NEAOTIABRUE INSTROWERITY ACT 8 DISHONOUR OF CHEQUES | ‘The Negotiable Instruments Act, 1881 was amended by Banking, Public Financial Institutions and ” ‘Negotiable Instruments Law (Amendment) Act, 1988 by which anew Chapter XVII was incorporated for penalties in case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the ‘cheque. The provisions incorporated were found deficient in dealing with dishonour of cheques. Punishment provided was inadequate and procedure was encumbersome. The Negotiable Instruments (Amendment and Miscellaneous Provisions) Act of 2002 has plugged the deficiencies to a larger extent. Amendment Act of 2000 came into effect from 06.02.2003. DISHONOUR OF CHEQUE FOR INSUFFICIENCY, ETC., OF FUNDS IN THE ACCOUNT: Where any cheque drawn by a person 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 the discharge, in whole or in pact, of any debt, or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount ~ arranged to be paid from that account by an agreement made with that bank, such person shall be deemed’ to have committed an offence and shall be punished with imprisonment for a term which may extend to ‘wo years. or with fine which may extend to twice the amount of the cheque, or with both (Sec.138). Thus, the cheque should be drawn by a person on an account maintained by him with the banker. ‘The payment to another person shall be for the discharge of any debt or liability, in whole or in part. The debt or the other liability must be a legally enforceable debt or other liability. It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque for the discharge, in whole or in att, of any debt or other liability (Sec.139). Such a cheque should be returned by the bank unpaid. Presumption of dishonour: The Court shall, 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 (Sec. 146). Accused has to prove by congent evidence that “= there was no debt or liability (K. N. Beena v, Munniyappan - (2001) 8 SCC 458). In Maruti Udyog Ltd v. Narrender- 1999 (1) SCC 113, itisheld by Supreme Court that presumption mustbe drawn that holder of the cheque received the cheque for the discharge of any debt or other liability, unless the contrary is proved. é In Rakesh Nemkumar Porwal v. Narayan Dhondu Joglekar - 1993 (1) ML¥ 630, it has been held by the Division Bench of the Bombay High Court that offence under section 138 is committed only when Shes Scanned with CamScannerpishonour of Cheques a ment is not made by drawer on expiry of 15 days after servi under which the cheque is dishonoured are ta be totally ignored, ‘A correct understanding of the terminology of ‘dishonour, etc," implies the concept of inability to obtain payment, Retumn of cheque is itself an indication that the funds are not forthcoming, Therefore, the cheque dishonoured for any purpose constitutes an offence under section 138, In the case of K.K. Sidarthan v. TP. Praveena Chandran and Anr, being Criminal Appeal No. 1774 of 1996 decided on 08.10.1996, the ‘Supreme Court of India has held thateven jfcheque is dishonoured because of “stop payment” instructions to bank, section 138 would be attracted, 7 Presentation of the Winding-up Petition would not disentitle the creditor payee fromlegally enforcing, the debt or other liabilities under Sec.138. Failure to pay the cheque amount for whatever reason renders the drawer of the cheque liable for penal action. Company is not prohibited from making payment of cheque during the interregnum between presentation of Petition for and issuance of order of winding-up (Pankaj Mehra v. State of Maharashtra & Ors. - (2000) 2 SCC 756). When the cheque is dishonoured due to insufficient funds, the plea that the signature of the accused ‘was forged cannot be raised [L.C. Goyal v. Suresh Joshi - 1999 (3) SCC 376]. Dishonour of cheque because of incomplete signature of drawer does not attract Sec.138 (Vinod Tanna v. Zaher Siddiqui & 1s. = (2002)7 SCC.541), Thereisno bar against voluntary revalidation of anegotiable instrument (including, acheque) by the drawer after the expiry of its validity period (Veera Exports v. T, Kalavathy (2002) 1 SCC 97). Conditions: Before the person is made liable, the following conditions should be fulfilled: (@) the cheque must be presented to the Bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. In case of the post dated cheque, the limitation period of six months is reckoned from the date shown on the face of such cheque and not from the date on which it was drawn (Anil Kumar Sawhney v. Gulshan Rai - (1993) 4 SCC 424)]. Cheque must be presented to the drawee bank within the statutory period which is computed from the date which is written-on the cheque (Shri Ishar Alloy Steels Ltd. v. Jayaswals New Ltd. (2001) 3 SCC 609). Cause of action to file complaint on non-payment despite issue of the notice, arises only once. Another cause of action would not arise onrepeated dishonour or representation. Payee is free to present the cheque repeatedly within its validity period but once notice has been issued and paymentis not received within 15 days of the receipt ofthe notice, payee has to avail the very cause of action arising thereupon and file the complaint (Sadanand Bhadran v. Madhavan Sunil Kumar - 1998 (6) SCC 514). In case notice is not given to the drawer within statutory period, payee can again present the cheque within the permitted period and dishonour of the cheque at this stage would create a cause of action for filing a complaint (Uniples India Lid v, State (Govt. of MCT of Dethi) and Anr. - (2001) 6 SCC 8) [Sec. 138 Proviso (a)). (i) the payee or the holder in due course of the cheque, amount of money by giving a notice in writing to the the receipt of information by him from the bank regar In Criminal Petition No.903 of 1993 (unreported judgement of Bombay High Court on 27.10.1993, ithas been held that merely because interestis demanded, neither the notice is invalid nor the criminal proceedings are illegal. A notice calling upon the of notice and that the circumstances honour implies insufficiency of fands. makes a demand for the payment of the said drawer of the cheque, within 30 days of ding the return of thé cheque as unpaid. ) delivered by Justice P.S. Patankar Scanned with CamScanner312 Business Lay drawer to make payment of arrears of all the cheques covered by the complaint isa valid notice (1992) Banking Law Cases 242 Mad). If besides stating the cheque amount, other claims such as interest, damages and other charges are also mentioned separately in the notice, it will not be treated as bad notice (Suman Sethi v. Ajay K, Churiwal - 2000 (2) SCC 380). A notice duly 3 directed and sent by,post isa valid notice. Miscarriage in post will not render the notice invalid (Mahadevan Sunil Kumar & Anr. v. Bhadran & Ors. - 1992 (74) Comp. Cas. 805-Ker), Sending notice by fax is permissible (STL import, USA v. Exim Aides Silk Exporters, Bangalore - 1999 a sufficient notice to the Company (Bilakchand Gyanchand Co. v. A. Chinnaswami - 1999 (5) SCC 693). Notice of dishonour of cheque served on Director concerned of drawer company y, Amit J. Bhalla - (2001) 1 SCC 631). No form of notice is prescribed. Notice must be in writing, must be given within 30 days of receipt of information regarding return of cheque | ‘unpaid; and a demand for payment of the amount of the cheque be made in the notice. Service 4 ‘of such a notice is condition precedent for filing a complaint (Central Bank of India v. Saxons 4 Farms - 1999 (8) SCC 221). Notice should not be deemed to have been served as a matter of ‘course (Sridhar M.A. v. Metalloy N. Steel Corpn -2000 (1) SCC.397). Where notice was served = by registered envelope returned with endorsement ‘not found’, itis held that presumption of | deemed service can be drawn (A. Sathyanaraya v. C. Nagaraj- 2000 (4) All MR Journal) 15.“ Kar (HC). [Sec.138 Proviso (b)]. Supreme Courtin the case of V. Raja Kumari. P. Subbarama‘ 4 Naidu & Anr. (2004) 8 SCC 774, has held that the question whether notice as required under. 4 section 138 of the Negotiable Instruments Act, 1881 has been served, has to be decided during (ii) the drawer of such cheque fails to make the payment of the said amount of money to the payee, or to the holder in due course of the cheque, within 15 days of the receipt of the said notice; [Section 138 Proviso (c)]. (iv) the payee orholderin due course shall filea complaintin writing before a Metropolitan Magistrate or a Judicial Magistrate of the First Class within one month of the expiry of 15 days of the receipt of the notice by the drawer and his failure to pay within the said period (Sec.142). In ‘computing one month limitation period, the date from which the limitation period is to be ‘computed has to be excluded (Saketh India Ltd. v. India Securities Ltd - 1999 (3) SCC 1), Cause. of action under Sec.138 accrues not on giving a notice but on receipt thereof by the drawer (Dalmia Cement (Bharat) Ltd. v. Galaxy Traders & Agencies Ltd. - (2001) 6 SCC 463). Notice which is issued to drawer though beyond limitation from the date of dishonour, was within imitation from the date of receipt of information thereof from the bank. Complaint is maintainable on such a notice (Munath Investments Ltd. v. Puttukola Properties Ltd, & Anr. - (2001) 6 SCC 582). The ‘cognizance of a complaint may be taken by the Court after the prescribed period, if the complain satisfies the Court that he had sufficient cause for not making a complaint within such period. No Court inferior to that of Metropolitan Magistrate or a Judicial Magistrate of the first class shall tty any offence punishable under Sec. 138. 3 There is no minimum time limit for filing the complaint. Where the complaintis filed before arising of the cause of action, Supreme Court has held taking of cognizance be postponed till the arising of causé 4 ‘faction instead of dismissing the complaint, Where the accused paid principal sum and interest subsequet Scanned with CamScanner