NEGOTIABLE INSTRUMENT

What are the essentials to be considered while prosecuting an offence under Negotiable Instruments Act, 1881?

Over the years due to increasing commercial globalisation, usage of cheques has been promoted in order to ensure credibility in transacting business. With the rapid increase in commerce and trade and thereby increasing usage of cheque has in turn also raised the cheque bouncing dispute.

Negotiable Instruments Act came into existence in order to punish those who had malafide intentions of not discharging their debt or liabilities. Section 138 of the Act deals with the Commission of offence and imposes a criminal liability, punishable with imprisonment or fine or with both, on a person who issues a cheque towards discharge of his debt or liability as a whole or in part and the cheque is dishonoured by the bank on presentation. The Prosecution of such defaulters is dealt with section 142 of the Act

An offence committed under Section 138 is a bailable and non-cognizable offence. A non-cognizable offence is the one in which a police officer cannot arrest the accused without an arrest warrant.

“Section 138 of Negotiable Instrument states that –

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 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 provision of this Act, be punished with an 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 [now three 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 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 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 purpose of this section, “debt or other liability” means a legally enforceable debt or other liability.”

THE FOLLOWING ARE THE MAIN INGREDIENTS REQUIRED IN ORDER TO PROSECUTE THE DRAWER OF A CHEQUE FOR AN OFFENCE OF DISHONOUR OF CHEQUE:

In order to prosecute a drawer u/s 138 of Negotiable Instruments Act 1881, the following ingredients are required to be fulfilled:

a) cheque is drawn by the accused on an account maintained by him with a banker;

b) the cheque amount is in discharge of a debt or liability, issued for whole or in part;

c) the cheque has been presented to the bank within a period of 3 months from the date on which it is drawn or within the period of its validity, whichever is earlier;

d) the cheque is returned by the bank unpaid for insufficiency of funds or that the amount exceeds the arrangement made with the bank;

e) the payee makes a demand for the payment of the said amount by giving a notice in writing to the drawer of the cheque within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

f) the drawer of such cheque fails to make the payment of the said amount to the payee within 15 days of the receipt of the said notice.

WHAT ARE THE ESSENTIALS THAT THE PARTIES TO THE COMPLAINT FILED U/S. 138 OF NEGOTIABLE INSTRUMENTS ACT, 1881 SHOULD BE AWARE OF:

1) Jurisdiction for filing a case u/s 138:

* If cheque delivered for collection through an account –

The Court not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the First Class within whose local jurisdiction lies the branch of the bank where the payee maintains his bank account (his home branch).

* If cheque presented for payment otherwise through an account –

The Court not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the First Class within whose local jurisdiction lies the branch of the bank where the drawer of the cheque maintains his account.

2) Successive presentation of cheques:

A cheque can be presented any number of times during the period of its validity by the holder or the payee. On each presentation of the cheque, it will constitute as a dishonour within the meaning of Section 138. He may, therefore, present the cheque so as to enable him to exercise such right at any point of time during the validity of the cheque.

3) Case of a signed blank cheque or different ink or handwriting:

If a signed blank cheque is handed over by the drawer to a payee, towards some liability, the payee may fill up the amount and other particulars. It is immaterial that the cheque details have been filled in by any other person, in a different handwriting, if the cheque is duly signed by the drawer. This in itself would not invalidate the cheque. The onus would still be on the Accused to prove that the cheque was not given to discharge any of his debt or liability but merely as a security.

4) Grounds for Dishonour of Cheque:

There are certain reasons why the cheque deposited by the holder issued by the drawer gets returned i.e. without clearing payment. Some of them which comprise to be an offence u/s 138 are as follows:

·      Funds Insufficient:

If there is not enough money available in the account to cover the cheques written or authorized, it is called as insufficient funds. A check written against insufficient funds is informally called a returned cheque or a bounced cheque.

·      Account Closed:

When there was no amount in the credit of the account on the relevant date when the cheque was presented.

·      Stop Payment:

Once the cheque has been drawn and issued to the payee and the payee has presented the cheque, then a request to stop payment of cheque will amount to dishonour of cheque.

5) Offence by companies and vicarious liability of officers of the Company:

There are times, where an offence is committed by not only individuals but also by a Company or Firm. In such scenario, the following can be brought within the purview of the penal liability by implicating the following: (1) the company which committed the offence, (2) director, manager or any person who was in charge of and was responsible for the day to day conduct of the business of the company.

6) Issuance of Legal Demand Notice u/s 138:

After the cheque has been returned dishonoured, the payee sends a Legal Demand Notice to the drawer of the cheque within 30 days of receipt of its information from the bank, specifically mentioning him to clear his outstanding amount by paying so within 15 days of receipt of the said notice thereof

7) Presumption as to service of Notice:

By correctly addressing the Legal Demand Notice and sending it registered post to the drawer of the cheque, then it is deemed to be a good service.

8) What if addressee refuses to receive Notice:

It has been held in various cases by the Court that when a Notice is sent by registered post and is returned with postal endorsement such as refused or not available or door locked or addressee not in station, due service has to be presumed.

9) What if Notice is not received:

After the filing of the Complaint u/s 138 and issuance of summons from the Court, the accused or the drawer of the cheque who claims to not have received the notice can, within 15 days of receipt of summons from the court, make the payment to the payee. Thereby the drawer can submit before the Court that he has made the payment and pray for the dismissal of the Complaint.

10) Death of original complainant

After filing of complaint u/s 138, if the Original Complainant dies, his legal heirs are entitled to continue prosecution. The legal heirs can be added as a complainant and can come on record to continue prosecution.

12) Death of accused

In an alleged offence filed u/s 138, if the Accused dies, then the proceedings cannot be initiated against the legal heirs of the accused person who had issued the cheque.

13) Interim compensation to the complainant (As per the 2018 amendment)

ü Section 143-A empowers the Court to order the drawer of the cheque to pay interim compensation to the complainant which shall not exceed 20% of the amount of the cheque that was dishonoured.

ü Such interim compensation shall be paid by the drawer within 60 days from the date of the order directing such compensation. Further extension of not more than 30 days may be granted by the Court on showing of sufficient cause by the drawer of the cheque.

ü If the drawer of the cheque is acquitted, the complainant shall have to repay the drawer, the said received compensation amount with interest at the bank rate as published by RBI prevalent at the beginning of the relevant financial year, within 60 days from the date of the acquittal order. Further extension of not more than 30 days may be granted by the Court on showing of sufficient cause by the complainant.

14) Sentence

According to section 138, the dishonour of cheque is a criminal offence which is punishable with imprisonment which may extend up to two years or with fine which may extend to twice the amount of the cheque or with both.

15) Payment pending appeal against conviction

ü A drawer of cheque who is convicted u/s 138, may file an appeal against his conviction.

ü In such a case, by the provision of Section 148, the Appellate Court can order him to deposit such amount which shall be a minimum of 20% fine or compensation awarded by the trial court. The said amount shall be paid by the drawer within 60 days from the date of the order. Further extension of not more than 30 days may be granted by the Court on showing of sufficient cause by the appellant.

ü Such amount is payable in addition to any interim compensation paid under Section 143-A which the Court has power to release such an amount to the complainant at any time during pendency of the appeal.

ü In case of appellant’s acquittal, the complainant shall have to repay the appellant, the said received amount with interest at the bank rate as published by the RBI prevalent at the beginning of the relevant financial year, within 60 days from the date of the acquittal order. Further extension of not more than 30 days may be granted by the Court on showing of sufficient cause by the complainant.

It may kindly be noted that the abovementioned details are mere general guidelines for knowledge and reference purpose for all those who are concerned.  These shall not be treated as a substitute for any legal advice or suggestions.