INTRODUCTION TO THE OFFENCE OF DISHONOUR OF CHEQUE

The kinds of cheques as under:

1. Open cheque: The issuer of the cheque would just fill the name of the person to whom the cheque is issued, writes the amount and attacheshis signature and nothing
else. This type of issuing a cheque is also called bearer type cheque also known as
open cheque or uncrossed cheque. The cheque is negotiable from the date of issue to
three months. The issued cheque turns stale afterteh completion of three months. It
has to be revalidated before presenting to the bank.
2. Bearer cheque: Same as Open Cheque
3. Crossed cheque: It is written in the same as that of bearer cheque but issuer
specifically specifies it as account payee on the left hand top corner or simply crosses
it twice with two paralled lines on the right hand top corner. The bearer of the cheque
presenting it to the bank should have an account in the branch to which the written
sum is deposited. It is safest type of cheques.
4. Account Payee cheque: Same as Crossed Cheque
5. Self cheque: A self cheque is written by the account holder as pay self to receive the money in the physical form from the brach where he holds his account.
6. Pay yourself cheque: The account holder issues this type of crossed cheque to the bank asking the bank to deduct money from his account into bank’s own account for the purpose of buying banking products like drafts, pay orders, fixed deposit receipts or for depositing money into other accounts held by him like recurring deposits and loan accounts.
7. Post dated cheque: A PDC is a form of a crossed or account payee bearer cheque but post dated to meet the said financial obligation at a future date.
8. Local cheque: A local cheque is a type of cheque which is valid in the given city and a given branch in which the issuer has an account and to which it is connected. The producer of the cheque in whose name it is issued can directly go to the designated bank and receive teh money in the physical form. If a given city’s local cheque is presented elsewhere it shall attract some fixed banking charges. Although these type of cheques are still prevalent, especially with nationalised banks. It is slowly stated to be removed with at par cheque type.
9. At par cheque: With the computerisation and networking of bank branches with its head quarters, a variation to the local cheque has become common place in the name of at par cheque. At par, cheque is a cheque which is accepted at par at all its branches across the country. Unlike local cheque it can be presented across the country without attracting additional banking charges.
10. Banker’s cheque: It is a kind of cheque issuedby the bank itself connected to its own funds. It is a kind of assurance given by the issuer to the client to alley your fears. The personal account connected cheques may bounce for want of funds in his account. To avoid such hurdles, sometimes, the receiver seeks banker’s cheque.
11. Traveller’s cheque: They are a kind of an open type bearer cheque issued by the bank which can be used by the user for withdrawal of money while touring. It is equivalent to carrying cash but in a safe form without fear of losing it.
12. Gift cheque: This is another banking instrument introduced for gifting money to the loved ones instead of hard cash.

Time Barred Debt: Cheque to pay time barred debt is enforceable by virtue of section 25 (3) of Contract Act

Legal heirs: Legal heirs of complainant can continue the complaint . However, legal representatives of accused cannot be made to face trial.

Part Payment: Part payment made does not absolve to the drawer from liability.

Guarantor: Cheque issued as a security are in discharge of liability as a guarantor attracts Sec. 138 (ICBS Ltd. vs. Beena Shabeer 2002 AIR SCW 3358)

Multiple Bouncing: A single complaint in respect of dishonoured cheques is maintainable through consolidated single notice is sent and single complaint is maintainable.

When cheques were issued as a Negotiable Instruments, there was always possibility of the same being issued without sufficient amount in the account. With a view to protect drawee of the cheque need was felt that dishonourof cheque he made punishable offence. With that purpose Sec.138 to 142 were inserted by Banking Public Financial Institutions and Negotiable Instruments clause (Amendment) Act, 1988. Section 138 of Act deals with dishonour of cheques. It has no concern with dishonour of other negotiable instruments.

The cheques in question must be given for any legally recoverable dues. If the cheques
were given as a security, the offence shall not be attracted.  Then if cheque is issued by way of gift and it gets dishonoured offence u/s. 138 of the Act will not be attracted.

According to Section 138, where any cheque drawn by a person on an account maintained by him is returned by the Bank unpaid for reasons mentioned in said Section such person shall be deemed to have committed an offence. 

 In order to bring application of Section 138 the complaint must show:
1 That Cheque was issued;
2. The same was presented;
3. It was dishonored on presentation;
4. A notice in terms of the provisions was served on the person sought to be made liable;
5. Despite service of notice, neither any payment was made nor other obligations, if any, were complied with within fifteen days from the date of receipt of the notice.

Section 141 of the Act in terms postulates constructive liability of the Directors of the company or other persons responsible for its conduct or the business of the company.[N.K. Wahi v Shekhar Singh  (2007)9 SCC 481]

  • Under clause (a) of Section 142, the complaint must be filed within one month of the date on which the cause of action arises under the third proviso to Section 138. Thus a complaint can be filed within the aggregate period of seventy five days from the dishonour, by which time a complainant can gather requisite information as regards names and other details as to who were in charge of and how they were responsible for the affairs of the Company.

Stop Payment : it is sufficient to mention that in the case of Pulsive Technologies P. Ltd. vs. State of Gujarat( (2014) 9 SCALE 437 , apex  Court has already held that instruction of “stop payment” issued to the banker could be sufficient to make the accused liable for an offence punishable under Section 138 of the N.I. Earlier also in Modi Cements Ltd. vs. Kuchil Kumar Nandi[ (1998) 3 SCC 249] , this Court has clarified that if a cheque is dishonoured because of stop payment instruction even then offence punishable under Section 138 of N.I. Act gets attracted.


NOTICE
The notice must be in writing informing that cheque has been returned unpaid also a demand of chqeue amount must be made and it should be within 30 days from receipt
of information of dishonour.
When notice by registered post returned unclaimed there is a presumption of service.
1. Rahul vs. Arihant Fertilizers 2008(4) Mh.L.J. 365 (SC)
2. K. Bhaskaran vs. Shankaran Vidhyabalan 1999 AIR SCW, 3809

BULLET 2Krishna Texport and Capital Markets Ltd. v. Ila A. Agrawal & Ors, (AIR 2015 SC 2091), has held as under :

“The notice under Section 138 is required to be given to the ‘drawer’ of the cheque so as to give the drawer an opportunity to make the payment and escape the penal consequences. No other person is contemplated by Section 138 as being entitled to be issued such notice. The plain language of Section 138 is very clear and leaves no room for any doubt or ambiguity. There is nothing in Section 138 which may even remotely suggest the issuance of notice to anyone other than the drawer.”


Quashing a Proceeding by High Court:  In Rallis India Limited v. Poduru Vidya Bhushan and others , this Court expressed its views on this point as under:-
“12. At the threshold, the High Court should not have interfered with the cognizance of the complaints having been taken by the trial court. The High Court could not have discharged the respondents of the said liability at the threshold. Unless the parties are given opportunity to lead evidence, it is not possible to come to a definite conclusion as to what was the date when the earlier partnership was dissolved and since what date the respondents ceased to be the partners of the firm”.

In view of the law laid down by this Court as above, in the present case High Court exceeded its jurisdiction by giving its opinion on disputed questions of fact, before the trial court.[ HMT Watches Ltd. Versus M.A. Abida & Anr RespondentsMarch 19, 2015]

Month: Section 3(35) General Clauses Act 1897: Month shall mean a month reckoned according to the British Calendar ( Ramesh Chander Versus State of Gujarat 2014(11) SCC 759.)

Service by post : Section 27 of General Clauses Act- meaning of service by post- where any Central Act or Regulation made after the commencement of this Act authorises or requires any document to be served by post, whether the expression serve or either of the expression give or sent or any other expression is used then unless a different intention appears, the services shall be deemed to be effected by properly addressing, pre-paying and posting by registered post a letter containing the document and unless the contrary is proved to have been effected at the time at which the letter would be delivered in the ordinary course of post.

Presumption of due service –  when notice is sent through registered post
presumption of due service can be raised in following cases –
(a) unclaimed
(b) Refused
(c) Not available in house
(d) House locked
(e) Shop closed
(f) Addressee not in station

Notice sent through courier– No presumption of service.

Power of attorney for Prosecution : After considering the relevant provisions of the NI Act and the relevant judgments on the point, this Court clarified the legal position and answered the questions in the following manner.

“(i) Filing of complaint petition under Section 138 of NI Act through power of attorney is perfectly legal and competent.
(ii) The Power of Attorney holder can depose and verify on oath before the Court in order to prove the contents of the complaint. However, the power of attorney holder must have witnessed the transaction as an agent of the payee/holder in due course or possess due knowledge regarding the said transactions.
(iii) It is required by the complainant to make specific assertion as to the knowledge of the power of attorney holder in the said transaction explicitly in the complaint and the power of attorney holder who has no knowledge regarding the transactions cannot be examined as a witness in the case.
(iv) In the light of section 145 of NI Act, it is open to the Magistrate to rely upon the verification in the form of affidavit filed by the complainant in support of the complaint under Section 138 of the NI Act and the Magistrate is neither mandatorily obliged to call upon the complainant to remain present before the Court, nor to examine the complainant or his witness upon oath for taking the decision whether or not to issue process on the complaint under Section 138 of the NI Act.
(v) The functions under the general power of attorney cannot be delegated to another person without specific clause permitting the same in the power of attorney. Nevertheless, the general power of attorney itself can be cancelled and be given to another person.”

Thus, it is clear that the complaint under Section 138 of the NI Act can be filed through the power of attorney holder.A.C. Narayanan states that power of attorney holder must have knowledge about the relevant transactions. [A.C. Narayanan v. State of
Maharashtra AIR 2014 SC 630], same view accepted in Vinita S. Rao Vs. M/s. Essen Corporate Services Pvt. Ltd. & Anr 2015 AIR (SC) 882]

Authorized person of a Company is competent Complainant  : A complaint which is made in the name and behalf of company can be made by any officer of that company and the section does not require that complaint must be signed and presented only by authorized agent or a person empowered under the Articles of association or by any resolution of the Board of Directors.

Of penalties in case of dishonour of certain cheques for insufficiency of funds in the accounts

138 Dishonour of cheque for insufficiency, etc, of funds in the account

1 Competence of the Parliament

2 Statement of objects and reasons

3 Object

4 Salient features

5 Non- compliance with the provision

6 Scope

7 Nature

8 Applicability

9 Applicability of provisions to cheques issued before 1-4-1989

10 Issue of cheque is not an offence

11 Ingredients of the offence

12 Dishonour of cheque issued for discharge of legally enforceable debt/liability

13 Section 138 and Criminal Law

14 Power of courts

15 Interference by High Court in disputed questions of fact

16 Bailable offence

17 Trial of offence: Summary procedure

18 Directions for Summary Trial

19 Defence evidence

20 Month’, meaning of

21 Presentation of cheques any number of times during validity period

22 Filing of a civil suit

23 Arbitration proceedings

24 Prosecution for cheating: Not barred

25 Prosecution based on successive dishonour of cheque

26 Filing of a complaint

27 Condonation of delay in filing complaint

28 Place of filing complaint

29 Locus standi to file complaint

30 Verification of complaint

31 Cause of action

32 Complaint not signed by complainant

33 Permissibility for the substitution of complainant

34 Deficit Court Fee

35 Sole proprietorship concern

36 Complaint by company

37 Delegation of power of attorney

38 Power of Attorney to witness transaction

39 Complaint by Power of Attorney Holder

40 Complaint, maintainability

41 Reasons for return

42 ‘Refer to drawer’, meaning of

43 ‘Such person shall be deemed to have committed an offence’

44 Payment of cheque stopped by drawer

45 Propriety of order of issue process

46 Bank account closed

47 Exceeds arrangement: Dishonour on ground of

48 Insufficient balance

49 Cheque reported stolen

50 Alteration in date and drawer’s signature differs

51 Drawer’s signature incomplete

52 Drawer’s signature denial

53 Recourse to Proceedings

54 Making endorsement ‘sans recourse’ on cheque

55 Bank documents: Admissibility in evidence

56 Exclusion of mens rea

57 Cheque drawn by a person

58 Cheque issued in illegal transaction

59 Liability of director

60 Liability of drawer of cheque

61 Cheque issued by authorised signatory: Liability

62 Vicarious liability

63 Cheque issued by mandate holder: Liability

64 Forfeiture of right of holder/payee

65 Self drawn cheque

66 Pay Order, dishonour of

67 Post-dated cheques, dishonour of, effect

68 An account maintained with a banker

69 Joint bank account operated by ‘Either or Survivor’: Liability

70 Banker

71 Undated cheque

72 Any debt or other liability: Legally enforceable liability

73 Debt/Liability: Proof of

74 Existence of debt or liability on the date of cheque

75 Time-barred debt

76 Discharge of liability in excess of liability incurred

77 Legally enforceable liability

78 Burden of proof

79 Presumption

80 Modification of discharge of liability

81 Part payment

82 Other liabilities

83 Cheque received as guarantee or security

84 Chit funds

85 Uncertain future liabilities

86 Proceedings against guarantor: Maintainable

87 Blank cheque issued as security

88 Misuse of blank cheque: Expert opinion

89 Cheque issued as collateral security

90 Liability need not be of drawer

91 Discharge of debt of wife

92 Discharge of Debt of Father

93 Death of drawer of cheque

94 Holder in due course

95 Drawer alone can be prosecuted

96 Cheque discounting facility with bank: Liability

97 Offence

98 Failure’ to make payment

99 Cognizance of offence

100 Quashing of Cognizance

101 Without prejudice to any other provision of this Act

102 Material alterations in cheque

103 Typographical error

104 Clubbing of complaints

105 Punishment

(a) Prior to 6-2-2003

(b) On and from 6-2-2003

106 Sentences to run concurrently: Powers of Court

107 Sentence of imprisonment till rising of court

108 Suspension of sentence

109 Penalty provision created by legal fiction

110 Provision, not for compensation

111 Compensation

112 Mode of recovery of fine and compensation

113 Compensation, reduced

114 Sentence of fine and compensation

115 Inadequacy of sentence

116 Payment of interest on award of compensation

117 Default sentence

118 Compounding of offence

119 Acquittal

120 Propriety of order of acquittal

121 Conviction

122 Release on probation

123 Pendency of parallel proceedings

124 Lok adalats

125 Presentation of cheque

126 Territorial jurisdiction

127 Transfer of cases

128 Compliance of procedure of trial on transfer of a Magistrate

129 Provisos

(1) Period for presentment: clause (a)

(2) Notice of demand for payment: clause (b)

130 Issuance of notice

131 Handwritten notice

132 Construction of Proviso

133 Demand notice: Limitation period

134 Notice to company sufficient

135 Notice to director itself

136 Form or format of notice

137 Permissibility for the use of printed format

138 Notice not signed by Advocate: Validity

139 Contents of notice

140 Notice sent under certificate of posting

141 Notice: Service of

142 Fresh notice

143 Constructive service of notice

144 Deemed service of notice

145 Demand notice sent by registered post

146 Demand notice: Burden of proof of service

147 Copy of demand notice: Admissibility

148 Omnibus Demand in Notice

149 Period for payment

150 Date of service of statutory notice

151 Period for filing of complaint

152 Computation of period of limitation of notice

153 Computation of period of one month for filing of complaint

154 Extension of limitation period

155 Averment in complaint

156 “Date of receipt” to be understood as “date of knowledge of receipt” of the notice

157 Proof of service of demand notice

158 Receipt of notice by wife of accused drawer

159 Notice, interpretation of

160 Validity of demand notice

161 Exact date of issue of notice or date of service of the notice in the complaint

162 Words ‘said amount of money’, meaning

163 Notice of demand: Cheque Number

164 Dishonour of cheque for higher amount

165 Prior discharge

166 Consolidated notice for more than one cheques: Validity

167 Premature complaint

168 Subsequent events: Consequence of part payment by drawer after issue of notice

169 Deposit by accused of entire amount during trial

170 Single complaint in respect of more than one dishonoured cheque

171 Summoning of accused

172 Examination of complainant

173 Production of additional evidence

174 Examination of witnesses

175 Dismissal of complaint

176 Dismissal of complaint for non-appearance of complainant/counsel

177 Personal attendance of accused

178 Death of payee

179 Death of drawer

180 Death of drawer-partner

181 Death of complainant

182 Discharge of accused

183 Non-mention of necessary ingredients in pre-summoning statement

184 No grant of injunction

185 Private complaint by accused: Maintainability

186 Drawer declared insolvent

187 Delay in disposal of cases: Practice and procedure

188 Additional evidence: Permissibility

189 Quashing of complaint

190 Quashing of proceedings

191 Propriety of non-consideration of issue of limitation

192 Writ jurisdiction of High Court

193 Nature and extent of presumption: Standard of proof

194 Rejection of application for sending cheque to FSL

195 Money lending transaction

196 Application for Opinion of handwriting export

197 Preponderance of probabilities

198 Power of successor Magistrate

199 Revision, scope

200 Remand of case

201 Instruction, while working abroad

202 Filing of case against directors

203 Cheques whether supported by consideration

139 Presumption in favour of holder

1 Presumption against the drawer,

2 Scope

3 Termination of dealership due to dishonour of cheque

4 Nature and extent of presumption

5 Shall be presumed

6 Propriety of presumption

7 Unless the contrary is proved

8 Rebuttal evidence: Quantum of

9 Holder of a cheque as referred to in section 138

10 Rebuttal plea

11 Non-rebuttal of presumption

12 Presumption available to payee and holder

13 Discharge in whole or in part of any debt or other liability

14 Presumption of existence of legally enforceable debt

140 Defence which may not be allowed in any prosecution under section 138

1 Scope

2 Exclusion of mens rea

3 It shall not be

4 Reason to believe

5 ‘Issuance’ of cheque

6 Cheque may be dishonoured on presentation

7 Closure of account prior to date of drawal of cheque

141 Offences by companies

1 Offences by companies

2 Non-banking financial companies

3 Scope

4 “At the time the offence was committed”, scope of

5 Complaint, maintainability

6 Non-incorporation of particulars

7 Reliance on affidavit

8 Validity

9 Expression ‘Company’: Meaning and scope

10 Expression “other association of individuals”

11 Status of a sole proprietorship concern

12 Liabilities of a firm and its partners

13 Joint family business

14 Legal liabilities of a company

15 Trustees of a trust

16 Hindu Undivided Family (HUF)

17 Section 141, sub-section (1)

(a) Every person incharge

(b) Vicarious liability

(c) Quashing of prosecution

(d) As well as the company

18 Post-dated cheques

19 Demand notice

20 Section 141 — First proviso — Meaning of

21 Nominated directors not liable for prosecution — Second proviso

22 Section 141(2): With the consent or connivance of, or is attributable to, any neglect on the part of

23 Section 141(2): Director — Manager or other officer — Meaning of

24 Vacation of office: Quashing of prosecution

25 Vicarious liability: Prosecution of Director: Sustainability

26 Winding up proceedings pending

27 Explanation (b)

28 Company not prosecuted

29 Proceeding against company and its Managing Director

30 Companies under winding up

31 Sick industrial companies

32 Duty of Courts: Frivolous litigation

33 Company changing name

142 Cognizance of offences

1 Scope

2 Proviso differs prosecution

3 Notwithstanding anything contained in Code of Criminal Procedure

4 Filing of complaint: Legal requirements

5 Cognizance of the offence: Section 142(1)(a)

6 Complaint by payee or holder in due course

7 Fresh complaint remedy

8 Complaint by company

9 Complaint by co-operative society

10 Complaint by Government Company

11 Sole proprietorship firm

12 Partnership firm

13 Complaint by unregistered firm

14 Limitation for taking cognizance

15 Cheques issued in favour of bank

16 Complaint in writing: Section 142(1)(b)

17 Issuing of fresh demand notice

18 Complaint filed by power of attorney holder

19 Ingredients of offence

20 Complaint filed by advocate

21 Complaint sent by post

22 “Within one month of the date on which the cause of action arises”

23 Quashing of prosecution

24 Sufficient cause for not making a complaint within time

25 Amendment prospective, not retrospective

26 Premature complaint

27 Jurisdiction of the court: Section 142(1)(c)

28 Cause of action

29 Defective notice

30 Question of limitation

(a) With effect from 6-2-2003

(b) Prior to 6-2-2003

31 Prospective operation

32 Successive presentation of cheque: Cause of action: Computation of

33 Importance of date seal of court on copy of complaint to be served on accused

34 Magistrate cannot refer the complaint to police for investigation

35 Nature of enquiry before issue of process

36 Recommended procedure for trial of section 138 complaint

37 Non-applicability of section 29(2) of the Cr PC

38 When punishment more severe than Magistrate empowered to give warranted

39 Power of Court

40 Power of attorney holder

41 Territorial jurisdiction settled by the insertion of section 142(2)

142A Validation for transfer of pending cases

143 Power of Court to try cases summarily

1 Trial of offence: Summary procedure

2 Summary trial of cases

3 Recording of reasons: Requirement of

4 Summary trial provisions under the Code of Criminal Procedure

5 Sentence of imprisonment or fine

6 When the Magistrate may not hold a summary trial

7 Day to day trial

8 Trials to conclude within six months

9 Directions to courts, for speedy disposal of dishonour of cheque cases

144 Mode of service of summons

145 Evidence on affidavit

1 Evidence on affidavit

2 Section 145 not to be dissected into pre-summoning and post-summoning stage of trial

3 Section 145 is an enabling provision

4 Scope and nature of provision: Overriding effect

5 Right to fair trial

6 Amendment retrospective or prospective

7 Territorial jurisdiction

146 Bank’s slip prima facie evidence of certain facts

147 Offences to be compoundable

1 Compounding of offence

2 Right of accused to tender his evidence on affidavit

3 Procedure to be followed: Applicability of section 320, Cr PC

4 Permission from Court

5 Deposit of ‘Amount due’ in Court

6 Mere compromise and an action of compounding a crime: Distinction