Advent of cheques in the market have given a new dimension to the commercial and corporate world, its time when people have preferred to carry and execute a small piece of paper called Cheque than carrying the currency worth the value of cheque. Dealings in cheques are vital and important not only for banking purposes but also for the commerce and industry and the economy of the country. But pursuant to the rise in dealings with cheques also rises the practice of giving cheques without any intention of honoring them. Before 1988 there being no effective legal provision to restrain people from issuing cheques without having sufficient funds in their account or any stringent provision to punish them in the vent of such cheque not being honoured by their bankers and returned unpaid. Of course on dishonour of cheques there is a civil liability accrued. However in reality the processes to seek civil justice becomes notoriously dilatory and recover by way of a civil suit takes an inordinately long time. To ensure promptitude and remedy against defaulters and to ensure credibility of the holders of the negotiable instrument a criminal remedy of penalty was inserted in Negotiable Instruments Act, 1881 in form of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 which were further modified by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002[3].
Meaning of Dishonour of Cheque :- 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 the 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 extend 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.
The essential requirements to attract section 138, Negotiable Instruments Act are:
(a) The cheque for an amount is issued by the drawer to the payee / complainant on a bank account maintained by him.
(b) The said cheque is issued for the discharge, in whole or in part of any debt or other liability.
(c) The cheque is returned by the bank unpaid on account of insufficient amount to honour the cheque or it exceeds the amount arranged to be paid from that account by an agreement made with the bank.
(d) The cheque is presented within 6 months from the date on which it is drawn or within the period of its validity.
(e) 30 days demand notice is issued by the payee or the holder in due course on receipt of information by him from the bank regarding the dishonour of the cheque.
(f) The drawer of said cheque fails to make payment of the said amount of the money to the payee or the holder on due course within 15 days of the said notice.
(g) The debt or liability against which the cheque was issued is legally enforceable.
Component of offence:
Section 138 of the Act makes it an offence where may cheque drawn by a person on any account maintained by him in a Bank for payment of any amount to other person is returned unpaid by the Bank for insufficiency of the deposit or for the amount payable exceeding such deposit. The components of offence under this provision are, (a) drawing of the cheque for some amount; (b) presentation of the cheque to the banker; (c) return of the cheque unpaid by the drawee bank; (d) giving of notice by the holder of the cheque or payee to drawer of the cheque demanding payment of cheque amount; (e) failure of drawer to make payment within 15 days of receipt of such notice.
Drawing of a Cheque:
The drawer in payment of a legal liability to discharge the existing debt should have drawn cheque. Therefore any cheque given say by way of gift would not come within the purview of the section. It should be a legally enforceable debt; therefore time barred debt and money-lending activities are beyond its scope.
The words any debt or any other liability appearing in section 138 make it very clear that it is not in respect of any particular debt or liability The presumption which the Court will have to make in all such cases is that there was some debt or liability once a cheque is issued. It will be for the accused to prove the contrary. i.e., there is no debt or any other liability. The Court shall statutorily make a presumption that the cheques were issued for the liability indicated by the prosecution unless contrary is to be proved.
Where the Complaint lacks necessary ingredients of the offence under Section 138: Hon’ble Supreme Court in JugeshSehgal Vs. Shamsher Singh Gogi 2009(3) CC Cases (SC) 2004. The Supreme Court noted that the cheque alleged to have been issued by the petitioners to the complainant was issued from an account pertaining to some other person. The Court also noted that one of the essential ingredients of the offence punishable under Section 138 of Negotiable Instruments Act is that the cheque must have been drawn on an account maintained by the accused. Since the cheque in the case before the Supreme Court was not issued from the account maintained by the petitioner, it was held that one essential ingredient of offence under Section 138 of Negotiable Instruments Act was not.
Presentation of Cheque:
The presentation of cheque should be within its validity period. Generally a cheque is valid for six months, but there are cheques whose validity period is restricted to three months etc. The question arises as to which bank the cheque should reach within the validity period, is it the payee to his bank presents that of drawer’s bank or it is enough if the cheque before six months. The courts are divided on the issue. But common sense demands that the cheque should reach the drawer bank within the period of validity as it is that bank that either pays or rejects payment as per the situation existing on that day.
Supreme Court in Sadanandan Bhadran vs. Madhavan Sunil Kumar, It was also held that while the payee was free to present the cheque repeatedly within its validity period, once notice had been issued and payments not received within 15 days of the receipt of the notice, the payee has to avail the very cause of action arising thereupon and file the complaint. Dishonour of the cheque on each re-presentation does not give rise to a fresh cause of action.
Returning Of the Cheque Unpaid:
Lot of controversy had arisen on the issue. What reasons are relevant to hold the drawer of the cheque criminally responsible for bouncing of a cheque. The case laws on the subject have now made the position clear. It is not what the bank says in its return memo that is relevant but the actual position as on the date when the cheque reaches the drawer bank whether there were enough funds in the drawer account to honour the cheque. The following judgments bring out the correct legal position: Rakesh Nemkumar Porwal v. Narayan Dhondu Joglekar : Any reason for dishonour is an offence.
J. Veeraraghavan v. Lalith Kumar: Any reason for dishonour is an offence. S. 138 of the NI Act Marginal Note stating "Dishonour of cheque for insufficiency etc. of funds in accounts" addition of word "etc." cannot be considered to be an accident.
Disagreeing with Hunasikathimath case , Karnataka H.C., who following Punjab and Haryana H.C. in theAbdul Samad case and by a learned single Judge of Bombay H.C. in Om Prakash case, terming them as rigid and wooden view states:
"there is no other go for us except to agree to disagree with the views expressed herein, in as much as such a view, apart from suffering from a serious infirmity of erroneous interpretation of the relevant provisions of the Act, is to frustrate the very object and purpose for which the relevant provisions had been introduced by the amending Act. It is to be noted that this sort of a view is not negligibly supported by the very title of the Chapter Of penalties in case of dishonour of certain cheques for insufficiency of funds in the accounts (Emphasis supplied.) Equally important it is to note that the marginal note to sec. 138 of the Act states …………. Top of all, such sort of a view, if accepted and followed, the statutory provisions of Chapter XVII, introduced by amending Act, would become a dead letter and a non-sense situation would be created, in the sense of posing insurmountable obstacle in the free negotiability and acceptability of the cheques in the fast moving commercial transactions at regional, national and global level, creating a calamitous situation in the commercial world.
With respect, we agree fully with the view expressed by the Dn. Bench of Bom. HC in the case of Rakesh Porwal and of the Kerala HC in the case of Thomas Verghese and a single Judge of the Rajasthan HC in the case of Pearay Lal Rajendra Kumar P Ltd, in as much as such a view had been arrived at in interpreting the various expressions and words used in the relevant provisions in a meticulous fashion keeping in view the object and reasons for which such a provision had been introduced with the avowed purpose of achieving the object for which it was enacted."
Notice:
Notice is a very important stage. It is the non-payment of dishonoured cheque within fifteen days from the receipt of the notice that constitutes an offence. Issuing of a cheque and its dishonour is not an offence. The offence is when the drawer receives a notice from the payee and he fails to pay the dishonoured cheque amount within the grace period of 15 days that constitute an offence. Any demand made after the dishonour of cheque will constitute a notice. It is not necessary that the notice should be sent by Registered Post alone, it could be sent even by fax. It is not necessary that the notice should be in any particular form or style. What is essential is that there should be a demand to pay the dishonoured cheque amount.
It is held by the Supreme Court that while the cheque could be presented at any number of times however there shall be only one Notice. The following case may be noted on the subject:
Sadanandan Bhadran v. Madhavan Sunil Kumar
Complaint U/s. 138- Maintainability - conditions precedent to applicability of sec. 138 - A cheque can be presented any number of times during the period of its validity- Whether dishonour of the cheque on each occasion of its presentation gives rise to a fresh cause of action within the meaning of Sec. 142(b) of the act - Held No. - A competent court can take cognizance of a written complaint of an offence u/s.138 if it is made within one month of the date on which the cause of action arises under clause c of Sec.142 gives it is a restrictive meaning - it is the failure to make payment within 15 days from date of receipt of notice which will give rise to cause of action - Cause of action within meaning of Sec. 142 (c) arises and can arise only once - impediments which negate concept of successive causes of action
Held.:
On each presentation 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 right under clause (b) of Section 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. But, once he gives a notice under clause (b) of Sec. 138 he forfeits such right for in case of failure of the drawer to pay the money within the stipulated time he would be liable for the offence and the cause of action for filing the complaint will arise. Needless to say, the period of one month for filing the complaint will be reckoned from the day immediately following the day on which the period of fifteen days from the date of the receipt of the notice by the drawer expires. No action taken on the first notice - cheque presented again - second notice sent - on failure to receive money case filed on the basis of second notice - Acquittal on ground that there could not be more than one cause of action in respect of a single cheque - sustainable - Appellant had earlier taken recourse to clause (b) of Sec. 138 but did not avail of cause of action that arose in his favour u/s. 142(b) of the Act.
Therefore it is essential that the notice should be perfect and in conformity with law. A mistake in the notice will be fatal. It is common mistake committed by most of the payees that as soon as the cheque is returned unpaid to write a letter to the drawer threatening him that in case he does not pay against the dishonoured cheque legal action will be taken etc. Such letter will also be construed as a notice. Since a second notice cannot now be issued on the basis of subsequent dishonour of cheque, due care and caution should be taken while sending the notice on dishonour of cheque.
As stated already that non-payment of cheque amount within the grace period of fifteen days from the date of receipt of the notice constitutes an offence and therefore liable to prosecuted for the criminal offence so committed.
Limitation:
These being a special legislation certain time limits have been laid down and they should be strictly followed. Any lapse in adhering to the schedule, shall take away a cause of action under Sec. 138. The time limits placed cannot be condoned by the Courts. Therefore the question of making an application for condonation of delay as in the case of civil does not arise at all under the said section. What then are the limitations one has to keep in one mind and follow them strictly to prosecute the drawer of cheque who has failed to pay the said sum within fifteen days from the receipt of the notice?
• Cheque should be presented to the bank for encashment within its validity period.
• Within fifteen days from the receipt of return memo indicating reason of dishonour, a notice should be sent demanding the amount of dishonored cheque.
• If the drawer does not pay the amount of dishonoured cheque within the grace period, a complaint thereafter should be filed within one month in the relevant court of Metropolitan Magistrate/Judicial Magistrate as the case may be, having jurisdiction.
Jurisdiction:
Territorial jurisdiction - Dishonour of cheque - Complaint can be filed at any of the place: -
1. Where the cheque was drawn.
2. Where the cheque was presented for encashment.
3. Where the cheque was returned unpaid by drawee bank.
4. Where notice in writing was given to drawer of cheque demanding payment.
5. Where drawer of cheque failed to make payment within 15 days of receipt of notice.
Each of the fine acts constituting offence could be done at 5 different localities. Hence one of the Courts exercising jurisdiction in one of the five local areas can become the place of trail for the offence under sec. 138 of the Act. 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.
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