Bouncing of Cheque under Negotiable Instrument Act, 1881

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INTRODUCTION 

CHAPTER 17 [Section 138-145]

OF PENALTIES IN CASE OF DISHONOUR OF CERTAIN CHEQUES FOR INSUFFICIENCY OF FUNDS IN THE ACCOUNT


  1. 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 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, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both:

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.


Comment

  • The interpretation of the expression ‘for discharge of any debt or other liability’ occurring in Section 138 of the N.I. Act is significant and decisive of the matter.
  • No court shall take cognizance of any offence punishable under Section 138 except when a complaint in writing is made by the payee or by the holder in due course and such complaint has to be made within one month from the date on which the cause of action arises under clause (b) of the proviso to Section 138. It is also noticed by their Lordships that neither Section 138 nor Section 142 of the Act or any other provision contained in the said Act prevents the holder or the payee of the cheque from presenting the cheque for encashment for any number of occasions within a period of six months from the date of its issuance or within a period of its validity, whichever is earlier. Therefore, it appears that the payee or the holder has a right to present the same as manynumber of times for encashment within a period of six months or within its validity period, whichever is earlier[MSR Leathers Vs.  Palaniappan & Anr.2013]

Complaint filed before the statutory period: Yogender Pratap Singh vs. Savitri Devi, 2014 (4) CCC 305 (SC) it was held by the Hon’ble Court that the Complaint filed before expiry of 15 days from the date of receipt of notice by the accused is not maintainable.

Condonation of Delay: In K.S. Joseph vs. Philips Carbon Black Ltd. and another, 2016(2) RCR (Criminal) 788 (SC) it was held by the Hon’ble Supreme Court that the delay in filing of complaint under Section 138 of the Act can not be condoned without notice to the accused.

Cheque amount is higher than the debt: For the purposes of Section 138 of the Negotiable Instruments Act, 1881, the cheque should be towards the discharge of either the whole debt or part of the debt. If the cheque is for more than the amount of the debt due, Section 138 cannot be attracted.

  • Cheque issued for settlement of other civil or other proceedings is not Legal Debt.
  • Read Stop payment

  1. Presumption in favour of holder.—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.

There are presumptions under Section 118 and 139 of the Negotiable Instruments Act in favour of the holder of the cheque. Until the contrary is proved, the presumption is in favour of holder of the cheque that it has been drawn for the discharge of debt or liabilities. However, it is rebutable one and accused can rebut it without entering into witness box, through cross-examination of the prosecution witnesses. Complainant is not absolved from liability to show that cheque was issued for legally enforceable debt or liability

In Bharat Barrel & Drum Manufacturing Company Vs. Amin Chand Pyarelal, reported in (1993) 3 SCC 35, (para 12) wherein, it has been held as follows:-

“ Upon consideration of various Judgments as noted hereinabove, the position of law which emerges is that once execution of the promissory note is admitted, the presumption under Section 118(a) would arise that it is supported by a consideration. Such a presumption is rebuttable. The defendant can prove the non-existence of a consideration by raising a probable defence. If the defendant is proved to have discharged the initial onus of proof showing that the existence of consideration was improbable or doubtful or the same was illegal, the onus would shift to the plaintiff who will be obliged to prove it as a matter of fact and upon its failure to prove would disentitle him to the grant of relief on the basis of the negotiable instrument. The burden upon the defendant of proving the non-existence of the consideration can be either direct or by bringing on record the preponderance of probabilities by reference to the circumstances upon which he relies. In such an event, the plaintiff is entitled under law to rely upon all the evidence led in the case including of the plaintiff as well. In case, where the defendant fails to discharge the initial onus of proof by showing the non-existence of the consideration, the plaintiff would invariably be held entitled to the benefit of presumption arising under Section 118(a) in his favour. The Court may not insist upon the defendant to disapprove the existence of consideration by leading direct evidence as the existence of negative evidence is neither possible nor contemplated and even if led, is to be seen with a doubt. The bare denial of the passing of the consideration apparently does not appear to be any defence. Something which is probable has to be brought on record for getting the benefit of shifting the onus of proving to the plaintiff. To disprove the presumption, the defendant has to bring on record such facts and circumstances upon consideration of which the Court may either believe that the consideration did not exist or its non-existence was so probable that a prudent man would, under the circumstances of the case, act upon the plea that it did not exist”. (Emphasis supplied)

The aforementioned decision has been approvingly cited by the Hon’ble Supreme Court of India in Rangappa Vrs. Sri Mohan, reported in 2010 (3) JCR 16 (SC).


  1. Defence which may not be allowed in any prosecution under Section 138.—It shall not be a defence in a prosecution for an offence under section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that section.

Comment: 

Section 140 of the Negotiable Instruments Act, 1881 prohibits what cannot be a defence in a prosecution in respect of offence punishable under Section 138 of the N.I. Act.


  1. 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.


Comment

In case of K. Shrikant Singh vs. North East Security Ltd. and others, J.T.2007 (9) SC 449, Hon’ble Apex court observed that vicarious liability on the part of a person must be pleaded and proved and not inferred.

  • Only the drawer of the cheque falls within the ambit of Section 138 of the Act whether human being or a body corporate or even a firm
  • If a company is not prosecuted due to any legal snag or otherwise, the other prosecuted persons cannot, on that score alone, escape from the penal liability created through the legal fiction envisaged in Section 141 of the Act[Anil Hada v. India Acrylic Ltd. (2000) 1 SCC 1] was over ruled  by Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd. (2012) 5 SCC 661 and held ” for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself and reaffirmed in Anil Gupta  VERSUS Star India Pvt. Ltd. & Anr [2014]
  • Section 141 states that if the person committing an offence under Section 138 is a Company, every director of such Company who was in charge of and responsible to that Company for conduct of its business shall also be deemed to be guilty. The reason for creating vicarious liability is plainly that a juristic entity i.e. a Company would be run by living persons who are in charge of its affairs and who guide the actions of that Company and that if such juristic entity is guilty, 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 again does not lay down any requirement that in such eventuality the directors must individually be issued separate notices under Section 138.The persons who are in charge of the affairs of the Company and running its affairs must naturally be aware of the notice of demand under Section 138 of the Act issued to such Company. It is precisely for this reason that no notice is additionally contemplated to be given to such directors. The opportunity to the ‘drawer’ Company is considered good enough for those who are in charge of the affairs of such Company. If it is their case that the offence was committed without their knowledge or that they had exercised due diligence to prevent such commission, it would be a matter of defence to be considered at the appropriate stage in the trial and certainly not at the stage of notice under Section 138.[KIRSHNA TEXPORT & CAPITAL MARKETS LTD.Vs ILA A. AGRAWAL & ORS SC 2009]
  • When the drawer of the cheque who falls within the ambit of Section 138 of the Act is a human being or a body corporate or even firm, prosecution proceedings can be initiated against such drawer. In this context, the phrase ‘as well as’ used in Sub-section (1) of Section 141 of the Act has some importance. The said phrase would embroil the persons mentioned in the first category within the tentacles of the offence on a par with the offending company. Similarly the words ‘shall also’ in Sub-section (2) are capable of bringing the third category persons additionally within the dragnet of the offence on an equal par. The effect of reading Section 141 is that when the company is the drawer of the cheque such company is the principal offender under Section 138 of the Act and the remaining persons are made offenders by virtue of the legal fiction created by the legislature as per the section. Hence the actual offence should have been committed by the company, and then alone the other two categories of persons can also become liable for the offence.[ JITENDRA VORA VERSUS BHAVANA Y. SHAH & ANR  September 16, 2015 ]newnew

  1. Cognizance of offences.—(1)Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974)—

(a)no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque;

(b)such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138:

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 a complaint within such period.

(c)no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.

(2)The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,—

(a)if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or

(b)if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated.

Explanation.— For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintain the account.


Comment:

We are of the view that this Court in Harman Electronics (supra) affirmed what it had said in K. Bhaskaran (supra) that court within whose jurisdiction the cheque is presented
and in whose jurisdiction there is failure to make payment within 15 days of the receipt of notice can have jurisdiction to try the offence under Section 138 of the N.I. Act.[Nishant Aggarwal Versus Kailash Kumar Sharma 2013]

Liability of the drawer  in the following cases ⇓

  1. Insufficient funds
  2. Exceeds arrangements
  3. Payment stopped
  4. Account already closed
  5. No such account
  6. Stop payment
  7. Signature differ
  8. Refer to drawer.
  9. Not arranged for

10. Account not in the name of accused-A person must have drawn cheque on account maintained by him- Jugesh Sehgal Versus Shamsher Singh Gogi 2009(3) RCR(Criminal) 712 (SC)

  • The provision of Section 202 Criminal Procedure Code are not applicable to the complaints filed under Section 138 of the Negotiable Instrument Act.
  •  If a cheque drawn on an account which is already closed, mala fide intention was clear in the case. Both offences of cheating under Section 420 IPC and Section 138 of NIT Act are made out and accused can prosecuted for both the offences.

142A. Validation for transfer of pending cases.—(1)Notwithstanding anything contained in the Code of Criminal Procedure, 1973 or any judgment, decree, order or direction of any court, all cases transferred to the court having jurisdiction under sub-section (2) of section 142, as amended by the Negotiable Instruments (Amendment) Ordinance, 2015, shall be deemed to have been transferred under this Act, as if that sub-section had been in force at all material times.

(2)Notwithstanding anything contained in sub-section (2) of section 142 or sub-section (1), where the payee or the holder in due course, as the case may be, has filed a complaint against the drawer of a cheque in the court having jurisdiction under sub-section (2) of section 142 or the case has been transferred to that court under sub-section (1) and such complaint is pending in that court, all subsequent complaints arising out of section 138 against the same drawer shall be filed before the same court irrespective of whether those cheques were delivered for collection or presented for payment within the territorial jurisdiction of that court.

(3)If, on the date of the commencement of the Negotiable Instruments (Amendment) Act, 2015, more than one prosecution filed by the same payee or holder in due course, as the case may be, against the same drawer of cheques is pending before different courts, upon the said fact having been brought to the notice of the court, such court shall transfer the case to the court having jurisdiction under sub-section (2) of section 142, as amended by the Negotiable Instruments (Amendment) Ordinance, 2015, before which the first case was filed and is pending, as if that sub-section had been in force at all material times.


  1. Power of Court to try cases summarily.—(1)Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), all offences under this Chapter shall be tried by a Judicial Magistrate of the first class or by a Metropolitan Magistrate and the provisions of sections 262 to 265 (both inclusive) of the said Code shall, as far as may be, apply to such trials:

Provided that in the case of any conviction in a summary trial under this section, it shall be lawful for the Magistrate to pass a sentence of imprisonment for a term not exceeding one year and an amount of fine exceeding five thousand rupees:

Provided further that when at the commencement of, or in the course of, a summary trial under this section, it appears to the Magistrate that the nature of the case is such that a sentence of imprisonment for a term exceeding one year may have to be passed or that it is, for any other reason, undesirable to try the case summarily, the Magistrate shall after hearing the parties, record an order to that effect and thereafter recall any witness who may have been examined and proceed to hear or rehear the case in the manner provided by the said Code.

(2)The trial of a case under this section shall, so far as practicable, consistently with the interests of justice, be continued from day to day until its conclusion, unless the Court finds the adjournment of the trial beyond the following day to be necessary for reasons to be recorded in writing.

(3)Every trial under this section shall be conducted as expeditiously as possible and an endeavour shall be made to conclude the trial within six months from the date of filing of the complaint.


Comment

In Nitinbhai Saevatilal Shah and another vs. Manubhai Manjibhai Panchal and another, 2011(4) RCR (Criminal) 149 (SC) it was held by the Hon’ble Supreme Court in summary trial of complaint under Section 138 of the Act, if the Magistrate who recorded the evidence is transferred, the successor Judge can not pronounce judgments on basis of evidence recorded by his predecessor. He has to try case de novo.

If evidence is recorded in full and not in summary manner, then evidence recorded by predecessor can be acted upon. Though the provision contained in Sec.143 of the N. I. Act provides that cases u/s.138 are to be tried in summary way, they should be tried as a regular summons cases. If it appears to the Magistrate that nature of case is such that sentence of imprisonment for a term exceeding one year may have to be passed, or that it is for any other reasons undesirable to try the case summarily, Magistrate shall
after hearing the parties record and order to that effect and try the case as a regular summons case.

  • Section 262 Cr.P.C. provides the procedure provided for trial of summons case shall
    be followed.
    Procedure in trial of summons case :
    1. On appearance of accused notice of accusation to be served.
    2. Evidence of prosecution
    3. 313 Cr.P.C.
    4. Evidence of defence
    5. Judgment of acquittal or conviction- which shall include
    (a) Substance of evidence
    (b) Brief statement of reasons for the findings
    However, in case of conviction in a summary trial, the Magistrate can pass a sentence of imprisonment for a term not exceeding one year and an amount of fine not exceeding 5000/

Dismissed for default: In V.K. Bhat vs. G. Ravi Kishore and another, 2016(2) RCR (Criminal) 793 (SC) it was held by the Hon’ble Supreme Court that when complaint under section 138 of the Act is dismissed in default, it amounts to acquittal of accused under Section 256 of Cr.P.C


  1. Mode of service of summons.—(1)Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), and for the purposes of this Chapter, a Magistrate issuing a summons to an accused or a witness may direct a copy of summons to be served at the place where such accused or witness ordinarily resides or carries on business or personally works; for gain, by speed post or by such courier services as are approved by a Court of Session.

(2)Where an acknowledgment purporting to be signed by the accused or the witness or an endorsement purported to be made by any person authorised by the postal department or the courier services that the accused or the witness refused to take delivery of summons has been received, the Court issuing the summons may declare that the summons has been duly served.


  1. Evidence on affidavit.—(1)Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the evidence of the complainant may be given by him on affidavit and may, subject to all just exceptions be read in evidence in any enquiry, trial or other proceeding under the said Code.

(2)The Court may, if it thinks fit, and shall, on the application of the prosecution or the accused, summon and examine any person giving evidence on affidavit as to the facts contained therein.


  1. Bank’s slip prima facie evidence of certain facts.—The Court shall, in respect of every proceeding under this Chapter, on production of bank’s slip or memo having thereon the official mark denoting that the cheque has been dishonoured, presume the fact of dishonour of such cheque, unless and until such fact is disproved.

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

Comment :

In Damodar S. Prabhu Vs. SayedBabalal H., 2010(2) RCR (Criminal) 851 (SC) it was held by Hon’ble Supreme Court that if parties compound the offence in trial court accused will have to pay 10% of cheque amount as the cost of compounding. Cost of compounding will be 15% in High Court and 20% in Supreme Court.

However, in Madhya Pradesh State Legal Services Authority vs. Prateek Jain and another, 2014(4) RCR (Criminal) 178 (SC) it was held by the Hon’ble Supreme Court that where settlement is made in Lok Adalat, the Lok Adalat can waive the same for reasons to be recorded.

Devider

Compensation

  1. whether when compensation is ordered as payable for an offence committed under Section 138 of the Negotiable Instruments Act, and in default thereof, a jail sentence is prescribed and undergone, is compensation still recoverable. [Yes]

The accused was found guilty of the offence under Section 138, and was convicted-The accused challenged the aforesaid judgment before the Court of Sessions, and the Appellate Court,  confirmed the conviction, but reduced the sentence to imprisonment till rising of the Court. The order to pay compensation with the default clause was, however, sustained. The accused underwent imprisonment till the rising of the Court and also underwent the default sentence for non-payment of compensation.The second respondent filed CMP No.2018 of 2008 before the learned Judicial Magistrate under Section 421 of the Criminal Procedure Code for realising compensation by issuing a distress warrant against the accused. This CMP was allowed on 19th July 2008, and a distress warrant for the realisation of compensation was issued. The High Court, by the impugned judgment dated 8 th August 2012, held that despite the fact that the default sentence was undergone, yet, under the provisions of the Code of Criminal Procedure, compensation was recoverable- HELD-The deeming provision in Section 431 will apply to Section 421(1) as well, despite the fact that the last part of the proviso to Section 421(1) makes a reference only to an order for payment of expenses or compensation out of a fine, which would necessarily refer only to Section 357(1) and not 357(3). Despite this being so, so long as compensation has been directed to be paid, albeit under Section 357(3), Section 431, Section 70 IPC and Section 421(1) proviso would make it clear that by a legal fiction, even though a default sentence has been suffered, yet, compensation would be recoverable in the manner provided under Section 421(1). This would, however, be without the necessity for recording any special reasons. This is because Section 421(1) proviso contains the disjunctive “or” following the recommendation of the Law Commission, that the proviso to old Section 386(1) should not be a bar to the issue of a warrant for levy of fine, even when a sentence of imprisonment for default has been fully undergone.[Kumaran  Versus State of Kerala & Anr.-2017]

Devider

Post-dated Cheque

Whether the post-dated cheques issued by the appellants (hereinafter referred to as ‘purchasers’) as an advance payment in respect of purchase orders could be considered in discharge of legally enforceable debt or other liability, and, if so, whether the dishonour of such cheques amounts to an offence under Section 138 of the Negotiable Instruments Act, 1881?

In other words, drawal of the cheque in discharge of existing or past adjudicated liability is sine qua non for bringing an offence under Section 138. If a cheque is issued as an advance payment for purchase of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or otherwise, and material or goods for which purchase order was placed is not supplied, in our considered view, the cheque cannot be held to have been drawn for an existing debt or liability The payment by cheque in the nature of advance payment indicates that at the time of drawal of cheque, there was no existing liability [M/s. Indus Airways Pvt. Ltd. & Ors.  Versus M/s. Magnum Aviation Pvt. Ltd. & Anr. … Respondents 2014]

Devider

Territorial Jurisdiction of Trial court

  1. Courts at Gurgaon have no jurisdiction to entertain the complaint specially when the cheque in question was issued and dishonoured at Bangalore and the offence, if any, was committed only at Bangalore. Issue of statutory notices to the petitioners from Gurgaon also does not confer jurisdiction upon the Courts concerned or justify continuance of the proceedings at Gurgaon. Reliance was made on Dashrath Rupsingh Rathod v. State of Maharashtra & Anr. Criminal Appeal and Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd. (2001) 3 SCC 609.[Sree Mahesh Stationaries & Anr.  Vs. Indiabulls Financial Services Ltd. – 2014 ]

Devider

Read More..

Bankers’ Books Evidence Act, 1891 [As amended by the Negotiable Instruments (Amendment & Miscellaneous Provisions) Act, 2002]

 Agreements controlling negotiable instruments

 Payment by bills, notes and cheques

 Suits on negotiable instruments

Bills of Exchange Act, 1882 [UK]

 The Cheques Act, 1957 [UK]

 Uniform Commercial Code [USA]

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