Cheque Dishonour case – Sec.138 NI ACT – A Quick view – (Short Notes)

By Y.Srinivasa Rao, M.A (English Lit.)., B.Ed., LL.M., Research Scholar in Law of Torts., Principal Senior Civil Judge.

TABLE OF CONTENTS:

  1. Defination of Cheque
  2. Cheque in the Electronic Form
  3. Negotiable Instruments
  4. Some Key Words – General meanings:
  5. Essential elements of Section 138 N.I. Act
  6. Conditions to attract section 138 N.I. Act
  7. Position before 2014
  8. Dasarath Rupsingh Rathod’s case:
  9. Recent Amendments
  10. Bridgestone’s case
  11. Meters and Instruments (P) Ltd. v. Kanchan Mehta
  12. Permission to compound the offence is not necessary
  13. Cheque Bounce Case Citation – Ready Reckoner
  14. Certain Directions of Hon’ble High Court of Telangana
  15. Conclusion

Defination of Cheque:- 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, according to Section 6 of Negotiable Instruments Act, 1881

Cheque means a bill of exchange, drawn on a specified banker and not expressed to be payable otherwise than on demand, according to Section 2(7), Stamp Act, 1899

Cheque is an order addressed to a banker requesting him to pay to (a) the person therein mentioned or his order or (b) the person therein mentioned or the bearer of the cheque, the sum of money therein mentioned.

Negotiable Instruments:

Negotiable Instruments means a promissory note, bill of exchange or cheque payable either to order or to bearer, according to Section 13, Negotiable Instruments Act, 1881. Those the right of action upon which is, by exception from the common rule, freely assignable from one to another, such as bills of exchange and promissory notes.

Cheque in the Electronic Form — Means a cheque drawn in electronic form by using any computer resource and signed in a secure system with digital signature (with or without biometrics signature) and asymmetric crypto system or with electronic signature, as the case may be. See. Explanation (1) Section 6(a), Negotiable Instruments Act, 1881 (India) (w.e.f 15-6-2015).

Some Key WordsGeneral meanings:

Creditor:- ‘Creditort’ means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree holder, See. Section 3(10), Insolvency and Bankruptcy Code, 2016. The word ‘Creditor’ Includes a decree-holder, “debt” includes a judgment-debt, and “debtor” includes a judgment-debtor, according to Section 2(a), Provincial Insolvency Act, 1920. Creditor is the person to whom the guarantee is given in a ‘contract of guarantee’ under Section 126, Contract Act, 1872.  The word ‘Creditor’ also means that one who trusts or gives credit, correlative to debtor. A creditor is entitled to take out letters of administration if there be no next of kin or the next of kin will not.

Drawer:- The maker of a bill of exchange or cheque, according to Section 7, Negotiable Instruments Act, 1881. The person making a bill of exchange and addressing it to the drawee.

Drawee:-  Person who is directed to pay, according to Section 7, Negotiable Instruments Act, 1881. The person on whom a bill of exchange is drawn, who is called, after acceptance, the acceptor. 

Dishonour:- To refuse or neglect to accept or pay when duly presented for payment a bill of exchange or promissory note or draft on a banker.

Pay:- Pay means “deliver and render” the amount; it indicates the discharge of an obligation rather than an investment of money. “To pay” is a generic term and the rest of the proviso refers to the modes of payment. It may also mean the payment of the amount of tax assessed.

Payment:- The payment of money before the day appointed is in law payment at the day.  Payment is not defined in the Act. The Concise Oxford English Dictionary (Tenth Edition-revised) defines ‘payment’ as ‘1. the action of paying or the process of being paid. 2. an amount paid or payable’. Webster Comprehensive Dictionary (International Edition) Volume two defines ‘payment’ ‘1. the act of paying. 2. Pay; requital; recompense.’ Meaning given in Law Lexicon by P. Ramanatha Aiyar, relied upon by Supreme Court viz.: ‘payment is defined to be the act of paying or that which is paid; discharge of a debt, obligation or duty; satisfaction of claim; recompense; the fulfillment of a promise or the performance of an agreement; the discharge in money of a sum due.’, H.P. Housing & Urban Development Authority v. Ranjit Singh Rana, (2012) 4 SCC 505, 588 (Para 14). Curioisly enough, the word “Payment” implies gift of money by someone to another, as was held in CGT v. N.S. Getti Chettiar, (1971) 2 SCC 741.  

Payee:- One to whom a bill of exchange or promissory note or cheque is made payable.  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”, as per Section 7, Negotiable Instruments Act, 1881.

Essential elements of Section 138 N.I. Act

The following elements are very essential to attract the offence under section 138 of N.I. Act,1881:-

  1. The cheque is drawn by the accused on an account maintained by him with a banker;
  2. Such cheque amount is in discharge of a debt or liability; and
  3. The said cheque is returned unpaid for insufficiency of funds or that the amount exceeds the arrangement made with the bank, the offence standing committed the moment the cheque is returned unpaid.
  4. Besides the above elements, the follwing conditions must be fulfilled. Those are:-

Conditions to attract section 138 N.I. Act:-

1. Presentation of cheques to bank within 6 months:- To attract the offence U/sec. 138 N.I. Act, the cheque ought to have been presented to the bank within a period of six (6) months [three (3) months]* from the date on which it is drawn or within the period of its validity, whichever is earlier.

2. Giving a legal notice in writing, within 30 days:- The payee or the holder in due course of the cheque, as the case may be, ought to make a demand for the payment of the said amount of money 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.

3. Failure to make payment of the said amount of money, within 15 days:- The drawer of such a cheque should have failed 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 15 days of the receipt of the said notice.

Position before 2014 :-

Where payment is made in currency notes which turned out to be counterfeit, can it be said that there was no payment and no fresh starting of limitation for the original debt, as was held In Kandasamy Mudaliar v. Thevammal , AIR 1936 Mad 848. This is with regard to a payment under Sec. 20 of the Act of 1908 (now, it is Sec. 19). Ratio as to an acknowledgement of liability under Sec. 19 (now Sec. 18) was observed in Chintaman Dhundiraj v. Sadguru Narain Maharaj, AIR 1956 Bombay 553 DB It was held in 1966 that issuing a cheque is as good as payment in cash. Mohideen Bi v. Khatoon Bi AIR 1966 Mad. 435 DB. [See. Article titled ”Dishonoured Cheque Issued by A Debtor Towards an Existing Debt, Whether will Save Limitation Under Sec. 18 or Sec. 19 of the Limitation Act, 1963?” (2006) 3 LW (JS) 51, Written by Hon’ble Sri Justice S.A.Kader]. There are catena of ruling of this subject of section 138 of NI Act. I make to an attempt to discuss only some important rulings relating to before 2014, here to under the judicial response on section 138 of NI Act. Specific directions to criminal courts for the expeditious disposal of section 138 of N.I.Act cases, See. Indian Bank Assn. v. Union of India, (2014) 5 SCC 590. Another ruling to understand the scenario as to section 138 NI Act is JIK Industries Ltd. v. Amarlal V. Jumani, (2012) 3 SCC 255:- Guidelines for compounding of offence under Section 138 of the NI Act in para 26 of Damodar S.Prabhu Case (2010) 5 SCC 663 are clarified. Cases of CBI v. Duncans Agro (1996) 5 SCC 591, Hira Lal Hira Lal Bhagwati’s case (2003) 5 SCC 257, and Nikhil Merchant v. CBI (2008) 9 SCC 677 are distinguished ICICC Bank v. SIDCO (2006) 10 SCC 452 , A.G.Varadarajulu v. State of Tamilnadu, (1998) 4 SCC 231, Central Bank of India v. State of Kerala, (2009) 4 SCC 94 are releid on. Ratio in Kershi Phirozsha’ case 2007 Crl. LJ 3958 is approved. – The Law Commission of India, Report 245(2014).  Arrears and Backlog: Creating Additional Judicial womanpower; See also. The Law Commission of India, Report No. 213 – In legal contemplation “payment” is the discharge of an obligation by the delivery of money or its equivalent, State of Haryana v. Maruti Udyog Ltd., (2000) 7 SCC 348.  

In MSR Leathers v. S. Palaniappan, (2013) 1 SCC 177, the scope of the proviso to Section 138 as clauses (a), (b) and (c) was discussed.

Dasarath Rupsingh Rathod‘s case:-

The Supreme Court of India in the land mark Three-Judge Bench judgment dated 1.8.2014 in Dasarath Rupsingh Rathod v. State of Maharashtra, reported in (2014) 9 SCC 129  has held that the offence under Sec. 138 of the N.I. Act is committed at the time of the dishonour of the cheque and that therefore in view of the provisions contained in Sec. 177 of the Cr.P.C. dealing with territorial jurisdiction, the complainant cannot file the complaint to the place of his choosing and that territorial jurisdiction is restricted with the court within whose limits the offence is committed, which in the present context in Sec. 138 of the N.I. Act where the cheque is dishonoured, etc. Accordingly it has been held therein that the learned Magistrate Court having territorial jurisdiction over the drawee bank where the dishonour of the cheque take place alone will have territorial jurisdiction to try the case.

Recent Amendments:- Later, the legislative intervention was made by amending the provisions contained in Negotiable Instruments Act, made effective from 15.6.2015 by inserting Secs. 142(2) & 142A of the said Act, which read as follows:

“Sec.142: Cognizance of offences.-

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(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, maintains the account.

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Sec.142A: Validation for transfer of pending cases.— (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974) 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.”

Bridgestone‘s case:- A fortiori, in Dr. Radha Mohan, Managing Director, Matha Protein Private Limited, Ezhukone P.O. Kollam v. ABS Channel Plus Visual Media Advertising Private Limited,, 2017 SCC OnLine Ker 34307, the Hon’ble Kerala High Court observed that it will be profitable to refer to paras 14 to 16 of the decision in Bridgestone India Private Limited v. Inderpal Singh, reported in (2016) 2 SCC 75. which read as follows:

‘14. It is, however, imperative for the present controversy, that the appellant overcomes the legal position declared by this Court, as well as, the provisions of the Code of Criminal Procedure. Insofar as the instant aspect of the matter is concerned, a reference may be made to S.4 of the Negotiable Instruments (Amendment) Second Ordinance, 2015, whereby S.142A was inserted into the Negotiable Instruments Act. A perusal of sub-section (1) thereof leaves no room for any doubt, that insofar as the offence under S.138 of the Negotiable Instruments Act is concerned, on the issue of jurisdiction, the provisions of the Code of Criminal Procedure, 1973, would have to give way to the provisions of the instant enactment on account of the non – obstante clause in sub-section (1) of S.142A. Likewise, any judgment, decree, order or direction issued by a Court would have no effect insofar as the territorial jurisdiction for initiating proceedings under S.138 of the Negotiable Instruments Act is concerned. In the above view of the matter, we are satisfied, that the judgment rendered by this Court in Dashrath Rupsingh Rathod’s case would also not non – suit the appellant for the relief claimed.

Meters and Instruments (P) Ltd. v. Kanchan Mehta

In Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560, it makes it clear that the power under Sub section 3 of Sec. 357 of the Code of Criminal Procedure,1973 to direct payment of compensation is in addition to the said prescribed sentence, if sentence of fine is not imposed.  and it was further held that the direction to pay compensation can be enforced by default sentence under Section 64 of Penal Code,1860 and by recovery procedure prescribed under Sec. 431 of the Code of Criminal Procedure,1973.

Permission to compound the offence is not necessary:

Section 147 of N.I.Act makes it clear that offence punishable under the provisions of NI Act is compoundable in nature. In Rameshbhai Sombhai Patel v. Dineshbhai Achalanand Rathi, 2004 SCC Online Gujarath 469,  it was held that No formal permission to compound the offence of section 138 of N.I.Act is required. If the Court satisfies that the complainant has been duly compensated, accused can be discharged in the cases of section 138 of N.I.Act. See. Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560. As was held in Gunmala Sales Private Ltd. Versus Anu Mehta, (2015) 1 SCC 103, Sec. 482 of the Code of Criminal Procedure,1973 is applicable seeking quash the proceedings under section 138 of N.I.Act.

Cheque Bounce Case Citation – Ready Reckoner:-

Legally enforceable debt or liability:-  Pankaj Mehra v. State of Maharashtra, (2000) 2 SCC 756; Nanda v. Nandkishor, 2010 SCC Bom. Page 54; Comorin Match Industries (P) Ltd. v. Sta …, (1996) 4 SCC 281

Liability of guarantor:- ICDS Ltd. v. Beena Shabeer, (2002) 6 SCC 426. See also. Nangia Construction India (P) Ltd. v. Na …, 1990 SCC OnLine Del 119

Mandatory requirement of legal notice U/sce. 138 (b) :- C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555; Vinay Kumar Shailendra v. Delhi High Cou …, (2014) 10 SCC 708; As to referring the case to Lok adalat, See. M.P. State Legal Services Authority v. P …, (2014) 10 SCC 690. See. Sumedha v. State of Maharashtra, 2019 SCC OnLine Bom 195

Service of legal notice- Presumption:- N. Parameswaran Unni v. G. Kannan, (2017) 5 SCC 737.  See also. Lucy Ayline Jacinto v. Union Bank of Ind …, 2011 SCC OnLine Bom 271.

ChequePresumption under S. 139:- Basalingappa v. Mudibassapa, 2019 SCC Online 491. See. Rangappa v. Sri Mohan, (2010) 11 SCC 441, for rebuttable presumption.

financial capacity of the Complainant:- Basalingappa v. Mudibassapa, 2019 SCC Online 491.

Blank Cheque:- Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197; A. Suseela v. S. Radhakrishnan, 2011 SCC OnLine Mad 735; A. Krishna Kumar v. P. Regina, 2015 SCC OnLine Mad 5490 and C.A. Balan v. C.K. Jayan, 2015 SCC OnLine Ker 17083.

Sec.138 NI Act case by/against Company/Firm:- Associated Cement Co. Ltd. v. Keshvanand, (1998) 1 SCC 687. See. National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal (2010) 3 SCC 330, as to sec. 138 NI Act case agaisnt Company Directors. Also see. Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661, SMS Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89 and Katta Sujatha v. Fertilizers & Chemicals Travancore Ltd., (2002) 7 SCC 655.  

Dishonour of Post-dated cheque :- Goaplast (P) Ltd. v. Chico Ursula D’Souza, (2003) 3 SCC 232. See also. Uniplas India Ltd. v. State (Govt. of NC …, (2001) 6 SCC 8.

InstructionsStop payment: MMTC Ltd. v. Medchl Chemicals and Pharma (P) Ltd., (2002) 1 SCC 234; Icon Buildcon (P) Ltd. v. Aggarwal Devel …, (2014) 8 HCC (Del) 502; D. Laxman Rao v. State of A.P., 2015 SCC OnLine Hyd 990; Battula Parameswara Reddy v. Charity Int …, 2015 SCC OnLine Hyd 1006;

InstructionsSignature does not match:-  Laxmi Dyechem v. State of Gujarat, (2012) 13 SCC 375.

Instructions Account closed:- NEPC Micon Ltd. v. Magma Leasing Ltd., (1999) 4 SCC 253; Sumedha v. State of Maharashtra, 2019 SCC OnLine Bom 195; and A.K. Chaudhary v. Nandita Malhotra, 2007 SCC OnLine Del 401

Successive presentation of a cheque for encashment: MSR Leathers v. S. Palaniappan, (2013) 1 SCC 177.

Disposal of Sec.138 NI Act online:- Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560.  

Certain Directions of Hon’ble High Court of Telangana:— See. ROC.NO.1608/SO/2020, Dated: 21.06.2021, CIRCULAR NO.11/2021. In the Orders dated 16.04.2021 of Hon’ble Supreme Court of India in Suo Motu Writ Petition (Crl.) No.2 of 2020 titled In Re: Expeditious Trail of Cases Under Section 138 Negotiable Instruments Act, wherein the High Courts have been requested to issue practice directions to all the Courts under their control to streamline the procedure being adopted in the cases instituted for the offence uncler Section 138 of Negotiable Instruments Act. Pursuant to the directions of the Hon’ble Supreme Court of India, the Hon’ble High Court of Telangana issued certain Practice Directions to Subordinate Court s in the State of Telangana.

Conclusion:- This paper is very limited to highlight the important points as to cheque dishonour cases arising out of section 138 of NI Act. It is curious to see that the legislative intervention was made by amending the provisions contained in Negotiable Instruments Act, made effective from 15.6.2015 by inserting Secs. 142(2) & 142A of the said Act. As was held in Construing the above said amended provisions of the Negotiable Instruments Act, the Apex court in the case Bridgestone India Private Limited v. Inderpal Singh, reported in (2016) 2 SCC 75, has categorically held in para 13 thereof that a perusal of the amended Sec. 142(2), leaves no room for any doubt, in so far as an offence under Sec. 138 of the N.I. Act and on the issue of jurisdiction the provisions of the Cr.P.C. will have to give way to the provisions of the N.I. Act on account of sub-sec. (1) of Sec. 142 and any judgment, decree or direction issued by a court like the one issued in Dasarath Rupsingh Rathod v. State of Maharashtra, reported in (2014) 9 SCC 129 for initiating complaint proceedings for offence under Sec. 138 of the N.I. Act.

Further it has been held in Bridgestone’s case (supra), in para 15 thereof that in view of the amendments incorporated in Sec. 142(2), it vest jurisdiction for initiating proceedings for offence under Sec. 138 of the N.I. Act, in the territorial jurisdiction of the court where the cheque is delivered for collection, i.e., the branch of the bank of the payee or holder in due course, where the drawee maintains an account, etc. Further it was held in para 16 of the above said judgment of the Apex Court in Bridgestone’s case (supra), that the words “……as if that sub-section had been in force at all material time…” used with reference to Sec. 142(2) in Sec. 142A(1) gives retrospectivity to that provision, etc.

I may conclude this paper with a note that the cases under section 138 of NI Act can now be disposed of online following the ratio-decidendi laid down in the recent case of Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560.  

Negotiable Instruments Act,1881

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