Dishonour of Cheque

Introduction 

There are various modes for payment, payment by cheque is one of those. In daily routine, for the transaction, the bank clears numerous cheques. But sometimes, Cheque remains unpaid by the bank due to insouciant sums in the bank account of the drawer or any other invalid reason from the ends of the drawer. Sections 138-142 of Negotiable Instrument Act 1881, were enacted to penalize wrongful acts which comes within the ambit of criminal offence of cheque bounce case. The first draft of the Negotiable Instruments Act, 1881 was made on the basis of  the 3rd Indian Law Commission and presented in December, 1867 in the Council and it was referred to a Selection Committee. The Draft of Act drafted for the fourth time was introduced in the Council and was passed into law in 1881 . The Act was enacted with an intention to consolidate the law relating to promissory notes, bill of exchange and cheque. The Negotiable Instrument Act 1881 came into force on 1 st March 1882 which comprises 17 chapters and 148 sections which is based on English Law. However in this article we will discuss those statutory provisions only which are relevant to the topic of cheque dishonour. Chapter ⅩⅦ of this Act, which deals with case of cheque dishonour, inserted by Act 66 of 1988, which come into force on first day of april of 1989. 

Object 

Being a welfare state it is the duty of the state to provide legal protection to innocent people from dishonest people . Before the existence of these provisions it was realized that there should be a legal structure which is necessary for the smooth working of trade industry and business in respect of all kinds of transactions. Otherwise It would not be fairly possible to save the rights of the parties who are dealing with such transaction It is as well as necessary in common transactions e.g. between non business parties because we can witness large number of Cases related with dishonour of cheque, which are very common in these days which can cause loss and disturbance for the payee, when payee got unpaid cheque by the bank, due to invalid reason. So the intention of the legislature is very clear to bring these provisions ,which was to ensure financial safety by legislating such a legal structure which includes rules and regulation regarding negotiable instruments and to penalize those who infringe the rules and regulations codified under statute book. This Enactment came into existence for the mercantile & commercial purpose which includes ease of making transactions and to provide society with such a legal framework which can ensure credibility of negotiable instruments.

Definition of Negotiable Instrument  

Justice Willis said that a negotiable instrument is such instrument, in which property is acquired by anyone who takes it bonafide and for value in spite of any defects of the title in the person from whom he took it. 

By virtue of Section 13 of the Act, Negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer, whether the word order or bearer appears on the instrument or not. 

Meaning of cheque 

Hence Section 13 in the definition of Negotiable Instrument also covers cheque. Negotiable Instrument is nothing but a written document by which right in favour of any person can be freely transferable with delivery of endorsed instrument. Negotiable instrument is an unconditional order, signed by the maker to promise to pay a certain payment to a certain person or to the bearer of the instrument. 

Section 6 of the Act defines cheque as a bill of exchange drawn on a specified banker, and not expressed to be payable otherwise than on demand. There is no requirement of acceptance by a party. A cheque is bill of exchange if it fulfilled following requisites-

• It is always drawn on a specified banker, and 
• Cheque is always payable on demand. Altogether all cheques are bills of exchange, but all bills are not cheque. 
• It must be signed by the drawer, 
• and must contain an unconditional order on a specified banker to pay a certain amount of money to the order of a certain person or to the bearer of the cheque.  

There are some terms for parties in cheque bounce cases, with which one should be acquainted to obtain a clear understanding of this chapter. Section 7 describes those substantial terms as following:- 

Drawer- A person who draws the cheque and directs the bank to pay the money to the payee, is called, drawer. 

Drawee is Any person to whom the directions were made, to make payment, such as a banker or drawer. 

Payee is a person, in whose favour, directions were made, for the payment referred in cheque or party entitled to receive amount referred in cheque. 

Meaning of cheque dishonour

Section 138 of Act deals only with dishonour of cheques. It has nothing to do with other instruments. As a rule, any cheque drawn by a drawer on an account maintained by him with a banker for payment of the specific amount of money to payee is submitted by payee to drawee (bank). But the bank refused to process the cheque . Bank will also specify the reason to payee for non payment of the cheque whether it is due to insufficient funds in the account of the drawer or mismatch of signature of the drawer or account of drawer is closed. In such circumstances criminal liability will arise against the drawer for the cheque bounce case as per section 138. 

Section 138 of Act states that the whole of the payment should be paid to the payee. If the payee gets part of the amount instead of the whole amount, the drawer will still be liable, Because it is a prerequisite of provision to pay the whole amount. If there were several cheques issued under the same transaction, One complaint is maintainable, dealing with all cheques. There and following conditions which should be fulfilled otherwise section would not be applicable – 

1) Time to submit cheque- As prescribed under the rules of the Reserve bank of India, cheque should be presented in the bank within three months, otherwise the section would not be applicable. 

2) Notice:-If the cheque remained unpaid, due to insufficient amount in the account of the drawer, or mismatched signature of drawer, notice to the drawer can be sent within thirty days along with the receipt of memo regarding the dishonour of cheque by him from the bank .

3) Cause of action- If the drawer of such payment does not pay the amount directed in cheque, after sending the notice, cause of action will arise within fifteen days of the receipt of the notice. 

A mere presentation of delivery of cheque by the accused would not attract any liability. Complainant has to prove that the cheque was delivered for any debt or liability. Cheque dishonoured is issued by way of gift under Section 138 of the Act will not be maintainable. Indra Kumar Patodia Vs. Reliance Industries Ltd.(2012) Complaint without the signature of complainant is applicable and when it is ratified by the complainant and the summons  issued by the Magistrate after due verification.  

Trial and jurisdiction 

Section 142 specifies that a case punishable under Section 138 can be led by the payee or holder in due course of cheque, before the court, not inferior to the Judicial Magistrate 1st class or Metropolitan Magistrate. The offence under section shall be inquired into or tried only by a court within whose local jurisdiction:- 

1. Where the branch of the bank where the payee or holder in due course is situated, in case of cheque is delivered for collection through an account.
2. If cheque is presented for payment by the payee or holder in due course otherwise through an account the branch of the drawee bank where the drawer maintains the account is situated. 

In brief the Court will take cognizance of such cases having territorial jurisdiction where the cheque is dishonored by the bank on which it is drawn. A written complaint can be made within one month of the date on which the cause of action arises along with following :-

• Affidavit, 
• Photocopy of all documents 
• Returned cheque, 
• Memo, 
• Legal Notice, 
• Reply of legal notice, 
• Acknowledgement receipts. 

Important aspects of the Act 

❖The delay in filing a complaint under Section 138 can be condoned under Section 142 of Act. In case of Charanjit Pal Jindal Vs L.N. Metallic (2015) it was held that If it is shown that sufficient grounds by the ends of the complainant, then such delay can be condoned. ❖Section 118 of statute laid down certain presumptions as a special rule of evidence, in respect of negotiable instruments, until the contrary is proved. 

❖Section 139 puts into words that a person who has a cheque, will be treated as he is entitled to hold the cheque. It is a rebuttable presumption in respect of the holder of the cheque and burden of proof is initially on the accused. 

❖Section 145 ruled that evidence of the complainant may be given by him on affidavit subject to all exceptions be accepted as evidence in any enquiry, trial or other proceeding under the statute. 

❖As per Section 140 it is not a valid defence if the drawer had reason to believe that cheque issued by him, may be dishonoured or in his account there is insufficient amount to honour the cheque. 

❖Section 146 arm that under this chapter on production of bank’s slip or memo having social mark expressed that cheque has been dishonoured, rebuttable presumption will be raised, the fact of dishonour of said cheque. 

Punishment:

whoever is guilty for cheque dishonour, shall be punished for a term which may extend to two years or fine which is twice of the amount mentioned in cheque or with both as per Section 138. 

Liability of companies for this offence? 

Company means a corporation or a firm or association of individuals. In a company, who were existing directors or in charge of that rm, all those persons will be liable. Section 141 contemplated that if the cheque was dishonoured by the company, partnership firm or corporate body and in the court if any of the director or partner successfully proved that the cheque was dishonoured out of his knowledge or he exercised due diligence that cheque would not remain unpaid then he will be not liable. 

In the case of Smt. Asha Baldwa v. Ram Gopal Supreme Court held that mere act of handing over the cheque to the complainant, is not sufficient to prove that partner or In charge is guilty u/s 138.It should be prove that he gave his consent or directly involved in such act. Statute in this provision provided immunity to those , who are nominated as director, by virtue of holding any office, in the financial corporation which is controlled by the State government or Central government. 

Speedy trial 

Section 143 conferred power to Judicial Magistrate of the first class or by a Metropolitan Magistrate to try case under section 138 of Statute book, as in accordance with the Section 283 to 288 of Chapter ⅩⅩⅡ of The Bhartiya Nagrik Suraksha Sanhita 2024 (46 of 2023). Section 143 of Act is specific about the penalty which can be imposed, so sentence of imprisonment for a term not exceeding one year and an amount of five thousand rupees. Whereas it appears to the Magistrate that a sentence of imprisonment for a term exceeding one year may have to be passed or undesirable to try the case in summary procedure the Magistrate shall try the case or rehear the case according to the summon procedure. Therefore in this process. the Magistrate shall after hearing the parties recall the witness who may be examined. Every trial under this section, shall be concluded within six months from the date of complaint. 

Process to issue summon 

Section 144 laid down that Magistrate may direct to issue summons to an accused or a witness, at the place where an accused or witness resides or carries on business or personally works by mode of speed post or by such courier service sanctioned by Session court. As a rule if an accused or witness refused to receive the summons delivered by postal service, it will be presumed that summons has been duly served. 

Compoundable offence 

If during the court proceedings, the drawer is ready to return the amount specified in the cheque, Case can be withdrawn. Because section 147 is categorised as sort of a compoundable offence. However this is enabling provision. 

In the judgment in the case of M/s Meters and Instruments Private Limited vate & Anr. v. Kanchan Mehta (2017) for the cheque bounce cases Supreme Court issued direction for the speedy trials. The honorable Supreme Court furthermore held that to compound an offence consent of both the parties is required but in spite of absence of such consent court in the interest of justice close the proceedings and discharge the accused on being satisfied that complainant has been settling up accounts with the accused. 

Supreme court held in case of K.M. Ibrahim v K.P. Mohammed (2010) that Section 147 of Act permits the parties to compound an offence under section 138 even at the appellate stage of the proceeding. 

Negotiable Instrument (Amendment )Act 2018 

Section 143A and 148 were inserted in the Act, with the assent of the President on 2 august 2018 and came into force on the 1st day of September 2018. 

Section 143A- 

• Section 143A obliged the drawer to pay compensation to the complainant, after issuing an order of court relating to interim compensation , in summary trial or a summon case or any other case upon framing of charge. 
• Interim compensation should not exceed twenty per cent of the amount of the cheque.
• Interim compensation shall be paid within 60 days from the date of order, and extension period can be granted for not exceeding 30 days in case reasonable cause exists from the end of the drawer . 
• If the drawer is acquitted, the Court shall order the complainant to return the amount paid in order of interim compensation by the drawer, with interest rate of bank as published by Reserve Bank of India, within a time period of 60 days which can be further for not exceeding 30 days at sufficient cause shown by complainant. 

Section 148- 

• Section 148 empowered Appellate Court to order interim compensation at the stage, when appeal is pending against conviction under section 138 of Statute .
• At this stage compensation shall not be less than twenty percent of the ne or compensation ordered by trial court. 
• Appellant is obliged to deposit an ordered amount within 60 days which is extendable after showing reasonable cause by appellant. 
• In case of acquittal of appellant, court shall order the complainant to repay the amount to appellant with the interest rate of bank, published by Reserve Bank of India within 60 days from the date of order or within a further period of 30 days. 

In the case of N Narasimhamurthy Vs. Santhosh J(2019) it was held that the amount can be deposited to the complainant with condition to refund it with interest, pending appeal.  Here, the Legislature did not clear this point, whether these provisions will have retrospective effect or prospective on led complaints under section 138 of Act and this question arises in numerous cases, so it was necessary to reach a decision. In such cases responsibility shifts upon the Judiciary to settle this issue, in the form of precedent. Punjab & Haryana High Court in M/S Ginni garments and other Vs. Sethi Garments case declared that section 143A has prospective effect and section 148 will be applicable to cases at appellate stage, pending on the date of enforcement date of amended provision. 

In Surinder Singh Deswal @col SSDeswal and ors Vs. Virender Gandhi (2019) Hon’ble Supreme Court held that section 148 is also applicable to those cases where complaint under this chapter has been led prior to enforcement of Negotiable instrument (Amendment) Act 2018 and section declared as retrospective in operation. 

In G.J. Raja Vs. Tejraj Surana (2019) Hon’ble Apex Court resolved this controversy, by holding the view that section 143A of Act is prospective in nature and applicable to only those cases when offence mentioned under this chapter after enforcement of said provision of Act. 

Conclusion 

Altogether these provisions are working as a safeguard for the parties who are getting involved in financial transactions by means of negotiable instruments in speedy procedure. This Act has undergone amendments to streamline the procedure of fair trial by resolving controversy of jurisdiction and by providing relief in the form of interim compensation at different stages of court proceedings . The Judiciary is also playing a significant role in cheque bounce cases by interpreting provisions regarding jurisdiction and other factors which were necessary to declare to eradicate financial injustice. Nowadays this Enactments proved itself as a Coercive method to recover financial loss suffered by the complainant . Legislation codified this statute to curb financial uncertainty and articulated required legal machinery for recovery of remedy to payee and additionally added sections to penalize offences referred under Act. 

Reference(s):

• Negotiable Instruments Act, structure 1881, 

https://cdnbbsr.s3waas.gov.in/s3ec05740a02d0786a4239a62076f650cd/uploads/2023/11 /2023111188.pdf 

• Offences u/s 138 of Negotiable Instruments Act, 1881, 

https://cdnbbsr.s3waas.gov.in/s3ec03333cb763facc6ce398ff83845f22/uploads/2024/09/ 2024091181.pdf . 

• Negotiable Instruments Act, 1881, available at 

https://www.indiacode.nic.in/bitstream/123456789/15327/1/negotiable_instruments_act %2C_1881.pdf. 

• Ministry of Home Affairs, Notification No. 250884_2 (Apr. 1, 2024), available at https://www.mha.gov.in/sites/default/files/2024-04/250884_2_english_01042024.pdf . 5. Indra Kumar Patodia v. Reliance Indus., (2012), available at 

https://indiankanoon.org/doc/1943920/ . 

• Charanjit Pal Jindal v. L.N. Metallic, (2015), available at 

https://indiankanoon.org/doc/160848531/ . 

• Smt. Asha Baldwa v. Ram Gopal, available at

https://indiankanoon.org/doc/13154882/.

• M/s Meters & Instruments Pvt. Ltd. v. Kanchan Mehta, (2017),

available at https://indiankanoon.org/doc/95894239/ . 

• K.M. Ibrahim v. K.P. Mohammed, (2010), available at 

https://indiankanoon.org/doc/120246503/ . 

• N. Narasimhamurthy v. Santhosh J, (2019), available at 

https://indiankanoon.org/doc/3596090/. 

• G.J. Raja v. Tejraj Surana, (2019), available at 

https://indiankanoon.org/doc/101660222/.