From Indian Overseas Bank Central Office 763, Anna Salai Chennai 600 002

PERMANENT
Ref.No. : MISC/281/1989 Date : 08.03.1989 Issuing Dept. : Legal Services

To All Indian Branches/Regional and Zonal Offices NEW AMENDMENT IN NEGOTIABLE INSTRUMENTS ACT W.E.F. 1.4.89 PENAL PROVISION FOR THE DRAWERS IN CASE OF DISHONOUR OF CERTAIN CHEQUES FOR INSUFFICIENT OF FUNDS IN THE ACCOUNTS Preamble: A new Chapter has been added in the Negotiable Instruments Act as Chapter XVI. This chapter contains Sections 138 to 142, which shall come into force w.e.f. 1.4.89. These new sections deal with imposing penalty on drawers in case of dishonour of certain cheques for insufficiency of funds in the accounts. The sections not only cast a responsibility on the customers to ensure sufficiency of funds before issuing a cheque, but also enhance the duty of the Bankers before dishonouring the cheques for want of funds or arrangement in the account. Therefore, before dishonouring a cheque for the reason of insufficiency of funds or it exceeds the amount arranged to be paid from the account, branches should be careful. This circular is being issued to keep the branches informed about the important amendment in Negotiable Instrument Act. OPERATIONAL INSTRUCTIONS: According to the new sections introduced in the Negotiable Instruments Act, where any cheque drawn by any person for the discharge of any liability is returned by the bank unpaid for the reason of insufficiency of funds standing to the credit of the account or for the reason that it exceeds the arrangement made by the drawer of the cheque, the drawer of such cheque shall be deemed to have committed an offence. In that case, the drawer shall be punishable with imprisonment for a term, which may extend to one year or with fine, which may extend to twice the amount of the cheque, or with both.

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In order to make the drawer liable for the penalty, the following conditions should be also fulfilled. a. b. The cheque should have been issued for the discharge in whole or in part of any debt or other liability. Such a cheque should have been presented to the Bank within a period of six months from the date of its drawal or within the period of its validity, whichever is earlier. The payee or Holder in due course of such cheque should have made a demand for the payment of the said amount by giving a notice in writing to the drawer of the cheque within 15 days of the receipt of information by him from the bank regarding the return of the unpaid cheque. The drawer of such cheque should have failed to make the payment of the said amount to the payee or the holder in due course of the cheque within 15 days of the receipt of the said Notice.

c.

d.

To ensure that genuine and Honest Bank Customers are not harassed or put to inconvenience, sufficient safeguards have also been provided in the new Chapter, such safeguards are: a. That no court shall take cognizance of such offence except on a compliant, in writing, made by the payee or the holder in due course of the cheque. b. That such compliant is made within one month of the date on which the cause of action arises. c. That no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any such offence. As per the directive received from the Government the Banks advised to display suitable hoardings, posters, etc. at the branch and other office premises so that the drawers of the cheque fully aware of their responsibilities and the penal provision of Act separate circular will be issued in this regard, by Management Services Department.

(A.K. NIRMALANANDAN) CHIEF OFFICER