The Negotiable Instruments Act, 1881: Critical Analysis*

Introduction:

The Negotiable Instruments Act, 1881 provides for three kinds of instruments, namely,
promissory notes, bills-of-exchange and cheques; it excludes from its periphery instruments
in oriental language, such as, Hundies. With the advent of technology, two other modes of
payments came to be recognised, that is, NEFT (National Electronic Fund Transfer) and
RTGS (Real Time Gross Settlement). The law in regards to these electronic means of
transfers, that is, NEFT and RTGS, has been provided for in the Payment & Settlement
Systems Act, 2007. Section 25 of the Payment & Settlement Systems Act, 2007, deals with
cases relating to dishonour of electronic transfers. Section 25(5) of the Payment & Settlement
Systems Act, 2007 provides that, the provisions of Chapter XVII of the Negotiable
Instruments Act, 1881 shall apply to cases relating to dishonour of electronic funds transfer.

The word “negotiable” means transferable from one person to another in return for
consideration; however, the word “instrument” means, a written document by virtue of which
a right is created in favour of some person. Thus, every document which entitles a person to a
sum of money and which is transferable (like cash) by delivery, is permitted to be called a
“negotiable instrument”. Thus, negotiable instrument means, a document transferable by
delivery. The term “negotiable instrument”, as such, has not been defined in the Negotiable
Instruments Act, 1881, for at the most, Section 13 of the Negotiable Instruments Act, 1881
states that, a negotiable instrument means a promissory note, bill of exchange or cheque
payable either to order or to bearer.

The principal difference between a negotiable instrument and other documents (or a chattel)
is that, in case of a negotiable instrument, the transferee, in good-faith and for consideration
attains a good title even though the title of the transferor may be suffering from a defect;
however, in case of other documents transferee gets a similar title (or to say, no better title)
than the transferor.

The Negotiable Instruments Act, 1881 came into force on 1st March, 1881, and it extends to
the whole of India.

Characteristic Features of Negotiable Instruments:

Following are the characteristic features of a negotiable instrument-

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 1. Transferability: A negotiable instrument is freely transferable; that is, it is transferable
any number of times till its maturity. If the instrument is ‘payable to bearer’, mere
delivery is enough. However, if it is ‘payable to order’, it passes by endorsement and
delivery. The transferee of a negotiable instrument becomes not only entitled to
money but also has the right to further transfer the instrument.
2. Independent Title: The general principle as regards the transfer of property, that is, no
one can give a better title than he himself has, is not applicable in case of negotiable
instruments. If the transferor had obtained a negotiable instrument by exercising
fraud, but the transferee obtains that negotiable instrument in good-faith (bona-fide)
for value, then the transferee shall enjoy a good title as regards that negotiable
instrument. Thus, the title of the transferee as regards a negotiable instrument is
independent of the title of the transferor. Moreover, the doctrine of nemo dat quod
non habet, that is, no one can give a better title than he himself has, is not applicable
to cases relating to negotiable instruments.
3. Certainty: A negotiable instrument is a carrier without luggage. It is an essential
requisite of a negotiable instrument that, it be framed in the fewest words possible,
and in those words which would make the contract certain and precise. A negotiable
instrument must be free from those conditions that which would materially impede its
circulation. Also, a negotiable instrument must involve payment of a certain (that is,
fixed or definite) sum of money (money only and nothing else).
4. Right to Sue: Transferee (payee) of a negotiable instrument is not required to give
notice of the transfer of the negotiable instrument to the party (drawer) which is liable
to make/honour the payment under the negotiable instrument. The transferee can sue
upon a negotiable instrument in its own name in case of dishonour without giving
notice of transfer to the original debtor, that is, without informing the original debtor
of the fact that the transferee has become the holder of the negotiable instrument.
5. Presumptions: Certain presumptions such as those contained in Section 118 and
Section 119 of the Negotiable Instruments Act, 1881, apply to all negotiable
instruments.

Presumptions under Section 118 and Section 119 of the Negotiable Instruments Act,
1881:

According to the mandate of Section 101 of the Indian Evidence Act, 1872 the initial burden
of proving a prima facie case in his favour is cast on the plaintiff, and when the plaintiff

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produces such evidence as will support a prima facie case in his favour, then the onus shifts
on the defendant to produce before the court of law such evidence as will meet the case made
out by the plaintiff. As the case continues to progress, the onus may shift back again on the
plaintiff.

Section 118 of the Negotiable Instruments Act, 1881 states that, until the contrary is proved,
the following presumptions shall be made:

1. Consideration: In case of a negotiable instrument, the complainant has to prima-facie

show that he had received the negotiable instrument against consideration in good
faith. It is to be presumed that every negotiable instrument was made (that is, drawn)
for consideration and that every such instrument, when it is accepted, indorsed or
transferred, was done so for (or against) consideration. Thus, in case of a complaint
being filed by the complainant for dishonour of cheque (that is, negotiable instrument)
the accused person can avoid the liability by proving that he is not liable to make any
payment under the negotiable instrument to the complainant, as there is no sum due to
be paid to the complainant by the accused person.
2. Date: In case of a negotiable instrument, it is to be presumed that, the negotiable
instrument was drawn on such date as is mentioned on the face of the negotiable
instrument.
3. Time of Acceptance: In case of a negotiable instrument it is to be presumed that it
was accepted within a reasonable period of time after the date of its execution and
before its maturity.
4. Time of transfer: It is to be presumed that, every transfer as regards a negotiable
instrument was affected before the date of its maturity.
5. Order of Indorsements: It is to be presumed that, the indorsements appearing upon a
negotiable instrument were made in the order or sequence in which they appear
thereon.
6. Stamp: It is to be presumed that, a promissory note, bill of exchange or cheque which
got lost, was duly stamped.
7. Holder in Due Course: It is to be presumed that every holder of a negotiable
instrument took the negotiable instrument in good faith and for consideration. The
accused person has to prove that the holder of the negotiable instrument is not a
holder in due course.

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Before we attempt to understand the presumption contained in Section 119 of the
Negotiable Instruments Act, 1881, it is essential for us to understand the conceptual
framework as regards “noting” and “protest”.

According to the mandate contained in Section 93 of the Negotiable Instruments Act,

1881, when a promissory note, bill of exchange or cheque is dishonoured by non-
acceptance or non-payment, the holder must give notice of dishonour to all parties to the
instrument, whom he seeks to make liable there-on.

Further, according to the mandate contained in Section 99 of the Negotiable Instruments

Act, 1881, when a promissory note or bill of exchange has been dishonoured by non-
acceptance or non-payment, the holder of such instrument may cause such dishonour to
be noted by a notary public upon the instrument or upon a paper annexed (or attached)
thereto, or partly upon each of them that is, the instrument and the paper annexed to the
instrument. Moreover, Section 100 of the Negotiable Instruments Act, 1881 states that,
the holder of an instrument can within a reasonable period of time as regards the
dishonour of the instrument can get it protested by the notary public.

When a negotiable instrument is dishonoured the holder may sue the prior parties as
regards the negotiable instrument, that is, the drawer and endorsers, after he (the holder)
has given a notice of dishonour to them. The holder of an instrument may need an
authentic evidence of the fact that a negotiable instrument has been dishonoured. When a
cheque is dishonoured, generally, the bank which refuses to honour the payment returns
back the cheque giving reasons in writing for the dishonour of the cheque. Similarly,
Section 99 and Section 100 of the Negotiable Instruments Act, 1881 provide for
convenient methods of authenticating the fact of dishonour of a bill of exchange or
promissory note by means of ‘noting’ and ‘protest’.

As soon as a bill of exchange or promissory note is dishonoured the holder of the

instrument can after giving the parties due notice of dishonour, sue the parties liable
thereto. Section 99 provides a mode of authenticating the fact of the bill having been
dishonoured. Such mode is by noting the instrument. Noting is a minute recorded by a
notary public on the dishonoured instrument or on a paper attached to such instrument.
When a bill is to be noted, the bill is taken to a notary public who represents it for
acceptance or payment as the case may be and if the drawee or acceptor still refuses to
accept or pay the bill, the bill is noted as stated above.

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 Noting should specify the following matters in the instrument: (a) The fact of dishonour;
(b) The date of dishonour; (c) The reason for such dishonour; (d) The notary’s charges;
(e) A reference to the notary’s register; and (f) The notary’s initials.

Noting should be made by the notary within a reasonable period of time after dishonour.
Noting and protesting is not compulsory but foreign bills must be protested for dishonour
when such protest is required by the law of the place where such bills are drawn. Cheques
do not require noting and protesting. Noting by itself has no legal effect; still it has some
advantages. If the noting is done within a reasonable period of time, protest may be drawn
later on. Noting without protest is sufficient to allow a bill to be accepted for honour.

Protest is a formal certificate of the notary public attesting the dishonour of the bill by
non-acceptance or by non-payment, as the case may be. After noting, the next step for
notary is to draw a certificate of protest, which is a formal declaration on the bill or a
copy thereof. The chief advantage of protest is that the court on proof of the protest shall
presume the fact of dishonour.

Besides the protest for non-acceptance and for non-payment the holder can protest the bill
for better security. When the acceptor of a bill becomes insolvent or suspends payment
before the date of maturity, or when he absconds, the holder can protest the bill in order
to obtain better security for the amount due. For this purpose the holder may employ a
notary public to make the demand on the acceptor and if refused, protest may be made.
Notice of protest may be given to prior parties. According to Section 102 of the
Negotiable Instruments Act, 1881, when promissory notes and bills of exchange are
required to be protested, notice of protest must be given instead of notice of dishonour.

Now, after discussing the conceptual framework of “noting” and “protest”, it will be easy
to venture into Section 119 of the Negotiable Instruments Act, 1881.

Section 119 of the Negotiable Instruments Act, 1881, talks about the presumption on
proof of protest. It states that, if a suit is instituted upon the dishonour of a bill of
exchange or a promissory note, then, on proof of the protest, the court shall presume the
fact of dishonour, until and unless the same is rebutted (that is, disproved) by the acceptor
of the bill of exchange or the promissory note.

Promissory Note, Bill of Exchange & Cheque: Key Features

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Promissory Note (Section 4 of the Negotiable Instruments Act, 1881):

1. An instrument which satisfies the requirements of the definition contained in Section

4 of the Negotiable Instruments Act, 1881 must be held to be a promissory note,
irrespective of, whether it is negotiable or not.
Section 4 of the Negotiable Instruments Act, 1881: “It is an instrument in writing (not
being a bank-note or a currency note) containing an unconditional undertaking
signed by the maker, to pay a certain sum of money only to, or to the order of, a
certain person, or to the bearer of the instrument.”
2. It must be in writing, duly signed and properly stamped;
3. There must be an undertaking or promise to pay; mere acknowledgement of
indebtedness is not enough;
4. It must not be conditional;
5. It must contain a promise to pay money and money only;
6. The parties to a promissory note, that is, the maker and the payee, must be certain;
7. It is payable on demand or after a certain date;
8. The sum payable must be certain.

Bill-of-Exchange (Section 5 of the Negotiable Instruments Act, 1881):

1. There are three (3) parties involved in a bill of exchange: the drawer, the drawee and
the payee;
2. It must be in writing, duly signed and accepted by its drawee and properly stamped;
3. There must be an order to pay;
4. It must be un-conditional;
5. The amount and the parties must be certain.

Cheque (Section 6 of the Negotiable Instruments Act, 1881):

1. There are three (3) parties involved in a cheque: the drawer, the drawee bank and the
payee;
2. It must be in writing and it must be signed by the drawer;
3. The payee is always certain;
4. It is always payable on demand;
5. It must bear a date, otherwise it is invalid, and shall not be honoured by the bank;

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6. The amount must be specified clearly- both in figures and in words. According to
Section 18 of the Negotiable Instruments Act, 1881, if the amount undertaken or
ordered to be paid is stated differently in figures and in words, the amount stated in
words shall be the amount undertaken or ordered to be paid.
7. Types of Cheques:
a. Open Cheque: In such a cheque, it is possible to get the cash, over the counter of
the bank;
b. Bearer Cheque: It is somewhat similar to an open cheque; in case of a bearer
cheque, any person holding or bearing the cheque, can be made payment of the
amount mentioned in the cheque;
c. Crossed Cheque: Generally speaking, open cheques are open to risk and it is
dangerous to issue an open cheque, however, this risk can be avoided by using a
crossed cheque which would only be credited into the bank account of the payee.
A cheque can be crossed by drawing two parallel lines across the cheque on the
left-hand side top corner of the cheque and with/without writing “Account Payee”
or “Not Negotiable”;
d. Order Cheque: It is a cheque which is payable to a particular person and in such a
cheque the word bearer may be cut or cancelled;
e. Electronic Cheque: It is a cheque which contains the exact mirror image of the
cheque and it is generated in a secured system, ensuring safety standards with the
use of digital signatures.
Note:
i. Cheque Truncation: In cheque truncation, a cheque is scanned and an
electronic image of the cheque is made out, and instead of a physical
cheque to be transmitted in a clearing cycle, immediately on generation of
an electronic image further physical movement of the cheque is substituted
with such image.
ii. Restrictions of Reserve Bank of India on the instruments being made
payable to the bearer:
Section 31 of the Reserve Bank of India Act, 1934, states that, no person
other than the Reserve Bank of India or the Central Government can draw
or accept, make or issue any Bill-of-Exchange or Promissory Note payable
to bearer on demand.

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 Section 31(2) of the RBI Act, 1934, states that, notwithstanding anything
contained in the Negotiable Instruments Act, 1881, no person in India,
except for: the Reserve Bank of India and the Central Government, can
make or issue promissory notes expressed to be payable to the bearer of
the instrument.

Difference between Promissory Note and Bill-of-Exchange:

1. In a promissory note there is an unconditional promise to pay, whereas in a bill-of-

exchange there is an unconditional order to pay.
2. In a promissory note, there are two (2) parties, that is, the maker and the payee;
however, in a bill-of-exchange there are three (3) parties, that is, drawer, drawee and
payee.
3. In a promissory note acceptance is not required; however, in a bill of exchange
acceptance by the drawee is a must.
4. In a promissory note, the liability of the drawer or the maker of the promissory note is
primary and absolute; however, in a bill-of-exchange, the liability of the drawer is
secondary and is conditional upon the non-payment by the drawee.

Difference between Cheque and Bill-of-Exchange:

1. Cheque is drawn on a banker; but a bill-of-exchange can be drawn on anybody

including a banker.
2. Cheque is always payable on demand (See: Section 19 of the Negotiable Instruments
Act, 1881); however, bill-of-exchange is either payable on demand or after a specified
period.
3. A cheque can be crossed to end its negotiability; however, a bill-of-exchange cannot
be crossed.
4. In a cheque, acceptance is not required; however, in a bill-of-exchange acceptance is a
must.

Difference between Holder and Holder in Due Course:

1. The “holder” of a promissory note, bill-of-exchange, or cheque means any person

entitled in his own name to the possession thereof and to receive or recover the
amount due thereon from the parties thereto. A “holder in due course” is a holder who
has taken the instrument in good-faith with due care and caution for value

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 (consideration) and before maturity. In case of ‘holder’, consideration is not
necessary; also, a ‘holder’ may acquire the instrument after maturity.
2. A ‘holder’ does not get a better title than that of his transferor; a ‘holder in due
course’ gets a better title than that of his transferor.
3. A ‘holder’ stands in a less advantageous position than that of a ‘holder in due course’.
The title of a ‘holder in due course’ becomes free from all equities, that is, the defence
which can be pleaded against the prior parties cannot be pleaded against a ‘holder in
due course’.
For example: When a negotiable instrument has been lost and thereafter has been
obtained by a person by means of an offence (theft), then the person so obtaining the
possession of the negotiable instrument cannot claim any right in respect of any
amount due as regards such an instrument. But, if such an instrument is transferred to
a person as a holder in due course, then he will get a good title.
4. A ‘holder’ does not enjoy any special privileges, but a ‘holder in due course’ enjoys
certain special privileges, for example: the defence that the amount filled by the
holder of an instrument was in excess of the authority given, cannot be pleaded
against a holder in due course.
5. Where a bill was drawn by X in favour of Z and Z further endorsed the bill in favour
of AB & Co., but the bill was endorsed with the initials- “AB”, without adding the
initials- “Co.”, it was held that the endorsement was irregular and that the endorsee
(AB & Co.) was not a holder in due course, though it might be a holder for value.1

Note: Holder and Holder in Due Course:

Section 8 and Section 9 of the Negotiable Instruments Act, 1881 define the terms- ‘Holder’
and ‘Holder in Due Course’ respectively. The basic highlight is that, a holder must be entitled
in his own name to the possession of the instrument. The holder must have a right to receive
or recover the amount there-on. A holder might be a payee, bearer or endorsee.

A person having entitlement means that, he has a right there-to, even if, he does not exercise
that right, that right inherently vests in him and it cannot be taken away. Regard being had to
Section 8 of the Negotiable Instruments Act, 1881, a holder of an instrument must have an
entitlement to the instrument, though he might not have the possession of the instrument,

1
See: Arab Bank Ltd. v. Ross, (1952) 1 All ER 709

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thus, Section 8 of the Negotiable Instruments Act, 1881 contemplates de jure holder and not
de facto holder of an instrument.

According to Section 9 of the Negotiable Instruments Act, 1881, a holder in due course is any
person who, for consideration became the possessor of promissory note, bill-of-exchange or
cheque if payable to the bearer or the payee or the endorsee there-of; and that person became
the holder of the instrument before maturity, in good faith, without knowledge of the defect
in the title of the instrument.

Note: According to the Thomas Dictionary of Banking, 12th Edition, p.463, a “post-dated”
cheque is a cheque which is dated subsequent to the actual date on which it is drawn, and
which is issued before the date it bears.

Note: Anil Kumar Sawhney v. Gulshan Rai, (1993) 4 SCC 424: In this case the Hon’ble
Supreme Court of India clarified the difference between a cheque and a post-dated cheque
regard being had to Section 5 and Section 6 of the Negotiable Instruments Act, 1881. The
Supreme Court held as follows:

i. A post-dated cheque is only a bill of exchange when it is written or drawn, it

becomes a cheque when it is payable on demand.
ii. A post-dated cheque is not payable till the date which is shown on the face of the
said document. It will only become a cheque on the date shown on it and prior to
that it remains a bill of exchange under Section 5 of the Negotiable Instruments
Act, 1881.
iii. A post-dated cheque cannot be presented before the bank and as such the question
of its return would not arise. It is only when the post-dated cheque becomes a
“cheque” with effect from the date shown on the face of the said cheque that the
provisions of Section 138 of the Negotiable Instruments Act, 1881 come into play.
iv. A post-dated cheque remains a bill of exchange till the date written on it.
However, with effect from the date shown on the face of the said cheque it
becomes a cheque under the Negotiable Instruments Act, 1881 and in case of its
dishonour, the proviso (a) to Section 138 stands attracted.

Note: Ashok Yeshwant Badave v. Surendra Madhavrao Nighojakar, (2001) 3 SCC 726: In
this case it was held that:

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 i. A cheque is a bill of exchange drawn on a bank by the holder of an account
payable on demand.
ii. A post-dated cheque becomes a cheque within the meaning of Section 138 of the
Negotiable Instruments Act, 1881 on the date which is mentioned on the face of
the cheque and the 6-months2 period has to be calculated for the purposes of
proviso (a) to Section 138 of the Negotiable Instruments Act, 1881 from the said
date which is mentioned on the face of the instrument (cheque).
iii. The mere fact that the date of payment as regards the cheque is postponed to a
future date does not make the cheque payable otherwise than on demand.
iv. If the banker (that is the drawee in case of a cheque) honours the cheque before
the date mentioned on the face of the cheque then legal action can be taken against
it.
v. The term “payable on demand” means, “payable at once” when demanded by the
payee of the cheque.

Section 138 of the Negotiable Instruments Act, 1881- Important Case-Laws:

1. K. Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7 SCC 510: In this case it was
noted that, the offence under Section 138 of the Negotiable Instruments Act, 1881 can
be completed only with the concatenation of a number of acts. The acts which are
components are as follows:
(a) Drawing of the cheque;
(b) Presentation of the cheque to the bank;
(c) Returning of the cheque unpaid by the drawee bank;
(d) Giving notice in writing to the drawer of the cheque demanding payment of the
cheque amount;
(e) Failure of the drawer to make payment within 15 days of the receipt of the notice.

Further, it was observed that, it is not necessary that all the above five acts should
have been perpetrated at the same locality. It is possible that each of those five acts
could be done at five different localities. But, a concatenation of all the above
mentioned five acts is sine qua non for the completion of the offence under Section

2
The period has been reduced from six-months to three-months vide RBI Notification No. RBI/2011-12/251,
DBOD.AML BC. No. 47/14.01.001/2011-12, dated 4th November, 2011 (with effect from 01-04-2012)

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 138 of the Negotiable Instruments Act, 1881. In this context regard may be had to
Section 178 (d) of the Code of Criminal Procedure, 1973, which states as follows:

Where the offence consists of several acts done in different local

areas, it may be enquired into or tried by a court having jurisdiction
over any of such local areas.

Thus, the court held that, if the five different acts were done in five different locations,
then, any one of the courts exercising jurisdiction in one of the five local areas can
become the place of trial for the offence under Section 138 of the Negotiable
Instruments Act, 1881. In other words, the complainant can choose any one of those
courts having jurisdiction over any one of the local areas within the territorial limits of
which any one of those five acts was done. There by the court stated that, as the
amplitude as regards the cases concerning the dishonour of cheques stands so widened
and so expansive it is an idle (redundant) exercise to raise jurisdictional questions
regarding the offence under Section 138 of the Negotiable Instruments Act, 1881.

2. Harman Electronics (P) Ltd. v. National Panasonic India (P) Ltd., (2009) 1 SCC
720: In this case, the appellant and the respondent-complainant entered into a business
transaction. The appellant was a resident of Chandigarh, and was carrying on business
at Chandigarh. The appellant issued a cheque from its office at Chandigarh in favour
of the respondent-complainant which eventually got dishonoured at Chandigarh; it is
to be noted that the respondent-complainant had a branch office at Chandigarh
although its head-office was at Delhi.
Post the dishonour of the cheque, the respondent-complainant issued a notice upon the
appellant from New Delhi asking it to make the payment of the sum due; the notice
was served upon the appellant at Chandigarh.
On failure on the part of the appellant to make the payment of the sum due within a
period of 15 days from the date of the communication of the notice, a complaint
petition was filed by the respondent-complainant at Delhi; cognizance of the offence
was taken against the appellant.
Questioning the jurisdiction of the Court of the Additional Session Judge, New Delhi,
an application was filed by the appellant, which was dismissed holding that the court
at Delhi had the jurisdiction to entertain the complaint as notice was sent by the
respondent-complainant to the appellant (accused person) from Delhi, and the

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respondent-complainant had its registered office at Delhi, and the respondent-
complainant was carrying out its business from Delhi.
A criminal miscellaneous petition was filed against the order of the Additional
Session Judge by the appellant in the High Court, the same was also dismissed.
Thereafter, an appeal was preferred to the Supreme Court of India by the appellant.
The Supreme Court of India observed that, the only question that arises for
consideration is whether sending of notice from Delhi itself would give rise to a cause
of action for taking cognizance under the Negotiable Instruments Act, 1881.
The Supreme Court held that, it is one thing to say that sending of a notice is one of
the ingredients for maintaining the complaint but it is another thing to say that
dishonour of a cheque by itself constitutes an offence. What would constitute an
offence is stated in the main provision. The proviso appended thereto, however,
imposes certain further conditions which are required to be fulfilled before
cognizance of the offence can be taken. If the ingredients for constitution of the
offence laid down in provisos (a), (b) and (c) appended to Section 138 of the
Negotiable Instruments Act, 1881 are intended to be applied as regards the accused,
there cannot be any doubt that receipt of a notice would ultimately give rise to the
cause of action for filing a complaint. As it is only on the receipt of the notice, that,
the accused at his own peril may refuse to pay the amount. Clause (b) and clause (c)
of the proviso to Section 138 of the Negotiable Instruments Act, 1881 therefore must
be read together. The issuance of notice would not by itself give rise to a cause of
action but communication of the notice would.
It was further observed that, a court derives jurisdiction only when the cause of action
arises within its jurisdiction. A distinction must be borne in mind between the
ingredient of an offence and commission of a part of the offence. While issuance of a
notice by the holder of a negotiable instrument is necessary, service thereof is
also imperative. Only on a service of such notice and failure on the part of the
accused to pay the demanded amount within a period of 15 days thereafter, the
commission of an offence completes. Giving of notice, therefore, cannot have any
precedence over the service.
Section 177 of the Code of Criminal Procedure, 1973 determines the jurisdiction of a
court trying the matter. The court ordinarily will have the jurisdiction only where the
offence has been committed. The provisions of Section 178 and Section 179 of the
Code of Criminal Procedure, 1973 are exceptions to Section 177 of the Code of
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 Criminal Procedure, 1973. The place where the offence has been committed plays
an important role. Generally speaking, offence under Section 138 of the Negotiable
Instruments Act, 1881 is governed by Section 177 of the Code of Criminal
Procedure, 1973, so far as the territorial aspect is concerned.
Principle that the debtor must seek the creditor cannot be applied in a criminal case.
Jurisdiction of the court to try a criminal case is governed by the provisions of the
Code of Criminal Procedure and not on common law principle. Thus, the Supreme
Court held that, the Delhi High Court had no jurisdiction to try the case; and
consequently, under Article 142 of the Constitution of India, 1950, the complaint case
in the Court of the Additional Session Judge, New Delhi, is to be transferred to the
Court of the District and Sessions Judge, Chandigarh, who was to assign the same to a
court of competent jurisdiction.
This case over-ruled the case of, K. Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7
SCC 510.
3. Adalat Prasad v. Rooplal Jindal & Ors, AIR 2004 SC 4674: In this case, the Hon’ble
Supreme Court of India considered the permissibility of recalling of the summons
under Section 203 of the Code of Criminal Procedure, 1973. Section 203 of the Code
of Criminal Procedure, 1973, as such deals with, “Dismissal of Complaint”. In this
case it was held that, recalling of summons by a Magistrate cannot be done in as much
as the summons are issued by a Magistrate only after satisfying himself of the
existence of sufficient grounds for taking cognizance of an offence (See: Section 204
of the Code of Criminal Procedure, 1973), and hence, a Magistrate having crossed the
stage of Section 203 of the Code of Criminal Procedure, 1973, he cannot recall the
summons issued by him. In view of this, the accused cannot seek review of the order
of the Magistrate as regards issuing of process is concerned; further, recalling the
order issuing process is impermissible in law, since the subordinate criminal courts
are neither vested with the powers to review the orders already passed by them, nor do
they have any inherent powers vested in them like the High Court and the Supreme
Court, respectively. The Supreme Court of India in this case further clarified that the
accused can move the jurisdiction of the High Court for invoking the powers available
under Section 482 of the Code of Criminal Procedure, 1973 to do what is just, proper
and expedient as regards a particular case. The earlier view rendered in, K.M. Mathew

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 v. State of Kerala3, AIR 1992 SC 2206, was over-ruled and the question as regards
whether the order issuing the process amounts to interim order or not was left open.
Note: (a) Order of Issuance of Process under Section 204 of the Code of Criminal
Procedure, 1973 is not an interlocutory order;
(b) Revision under Section 397 of the Code of Criminal Procedure, 1973 is
maintainable against an Order of Issuance of the Process under Section 204 of the
Code of Criminal Procedure, 1973;
(c) Remedy against the Order of Issuance of Process under Section 204 of the Code of
Criminal Procedure, 1973 also lies under Section 482 of the Code of Criminal
Procedure, 1973;
(d) A Magistrate cannot revoke his Order of Issuance of Process (Section 204 of the
Code of Criminal Procedure, 1973).
Note:
i. S.K. Bhalla v. State, 180 (2011) DLT 219: In this case it was held that,
Section 251 of the Code of Criminal Procedure, 1973 deals with the stage
subsequent to issue of process under Section 204 of the Code of Criminal
Procedure, 1973 in a summons trial case. Section 251 of the Code of Criminal
Procedure, 1973 casts a duty upon the Magistrate to state to the accused
person the particulars of offence allegedly committed by him and ask him
whether he pleads guilty. This can be done by the Magistrate only if the
charge-sheet/complaint/preliminary evidence recorded during enquiry
discloses commission of a punishable offence. It was further held that, if the
charge-sheet/complaint does not make out a triable offence, how can a
Magistrate state the particulars of non-existing offence for which the accused
is to be tried?
Therefore, the court held that, it is inherent in Section 251 of the Code of
Criminal Procedure, 1973 that when an accused appears before the trial court
pursuant to summons issued under Section 204 of the Code of Criminal
Procedure, 1973 in a summons trial case, it is bounden duty of the trial court
to carefully go through the allegations made in the charge-sheet/complaint and
consider the evidence in order to come to a conclusion whether or not,

3
In this case it was held that, a Magistrate can review his order of summoning, if the complaint, on the very face
of it, does not disclose any offence by the accused and for this (that is, for the review of the order of summoning
by the Magistrate) no specific provision in the Code of Criminal Procedure, 1973 is required, for the Magistrate
to drop the proceedings or rescind the process.

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 commission of any offence is disclosed, and if the answer is in the affirmative,
the Magistrate shall explain the substance of the accusation to the accused and
ask him whether he pleads guilty or not; otherwise, the Magistrate is bound to
discharge the accused.
ii. Interplay of Section 204, Section 251 and Section 239 of the Code of
Criminal Procedure, 1973:
Bhushan Kumar & Anr v. State (NCT of Delhi), AIR 2012 SC 1747: In this
case it was held that, it is inherent in Section 251 of the Code of Criminal
Procedure, 1973 that when an accused appears before the trial court pursuant
to summons issued under Section 204 of the Code of Criminal Procedure,
1973 in a summons trial case, it is the bounden duty of the trial court to
carefully go through the allegations in the charge-sheet/complaint and
consider the evidence to come to a conclusion whether or not, commission of
any offence is disclosed and if the answer is in the affirmative, the Magistrate
shall explain the substance of the accusation to the accused and ask him
whether he pleads guilty or not; otherwise, he is bound to discharge the
accused as per Section 239 of the Code of Criminal Procedure, 1973.
4. Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129: In this case,
the Supreme Court of India had the occasion to consider, whether the views expressed
by the Hon’ble Court in K. Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7 SCC
510, were sound or not, and whether complaints under Section 138 could be
maintained at a place other than the place where the drawee bank is situated?
Answering the question in the negative the Hon’ble Court held that an offence under
Section 138 is committed no sooner the cheque issued on an account maintained by
the drawer with a bank and representing discharge of debt or a liability in full or part
is dishonoured on the ground of insufficiency of funds or on the ground that the same
exceeds the arrangements made with the banker. Prosecution of the offender and
cognizance of the commission of the offence is, however, deferred by the proviso to
Section 138 till such time the complainant has the cause of action to institute such
proceedings. The Supreme Court of India in this case observed that, the proviso to
Section 138 of the Negotiable Instruments Act, 1881 does not constitute ingredients
of the offence punishable under Section 138 of the Negotiable Instruments Act, 1881.
Thus, the court, in nutshell, in this case observed as follows: (a). Once the cause of
action accrues to the complainant, the jurisdiction of the court to try the case will be

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 determined by reference to the place where the cheque is dishonoured; (b). Place of
issuance of statutory notice, or, place of deposit of cheque in a bank by payee, or,
place of receipt of notice (demanding payment) by accused, would not confer
jurisdiction upon courts of that place; what is important is whether drawee bank
which dishonoured the cheque is situated within the jurisdiction of the court taking
cognizance.
5. Vinay Kumar Shailendra v. Delhi High Court Legal Services Committee & Anr,
(2014) 10 SCC 708: In the case of, Delhi High Court Legal Services Committee v.
Government (NCT) of Delhi4, a Division Bench of the High Court of Delhi invoked its
jurisdiction under Article 226 of the Constitution of India, 1950 read with Section 482
of the Code of Criminal Procedure, 1973 and vide its judgment dated 23.09.2009
directed the return of all complaints filed under Section 138 of the Negotiable
Instruments Act, 1881 in which the Metropolitan Magistrates in Delhi had taken
cognizance only because the statutory notices in terms of proviso to Section 138 of
the Negotiable Instruments Act, 1881 had been issued to the drawers of the cheque
from Delhi.
The contention of the writ-petitioner (Delhi High Court Legal Services Committee)
before the Division Bench of the High Court was that the writ petition in the nature of
PIL (Public Interest Litigation) has been filed before it as a very large number of
complaints under Section 138 of the Negotiable Instruments Act, 1881 are pending in
the Courts of Metropolitan Magistrates in Delhi in which cognizance had been taken
despite the fact that the courts concerned had no authority to entertain them.
The Division Bench of the High Court of Delhi relying upon the decisions in Dwarka
Nath v. ITO5 and Air India Statutory Corporation v. United Labour Union6 held that
the Constitution did not place any fetters on the extraordinary jurisdiction exercisable
by the High Court in a situation where courts are flooded with complaints which they
had no jurisdiction to entertain. The High Court further held that a direction for return
of the complaints for presentation before the competent courts was in the
circumstances necessary, as Magistrates who had issued the summons were unable to
dismiss the complaints suo motu in the light of the decision of the Supreme Court of

4
(2009) 83 AIC 820 (Del)
5
AIR 1966 SC 81
6
(1997) 9 SCC 377

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 India in the case of, Adalat Prasad v. Rooplal Jindal7. The High Court allowed the
writ petition with the following directions:
“Consequently, in exercise of power under Article 226 of the Constitution read with
Section 482 of the Code of Criminal Procedure, we direct return to the complainants
for presentation in the court of competent jurisdiction all those criminal complaints
filed under Section 138 of the NI Act that are pending in courts of Metropolitan
Magistrates in Delhi in which cognizance has been taken by them without actually
having territorial jurisdiction.”
To assail the order of the Division Bench of the High Court of Delhi, appeal was
preferred before the Supreme Court of India (Civil Appeals No. 8468 of 2014 with
No.8469 of 2014) resulting in the adjudication of the present case. The Supreme
Court of India upholding the Division Bench judgment of the High Court of Delhi
held that, there is no hesitation in holding that the issue of a notice from Delhi or
deposit of the cheque in a Delhi Bank by the payee or receipt of the notice
(demanding the payment) by the accused in Delhi would not confer jurisdiction upon
the courts in Delhi; what is important is whether the drawee bank which dishonoured
the cheque is situated within the jurisdiction of the court taking cognizance. Thus, the
view taken in Dashrath (Supra) and Harman (Supra) were upheld in this case.

Note: Territorial Jurisdiction under the Negotiable Instruments (Amendment)

Act, 2015 (26 of 2015):
Section 142(2) of the Negotiable Instruments Act, 1881:
I. ‘A’ holds an account with Central Bank of India, New Delhi (South
Extension-II), issues a cheque payable at par in favour of ‘B’. ‘B’ holds an
account with the State Bank of India, Calcutta (Salt Lake), but deposits
the said cheque at Mumbai Branch (Fort, Mumbai Precinct) of the State
Bank of India, and the cheque is dishonoured.
The complaint will have to be filed before the court having local
jurisdiction over the area where State Bank of India, Calcutta (Salt Lake)
is situated.
II. ‘A’ holds an account with Central Bank of India, New Delhi (South
Extension-II), issues a cheque payable at par in favour of ‘B’. ‘B’ presents

7
(2004) 7 SCC 338

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 the said cheque at Central Bank of India, Calcutta (Salt Lake), but ‘B’
does not hold any account in any of the branches of Central Bank of
India, and the said cheque issued is dishonoured.
The complaint will have to be filed before the court having local
jurisdiction over the area where Central Bank of India, New Delhi (South
Extension-II) is situated.

Thus, when a cheque is delivered for collection through an account, the

complaint has to be filed before the court where the branch of the bank
where the payee (or holder in due course) maintains his account, is
situated; and, when a cheque is presented for payment over the counter,
then, the complaint is to be filed before the court where the drawer
maintains his account.

Section 142-A of the Negotiable Instruments Act, 1881:

I. All cases pending before any court, whether filed before it or transferred
to it, pending before 15.06.2015, shall be transferred to the court having
jurisdiction as per Section 142(2) of the Negotiable Instruments Act, 1881.
II. Once a complaint is filed by the payee (or the holder in due course)
against a drawer before the court having jurisdiction under Section
142(2) of the Negotiable Instruments Act, 1881, then, all further
complaints against such drawer will have to be filed before the same court
where the first complaint was filed, irrespective of whether those
subsequent cheques were presented for payment within the territorial
jurisdiction of that court.
III. If on 15.06.2015, there are more complaints than one under Section 138 of
the Negotiable Instruments Act, 1881 pending between the payee and the
same drawer in different courts, then all such complaints are be
transferred to the court having jurisdiction under Section 142(2) of the
Negotiable Instruments Act, 1881 and all subsequent complaints between
the parties (the payee and the same drawer) are be filed before the same
court.
6. Saket India Ltd. v. India Securities Ltd., AIR 1999 SC 1090: In this case it was held
that the limitation period of one month for filing the complaint under the Negotiable

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 Instruments Act, 1881 has to be reckoned from the day immediately following the day
on which the period of 15 days from the date of receipt of statutory notice by the
accused person expires.
Note: Following points of consideration as regards the Negotiable Instruments Act,
1881 (as amended in 2015) must be kept in mind:
i. The cheque ought to have been presented to the bank within a period of 3
(three) months from the date on which it is drawn or within the period of its
validity, whichever is earlier;
ii. The payee or the holder in due course of the cheque, as the case may be, ought
to make a demand for payment of the said amount of money by giving a notice
in writing, to the drawer of the cheque, within 30 days of the receipt of
information by him from the bank regarding the return of the cheque as
unpaid.
iii. If the drawer of the cheque fails to make the payment of the cheque-amount to
the payee or as the case may be, to the holder in due course of the cheque
within 15 days of the receipt of the statutory notice then complaint can be filed
against the drawer of the cheque by invoking the provisions of Section 138
read with Section 142 of the Negotiable Instruments Act, 1881.
iv. Complaint under Section 138 read with Section 142 of the Negotiable
Instruments Act, 1881 is to be filed within a period of one month of the date
on which the cause of action arises under clause (c) of the proviso to Section
138 of the Negotiable Instruments Act, 1881, provided, that the cognizance of
a complaint may be taken by the court after the prescribed period, if the
complainant satisfies the court that he had sufficient cause for not making the
complaint within such period.
7. Statutory Notice- Section 138 of the Negotiable Instruments Act, 1881
C.C. Alavi Haji v. Palapetty Muhammed, (2007) 7 SCR 326: In this case it was held
that, it is important to bear in mind that the requirement of giving notice is a clear
departure from the rule of criminal law where there is no stipulation of giving of a
notice before filing a complaint. Any drawer, who claims that he did not receive the
notice sent by post, can, within 15 days of the receipt of summons from the court in
respect of the complaint under Section 138 of the Negotiable Instruments Act, 1881,
make payment of the cheque amount and submit to the court that he had made

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 payment within 15 days of receipt of summons (by receiving a copy of complaint with
the summons) and, therefore, the complaint is liable to be rejected.
A person who does not pay within 15 days of receipt of summons from the court
along with the copy of the complaint under Section 138 of the Negotiable Instruments
Act, 1881, cannot obviously contend that there was no proper service of notice as
required under Section 138 of the Negotiable Instruments Act, 1881, by ignoring the
statutory presumption to the contrary under Section 27 (Meaning of service by post)
of the General Clauses Act, 1897 and Section 114 (Court may presume existence of
certain facts) of the Indian Evidence Act, 1872.
8. Issue regarding payment of a post-dated cheque being countermanded
(cancelled/revoked) before the date mentioned on the face of the cheque.
Goa Plast (P) Ltd. v. Chico Ursula D’Souza, (2003) 3 SCC 232: This case involved a
pure question of law as to the applicability of Section 138 of the Negotiable
Instruments Act, 1881 to a case in which a person issuing a post-dated cheque stops
its payment by issuing instructions to the drawee bank before the due date of
payment.
The Supreme Court held that, ordinarily, stop payment instruction is issued to the
bank by the account holder when there are no sufficient funds in the bank account of
the drawer. Once a cheque (including a post-dated cheque) is issued by a drawer,
then, presumption under Section 139 of the Negotiable Instruments Act, 1881 must
follow and merely because the drawer issued notice to the drawee-bank for “stopping
the payment” it will not preclude an action under Section 138 of the Negotiable
Instruments Act, 1881 by the payee or the holder of the cheque in due course.
The Hon’ble Supreme Court further observed that- if stoppage of payment before the
due date of the cheque is allowed to take the transaction out of the purview of Section
138, then it will shake the confidence which a cheque is otherwise intended to inspire
regarding payment being available on the due date.
9. Closing the bank account with the mala fide intention of not honouring the
liability/debt.
NEPC Micon Ltd. v. Magma Leasing Ltd, (1999) 4 SCC 253: In this case it was held
that, if after the issuance of the cheque the drawer closes the account it must be
presumed that the amount in the bank account was nil and hence, insufficient to meet
the demand of the cheque. It was further held by the Hon’ble Supreme Court of India
that the expression “amount of money is insufficient” appearing in Section 138 of the

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 Negotiable Instruments Act, 1881 is ‘genus’ of which all other reasons of dishonour,
for instance, “account closed”, “payment stopped”, “refer to the drawer” and the like
are only the ‘species’. Similarly, reasons such as “signature mismatch”, “illegible
signature”, “image not found” are also species of the genus and hence, liable to
action under Section 138 of the Negotiable Instruments Act, 1881.
10. Whether demand of “interest” along with the “cheque amount” in the statutory
notice under Section 138 of the Negotiable Instruments Act, 1881 would make
the statutory notice faulty?
Suman Sethi v. Ajay K. Churiwal, AIR 2000 SC 828: In this case it was held that, in
Section 138 of the Negotiable Instruments Act, 1881, the legislature has clearly stated
that for the dishonoured cheque the drawer shall be liable for conviction if the demand
is not met within 15 days of the receipt of the statutory notice but this is without
prejudice to any other provision of the 1881 Act. If the “cheque amount” is paid
within the above period (within 15 days of the receipt of the statutory notice) or
before the complaint is filed then the legal liability under Section 138 of the
Negotiable Instruments Act, 1881 will cease and for recovery of other demands
such as: compensation cost and interest, a civil proceeding will lie. Therefore, if in
the statutory notice any other sum is indicated in addition to the “cheque amount”,
then the statutory notice cannot be termed as faulty.
11. Section 139 of the Negotiable Instruments Act, 1881: Reverse Onus Clause
Rangappa v. Sri Mohan, (2010) 11 SCC 441: In this case it was held that, failure of
the drawer of the cheque to put up a “probable” defence for rebutting the presumption
that arises under Section 139 of the Negotiable Instruments Act, 1881 would justify
conviction even when the appellant drawer may have alleged that the cheque in
question had been lost and was being misused by the complainant. Further it was held
that, the provisions of Section 138 of the Negotiable Instruments Act, 1881 can be
attracted when a cheque is dishonoured due to “stop payment” instructions sent by the
accused (drawer of the cheque) to his bank in respect of a post-dated cheque,
irrespective of insufficiency of funds.
The court also held that, Section 139 of the Negotiable Instruments Act, 1881 is an
example of a “reverse onus clause”. Section 139 of the Negotiable Instruments Act,
1881, states that, when a cheque is dishonoured, it shall be presumed that the holder
had received the cheque in discharge of any legally enforceable debt or other liability.

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 The drawer may rebut the presumption by proving to the contrary. Section 139 is a
device to prevent undue delay in the course of litigation.
As regards Section 139 of the Negotiable Instruments Act, 1881 following points of
relevance may be noted:
a. When an accused has to rebut the presumption under Section 139 of the
Negotiable Instruments Act, 1881, the standard of proof for doing so is
“preponderance of probabilities”.
b. If the accused is able to establish a probable defence which creates doubt about
the existence of a legally enforceable debt or liability, the prosecution can fail.
c. The accused can rely on the materials submitted by the complainant in order to
raise such a defence which establishes that the cheques were issued by the accused
(drawer) to the payee, not in discharge of any legally enforceable debt or other
liability but for any other purpose (for example: issuance of security cheques).
d. If the accused (or the drawer) of a cheque neither raises a probable defence nor
ably contests the existence of a legally enforceable debt or other liability, then,
obviously the statutory presumption under Section 139 of the Negotiable
Instruments Act, 1881 regarding commission of the offence would stand fortified.
12. Whether handwritten notice would constitute a valid notice under the provisions
of Section 138 of the Negotiable Instruments Act, 1881?
Pawan Kumar Ralli v. Maninder Singh Narula, AIR 2014 SC 3512: In this case it
was held that a handwritten notice would constitute a valid statutory notice provided it
complies with the mandate of Section 138 of the Negotiable Instruments Act, 1881.
If the handwritten notice was issued within the mandatory period of 30-days of the
dishonour of cheque; details of the transaction ensuing between the drawer and the
payee in regards to which cheque was issued by the drawer in favour of the payee are
mentioned in the handwritten notice; details of the dishonoured cheque i.e. cheque
number, date of issuance of the dishonoured cheque along with particulars of the
drawee-bank are mentioned in the handwritten notice; reason for return of the cheque
as unpaid (“amount insufficient”, ”refer to drawer”, “stop payment”, “signatures don’t
match”) is mentioned in the handwritten notice; and lastly, if demand for immediate
repayment and a caution to initiate legal proceedings on failure to make payment was
mentioned; then the handwritten notice can be said to be a valid statutory notice
complying with the mandatory requirements of Section 138 of the Negotiable
Instruments Act, 1881.

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 Note: In the case of, Central Bank of India & Anr. v. Saxons Farms & Ors., (1999)
8 SCC 221, it was held that though no form of notice is prescribed in clause (b) of
Section 138 of the Negotiable Instruments Act, 1881, the requirement is that the
notice should be given in writing within 15-days (now, 30-days) of receipt of
information from the bank regarding return of the cheque as unpaid and in the notice a
demand for payment of the amount of the cheque has to be made.
13. Co-extensive liability of guarantor and principal debtor:
ICDS Ltd. v. Beena Shabeer, (2002) 6 SCC 426: In this case it was held that, the
words “any cheque” and “other liability” occurring in Section 138 of the Negotiable
Instruments Act, 1881 are the two key expressions which leave no manner of doubt
that for whatever reasons it may be, the liability under Section 138 of the Negotiable
Instruments Act, 1881 cannot be avoided in the event the cheques stand returned by
the banker as unpaid and any contra interpretation would defeat the intent of the
legislation (i.e. the Negotiable Instruments Act, 1881). The issue as regards the co-
extensive liability of the guarantor or the principal debtor is totally outside the
purview of Section 138 of the Negotiable Instruments Act, 1881.
If cheque issued by the guarantor in discharge of legally enforceable debt or other
liability of the principal debtor and the cheque gets dishonoured then proceedings
under Section 138 of the Negotiable Instruments Act, 1881 can be instituted/
preferred against the guarantor so issuing the cheque in discharge of liability of the
principal debtor.
14. Directions with respect to summary trial as regards proceedings under Section
138 of the Negotiable Instruments Act, 1881:
Indian Bank Association v. Union of India, (2014) 5 SCC 590: In this case a petition
was filed by the Indian Bank Association in the Hon’ble Supreme Court of India
praying for issuance of directions on a PAN (Presence Across Nation) India basis so
that the huge amount of public funds blocked in matters pertaining to Section 138 of
the Negotiable Instruments Act, 1881 can be recovered as expeditiously as possible.
Taking note of the gravity of the situation the following directions were issued by the
Apex Court:
i. The Metropolitan Magistrates or Judicial Magistrates (First Class) shall
scrutinize the complaint, the affidavit of the complainant and all other relevant
documents filed with the compliant on the day the matter (complaint) under
Section 138 of the Negotiable Instruments Act, 1881 gets listed before the

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 learned Metropolitan Magistrate or Judicial Magistrate (First Class), and upon
the satisfaction that complaint under Section 138 of the Negotiable
Instruments Act, 1881 is made out, the learned Metropolitan Magistrate or
Judicial Magistrate (First Class) shall direct for the issuance of summons.
ii. The Metropolitan Magistrates or Judicial Magistrates (First Class) must adopt
an approach that is reasonable, plausible and realistic and must not delve into
technicalities while dealing with the matters pertaining to Section 138 of the
Negotiable Instruments Act, 1881. The learned Metropolitan Magistrates or
Judicial Magistrates (First Class) must order for issuance of summons to the
accused person (i.e. drawer), properly addressed, by all means i.e. by speed-
post, courier, registered post acknowledgement due, electronic mail, and in
appropriate cases assistance from police officials can also be taken; and if the
summons return as un-served then immediately follow up action must be
taken.
iii. The courts must indicate in the summons itself that the accused person (i.e.
drawer) can make an application for compounding of the offence on the first
hearing itself.
iv. If the accused person (i.e. drawer) appears before the court then the
Metropolitan Magistrates or Judicial Magistrates (First Class) must ask him to
furnish bail-bond to ensure his appearance during trial and also ask him to take
notice under Section 251 of the Code of Criminal Procedure, 1973 and enter
his plea of defence and fix the case for defence evidence, unless an application
is made by the accused person (i.e. drawer) under Section 145(2) of the
Negotiable Instruments Act, 1881 for recalling the witnesses of the
complainant for cross-examination on plea of defence.
v. If there is an application under Section 145(2) of the Negotiable Instruments
Act, 1881 for recalling a witness of complainant, the court shall decide the
same, otherwise, it shall proceed to take defence-evidence on record and allow
cross-examination of defence witnesses by complainant.
vi. The court i.e. the learned Metropolitan Magistrate or Judicial Magistrate (First
Class) must ensure that the examination-in-chief, cross-examination and re-
examination of the complainant must be conducted within 3 (three) months
from the date of listing of the case before the learned Metropolitan Magistrate
or Judicial Magistrate (First Class).

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 vii. The learned Metropolitan Magistrate or Judicial Magistrate (First Class) must
allow the witnesses to depose before the court by way of an affidavit instead
of their examination taking place in the court itself; however, the court is also
duty-bound to instruct and direct the witnesses to the complaint and the
accused person (i.e. drawer) to be present in court as and when called for
cross-examination by the other party.

(Also see: Rajesh Agarwal v. State & Anr., Crl. M.C. No. 1996/2010 & Crl. M.A. No.
7672/2010, High Court of Delhi, Date of Decision: 28.07.2010, Coram: Justice Shiv
Narayan Dhingra)

Note: Section 145 of the Negotiable Instruments Act, 1881: Evidence on

Affidavit:

Section 145(2) of the Negotiable Instruments Act, 1881: “The Court may, if it thinks
fit, and shall, on application of the prosecution or the accused, summon and examine
any person giving evidence on affidavit as to the facts contained therein.”

Section 251 of the Code of Criminal Procedure, 1973: Substance of accusation to

be stated:

“When in a summons-case the accused appears or is brought before the Magistrate,

the particulars of the offence of which he is accused shall be stated to him, and he
shall be asked whether he pleads guilty or has any defence to make, but it shall not be
necessary to frame a formal charge.”

15. If the cheque gets dishonoured because the signature on the face of the cheque do
not match with that of the signature of the drawer, then, can the provisions of
Section 138 of the Negotiable Instruments Act, 1881 be attracted?
M/s. Laxmi Dyechem v. State of Gujarat, MANU/SC/1030/2012: In this case the
Hon’ble Supreme Court of India held that in case the cheque gets dishonoured
because of the fact that the signature on the face of the cheque does not match with
the signature of the drawer then a case can be made out by the payee against the
drawer of the cheque under Section 138 of the Negotiable Instruments Act, 1881.
16. Can directors of a company alone be prosecuted without making the company as
one of the accused in an offence under Section 138 of the Negotiable Instruments
Act, 1881?

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 Aneeta Hada v. Godfather Travels & Tours (P) Ltd, (2012) 5 SCC 661: In this case
it was held that, criminal liability on account of dishonour of cheque primarily falls on
the drawer-company and extends to its officers only when conditions incorporated
under Section 141 (Offences by Companies) of the Negotiable Instruments Act, 1881
stand satisfied. The Hon’ble Court explaining the import of the words “as well as the
company” occurring in Section 141 of the Negotiable Instruments Act, 1881 held that
for maintaining prosecution under Section 141 of the Negotiable Instruments Act,
1881, arraigning of the company as accused is imperative.
Note: In the case of, State of Madras v. C.V. Parekh & Anr, (1970) 3 SCC 491, it
was held that, without suing the company, its directors cannot be prosecuted.
17. Second or successive statutory notice can also form basis of proceedings under
Section 138 of the Negotiable Instruments Act, 1881.
Whether the payee or holder of a cheque can initiate prosecution for an offence
under Section 138 of the Negotiable Instruments Act, 1881 for its dishonour for
second time, if he had not initiated any action on the earlier cause of action?
Sadanandan Bhadran v. Madhavan Sunil Kumar, (1998) 6 SCC 514- Overruled
MSR Leathers v. S. Palaniappan & Anr, (2013) 1 SCC 177: In this case it was held
as follows:
a. Neither Section 138 nor Section 142 or any other provision contained in the
Negotiable Instruments Act, 1881 forbids the holder or payee of the cheque from
presenting the cheque for encashment on any number of occasions within a period
of six (now, three) months of its issue or within the period of its validity,
whichever is earlier.
b. It is true that dishonour of cheque can be made the basis for prosecution of the
offender but once, but that is far from saying that the holder of the cheque does
not have the discretion to choose out of several such defaults, one default, on
which to launch such a prosecution. The omission or the failure of the holder to
institute prosecution does not, therefore, give any immunity to the drawer so long
as the cheque is dishonoured within its validity period and the conditions
precedent for prosecution in terms of the proviso to Section 138 of the Negotiable
Instruments Act, 1881 are satisfied.
c. Prosecution based on a second or successive default in payment of the cheque
amount should not be impermissible simply because no prosecution based on the

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 first default which was followed by a statutory notice and failure to pay had not
been launched.
d. There is no real or qualitative difference between a case where default is
committed and prosecution immediately launched and another where the
prosecution is deferred till the cheque presented again gets dishonoured for the
second or successive time.
18. Punishment & Compounding of Offences- Dishonour of Cheque- Section 138
read with Section 147 of the Negotiable Instruments Act, 1881:
Damodar S. Prabhu v. Sayed Babalal H., 2010 (5) SCC 663: In this case it was held
as follows:
a. Under Section 138 of the Negotiable Instruments Act, 1881, while the possibility
of imprisonment up to 2 (two) years of the drawer of the dishonoured cheque
provides a remedy (to the payee of a cheque) of a punitive nature, the provision
for imposing a fine which may extend to twice the amount of the cheque serves a
compensatory purpose.
b. What must be remembered is that, dishonour of a cheque can at best be described
as a regulatory offence that has been created to serve public interest by ensuring
reliability of negotiable instruments in the form of cheques. The impact of this
offence is usually confined to the private parties involved in commercial
transactions.
c. In view of the non-obstante clause contained in Section 147 of the Negotiable
Instruments Act, 1881, the compounding of offences under the 1881 Act is
controlled by Section 147 only, and, the scheme contemplated under Section 320
of the Code of Criminal Procedure, 1973 is not applicable in strict sense of the
term, since, the Code of Criminal Procedure, 1973 is meant only for specified
offences under the Indian Penal Code, 1860.
d. If the accused does not make an application for compounding under Section 147
of the Negotiable Instruments Act, 1881, at the initial stage itself, and if an
application is preferred before the Magistrate at a subsequent stage, then,
compounding can be allowed subject to the condition that the accused will be
made to pay 10% of the cheque amount as costs, to be deposited with the Legal
Services Authority, or such authority as the court deems fit.
e. If application for compounding is made before the Sessions Court or the High
Court in revision or appeal, then, such compounding shall be allowed on the

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 condition that the accused be made to pay 15% of the cheque amount by way of
costs. If the application for compounding is preferred before the Supreme Court,
then, the accused will be made to pay 20% of the cheque amount by way of costs.
19. There is no requirement of issuance of individual statutory notices by the
payee/complainant to the directors of the company for dishonour of a cheque
drawn on behalf of the company by the directors of the company as authorised
representatives of the company vide a bank account maintained in the name of
the company.
Kirshna Texport & Capital Markets Ltd. v. Ila A. Agarwal & Ors, Criminal Appeal
No. 1220 of 2009, Supreme Court of India, Date of Decision: 06.05.2015:
In this case it was held that, Section 141 of the Negotiable Instruments Act, 1881
states that if the person committing an offence under Section 138 of the Negotiable
Instruments Act, 1881 is a company, then, every director of such company who was
in-charge of the affairs of the company and was responsible to that company for
conduct of its business shall be deemed to be guilty. The reason for creating this
vicarious liability is plainly that a juristic entity (that is, a company) is run by living
individuals who are in-charge of its affairs and who guide the actions of that company
and that if such juristic entity is guilty, then, those who were so responsible for its
affairs and who guided actions of such juristic entity must be held responsible and
ought to be proceeded against.
Section 141 of the Negotiable Instruments Act, 1881 does not lay down any
requirement that in case of dishonour of the cheque issued by a company through its
authorised representatives (directors), the directors must be individually be issued
statutory notices as contemplated under Section 138 of the Negotiable Instruments
Act, 1881. The individuals who are in-charge of the affairs of the company and
running of its business must naturally be aware of the notice of demand under Section
138 of the Negotiable Instruments Act, 1881 issued to such company.
Section 138 of the Negotiable Instruments Act, 1881 does not admit of any necessity
for reading into it the requirement that the directors of a company issuing cheques for
and on behalf of the company vide the bank account maintained in the name of the
company must also be issued individual notices under Section 138 of the Negotiable
Instruments Act, 1881.
20. Director of the company, drawing a cheque in his personal capacity to make
payment of the amount due on behalf of the company, can be held liable under
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 Section 138 of the Negotiable Instruments Act, 1881, in case the cheque drawn by
him gets dishonoured.
Mainuddin Abdul Sattar Shaikh v. Vijay D. Salvi, (2015) 9 SCC 622: In the year
1999, the appellant had booked a flat at Khargar Project proposed to be developed by
M/s. Salvi Infrastructure (P) Ltd. through the respondent-accused by paying him Rs.
74,200/-. In acknowledgment of the said amount, the respondent-accused issued two
receipts to the appellant for a sum of Rs. 59,000/- and Rs. 14,200/- respectively.
By the year 2003, as alleged by the appellant, the aforesaid project of the respondent
did not materialise. After much persuasion, the respondent-accused drew cheque no.
075073 for Rs. 74,200/- in favour of the appellant, of an account maintained by him
with his banker towards refund of the aforesaid booking amount.
The cheque was drawn by the respondent-accused in his individual capacity and not
in the capacity as a Director of M/s. Salvi Infrastructure (P) Ltd. or as proprietor of
Salvi Builders and Developers.
When the appellant presented the said cheque on 01.08.2003 to his bank for
realisation, the same was returned unpaid. A complaint was filed by the appellant
under Section 138 of the Negotiable Instruments Act, 1881. The respondent-accused
however was acquitted by the courts below on the following two grounds
respectively: (1) that, the company (M/s. Salvi Infrastructure (P) Ltd.) was not made
the accused and instead the respondent was made the accused in his personal capacity;
and, (2) that, it was not proved that the respondent was the person liable to make the
payment for and on behalf of M/s. Salvi Infrastructure (P) Ltd.
The Hon’ble Supreme Court of India held that, from bare perusal of Section 138 of
the Negotiable Instruments Act, 1881, it can be made out that the person, who draws a
cheque on an account maintained by him for paying the payee/holder in due course,
alone can be subjected to the liability he (the drawer) exposes himself to. Section 138
of the Negotiable Instruments Act, 1881 makes the drawer liable and no other person.
In the present case, the drawer of the cheque was the respondent-accused, who had
drawn the cheque bearing no. 075073 for Rs. 74,200/- on a bank account maintained
by him towards the refund of the booking amount, therefore, respondent-accused
being the drawer of the cheque was rightly convicted under Section 138 of the
Negotiable Instruments Act, 1881.
21. Complaint filed in the name and on behalf of the company by its employee
without necessary authorization is maintainable.
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 M.M.T.C. Ltd. v. M/s. Medchl Chemicals & Pharma (P) Ltd., (2002) 1 SCC 234: In
this case it was held that the only eligibility criteria prescribed by Section 142 of the
Negotiable Instruments Act, 1881 for maintaining a complaint under Section 138 of
the Negotiable Instruments Act, 1881 is that the complaint must be by the payee or by
the holder in due course. This criterion shall stand satisfied if the complaint is in the
name of and on behalf of the complainant-company, although it is filed by an
employee not necessarily authorised to do so, for the defect as regards the
incompetency of the employee to file the complaint on behalf of the company is a
curable defect and by reason of such defect alone the complaint should not be
quashed.

Calculation of the date of maturity of a Bill-of-Exchange:

A bill-of-exchange is a negotiable instrument payable otherwise than on demand and is

entitled to 3 (three) days of grace.

A bill-of-exchange was drawn on 01.06.2005, it was payable after 120 days. Calculate the
date of maturity of the bill-of-exchange?

The date on which the bill-of-exchange was drawn shall be excluded. Now, the calculation:

Month of June: 29 days;

Month of July: 31 days;
Month of August: 31 days;
Month of September: 30 days.

120th day will be on: 29.09.2005; after adding 3 (three) days of grace, the date will be:
02.10.2005. But, 02.10.2005 is a public holiday, so, the date of maturity will be 01.10.2005.

Note: If the date on which the bill-of-exchange matures is a public holiday which was known
then the date of maturity will be one day prior to the date on which the bill-of-exchange
matures; however, if the date on which the bill-of-exchange matures is a public holiday,
which was unforeseen (emergency) then the date of maturity will not be the preceding date
but will be the succeeding date.

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*Authored by: Shivam Goel, B.Com (H), LL.B. (Delhi University), LL.M. (NUJS);
Author of: Corporate Manslaughter and Corporate Homicide: Scope for a New Legislation
in India, Penguin-Partridge, Bloomington, 2015; and Concept of Rights in Islam, Lambert
Publication, Germany, 2014.
Associate, S.G. & Co. (New Delhi); advocate.shivamgoel@gmail.com

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