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SECTION 138
NEGOTIABLE INSTRUMENT ACT
RECENT TRENDS:
Negotiable Instruments have been used in commercial world since long as one of the convenient modes for transferring money. Development in Banking sector and with the opening of new branches, cheque become one of the favourite Negotiable Instruments. When cheques were issued as a Negotiable Instruments, there was always possibility of the same being issued without sufficient amount in the account. With a view to protect drawee of the cheque need was felt that dishonour of cheque he made punishable offence. With that purpose Sec.138 to 142 were inserted by Banking Public Financial Institutions and Negotiable Instruments clause (Amendment) Act, 1988. This was done by making the drawer liable for punishments in case of bouncing of the cheque due to insufficiency of funds with adequate safeguards to prevent harassment of an honest drawer
OBJECT:
The object of this amendment Act is:
- To regulate the growing business, trade, commerce and Industrial activities.
- To promote greater vigilance in financial matters.
- To safeguard the faith of creditors in drawer of cheque. (Krishna vs. Dattatraya 2008(4) Mh.L.J.354 (Supreme Court)
However, it was found that punishment provided was inadequate, the procedure prescribed cumbersome and the courts were unable to dispose of the cases expeditiously and in time bound manner. Hence, the Negotiable Instruments (Amendment and Miscellaneous provisions Act 2002) was passed. The provisions of sec.143 to 147 were newly inserted and provisions of section 148, 141, 142 were amended.
NEGOTIABLE INSTRUMENTS ARE OF FOLLOWING KINDS :-
- Promissory notes
- Bill of Exchange
- Cheque
Section 138 of Act deals with dishonour of cheques. It has no concern with dishonour of other negotiable instruments. INGREDIENTS:
The ingredients of the offence as contemplated under Sec.138 of the Act are as under :
- The cheque must have been drawn for discharge of existing debt or liability. Legally recoverable debt: In Somnath vs. Mukesh Kumar, 2015(4) Law Herald 3629 (P&H) it was held by Hon'ble High Court the complaint under Section 138 is not maintainable when the cheque in question had been issued qua a time barred debt. Similarly, supari money for commission of crime is not legally recoverable debt and complaint under Section 138 is not maintainable in such a case.
- Cheque must be presented within 3 months or within validity period whichever is earlier.
- Cheque must be returned unpaid due to insufficient funds or it exceeds the amount arranged.
- Fact of dishonour be informed to the drawer by notice within 30 days.
- Drawer of cheque must fail to make payment within 15 days of receipt of the notice.
A mere presentation of delivery of chqeue by accused would not amount to acceptance of any debt or liability. Complainant has to show that cheque was
city and a given branch in which the issuer has an account and to which it is connected. The producer of the cheque in whose name it is issued can directly go to the designated bank and receive teh money in the physical form. If a given city's local cheque is presented elsewhere it shall attract some fixed banking charges. Although these type of cheques are still prevalent, especially with nationalised banks. It is slowly stated to be removed with at par cheque type.
- At par cheque: With the computerisation and networking of bank branches with its head quarters, a variation to the local cheque has become common place in the name of at par cheque. At par cheque is a cheque which is accepted at par at all its branches across the country. Unlike local cheque it can bepresented across teh country without attracting additional banking charges.
- Banker's cheque: It is a kind of cheque issuedby the bank itself connected to its own funds. It is a kind of assurance given by the issuer to the client to alley your fears. The personal account connected cheques may bounce for want of funds in his account. To avoid such hurdles, sometimes, the receiver seeks banker's cheque.
- Traveller's cheque: They are a kind of an open type bearer cheque issued by the bank which can be used by the user for withdrawal of money while touring. It is equivalent to carrying cash but in a safe form without fear of losing it.
- Gift cheque: This is another banking instrument introduced for gifting money to the loved ones instead of hard cash. PRESUMPTIONS:
There is presumptions under Section 118 and 139 of the Negotiable Instruments Act in favour of holder of the cheque. Until contrary is proved, presumption is in favour of holder of cheque that it has been drawn for discharge of debt or liabilities. However, it is rebutable one and accused can rebut it without entering into witness box, through crossexamination of the prosecution witnesses. Complainant is not absolved from liability to show that cheque was issued for legally enforceable debt or liability. Burden on accused in such case would not be as light as it is in the cases under sec.114 of the Evidence Act. In case of “ Goa Plast Pvt. Ltd. vs. Shri Chico
Ursula D' Souza 1996 (4) All MR 40” relations between accused and complainant were of employee and employer. No evidence led to show that accused was liable to pay any due or part thereof and thus liability was not proved. Similarly, it was not proved that the cheque was given towards those liabilities. Accused much prior to presentation of cheques to the Bank had appraised the complainant that he was not liable to pay any amount, and therefore, stopped payment. Bombay High Court had observed that complainant failed to prove that cheque was issued for discharge of legal liabilities. Section 139 of the Act merely raises a presumption in regard to the second aspect of the matter. Existence of legally recoverable debt is not a matter of presumption u/s 139. It merely raises a presumption in favour of holder of the cheque that the same has been issued for discharge of any debt or other liability.
Many a times cheques are issued bearing no date or post dated cheques. Holder of cheque enters the date, and thereafter cheques are presented to banks. Hon'ble Bombay High Court in case of Purushottamdas Gandhi vs. Manohar Deshmukh 2007 (1) Mh.L.J. 210 has observed that inserting such date does not amount to tampering or alteration but by delivery of such undated cheque drawer authorizes holder to insert date. Period of 6 months for presentation of such cheque to the Bank would start from the date mentioned on cheque. ( Ashok Badwe vs. Surendra Nighojkar A.I.R. 2001, S.C. 1315)
Return of cheque is itself an indication that funds are not forthcoming. The words “refer to drawer” or “account closed” are covered under the term “insufficient funds”. Thus, liability of drawer cannot be avoided if he closes account and cheque is dishonoured. A safeguard has been made to prevent hasty action is that the payee or holder in due course of cheque shall make a demand for payment of amount covered by cheque by giving a notice in writing to drawer within 30 days. Offence u/s. 138 is committed only when payment is not made by drawer on expiry of 15 days after service of notice as prescribed by proviso (c) of
three months from the date of its issue. (b) If complainant has demanded payment of cheque amount within thirty days of receipt of information by him from the bank regarding the dishonour of cheque and (c) If the drawer has failed to pay the cheque amount within fifteen days of receipt of such notice. iv) The facts constituting cause of action do not constitute the ingredients of the offence under Section 138 of the Act. v) Proviso to Section 138 simply postpones/ defers institution of criminal proceedings and taking of cognizance by Court till such time cause of action in terms of clause (c) of proviso accrues to the complainant. vi) Once the cause of action accrues to complainant, jurisdiction of Court to try the case will be determined by reference to the place where cheque is dishonoured. Vii) General rule stipulated under Section 177 of Cr.P.C. applies to cases under Section 138 of the Negotiable Instruments Act. Prosecution in such cases can, therefore, be launched against the drawer of the cheque only before the Court within whose jurisdiction the dishonour takes place except in situations where the offence of dishonour of cheque punishable under Section 138 is committed along with other offences in a single transaction within the meaning of Section 220(1) read with Section 184 of the Code of Criminal Procedure or is covered by the provisions of Section 182(1) read with Sections 184 and 220 thereof.
Section 142 as amended by the amendment Act of 2015 :
- Where Cheque is delivered for collection through an account- where payee maintains the account.
- Where cheque is presented for payment by the payee otherwise through an account- where drawer maintains the account.
NOTICE
Notice must be in writing informing that cheque has been returned unpaid also a demand of chqeue amount must be made and it should be within 30 days from receipt of information of dishonour. When notice by registered post returned unclaimed there is presumption of service.
- Rahul vs. Arihant Fertilizers 2008(4) Mh.L.J. 365 (SC)
- K. Bhaskaran vs. Shankaran Vidhyabalan 1999 AIR SCW, 3809.
Initially, it was held by various High Courts and Apex court that cheque may be presented severally within period of its validity or within 6 months. However, once notice is served and amount is not paid within stipulated period, the cause of action to prosecute starts. Thereafter complaint is to be filed within period of 30 days. However, in case of MSR Leathers vs. Palaniappan and others 2013, Cr.L.J. S.C.
- Apex court held that failure to prosecute on basis of first default in payment does not result in forfeiture of right of holder/ payee to prosecute. Nothing in N.I. Act that prohibits holder / payee of cheque from issuing fresh demand notice and then launching prosecution. Limitation of one month from accrual of cause of action for taking cognizance u/s. 142 does not militate against accrual of successive cause of action.
Payee is not prevented from combing the causes of action by covering multiple instances of dishonour of cheques in single notice, in such a case all the transactions covered by notice would be regarded as a single transaction permitting a single trial. However, in a case where cheques were issued on different dates, presented on different dates and separate notices were issued in respect of each default. The transactions cannot be held to be a single transaction. Section 219 of Cr.P.C. will not be attracted to such cases. Rajendra Vs. State of Mah. 2007, (1) Mh L.J. 370. Apex court in case of K. Bhaskaran vs. Shankaran 2000 (1) Mh.L.J. 193
section 114 of Indian Evidence Act
Speed post ordinarily the service takes place within a few days. Vinay Patni Versus State of U.P. 2013(1) CCC 682;
One week's time considered as ordinary time to receive letter in ICICI Bank Ltd. Versus Praful Chandra 2007(4) RCR(Civil) Delhi 203;
Presumption of due service - Som Nath Versus State of Punjab and another 2008(1) RCR(Criminal) 273 (P&H).- when notice is sent through registered post presumption of due service can be raised in following cases -
(a) unclaimed
(b) Refused
(c) Not available in house
(d) House locked
(e) Shop closed
(f) Addressee not in station
Notice sent through courier - No presumption of service-Deepak Kumar and another Versus State of U.P. and another 2007(2) RCR(Civil) 259 Allahabad.
WHO CAN FILE COMPLAINT
Payee or holder in due course is a competent person to file complaint. Complaint must be by corporal person capable of making physical appearance in court. In case of company and firm natural person should represent it. Complaint can be filed by Power of Attorney Holder. It is not requirement that the person whose statement was taken on oath at the first instance should alone represent the company till the proceeding have ended. Even if the person sent earlier had no authority, the
company can at subsequent stage send a person competent to represent the company. ( Associated Cement Company Ltd. vs. Keshavanand (1998) 91 company cases 3619 SC. ) It is further observed in the above case that a complaint which is made in the name and behalf of company can be made by any officer of that company and the section does not require that complaint must be signed and presented only by authorized agent or a person empowered under the Articles of association or by any resolution of the Board of Directors. In M/s Capital Leasing and Finance Co. Vs. Navrattan Jain, 2005(4) RCR (Criminal) 331 (P&H) it was held by Hon'ble High Court that even an unregistered partnership firm can file a complaint under Section 138 of the Act. In Vinita S. Rao vs. M/s Essen Corporate Services Pvt. Ltd. And another, 2015 AIR (SC) 882 it was held by the Hon'ble Supreme Court that complaint can be filed by the complainant through his Power of Attorney but the power of attorney must have knowledge about the relevant transactions.
LIABILITY OF DIRECTORS / PARTNERS
Section 141 of Negotiable Instruments Act shows that person who is in charge or responsible to the company is ip so facto liable and deemed to be guilty only if offence is committed with his consent/connivance or due to any neglect on his part. Similar is the case with any Director, Manager, Secretary or other officer of company. If such person shows that offence was committed without his knowledge or that he had exercised due diligence to prevent commission of such offence, he may be immune from prosecution. Similarly, Directors nominated by Central Government or State Government by virtue of their holding any office or employment in such Government or Financial Corporation owned or controlled by such Government are kept outside the purview of such section. It is primary duty of the Magistrate to find out whether the complainant has shown that accused persons falls into one of the categories of persons envisaged in sec. 141. What is required is the specific accusation against each Director of role
Earlier it was observed that prosecution of company was not sine qua non for the prosecution of either persons who are in charge of and responsible for the business of company or any Director, Manager, Secretary or other officers of company. However, finding that offence was committed by company is sine qua non for convicting those other persons ( Anil Hada vs. Indian Acrylic Ltd. (2002) of 1999 Comp. Cases 36 (SC). However, recently in case of Anil Gupta vs. Star India Pvt. Ltd. Co. & another 2014 Cr.L.J.3884 Hon'ble Supreme Court has laid down that only drawer of cheque falls within ambit of sec.138 of the Act whether human being or a body corporate or even a firm ..... Hon'ble Apex court further observed that “we arrived at the irresistable conclusion that to maintain prosecution u/s 141 of the Act, arraigning of the company as a accused is to imperative”. Hon'ble Apex court overruled the decision in Anil Hada's case referred above. However, In Standard Chartered Bank vs. State of Maharashtra and others etc., 2016(2) RCR (Criminal) 778 (SC) it was held by the Hon'ble Supreme Court that the complaint under Section 138 is not maintainable without making company a party. In Mainuddin Abdul Sattar Shaikh Vs. Vijay D. Salvi, 2015(3) RCR (Criminal) 593 (SC) it was held by Hon'ble Supreme Court that when an employee of a company issues a cheque on his personal account for discharging the liability of the company, the company/its directors are not liable under Section 138 of the Act. Personal liability of employee was upheld.
CAUSE OF ACTION:
Cause of action arises when notice is served on the drawer and drawer fails to make payment of the amount of cheque within 15 days. Limitation to file complaint is one month from the date of cause of action. However, by Amendment Act of 2002 court is empowered to take cognizance of the offence even if complaint is filed beyond one month by condoning the delay if sufficient cause is shown. It has been held in various other cases that offence is not made out
- When cheque returned as defective one (Babulal vs. Khilji 1998 (3) Mh L.J.
- When no notice is given to company and cheque is drawn by company ( P. Raja Rathinalm vs. State of Maharashtra 1999 (1) Mh.L.J. 815)
- Cheque is given as a gift.
- Complainant was not a payee.
- Signature of drawer on the cheque is incomplete. ( Vinod vs. Jahir 2003 (1) Mh L.J. 456.)
PUNISHMENT:
After the amendment of 2002 the imprisonment that may be imposed may extend to two years, while fine may extend to twice the amount of cheque. However, the trial is conducted in summary way, then Magistrate can pass sentence of imprisonment not exceeding one year and amount of fine exceeding Rs.5,000/. There is no limitation for awarding compensation.
The sentence should be such that it gives proper effect to the object of the legislation. No drawer can be allowed to take advantage of cheque issued by him lightly. Apex court has cautioned against imposing flee bite sentences. In case of Sujanti Suresh Kumar vs. Jagdeeshan 2002 Cr.L.J. 1003 Prior to the amendment of 2002 a sentence of fine in excess of Rs.5,000/by Judicial Magistrate, First Class or Metropolitan Magistrate was held to be illegal. However, after the amendment the Magistrate are empowered to impose fine exceeding Rs.5,000/. In case of Dilip vs. Kotak Mahindra Company Ltd. 2008 (1) Mh L.J. 22 it was enunciated that the amount of compensation sought to be imposed must be reasonable and not arbitrary. Before issuing a direction to pay compensation the capacity of accused to pay the same must be judged. An inquiry in this behalf even in summary way may be necessary. Sub section 3 of Sec. 357 does not impose any limitation but the powers thereunder should be exercised only in appropriate cases. Ordinarily it should be lesser than the amount which can be granted by Civil Court upon appreciation of evidence. A criminal case is not a substitution for civil suit.
case de novo. However, in case of Mehsana Nagarik Sahakari Bank Ltd. vs. Shreeji CAB company ltd. and others 2014 Cr.L.J. 1953. The apex court held that 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.
Recently in case of Indian Bank Association and others vs. Union of India & others reported in AIR 2014 Supreme Court 2528, general directions have been given by the Apex court. The directions are worth quoting and they are as under :
- Metropolitan Magistrate/ Judicial Magistrate (MM/JM), on the day when the complaint under Section 138 of the Act is presented, shall scrutinize the complaint and, if the complaint is accompanied by the affidavit, and the affidavit and the documents, if any, are found to be in order, take cognizance and direct issuance of summons.
- MM/JM should adopt a pragmatic and realistic approach while issuing summons. Summons must be properly addressed and sent by post as well as by email address got from the complainant. Court in appropriate cases, may take the assistance of the police or the nearby court to serve notice to the accused. For notice of appearance, a short date be fixed. If the summons is received back unserved, immediate follow up action be taken.
- Court may indicate in the summons that if the accused makes an application for compounding of offences at the first hearing of the case and, if such an
application is made, Court may pass appropriate orders at the earliest.
- Court should direct the accused, when he appears to furnish a bail bond, the ensure his appearance during trial and ask him to take notice under Section 251, Cr.P.C. to enable him to enter his plea of defence and fix the case for defence evidence, unless an application is made by the accused under Section 145(2) for recalling a witness for crossexamination.
- Court concerned must ensure that examination in chief, cross examination and re examination of the complainant must be conducted within tree months of assigning the case. The court has option of accepting affidavits of the witnesses, instead of examining them in Court. Witnesses to the complainant and accused must be available for crossexamination as and when there is direction to this effect by the Court. Some important principles laid down by the Hon'ble High Courts and Apex Court are as under :
- Cheque to pay time barred debt is enforceable by virtue of section 25 (3) of Contract Act, ( Kadir vs. Dattatraya 2005 (3) Mh L.J. 1076 ). However, In Somnath vs. Mukesh Kumar, 2015(4) Law Herald 3629 (P&H) it was held by our Hon'ble High Court the complaint under Section 138 is not maintainable when the cheque in question had been issued qua a time barred debt.
- Legal heirs of complainant can continue the complaint ( Revi Selval vs. Navin 2000 (2) Bombay Cri. Cases, 23. )
- However, legal representatives of accused cannot be made to face trial. (Smt. Dropadi @ Maya Shippi vs. State of Rajasthan 2000(3) Crimes 6045. )
- Part payment made does not absolve to the drawer from liability ( Ramnarayan Madanlal Khandelwar vs. Proprietor Daulat Enterprise, 2005 (4) Mh L.J. 796)
- Cheque issued as a security are in discharge of liability as a guarantor attracts Sec. 138 (ICBS Ltd. vs. Beena Shabeer 2002 AIR SCW 3358)
- “Any liability does not include any other's liability unless there is agreement between drawer and original debtor ( Hinten Sagar and another vs. IMC Ltd. And another 2001 (3) Mh L.J. 659)”
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/-
But, keeping in view nature of case, if it appears to the Magistrate that a sentence
of imprisonment exceeding one year is to be passed or it is undesirable to try the
case summarily, he may shall after hearing the parties, record an order to that
effect and proceeds to hear or rehear the case in the manner provided in Cr.P.C.
The trial shall be conducted as expeditiously as possible and endeavour be made to conclude the trial within a period of six month from the date of filing of complaint.
If a Magistrate holds a summary trial, records substance of evidence given by
complainant and his witnesses and is thereafter transferred- successor magistrate
cannot proceed with the matter on the basis of evidence already recorded-
denovo trial 2011(4) RCR(Criminal) 148 (SC);
APPLICATION OF 138 BY JUDICIAL PRONOUNCEMENTS :-
- Insufficient funds
- Exceeds arrangements- funds are sufficient but, the amount mentioned in the cheque exceeds the arrangement made with the bank.
- Payment stopped by drawer- Som Nath Versus State of Punjab and another 2008(1) RCR(Criminal) 273 (P&H).
- Account already closed. Jitender Poddar Versus Prem Nath Sharma 1994(3) RCR(Criminal) 353(P&H), Jaspal Singh Bedi Versus State of Punjab 2005(1) RCR(Criminal) 78m (P&H).
- No such account. Sandeep Mehra alias Babi Versus Chander Parkash Madan 2015 ACD 166 (P&H).
- Stop payment. M/s Gupta Rice and General Mills Versus M/s. Meerut Agro Mills Ltd. And another 2011(3) Law Herald 2690.
- Signature differ. Charanjit Singh Chawla Versus State of Punjab 2009(2) RCR (Criminal) 690 (P&H).
- Refer to drawer. M/s Lily hire purchase pvt. Ltd vs Darshan Lal 1997(1)RCR Cr 580
- Not arranged for. VK Bansal vs State of Haryana 2011(1) Law Herald 396
- Account not in the name of accused - Section 138 not made out - A person must have drawn cheque on account maintained by him - Jugesh Sehgal Versus Shamsher Singh Gogi 2009(3) RCR(Criminal) 712 (SC).
