Dishonour of Cheque Sec 138 of NI ACT

8/11/2019 Dishonour of Cheque Sec 138 of NI ACT

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Dishonour of Cheque Section 138 of the

Negotiable instruments Act

This article on Dishonour of Cheque Section 138 of theNegotiable instrumentsAct gives a

comprehensive overview about all aspects of cheque bouncing and Cheque Dishonour as per laws in

India

Page Contents [hide]

WHAT IS A CHEQUE?

E-CHEQUE

SECTION 138 NEGOTIABLE INSTRUMENTS ACT 1881

INGREDIENTS OF OFFENCE UNDER SECTION 138

GROUNDS FOR DISHONOUR OF CHEQUE

OTHER NOTABLE ASPECTS OF OFFENCE UNDER 138 N.I. Act

o COMPLAINTS AGAINST A COMPANY:

o COMPLAINT AGAINST PARTNERS

o DEBT OR LIABILITY

COMPLAINT UNDER 138 CAN BE FILED BY PLEADER / POWER OF ATTORNEY HOLDER

DEATH OF ORIGINAL COMPLAINANT

DEATH OF ACCUSED

SUCCESSIVE PRESENTATION OF CHEQUES

SETTLEMENT DURING TRIAL

EXAMINATION OF COMPLAINANT ON OATH

POST DATED CHEQUE

COMPLAINT AGAINST PARTNERS

DEMAND NOTICE

BLANK CHEQUE

PRESUMPTION UNDER SECTION 139 NI ACT

WHAT IS A CHEQUE?Section 6 ofNegotiable Instruments Act defines cheque as :

6. Cheque.-A cheque is abill of exchangedrawn on a specified banker and not expressed to

be payable otherwise than on demand and it includes the electronic image of a truncated cheque

and a cheque in the electronic form. Explanation I.-For the purposes of this section, the

expressions-
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(a) a cheque in the electronic form means a cheque which contains the exact mirror image of

a paper cheque, and is generated, written and signed in a secure systemensuring the minimum

safety standards with the use of digital signature (with or without biometrics signature) and

asymmetric crypto system;

(b) a truncated cheque means a cheque which is truncated during the course of a clearing

cycle, either by the clearing houseor by the bank whether paying or receiving payment,

immediately on generation of an electronic image for transmission, substitu ing the further

physical movement of the cheque in writing.

Explanation II.-For the purposes of this section, the expression clearing house means the

clearing house managed by the Reserve Bank of India or a clearing house recognised as such by the

Reserve Bank of India..

E-CHEQUEElectronic cheque (e-cheque) is the image of a normal paper cheque generated, written and signed

in a secure system using digital signatureand asymmetric crypto system. Simply said an electronic

cheque is nothing more than an ordinary cheque produced on a computer system and instead of

signing it in ink, it is signed using the digital equivalent of ink. After the coming into force of

TheNegotiable Instruments (Amendment And Miscellaneous Provisions) Act, 2002, legal

recognition has been accorded to e-cheques and they have been brought at par with the normal

cheques. Now, a cheque includes an e-cheque.

SECTION 138 NEGOTIABLE INSTRUMENTS ACT

1881Section 138Negotiable Instruments Act as it is at present after coming into force of TheNegotiable

Instruments (Amendment And Miscellaneous Provisions) Act, 2002:

138. 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 part, 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 chequeor 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, without

prejudice. to any other provision of this Act, be punished with imprisonment for a term which may

extend to two years, or with fine which may extend to twice the amount of the cheque, or with

both:
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Provided that nothing contained in this section shall apply unless-

(a) the cheque has been, 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;

(b) the payee or the holder in due course. of the cheque as the case may be, makes a demand

for the payment of the said amount of money by giving a notice, in writing, to

the drawer of the cheque, within thirty days of the receipt of information by him from the bank

regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the

payee or, as the case may be, to the holder in due course of the cheque, within

fifteen days of the receipt of the said notice.

Explanation.-For the purposes of this section, debt or other liability means a legally

enforceable debt or other liability.

INGREDIENTS OF OFFENCE UNDER SECTION 1381. The cheque should have been issued for the discharge , in whole or part, of any debt or other

liability

2. The cheque should have been presented within a period of six months or within its validity

period whichever is earlier.

3. The payee or holder in due course should have issued a notice in writing to the drawer within

30 days of the receipt of information by him from the Bank regarding the return of the cheque

as unpaid.

4. After receipt of the said notice from the holder in due course, the drawer should have failed to

pay the cheque within 15 days of receipt of the said notice.

GROUNDS FOR DISHONOUR OF CHEQUEFunds Insufficient :

Section 138 describes the above ground of insufficient funds in the account of the drawer of the

cheque in the following words:

The amount of money standing to the credit of the account of the drawer on which the cheque is

drawn is insufficient to honour the cheque, or

1. The cheque amount exceeds the amount that can be paid by the bank under an arrangement

entered into between the bank and the drawer of the cheque.


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However, besides the above, the Courts have also accepted some other heads which though expressly

do not say insufficient funds but are implied to mean the same and a cheque dishonoured on any of

these grounds can be used for the purpose of prosecution under section 138 Negotiable Instruments

Act. Some of theses grounds are:

1. Account Closed: It is an offence under section 138 of the Act Closure of account would be

an eventuality after the entire amount in the account is withdrawn It means that there was no

amount in the credit of that account on the relevant date when the cheque was presented for

honouring the same

This has been held by the Honble Supreme Court of India in-

NEPS MICON LTD. AND OTHERS VS. MAGMA LEASING LTD.

1999 ISJ (BANKING) 0433; 1999 (1) APEX C.J. 0624; 1999 AIR (SCW) 1637

2. Stop Payment instructions:

Once the cheque has been drawn and issued to the payee and the payee has presented the cheque,

stop payment instructions will amount to dishonour of cheque.

MAHENDR S. DADIA VS. STATE OF MAHARASHTRA

I (1999) BANKING CASES (BC) 133 (17/03/1998)

3. Refer to drawer:

.. makesout a case under section 138 of the Negotiable Instruments Act, 1881 which expression

means that there were not sufficient funds with the bank in the account of the respondent

LILY HIRE PURCHASE LTD. VS. DARSHAN LAL,

(1997) 89 COMPANY CASES 663 (10/01/1997)

4. Not a clearing member:

Cheque returned with endorsement not a clearing member. To attract the provisions of section 138

NI Act, the cheque should be presented with the bank on which it I drawn- If the cheque is not

presented to the bank on which it is drawn, then provisions of sec 138 would not be attracted. If bank

on which the cheque is drawn is not a clearing member of the Reserve Bank of Indiaunpaid return

of the cheque would not attract section 138.

CHAIRMAN, JAWAHAR COOPERATIVE URBAN BANK LTD. AND OTHERS VS. RAMANJANEYA

ENTERPRISES, HYD. AND ANOTHER

2005 (5) CRIMINAL REPORTED JUDGEMENTS (CRJ) 0591;

2005 (2) DISHONOUR OF CHEQUE REPORTER (DCR) 0169

5. Effect of other endorsements:


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It has been repeatedly held by courts that manifest dishonest intention of the drawer resulting in

dishonour of the cheque would lead to prosecution under section 138 Negotiable Instruments Act

regardless of the actual ground of dishonour.

OTHER NOTABLE ASPECTS OF OFFENCE UNDER 138N.I. ActCOMPLAINTS AGAINST A COMPANY:

Section 141of Negotiable Instruments Actsays:

141. Offences by companies:

(1) If the person committing an offence under section 138 is a company, every person who, at the

time the offence was committed, was in charge of, and was responsible to, the company for the

conduct of the business of the company, as well as the company, shall be deemed to be guilty of the

offence and shall be liable to be proceeded against and punished accordingly:

- Provided that nothing contained in this sub-section shall render any person liable to punishment

if he proves that the offence was committed without his knowledge, or that he had exercised all

due diligence to prevent the commission of such offence.

- Provided further that where a person is nominated as a Director of a company by virtue of his

holding any office or employment in the Central Government or State Government or a financial

corporation owned or controlled by the Central Government or the state Government, as the case

may be, he shall not be liable for prosecution under this Chapter.

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has

been committed by a company and it is proved that the offence has been committed with the

consent or connivance of, or is attributable to, any neglect on the part of, any director, manager,

secretary or other officer of the company, such director, manager, secretary or other officer shall

also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished

accordingly,

Explanation-For the purposes of this section,-

(a)company means any body corporate and includes a firm or other association of individuals;

and

(b) director, in relation to a firm, means a partner in the firm.

The Honble Supreme Court has held that merely being a director of a company is not sufficient to

make a person liable under section 141 of the Act. A director in a company cannot be deemed to be in
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charge of and responsible to the company for the conduct of its business. The requirement of section

141 is that the person sought to be made liable should be in charge of and responsible for the conduct

of the business of the company at the relevant time. This has to be averred as a fact and there is no

deemed liability of a director in such cases. AIR 2005 (SCW) 4740; AIR 2005 SC 3512,AIR 2007 SC

1682

Supreme Court has also held that for the directors of the company to be made liable for an offence

under sec 138, the complaint must contain specific allegations against directors as to how directors

are in charge and responsible for conduct of business of company. Mere allegation in complaint that

accused persons are directors and responsible officers of the company is not sufficient.AIR 2007 SC

1454

COMPLAINT AGAINST PARTNERS

Averment in a complaint that accused (partners) at relevant time were in charge of and responsible

to the partnership firm for conduct of its business are necessary to initiate process against them foran offence under sec 138 NI Act. In absence of requisite averments in complaint, the offence against

accused / partners could not be made out.

AIR 2004 SUPREME COURT 4274.

DEBT OR LIABILITY

Explanation to section 138 makes it clear that debt or other liability as mentioned in sec 138 mean a

legally enforceable debt or other liability.

Various High courts and the Supreme Court have explained this many a time.

Unless issuance of cheque is pleaded and proved to discharge a legally enforceable liability,

dishonour is no default entailing criminal proceedings. Complaint in respect of such a cheque issued

as a gift, is not maintainable. 1995 Andh LT 468, 1997 Cr LJ 4237 AP; 1998 (3) Bank LJ 279;

It is only debts alive at the time when thecheque dishonouredare issued. Any subsequent claims

in favour of the complainant cannot be made the subject of dispute under section 138 NI Act1997

VI AD DELHI 585

Supreme Court has held:

When it is a legally enforceable debt or a liability only then section 138 applies and relationship of

the parties is not at all a factor germane to the proceedings

2004 (1) APEX C.J. 0273; 2004 (1) CR.C.C. 0693

COMPLAINT UNDER 138 CAN BE FILED BY PLEADER /

POWER OF ATTORNEY HOLDERCognizance of offence of cheque dishonour No condition precedent that complaint should have

been signed by the payee as holder of cheque A complaint need not be presented by complainant

himself Pleader or counsel in whose favour vakalatnama has been executed by complainant is


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competent to file complaint.

AIR 2007 (DOC) 286 (RAJ.); 2 (2007) BC 206 (RAJ.)

Section 142 of Negotiable Instruments Act does not specifically state that the payee or holder in due

course of the cheque shall lodge the complaint himself; the power of attorney holder who has every

authority to sign and act on behalf of the principal can lodge a complaint under sec 138 NI Act.

AIR 2007 (DOC) 51 KER.; 2006 (3) BANK J 425 (KER)

DEATH OF ORIGINAL COMPLAINANTDeath of original complainant after filing of complaint Son of the deceased came to be added as

complainant subsequent to taking cognizance of offences Proceedings do not abate and son of

deceased complainant can come on record and continue prosecution.

AIR 2007 (DOC) 271 (A.P.) ; 2006 (3) CIVIL COURT CASES 294

Offence of dishonour of cheque Death of complainant at stage of evidence of defence His legal

heirs entitled to continue prosecution.

AIR 2007 (DOC) 222 (RAJ.) ; 2007 (1) RAJ L W 4

DEATH OF ACCUSEDDishonour of chequeProceedings in the complaint alleging offence under section 138 cannot be

initiated against legal heirs of the person who had issued the cheque.

AIR 2007 (DOC) 58 (P&H) ; 2006 (3) BANK J 327 (P&H)

SUCCESSIVE PRESENTATION OF CHEQUES

A cheque can be presented any number of times during the period of its validity by payee. On eachpresentation of the cheque and its dishonour a fresh right and not cause of action accrues in his

favour. He may, therefore, without taking pre-emptory action in exercise of his such right under Cl

(b) of sec. 138, go on presenting the cheque so as to enable him to exercise such right at any point of

time during the validity of the cheque.

AIR 1998 SUPREME COURT 3043

SETTLEMENT DURING TRIALThe payment by the accused of the full cheque amount during the pendency of trial under sec 138

does not absolve the accused of his liability for the offence of dishonour of cheque. However, thecourts take a lenient view in such cases and the accused is set free or punished lightly.

AIR 2007 (DOC) 264 DELHIis an illustration of such cases.

The Delhi High Courthas also held that if during the pendency of a dispute under sec 138 NI Act

the parties enter into a settlement, it should be respected by the courts as proceedings under sec 138

are quasi criminal in nature.

AIR 2007 (DOC) 264 (DEL.)


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EXAMINATION OF COMPLAINANT ON OATHThe non-obstante clause in sec. 142 or 145 of the NI Act does not override the provisions of sec. 200

CrPC and it is mandatory for the magistrate to examine the complainant who has filed the same

under sec 138 of the NI Act though with an affirmation as regards truthfulness of the contents of thecomplaint. It, therefore, follows that the magistrate is obliged and duty bound to examine upon oath

the complainant and his witnesses before issuance of process under section 204 of CrPC though

there is a solemn affirmation at the foot of the complainant by the complainant.

AIR 2007 (NOC) 1372 (BOM) ; 2007 (3) AIR BOM R 181 (DB)

POST DATED CHEQUEPost dated chequeIs not a cheque on the date it is drawn It becomes a cheque only on the

date written on it Till that date post-dated cheque remains a bill of exchange.

The post-dated cheque becomes a cheque within the meaning of section 139 on the date which iswritten thereon and not the 6 months period is to b reckoned for the purposes of proviso (a) to sec

138 from the date. Thus in case of a pot-dated cheque, six months period is to be reckoned from the

date mentioned on the face of the cheque and not any earlier date on which the cheque was made

over by the drawer to the drawee.


COMPLAINT AGAINST PARTNERSMATERIAL ALTERATION:

Section 87 of Negotiable Instruments Act provides as under:87.Effect of material alteration:

Any material alteration of a negotiable instrument renders the same void as against any one who is

a party thereto at the time of making such alteration and does not consent thereto, unless it was

made in order to carry out the common intention of the original parties:

Alteration by indorsee _ And any such alteration, if made by an indorsee, discharges his indorser

from all liability to him in respect

of the consideration thereof.

The provisions of this section are subject to those of sections 20, 49, 86 and 125.

Respondent issued a blank cheque without mentioning the date and amount and sent it with a letter

requesting complainant to present it after a month Act of complainant in filling up amount portion

and date was a material change and it could not be enforced even though it was issued for a legal

liability Alteration without the consent of the party who issued the cheque rendered cheque
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invalid.

2004 (1) CRIMES 567 (AP)

Every alteration is not material alteration Only such alteration which would adversely affect

interest of the other side could be called material alteration.

AIR 2007 (NOC) 1082 BOM. ; 2007 (2) AIR BOM R 442

Date altered by adding 1 before 2 in the month to make it appear that cheque was issued on

25.12.1993 so as to bring the cheque within validity period. These are material alterations. Accused

liable to be acquitted in such cases.

2005 (2) ISJ (BANKING) 115; 2005 (2) DCR 37

DEMAND NOTICEProviso to Section 138 NI Act provides as follows:

Provided that nothing contained in this section shall apply unless-

(a) the cheque has been, 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;

(b) the payee or the holder in due course. of the cheque as the case may be, makes a demand for

the payment of the said amount of money by giving a notice, in writing, to the

drawer of the cheque, within thirty days of the receipt of information by him from the bank

regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payeeor, as the case may be, to the holder in due course of the cheque, within fifteen

days of the receipt of the said notice.

Explanation.-For the purposes of this section, debt or other liability means a legally

enforceable debt or other liability.

Supreme Court has held time and again that a cause of action for filing a complaint under section 138

accrues to the drawee of a cheque only after a notice is issued to the drawer within the prescribed

period after receipt of information by him regarding the dishonour of cheque and the subsequent

failure of the drawer to make the cheque payment within the prescribed time, i.e. 15 days from the

receipt of notice by him.


Demand noticeSent under certificate of posting returned with endorsement not claimed Is

deemed to be served

AIR 2007 (NOC) 942 (KAR); 2007 (2) AIR KAR R 199


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Demand noticeGiving of notice in some address is not enough for complying with statutory

requirement of notice Notice should be given in the correct address Further, mere giving of

notice will not be sufficient when notice is returned stating that it was reserved because it is not the

correct address or door is locked in redirected address Return of acknowledgement card with such

endorsement Notice is not served.

AIR 2007 (DOC) 131 (KER) ; 2007 (1) KLJ 10

Demand noticeService of Can be proved only by submitting postal receipt or by calling record

of post office In absence of postal receipt no presumption can be drawn in favour of applicant for

sending said notice through registered post Acknowledgement due receipt without any letter

number or postal receipt number mentioned in it Not having any seal of post office either at the

time of sending to addressee or at the time of returning to the sender, cannot be accepted as

compliance with provisions of sec 138 (b) of the Act.

AIR 2007 (DOC) 253 (M.P.); 2007 (51) AIC 239

BLANK CHEQUERespondent issued a blank cheque without mentioning the date and amount and sent it with a letter

requesting complainant to present it after a month Question whether blank cheque will come

within the definition of cheque? If the cheque is not drawn for a specified amount it would not fall

within a definition of bill of exchange - Act of complainant in filling up amount portion and date was

a material change and it could not be enforced even though it was issued for a legal liability

Alteration without the consent of the party who issued the cheque rendered cheque invalid.

2004 (1) CRIMES 567 (AP)Admission of signature on the cheque is not equivalent with admission of execution Right of the

accused to contend that a blank signed cheque was mis-utilised by the payee cannot be taken away by

such mere admission of signature.

AIR 2007 (DOC) 195 (KER.); 2007 (1) KLT 525 (KER)

Accused entered into security arrangement with complainant for sale of its product Accused issued

blank cheques as security to security agency agreement No debt or liability existed when cheques

were handed over to drawee complainant Complaint based on blank cheque issued towards

security is not maintainable.

AIR 2007 (DOC) 269 (DEL); 2 (2007) B C 69

PRESUMPTION UNDER SECTION 139 NI ACTSection 139Negotiable Instruments Act provides:

139. Presumption in favour of holder:
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It shall be presumed, unless the contrary is proved, that the holder of a cheque received the

cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or

other liability.

The effect of these presumptions is to place the evidential burden on the accused of proving that thecheque was not received by the complainant towards the discharge of any liability. Because both

sections 138 and 139 require that the court shall presume the liability of the drawer of the cheques

for the amounts for which the cheques are drawnit is obligatory on the courts to raise this

presumption in every case where the factual basis for the raising of this presumption had been

established. It introduced an exception to the general rule as to the burden of proof in criminal cases

and shifts the onus on to the accused.


(C) By S. Chopra forVakilno1.com
http://www.vakilno1.com/http://www.vakilno1.com/http://www.vakilno1.com/http://www.vakilno1.com/

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Dishonour of Cheque Sec 138 of NI ACT