LEGAL AND LEGISLATIVE LAWS

LEGAL AND LEGISLATIVE

LAWS CONTENTS

NEGOTIABLE
INSTRUMENTS ACT

BANKING
AND FINANCE LAWS:
THE RESERVE BANK
OF INDIA ACT
R
THE BANKING
B REGULATION ACT
I
SEBI LAWS
SARFESAI ACT
INSURANCE LAW
 SESSION 19 Legal and legilative laws...N I A
TOPIC 1
NEGOTIABLE INSTRUMENTS ACT
SEC 13 of the Negotiable instruments act
states that a NEGOTIABLE INSTRUMENT
IS A
PROMISORY NOTE
BILL OF EXCHANGE
OR A CHEQUE PAYABLE EITHER TO ORDER OR TO THE BEARER

THUS
Negotiable instruments
recognised by statute are:
(i) Promissory notes
(ii) Bills of exchange
(iii) Cheques.

APART FROM THE ABOVE

TREASURY BILL
SHARE WARRANT
HUNDIS

ARE ALSO NEGOTIABLE INSTRUMENTS

ADVOCATE HEMA S
ONLY IF THEY POSSESS NEGOTIABILITY
 IT TYPICALLY CONTAINS
ALL TERMS
PERTANING TO
PROMISSORY NOTE’ INDEBTEDNESS
SUCH AS
. PRINCIPAL AMOUNT
Section 4 of the Act defines, INTEREST RATES
“A promissory note is an instrument DATE
MATURITY DATE
in writing (note being a bank-note or PLACE OF ISSUANCE AND
a currency note) ISSUERS SIGNATURE

containing an unconditional THIS DOCUMENT

undertaking, ONCE SIGNED
BY SPECIFIC PERSON
signed by the maker, DULY SIGNED
to pay a certain sum of money to AND HANDED OVER TO BEARER
IT BECOMES A NEGOTIABLE
or to the order of a certain person, INSTRUMENT
or to the bearer of the instruments.”

ADVOCATE HEMA S
INSTRUMENT
IN WRITING

PROMISE TO PAY

SIGNED BY MAKER

CERTAIN PERSON
DIFFERENT TYPES OF CHEQUES:Bearer cheques. It is also
known as open cheque or uncrossed cheque. ...
Self-Cheques. ...
Account Payee Cheques. ...
Post dated cheque. ...
Banker's cheque. ...
Traveler's cheque. ...
Crossed cheque.
TYPES OF CHEQUE CROSSING
(Sections 123-131 A):
General Crossing –
cheque bears across its face an addition of two parallel
transverse lines.
Special Crossing –
cheque bears across its face an addition of the banker’s name.
Restrictive Crossing –
It directs the collecting banker that he needs to credit the
amount of cheque only to the account of the payee.
Non-Negotiable Crossing –
It is when the words ‘Not Negotiable’ are written between the
two parallel transverse lines.
 SEC 138 _NEGOTIABLE INSTRUMENT ACT
Dishonoured Cheque meaning
A cheque is said to be honoured,
if the banks give the amount to the payee.
While, if the bank refuses to pay the amount to the payee,
the cheque is said to be dishonoured.
In other words, dishonour of cheque is a condition in which bank refuses to pay the amount of che
to the payee
Reasons Why Your Cheque Is Dishonoured
Insufficient Funds. Salaries sometimes reach late in accounts leaving insufficient
funds in your account which may lead to bouncing of cheque. ...
Irregular Signature. ...
Alterations. ...
Post-dated Cheque. ...
Stale Cheque. ...
When Payment Is Stopped. ...
Frozen Account.
Yes, you can present the cheque again in the bank for payment,
even if it was dishonoured on the first occasion. However, it goes
without saying that the cheque can be presented again in the bank
only during the period of its validity. Normally, the period of validity
of the cheque is 3 months.

ADVOCATE HEMA S
●
Civil and Criminal Remedies in Cheque Bounces
●
Civil Remedy. Usually, a civil suit when filed in the case of a
dishonor of cheque is for the recovery of the money. ...
●
Criminal Remedy. By nature, according to the Negotiable
Instrument Act (Section 138) the bouncing of cheque is a
criminal offence in India. ...
●
Punishment.

VIDEO ON SEC 138

GROUP DISCUSSION ON DISHONOR OF CHEQUES

REMEDIES
RESPONSE THROUGH INTERACTIVE
RANDOM SELECTION OF FEW STUDENTS TO TEST
AWARENESS

ADVOCATE HEMA S
 MODERN ENACTMENTS
We prefer to carry a small piece of paper known as Cheque rather than
carrying the currency worth the value of the Cheque.
Before 1988 there being no provision to restrain the
person issuing the Cheque without having sufficient funds in his account.
Of course on Dishonoured cheque there is a civil liability accrued.

In order to ensure promptitude and remedy against the defaulters

of the Negotiable Instrument a criminal remedy of penalty was
inserted in Negotiable Instruments Act, 1881
by amending it with Negotiable Instruments Act, 1988.
 APPEALS TO SUPREME COURT
With the insertion of these provisions in the Act the situation certainly
improved
and the instances of dishonour have relatively come down
but on account of application of different interpretative techniques by
different High Courts on different provisions of the Act
it further compounded
and complicated the situation although on dishonour of cheques
the trends of the verdicts of the Supreme Court of India follows often.
 LATEST AMENDMENT
Parliament enacted the Negotiable Instruments (Amendment and
Miscellaneous Provisions) Act, 2002 (55 of 2002), which is
intended to plug the loopholes.
This amendment Act inserts five new sections from 143 to 147
touching various limbs of the parent Act
And
Cheque truncation through digitally were also included and the
amendment Act has been recently brought into force on Feb. 6,
2003
 Sec 143 A to 147
Section 143-A of the Amended Act empowers any court while trying an offence for dishonour of a
cheque to direct the drawer, who is the issuer of the cheque,
to pay interim compensation to the complainant
. The amount of compensation payable cannot exceed 20%
of the amount as stated in the cheque

section 144 of the ni act provides as under: 144. mode of service of summons. __(1)
notwithstanding anything contained ..... to take delivery of summons has been received, the court
issuing the summons may declare that the summons has been duly served. ... letter sent by him
gets served on, or is received by, the tenant.

Section 145 of the Negotiable Instruments Act, 1881 is an exception to the normal rule as
envisaged in Section 200 of the Code of Criminal Procedure, 1973 that the complainant would be
required to give his evidence by appearing in person and by making a statement on oath before the
Court.
 Section 146 in The Negotiable Instruments Act, 1881
146. Bank’s slip prima facie evidence of certain facts.—The Court shall, in respect of
every proceeding under this Chapter, on production of bank’s slip or memo having
thereon the official mark denoting that the cheque has been dishonoured, presume the
fact of dishonour of such cheque, unless and until such fact is disproved.

Section 147 in The Negotiable Instruments Act, 1881

147 Offences to be compoundable. —Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974), every offence punishable under this Act shall be compoundable.

Compoundable offences are those offences where, the complainant (one who has filed
the case, i.e. the victim), enter into a compromise
, and agrees to have the charges dropped against the accused
 LEGAL RIGHTS IN CHEQUE BOUNCING
CASES
Section 138 of the Negotiable Instruments Act, 1881 is the primary law in the context of
cheque bounce cases.
The following is an analysis of the rights and remedies existing in cheque bounce
cases-
Resubmission of the Cheque
Under the cheque bouncing, on being informed,
the issuer of the cheque has an opportunity to rectify the error which has caused the
cheque bounce and ask the payee to resubmit the cheque for clearance.
This can be done within 3 months from the date on which the cheque bounced.
The recipient of the cheque is informed by his bank about the bouncing of the cheque
through the issue of a “cheque return memo” which contains the reasons for non-payment
of the money stated in the cheque.
For a person to make a valid claim,
such a person must ensure that they submit the cheque to the bank
within three months
from its date of issue, otherwise, the cheque would expire.
 DEMAND NOTICE

Demand Notice
If the cheque bounces for the second time, the recipient of the
cheque has an option to send a demand notice to the issuer of
the cheque.
The demand notice usually asks the issuer to transfer the
requisite funds within 15 days, failing which the recipient would
file a complaint under Section 138 of the Negotiable Instruments
Act.
This demand notice has to be sent within 30 days of receiving
the bounced cheque from the bank. The court may consider a
delay if a justifiable reason is provided.
 PROCESS:: REMEDY
Filing a Complaint
If the issuer of the cheque has not replied to the demand notice
or complied with the terms of the same, the recipient has an option of filing
a complaint
before the courts within 30 days.
Concerning jurisdiction, the courts situated in locations, where the cheque
was drawn, where the cheque was presented and/or returned by the bank,
have jurisdiction

A complaint under Section 138 can also

be filed against a company.
It must be noted that cheques which are issued as
gifts are not covered by Section 138 of the Negotiable
Instruments Act.
●
Under the Complaint being filed and the requisite court fees being
deposited with the court, the original documents such as the original
cheque, a copy of the notice and acknowledgement receipt are to be
verified by the Judicial Magistrate First Class.
●
The complainant would have to appear in court and be examined by
the Magistrate.
●
The Magistrate would issue a summons for the issuer of the cheque to
appear before the Court and if found guilty then the issuer would be
punished with imprisonment or fine under Section 138 of the
Negotiable Instruments Act.
●
In addition to pursuing remedies through this method as well as the
civil proceedings The
recipient of such a cheque can
also file a complaint about cheating under
Section 420 of the Indian Penal Code.
 A CIVIL COMPLAINT: CPC
An Alternate Civil Complaint
The nature of the complaint as described in the above sections is that of a
criminal complaint, which could possibly result in punishment to the
defaulter in terms of jail time but often does not result in the recipient of
the bounced cheque getting his dues.
Thus, it would be prudent for the recipient to file a separate civil suit for the
recovery of the amount due to him.

This can be done through filing a summary suit under Order 37 of the Code
of Civil Procedure, 1908.
A summary suit differs from an ordinary civil suit in as much as it does no
grant the defendant with a right to defend himself and to be able to defend
himself, the defendant has to seek prior permission of the court.
Summary suits are only permissible in the context of matters of recovery.
Thus, in matters of cheque bounce, a summary suit can be filed for the
recovery of money.
 INSTRUCTIONS TO CLOSE ACCOUNT
In addition to the risk that a defaulter

faces in terms of jail time or penalty,

it is also open to the bank from which the defaulter has issued the cheque to stop the defaulter
from using its facilities and to possibly close the account.