LAW RELATING TO DISHONOUR OF CHEQUES IN INDIA

. 6 8 5................................................................................................................... 1 1 ......... Conclusion ...................Page |1 Priyanka Saxena INDEX 1................................ 2 2............................................... 3 3.......................................... 4... Bibliography ....... Judicial Analysis .......... Statutory Analysis ......... Case Law ................................... 1 0 6........ Introduction ...................

1881 is an Act to define the law relating to promissory notes. The most important amendment is by Act 66 of 1988 and by virtue of chapter XVII was introduced by the Banking. bills of exchange and cheques. The introduction of Chapter XVII i. .Page |2 Priyanka Saxena Introduction The Negotiable Instruments Act.e. This article endeavours to elucidate the penal provision in light of the amendments and the judicial interpretations. This Act has been amended several times commencing from 1885 till 2002. which came into force from 01-04-1989.. Public Financial Institutions and Negotiable Instruments laws (amendment) Act. for the prosecutions relating to the offences of dishonour of cheques. The dishonour of cheques became popular and frequent in courts of law and the law relating to the same developed in such a rapid pace covering almost several aspects which may arise in the day to day disposal of such cases by the courts. sections 138 to 142 of the Negotiable Instruments Act.

e. may be stated to fall under evidence aspect 5..e. with whose consent or connivance or due to neglect on his part. that the complainants to satisfy the court that he had sufficient cause for not making a complaint within such period. mode of service of summons. deals with offence by a company prescribing different burden and onus of proof between persons in-charge of and responsible to the company for the conduct of its business and persons. the rule is to the effect that the . deals with presumption that the holder of a cheque in discharge in whole or in part of any debt or liability. which means that if the negotiable instrument is dishonoured on presentation the creditor may consider it as wastepaper and resort to its original demand. bank slip as prima-facie evidence and offences to be compoundable under N.141. 4.I. it was stated that payment takes effect from the delivery of the bill.I. Sec.142 of N. It has been observed in Benjamen on Sale . Sec . evidence of affidavit. 1. The drawer is discharged when payment is made in due course. 06-02-2003 As per the latest amendments the imprisonment has been extended to 2 years. 8th edition. the cognizance of complaint may be taken by the court after the prescribed period i. a cheque is an instrument which is negotiable by delivery. CHEQUE: Under the N. Act.139.I. this means that when cheque is tendered there is a presumption that payment would be realised in due course. Act. the offence had been committed. 20th edition the position was summerised as A cheque. The issuing of notice within 30 days after the receipt from the bank regarding return of cheque as unpaid and further after amendment to Sec. beyond 30 days after receipt of notice by drawer. The origin of cheques can be traced even from 17th century onwards in England. The amendments made to N. Under the Common Law of England. In simple terms.f. regardless of when the cheque is actually presented for payment. In the case of Stedman Vs.Page |3 Priyanka Saxena Statutory Analysis Chapter XVII of Negotiable Instruments Act has been lastly amended by Negotiable Instruments (Amendment and Miscellaneous provisions) Act 55 of 2002 and the same has been came into force w. unless dishonoured is payment. In Byles on Bills.138 deals with the offence of dishonour of cheque and the punishment there for. 3.I. it is observed that payment by negotiable instrument is a conditional payment. Act. The drawer that he had no reason to believe when he issued the cheque that it may be dishonoured on its presentation. Act in 2002 also includes the insertion of new sections 143 to 147. but might get defeated by the happening of the condition of non payment at maturity. Sec. The new sections deals with power of court to try cases summarily. Sec. and hence the date of payment is considered to be the date on which the cheque is delivered. 2.. Gooch. I.138. the defence which may not be allowed in any prosecution under Sec. 140.

Sec. In 1997 Crl. it amounts to dishnour of cheque (1996 (2) SCC 739) =AIR 1996 SC 2339. POST-DATED CHEQUE : The post-dated cheque becomes a cheque under the Act on the date written on it and the six months period has to be reckoned for the purpose of sec. LEGALLY ENFORCEABLE DEBT : It is clear from the explanation to Sec.138 draws presumption that one commits the offence if he issues the cheque dishonestly and cheque has been drawn and issued to the payee and the payee as the presenter of cheque and thereafter . In the High Authority of Royal Bank of Scotland Vs.138 of the Act. The cheque was presented third time after accused intimated . that the cheque covered by the said section must be relatable to enforceable or debt which must be existing as on the date of issuing of the cheque. IV. III. II.138 is primarily meant to prevent dishonesty on the part of a drawer. STOP PAYMENT OF A CHEQUE : In spite of the civil remedy. It is only when the post-dated cheque become a cheque with effect from date shown on the date of cheque. but at the same time assuring that the funds will be available by the date it becomes due (1956 (1) Madras Law Journal 471).P. 138 would get attracted (1998 (3) SCC 249). A post-dated cheque cannot be presented before the bank and as such the question of its return could not arise. Post-dating of bills of exchange is allowed both in English and American Law. it was held that on the date of issuing of cheque material was not supplied by complainant and the goods was found not of agreed quality. V. The luxury of stop payment instructions by the drawer to cover-up real insufficiency funds would no longer be available to drawer as per the law of the land. Sec. It is always open to a drawer to voluntarily re-validate a negotiable Instrument. Act from the said date. 1894 LXXI Law Times Report 168. RE-VALIDATION OF A CHEQUE : There is no provision in the Negotiable Instruments Act or in any other law which stipulates that a drawer of a negotiable instrument cannot re-validate it. Law Journal 1942 A. Sec. and it is for a judge at the trial to construe that contract by reading what is written upon it.I. including a cheque (AIR 2002 SC 38). if any instructions are issued to the bank for non-payment and the cheque is return to payee with an endorsement payment stopped by drawer. Tottenham. Even if a cheque is dishonoured because of stop payment instruction to the bank. it was held that a cheque is contract between the parties.. There is no prohibition in the Indian Acts against post-dating and promissory not which is post-dated is thus an effective negotiable instrument through it cannot be sued upon till after that date passes. A post-dated cheque carries with it an implied notice to the effect that for the present there are no deposits.138 of N. For the purposes of this section. debt or other liability means a legally enforceable debt or other liability.Page |4 Priyanka Saxena sending of a cheque in payment of debt is subject to the condition subsequent that the cheque must be met on presentation.

it exceeds the amount arranged to be paid from the account by an agreement with that bank. CONDITIONS TO INITIATE CRIMINAL. Thus. either in whole or in part. of any debt or other liability. Where cheques issued as security. Act with imprisonment. it shall be presumed that it was issued for the same. ACTION U/S. 2.) 75 MP) also see 2002 (3) Crimes 145 ( Raj) . 3. It was held that there was no infirmity in the reasoning of trial court that on the date of cheque there was no existing debt or liability and as such no offence was constituted u/s. of insufficient funds to honour the cheque. or with both. in the absence of proof to the contrary. The cheque must have been issued for the discharge. though.2. the dishonour of the cheque by the bank under the above mentioned circumstances shall constitute an offence and the offender is liable to be punished u/s.1.I.Page |5 Priyanka Saxena about rejection of material.138 of N. ACT : 1. which may extend to twice the amount of cheque. which may extend to 2 years or with fine. 3. not offence under Sec.I. on dishonour of such cheque.138 of the Act (2001 (2) RCR (Crl. A cheque must have been drawn by a person on an account maintained by him for payment of any sum of money to another person from out of the account.138 OF N. . 138 of N.I Act. The cheque shall be returned by the bank unpaid because 3.

Therefore." Further the creation of the strict liability is an effective measure by encouraging greater vigilance to prevent usual callous or otherwise attitude of drawers of cheques in discharge of debts or otherwise attitude of drawers of cheques in discharge of debts or otherwise. Union of India held that: "Knowledge or reasonable belief. Narayan Dhondu Joglekar the Bombay High Court held that: "A clear reading of Section 138 leaves no doubt in our mind that the circumstances under which such a dishonour takes place are required to be totally ignored.Page |6 Priyanka Saxena Judicial Analysis Of the ten sections comprising the chapter of the Act. they are really only a summary mode of enforcing a civil right. but are acts which in public interest are prohibited under the penalty or those where although the proceeding may be in criminal form. Normally in criminal law existence of guilty intent is an essential ingredient of a crime. In Rakesh Nemkumar Porwal v." Ingredients and requirements of the penal provisions: Section 138 creates an offence for which the mental elements are not necessary. It is enough if a cheque is drawn by the accused on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for discharge in whole or in part. Anto v. In such case. Circumstances of dishonour: The circumstances under which dishonour of cheque takes place or that may contribute to the situation would be irrelevant and are required to be totally ignored. whenever the cheques are on account of insufficiency of funds or reasons referable to the drawer¶s liability to provide for funds. The words as appearing in clause (b) of Sec. the law only takes cognizance of the fact that the payment has not been forthcoming and it matters little that any of the manifold reasons may have caused that situation. 138 cannot be construed even to imply failure without reasonable cause in view of the explicit language in which the provision is couched. section 138 creates statutory offence in the matter of dishonour of cheques on the ground of insufficiency of funds in the account maintained by a person with the banker. Section 138 of the Act can be said to be falling either in the acts which are not criminal in real sense. S. the principle of strict liability incorporated in the main enacting clause. the provisions of section 138 of the Act would be attracted. While elucidating on this aspect the Kerala High Court in K. that pre requisite could be statutorily dispensed with in appropriate cases by creating strict liability offences in the interest of the Nation. of any debt or other liability due. However the Legislature can always create an offence of absolute liability or strict liability where µmens rea¶ is not at all necessary. provided the following conditions are satisfied: .

Ramaraj Vs IIiyaz Khan) 2007(2) Civil Court Cases 458 (Karnataka) : 2007(2) Criminal Court Cases 726 (Karnataka). even if it is returned unpaid will not meet the penal consequences. irrespective of the mental conditions of the drawer he shall be deemed to have committed an offence. The six months are taken from the date the cheque was drawn. When the cheque is returned by the bank unpaid because of the account of money standing to the credit of the cheque. Such notice must be given within 30 days[16] of information from the bank regarding the return of cheque as unpaid[17]. to make demand for payment as provided for payment as indicated in clause (b) of the proviso. (J. b) Return of the cheque unpaid for reason of insufficiency of funds The cheque must be returned either because the money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the arrangement made to be paid from that account by an agreement with the bank. partly or wholly.Page |7 Priyanka Saxena 1. provided the other three requisites are fulfilled: a) Presentation of the cheque within six months or within the period of its validity The cheque must have been presented to the bank within a period of six months from the date on which it is drawn or its period of validity. The words "that account" in the section denote to the account in respect of which the cheque was drawn. A cheque cannot be issued de hors an account maintained by its drawer with the banker. Issue of Cheque in discharge of a debt or liability Accused issued cheque in discharge of debt of company . conviction upheld. If the above conditions are fulfilled. accused is validly prosecution. Where a cheque is issued not for the purposes of discharge of any debt or other liability. d) Failure of the drawer to make the payment within fifteen days of the receipt of the payment After the receipt of the above notice the drawer of the cheque has to make payment of said amount of money to the payee or to the holder in due course of the . whichever is earlier. Even if the cheque is returned with the endorsement "account closed" section 138 is attracted[15] c) Issue of the notice of dishonour demanding payment within thirty days of receipt of information as to dishonour of the cheque. For the offence under section 138 of the Act there must have been an account maintained by the drawer at the time of the cheque was drawn. No doubt if any person manages to issue a cheque without an account with the bank concerned its consequences would not snowball into the offence described under section 138 of the Act. A cheque given as a gift or for any other reasons and not for the satisfaction of any debt or other liability. the maker of the cheque is not liable for prosecution under section 138 of the Act. Thus if a cheque is valid for three months and is presented to the bank within a period of six months the provisions of this section shall not be attracted. The payee or the holder in due course of the cheque has to give a notice in writing making a demand for payment of the said amount of money to the drawer of the cheque. Existence of a live account Existence of a "live account" at the time of issue of cheque is a condition precedent for attracting penal liability for the offence under this section.Held. 2. However if the period of validity of the cheque is not specified or prescribed the cheque is presented within six months from the date the cause of action can arise.

" Further such imposition of strict liability was put to judicial scrutiny on grounds of unreasonableness and arbitrariness in Mayuri Pulse Mills v. The cheque returned on the ground of close of account is an offence (1998 (2) Law Summary 461). The presumption under section 139 in favour of holder of cheque would not.Chaudhary & Ors. Presumption : In B. Union of India where the Bombay High Court held that: "Normally in Criminal law existence of a guilty intent is an essential ingredient of a crime and the principle is expressed in the maxim µactus non facit rum nisi mens sit rea¶. therefore be violative of Article 20 (3). Account closed: Account closed was held to be the offence u/s. However the legislature can always create an offence of absolute liability or strict liability are justified and cannot be said to be unreasonable. The person charged under section 138 is not compelled to be a witness against himself. Vs Nandita Malhotra) 2007(4) Criminal Court Cases 593 (Delhi) 2. If the elements of the offence under section 138 of the Negotiable Instruments Act are made out on the face of the complaint petition itself. Civil and criminal proceedings are co extensive and not exclusive. Anto v. CASE LAW: 1. Union of India the question of double jeopardy as enshrined in Article 20 (2) in light of section 138 and section 420 of the Indian Penal Code where the court held that: . This is a general principle.Page |8 Priyanka Saxena cheque within 15 days of the receipt of the notice. merely because on the same facts. the question came up for consideration that whether the presumption raised in section 139 that the holder of the cheque received the cheque of the nature referred to in section 138. unless the contrary is established is violative of Article 20 (3) of the Constitution of India. Complaint is maintainable.K. but not the accused owes debt to complainant.138 of N. the accused cannot escape from liability of the offence (1998 (2) ALD (Crl. The Court while answering negative held that: "Unless a person is compelled to be a witness against himself Article 20 (3) has no application." 3. Act (AIR 1999 SC 1952). Mohana Krishna v. If the payment is not made after the receipt of the notice within stipulated time a cause of action for initiating criminal proceedings under this section will arise. The presumption of the nature incorporated in section 139 is a common feature in criminal statutes for example section 12 of the Protection of Civil rights Act. Union of India. Maintainability of criminal charge with a civil liability There is nothing in law to prevent the criminal courts from taking cognizance of the offence. In K.I. e) Issue of Cheque in discharge of a debt or liability of Father In case father of the accused.) 286 Kar).S. accused cannot be prosecuted (2003 (6) ALD (NOC) 64). enforcement of the liability through a civil court will not disentitle the aggrieved person from prosecuting the offender for the offence punishable under section 138 of the Act. Where the cheque was dishonoured on ground of account closed. the person concerned might also be subjected to civil liability or because civil remedy is obtainable. (A.

Convictions for different offences separately is not barred under article 20 (2).Held.) 2007(3) Criminal Court Cases 840 (Allahabad) : 2007(4) Civil Court Cases 281 (Allahabad) . An employee filed complaint on behalf of company . Vs Jagdish Katuria & Anr.Mehra Vs Raj Kumari Bhalla & Anr. complainant not competent to institute the complaint .Though this is a curable defect but same not removed even during trial . In spite of prosecutions and convictions under section 138. complaint not maintainable for want of authority letter.) 2007(1) Criminal Court Cases 847 (P&H) : 2007(2) Civil Court Cases 181 (P&H) 2. On behalf of: 1.Held. Complaint filed by husband on behalf of wife on the basis of authority letter Husband neither a general nor special power of attorney holder .Complaint quashed.P. there will be no constitutional bar in prosecution for an offence punishable under section 420 of the Penal Code and a prosecution will be if such an offence is made 4. (O.Letter authorising employee to file complaint not filed . (Fragrant Leasing & Finance Company Ltd.In the authority letter it was no where undertaken that the executant would be bound by the acts done and conducted on her behalf in respect of the cheque .Page |9 Priyanka Saxena "Offences under section 138 of the Negotiable Instruments Act and section 420 of the Penal Code are different and the ingredients are different and the ingredients are also different.

. in a case where accused is convicted under section 138 and the accused has served the sentence but. for realization/ recovery of the amount due to him for the reason of dishonoured cheque which the complainant is at liberty to avail of if so advised in accordance with law. The provisions of the Act do not permit any other alternative method of realization of the amount due to the complainant on the cheque being dishonoured for the reasons of "insufficient fund" in the drawer¶s account.P a g e | 10 Priyanka Saxena Conclusion Though insertion of the penal provisions have helped to curtail the issue of cheque light heartedly or in a playful manner or with a dishonest intention and the trading community now feels more secured in receiving the payment through cheques. However there being no provision for recovery of the amount covered under the dishonoured cheque. unable to deposit amount of fine. the only option left with the complainant is to file civil suit. The proper course to be adopted by the complainant in such a situation should be by filing a suit before the competent civil court.

K R Bulchandani.P a g e | 11 Priyanka Saxena Bibliography y Business Law For Management By Mr. Business Law For Managers By Mr P K Goel Principles of Business Law and Management By Dr Manmohan Prasad y y .

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