades and many other sectors.

References

• https://legodesk.com/legopedia/negotiable-instrument-act-1881/
• https://www.legallyindia.com/views/entry/vicarious-liability-of-director-of-a-company-in-an-offence-under-section-138-of-negotiable-instruments-act-1881-the-present-position
• https://legodesk.com/legopedia/section-139-ni-act/

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