Saturday, February 4, 2017

Cheque bounce cases or 138 Negotiable Instruments Act cases:


Nowadays almost every person is aware of cheque bounce cases.  But few people only know what it is exactly.  The Negotiable Instrument Act was amended giving room to punish people who give cheque without maintaining balance in their account.  Before amending the act if any body give cheque without balance that is not an offence, but a civil liability.  i.e., the person  who holds the cheque can sue for recovery of money.  But since the introduction of 138 of Act the Person is liable for punishment.
Lets consider relevent terms in connection with cheque bounce offences.
1 [ 6 “Cheque”. —A “cheque” is a bill of exchange drawn 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—

 “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 system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system;


 “a truncated cheque” means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting 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.]

7 “Drawer”, “drawee”. —The maker of a bill of exchange or cheque is called the “drawer”; the person thereby directed to pay is called the “drawee”. “drawee in case of need”. —When in the bill or in any indorsement thereon the name of any person is given in addition to the drawee to be resorted to in case of need such person is called a “drawee in case of need”. “acceptor”. —After the drawee of a bill has signed his assent upon the bill, or, if there are more parts thereof than one, upon one of such parts, and delivered the same, or given notice of such signing to the holder or to some person on his behalf, he is called the “acceptor”. “acceptor for honour”. — 2 [When a bill of exchange has been noted or protested for non-acceptance or for better security], and any person accepts it supra protest for honour of the drawer or of any one of the indorsers, such person is called an “acceptor for honour”. “Payee”. —The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the “payee”.

“Holder”.—The “holder” of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction.

9 “Holder in due course”.—“Holder in due course” means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if 1[payable to order], before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

These are the terms we often come across the 138 cases.

The Sec.138 says:

18 [ 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 provisions of this Act, be punished with imprisonment for 19 [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, 20 [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 NEGOTIABLE INSTRUMENTS ACT, 1881

1[ 139 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.]

THE NEGOTIABLE INSTRUMENTS ACT, 1881

1[140 . 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.]
21 [ 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: 22 [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.]
23 [ 142 Cognizance of offences. —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: 24 [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.] COMMENTS

 (i) Consequent upon the failure of the drawer to pay the money within the period of 15 days as envisaged under clause (c) of the proviso to section 138, the liability of the drawer for being prosecuted for the offence he has committed, arises, and the period of one month for filing the complaint under section 142 is to be reckoned accordingly; Sadanandan Bhadran v. Madhavan Sunil Kumar, AIR 1998 SC 3043.
(ii)  A manager or any other person authorised by the company can represent it during the course of legal proceedings before the court and file a complaint; Salar Solvent Extractions Ltd. v. South India Viscose Ltd., (1994) 3 Crimes 295 (Mad).
 (iii)  The Magistrate while taking cognizance has to look into the question whether the ingredients of an offence have been made out or not; M/s. Pearey Lal Rajendra Kumar Pvt. Ltd. v. State of Rajasthan, (1994) 3 Crimes 308 (Raj).
(iv) The cause of action for filing complaint would arise after the completion of 15 days from the date the drawer receives the notice and fails to pay the amount within that period; V.N. Samant v. M/s. K.G.N. Traders, (1994) 3 Crimes 725 (Karn).
(v) The payee cannot lodge a complaint after the completion of one month from the date on which the cause of action arose as there is a bar under clause (b) of section 142; V.N. Samant v. M/s. K.G.N. Traders, (1994) 3 Crimes 725 (Karn).
(vi) So long as the period of notice does not expire there can be no cause of action with the payee to make the drawer liable criminally; T.K. Khungar v. Sanjay Ghai, (1994) 3 Crimes 802 (P & H).

(vii) It is well settled that it is not necessary for the Magistrate to specifically state that he is taking cognizance of the offence. If he takes steps as provided under section 200, of the Code of Criminal Procedure then it necessarily means that he has taken cognizance of the offence; R. Rajendra Reddy v. M/s. Sujaya Feeds, (1994) 3 Crimes 692 (Karn).

(viii) The complainant must allege in his complaint that the cheque was dishonoured due to want of sufficient amount in the account, even if the payment was stopped; Ballakrishna Pillai v. Abdullakutty, (1994) 2 Crimes 327 (Ker).

(ix) Once a cause of action has arisen, the limitation will begun to run and it could not be stopped by presenting the cheque again so as to have a fresh cause of action and fresh limitation; M/s. Chahal Engineering and Construction Ltd. v. M/s. Verma Plywood Co., (1994) 1 Crimes 845 (P & H).

(x) The criminal prosecution has to be launched within one month of the expiry of 15 days' period from the issuance of notice as provided by section 142(b) of the Act; M/s. Chahal Engineering and Construction Ltd. v. M/s. Verma Plywood Co., (1994) 1 Crimes 845 (P & H).

(xi) When the cheque stood issued in favour of a company, a complaint under section 138 of the Act can be filed by its Manager, Partner, Director or any person authorised by the company; M/s. Ruby Leather Exports v. K. Venu, (1994) 1 Crimes 820 (Mad).
(xii) There is no ambiguity in clause (a) of section 142 of the Act, which prohibits or excludes complaints being initiated by Power of Attorney, agents of the payee or the holder in due course. A Power of Attorney, will be competent to initiate a private complaint by stepping into the shoes of the payee or the holder in due course; M/s. Ruby Leather Exports v. K. Venu, (1994) 1 Crimes 820 (Mad).

THE NEGOTIABLE INSTRUMENTS ACT, 1881

1[143. 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.
THE NEGOTIABLE INSTRUMENTS ACT, 1881

144. 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.
THE NEGOTIABLE INSTRUMENTS ACT, 1881
145. 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.

THE NEGOTIABLE INSTRUMENTS ACT, 1881

146. 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.

THE NEGOTIABLE INSTRUMENTS ACT, 1881

146. 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.

147 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.

THE NEGOTIABLE INSTRUMENTS ACT, 1881 SCHEDULE.—Enactment repealed.—[Rep. by the Amending Act, 1891 (12 of 1891), sec. 2 and Sch. I.]

1. Subs. by Act 55 of 2002, sec. 2, for “A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand" (w.e.f. 6-2-2003).
2. Ins. by Act 5 of 1914, sec. 2.
3. Ins. by Act 5 of 1914, sec. 2.
4. Added by Act 5 of 1914, sec. 3.
5. Added by Act 5 of 1914, sec. 3.
6. Subs. by the A.O. 1937, for “Local Government”.
7. Ins. by Act 2 of 1885, sec. 4.
8. Subs. by Act 12 of 1921, sec. 3, for “for payment”.
9. Subs. by Act 66 of 1988, sec. 2, for “six per centum” (w.e.f. 30-12-1988).
10. Ins. by Act 55 of 2002, sec. 4 (w.e.f. 6-2-2003 ).
11. Ins. by Act 17 of 1934, sec. 2.
12. Ins. by Act 55 of 2002, sec. 5 (w.e.f. 6-2-2003 ).
13. The words “and such declaration must be recorded by the notary in his register” omitted by Act 2 of 1885, sec. 8.
14. Subs. by Act 66 of 1988, sec. 3, for “six per centum” (w.e.f. 30-12-1988).
15. Explanation re-numbered as Explanation I thereof by Act 55 of 2002, sec. 6 (w.e.f. 6-2-2003).
16. The words “law of British India” were successively amended by A.O. 1948, the A.O. 1950 and Act 3 of 1951, sec. 3 and Sch. to read as above.
17. Subs. by Act 3 of 1951, sec. 3 and Sch., for “the States”.
18. sections 138 ins. by Act 66 of 1988, sec. 4 (w.e.f. 1-4-1989 ).
19. Subs. by Act 55 of 2002, sec. 7, for "a term which may be extended to one year" (w.e.f. 6-2-2003 ).
20. Subs. by Act 55 of 2002, sec. 7, for "within fifteen days" (w.e.f. 6-2-2003 ).
21. Ins. by Act 66 of 1988, sec. 4 (w.e.f. 1-4-1989).
22. Ins. by Act 55 of 2002, sec. 8 (w.e.f. 6-2-2003).
23. Ins. by Act 55 of 2002, sec. 9 (w.e.f. 6-2-2003).
24. Ins. by Act 55 of 2002, sec. 9 (w.e.f. 6-2-2003).
As we observed above the litigation pertaining to the cheque bounces are becoming a major litigation in the country. 

Since the giving of cheque without balance in account is an offence and the cases are easy to file and less time in comparable with civil cases are taken, besides that no court fee is payable people are opting to file 138 NI Act cases.  It is not out of place to say that many un authorised money lenders and private chit fund owners are also taking advantage of this easy tryl.  Day after day many people are suffering for the following:

The private money lender by lending small amount taking a cheque of heavy amount and filing criminal cases.  The accused could not place any defence of the same before the courts and ultimately they have to suffer criminal punishment i.e., sentence to Jail.  In some cases the accused to safe guard their skin are going to compromise with the complainant by paying more and more money to them by facing many trebles.

Nowadays Bankers are also taking advantage of this procedure.  Inspite of filing a civil case they also opting to file criminal case under 138 NI act.

I saw several cases wherein innocent people were became subject for harassment of 138 NI Act. 

I think it is high time to amend the act in the following way.

If any debt is given to any person that should be only by way of crossed cheque and on the basis of cheque only promissory note should be executed.  If any transaction is not by way of cheque or Demand Draft was not made at the time of lending money that should not attract 138 NI act.  More over if a person who is not a professional moneylender than only cheque bounce cases strictly should attract.

At the time of filing of a complaint the complainant should declare that the present case is only a transaction of lending money which does  not attract professional money lenders act, he further declare that except the present case he was not filed any more 138 NI Act cases and also should undertake that he will not file any more cases.every transaction should be shown in income tax returns.

I request the state to incorporate these points in future amendments so as to curtail false, fake and unfair litigation.  So that only real people will come to the court.

As far as Bank transactions are concerned sec.138 completely  made not applicable for Bank transactions. 

If anybody having any doubt with regarding these cases can contact the author.