Section 138 of Negotiable Instruments Act 1881

Published by Vijaya Kumari, LLM on

Table of Contents

Introduction

In the commercial world, for a long period of time, Negotiable Instruments are one of the convenient modes for transferring money that is easy and portable. The use of cheques has increased with the rapid development in commerce and trade—expeditious disposal of cheque bounce cases by the courts in a time-bound manner. The Negotiable  Instruments Act 1881 (hereinafter called NI Act) (Amendment and Miscellaneous Provisions) Act 2002 was passed for the rectification of loopholes in the earlier Act provisions of sections 138, 141, and 142 were amended and provisions of sections 143 to 147 were newly inserted, none of the requirements Toan Penal Code have been signed to the dishonor of cheque. In order to strengthen the use of cheques, as per the objective of Parliament section, 138 of the NI Act offense is to be freed from the requirement of proving the men’s rea.

Decriminalizing the various minor offenses section 138 of NI Act 1881 has been included in the proposal of the Ministry of Finance on 8th June 2020 for improving business sentiment and unclogging court process and also to curb the situation during the covid outbreak in the Country. The main idea behind the proposal is the ease of business and attracting investors. There was heavy debate and discussions on decriminalization the section 138 of the NI Act, which affects the public at large, and has some harmful impact on the business sector .i.e the Creditors will lose credibility in transactions through cheques, and there will be no remedy against dishonored cheques, the credibility of investors would be shaken, make the creditor more insecure.

Objectives of the Act

The main objective of the introduction of this section was to encourage the use of cheques and increasing the credibility of transactions through cheques by making the dishonor of cheques an offense. It helps further the development of trade and commerce within India and even beyond it and plays a crucial role in maintaining the trust people have in Negotiable Instruments and also reduces the scope of cheating and fraud. The intention of the legislature to introduce this section in the NI Act was to bring security to the payment mechanism.

Definition

NI Act 1881, regulates different types of Negotiable Instruments like Promissory Notes, Bills of Exchange, and Cheques. According to Section 13 (1) of the Act, a Negotiable Instrument is defined as “a Promissory Note, Bills of Exchange or Cheque payable either to order or to bearer”. In simple terms ‘Negotiable’ means “transferable by delivery” and ‘Instrument ‘ means ‘any written document by which a right is created in favor of some person.

Section 6 of the NI Act defined ‘Cheque’.” A Cheque is a bill of exchange drawn on a specific 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”
After the amendment of the NI Act, 2015 definition has been broadened by including the eTruncationtruncated cheque and also an electronic cheque. Basically, truncation means” the conversion of physical cheque into digital format by using digital signatures generated by computer resources”.

Section 138 of the NI Act 1881 deals with the Dishonour of Cheque.

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  [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,  [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 purpose of this section, “debt or other liability” means a legally enforceable debt or other liability.

History and Evolution of the NI Act 1881

Hundi, is the oldest form of credit instrument, was the most widespread in Twelfth Century, and has continued till today. Hundi served as a traveler’s cheque in the modern era. A cheque is a small piece of paper rather than carrying the currency worth the value of the cheque in the Modern Day. Before 1988, there was no provision to restrain the person from issuing the cheque without having sufficient funds in his account. In 1866, NI Act was originally drafted by the 3rd Indian Law Commission and introduced in 1867 in the Council and it was referred to a Select Committee. The Select Committee revised the bill after the lapse of a sufficient period for criticism by the local Government.

NI Act 1881 was amended by the Banking, Public Finance Institutions and Negotiable Instruments Laws (Amendment) Act 1988, wherein a new Chapter 17 was incorporated for penalties in case of dishonor of cheques due to insufficiency of funds in the account of the drawer of the cheque. These provisions were incorporated with a view to encouraging the culture of the use of cheques and enhancing the credibility of the instrument.

The offense under Section 138 of the NI Act is an offense created by a legal fiction in the Statute. Amendment Act 1989 was brought into force under restricted conditions, and Civil Liability was transferred into Criminal liability.

Negotiable Instruments (Amendment and Miscellaneous Provisions) Act 2002, brought into force w.e.f. 6th February 2003 for speedy disposal of cases relating to dishonor of cheques through summary trial as well as making the offense compoundable. Legislation has noticed that the introduction of Sections 138 to 142 of the Act has not achieved the desired result for dealing with dishonored cheques, hence it inserted new Sections 143 to 147 in the NI Act vide Section 147 of NI Act makes the offense Section 138 compoundable, which essentially means that the parties involved in the case of dishonor of cheque can mutually reach an agreement and can even drop the changes put on the accused if a settlement is reached upon. 

The Central Government through the Negotiable Instrument (Amendment) Act has notified amendments to the NI Act that came into effect on September 1, 2018, by incorporating several new provisions. The main object of the amendment was to ease the delays of the business, reducing the undue delay in the cheque dishonor cases and for payment of interim compensation to the complainants and also efficacy and efficiency in cases related to dishonor of cheques. Under this Amendment Act, important provisions are Section 143 A and 148. These sections empower the courts to direct the drawer to provide interim compensation during the pendency of the criminal complaint and the criminal appeal.

Sectiothe n 143A gives power to a court to try an offense under section 138 of NI Act to order the drawer of the cheque to pay interim compensation to the complainant in summary trials/summons cases where the pleads not guilty to the accusations to the complaint. Furthermore, the interim compensation shall not exceed 20% of the amount of the cheque and shall be payable within 60 days from the date of the order. Recovery of fine shall be the same as under section 421 of the Code of Criminal Procedure, 1973. In cases of acquittal, the court is now empowered to direct the complainant to repay to the appellant the amount so released at interest rates as prescribed by RBI.

Section 148 empowers the Appellate Court, for appeals against conviction under section 138, to direct the appellant to deposit a minimum of 20% of the fine/compensation awarded in addition to interim compensation under sec 143A.

The Amendment Act 2008 gives relief to the payee of the cheque, who has to spend a significant amount of time and energy in court to recover the money due to him in a cheque bounce case.

In this fast-growing World, various ways of financial transactions are born with the development of business practices. With the modern technology NI Act 1881 introduced, two other modes of payments came to be recognized, that is NEFT (National Electronic Fund Transfer) and RTGS (Real Time Gross Settlement). Payment and Settlement Systems Act, 2007, Section 25 deals with cases relating to dishonor of electronic transfer, and provisions of Chapter 17 of the NI Act, 1881 shall apply to the dishonor of electronic funds transfer to the extent the circumstances admit under Sec 25 (5) of the said Act.

On 10th March 2021 Honourable Supreme Court comprising a Constitution 5 judge bench directed the center to bring in “suitable amendments “ to the NI Act for the provision of a single trial against a person charged for multiple offenses under Section 138 committed within a window of 12 months to avoid multiplicity of cases. Moreover, in a case tried summarily under the Criminal Procedure Code, if the accused does not plead guilty to the offense, it is ample for a Magistrate to record the evidence and deliver an instant judgment.

The Apex Court also directed all the High Courts to come up with sufficient guidelines for trial courts to dispose of these cases expeditiously. The apex Court in its order also stated that the issues, which have not been dealt it in the verdict, would be considered by a Committee headed by a former judge of the Bombay High Court Justice R.C. Chavan which was set up earlier. 

When a Dishonour of Cheque is said to have occurred?

  1. When a cheque is drawn by a person (drawer) on an account that maintains him in favor of another person (payee).
  2. The cheque is drawn to discharge any debt owed or other liability towards the payee.
  3. When the cheque is presented after the expiry of three months.
  4. Insufficient funds in the bank account of the drawer or when the cheque exceeds the amount to be paid from the payer’s account by an agreement mode with that bank.
  5. When the signatures on the cheque and the signatures on the official document of the bank account do not match the bank’s data.
  6. Any alterations on the cheque/overwriting on the cheque
  7. In case the payment has been stopped by the drawer/ account holder.

General Period of Limitations in case of Dishonour of Cheque

Presentation of cheque to the Bank Within 3 months from the date of issue or the date mentioned in the cheque Whichever is earlier.
Notice to the drawer demanding 
Payment		Within 30 days from the date of receipt of the memo from the bank
Payment of the debt by the drawerWithin 15 days from the date of receipt of the notice.
Filing of the complaint under section 
138 of NI Act		Within 30 days from the date of expiry of above mentioned 15 days

While computing the limitation period of 30 days prescribed under the provision of Section 138 (b) of NI Act, 1881 for issuance of a valid legal notice, the day on which the intimation is received by the complainant from the bank that the cheque in question has been returned unpaid has to be excluded.

Section 138 of (b) of NI Act hereunder which enunciates as follows: Provided that nothing contained in this section shall apply 
 unless—
(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;

In M/S Rayapati Power Generation Pvt. Ltd. And Anr. 2022 Livelaw (Del) 75

After referring to the relevant judgments on the issue, the Court observed thus” The legal position, as called out from the judicial dicta referred to hereinabove, is that while computing the limitation period of 30 days prescribed under Section 138 (b) of NI Act for issuance of valid legal notice, the day on which intimation is received by the complainant from the bank that the cheque is question has been returned unpaid has to  be excluded.”

The complainant relied on the date of receipt of return memos, i.e the dates on which the intimation was received regarding dishonor of cheques in question, to submit that the legal demand notices were issued within the statutory period.

The Court said at the outset:

“…this Court is of the prima facie opinion that the legal notices were posted by the complainant Company within 30 days of the receipt of information from its Bank regarding dishonor of cheque in question and were not time-barred. The contentions raised on behalf of the petitioner do not weigh with this Court and are accordingly rejected”

Accordingly, the pleas were dismissed.

Civil Liabilities

Civil remedies have always been available to the payee or the holder and he can file a civil suit to recover the dishonored cheque amount. Order 37 Civil Procedure Code, 1908, is one of the best provisions in the hands of a proposed plaintiff wanting to institute a civil suit for cheque bounce cases. There are two stages of getting the suit decree under Order 37, one is at the stage of Rule 2 (3) and the other is at the stage of Rule 2 (6)

.Rule 2(3) states that “ the procedure for the appearance of Defendant which is within 10 days from the service of the summons on him. After entering an appearance, Plaintiff serves on the Defendant summons for judgment within ten days from the date of service supported by an Affidavit; verifying the cause of action, the amount claimed, and that in his belief there is no defense to the suit”.

Rule 2(6) states that” in case the Defendant does not apply for leave to defend, (a) the Plaintiff shall be entitled to judgment immediately or (b) the Court may direct the Defendant to give such security as it may deem fit. Sub-clause 7 states that in case the sufficient cause is shown, the delay in entering an appearance or in applying for leave to defend the Suit may also be excused”.

Criminal Liability

Usually, men’s rea is an essential component of a crime. In order to strengthen the use of cheques, distinct from other negotiable instruments, according to the legislation it became essential for Section 138 of the NI Act to be freed from the requirement of proving men’s rea. Not only Section 138 but also succeeding two Sections 139 and 140, Section 139 states that” presumption in favor of the holder. A person is presumed to be guilty until and unless he proves himself innocent in the eyes of law. It is a presumption that a cheque which is presented for discharging the liability may either be a partial or whole discharge of the liability of debt”. Section 140 provides “that it is not the defense in the prosecution of an offense under the Section 138 that the drawer of the cheque has no reason to believe that when the drawer issued the cheque, the cheque may be dishonored on presentation of the cheque to the respective banks for the reasons which are stated in the said section”…

In case of criminal liability, Section 138 of the NI Act comes along with the punishment of two consecutive years and the prosecution of the drawer takes place under the provision of the Indian Penal Code,1860 namely Section 417 and Section 420. The offenses acquired are bailable, compoundable, and non-cognizable in nature.

The Concept of quasi-criminal law applies to Section 138 of NI Act,1881.  When a civil suit or equity proceedings have some, but not all elements of a criminal proceeding are said to be quasi-criminal. The Court may punish an accused for his actions or omissions as if it were a criminal case in this kind of suit. The quasi-criminal law becomes when the spirit of the NI Act is the main element of civil law, in order to ensure that the drawer discharges his liability, a tint of criminal law has been added to it.

In P. Mohan Raj v Shah Brothers Ispat (P) Ltd. 2021 SCC Online SC 152

The Supreme Court observed that the primary object of the provision of Section 138 of the NI Act is not to penalize the wrongdoer but to compromise the victim.

In CIT v Ishwarlal BhagwandasAnd Others (1965) 57 ITR 149

Though the attempts made by the legislature to decriminalize the cheques bounce case, it is still a quasi-criminal offense.  The procedures being followed while dealing with offenses under Section 138 of the NI Act are procedures enumerated in the Code of Criminal procedure.

Jurisdiction

From the point of view of the Criminal Procedure Code, 1973 issue of the offense of dishonor of cheque needs to be examined under Section 177 of Crpc provides that 

“Every offence shall ordinarily be enquired into and tried by a Court , within whose local jurisdiction it was committed”
 
Section 178 Crpc provides that 
 Place of inquiry or trial. (a) When it is uncertain in which of several local areas an offence was committed, or
(b) where an offence is committed, partly in one local area and partly in another, or
(c) where an offence, is a continuing one, and continues to be committed in more local areas than one, or
(d) where it consists of several acts done in different local areas, it may be inquired into or tried by a Court having jurisdiction over any of such local areas.

The jurisdiction is explained with reference to the landmark case of  

K Bhaskaran v Sankaran Vaidhyan Balan & Anr (1997) 7 SCC 510

Supreme Court held that the jurisdiction trying an offense under Section 138 of NI Act could not be determined by reference to the place where the cheque was dishonored as the dishonor of the cheque was not by itself an offense under Section 138 of NI Act and that the offense was completed only when the drawer failed to pay the cheque amount within the period of fifteen days stipulated under clause c of the provision of Section 138 of the Act and held that any court within whose jurisdiction any of the bare acts were committed had jurisdiction. 

Section 138 of the NI Act does not expressly say anything on the question of law pertaining to the appropriate jurisdiction with respect to the filing of a criminal complaint in case the offense of dishonor of cheque is committed. The issue needs to be examined under the guidelines of the Criminal Procedure Code, 1973.

Overruling of K Bhaskaran’s case by Dashrath Rup Singh Rathod v the State of Maharashtra And ANR AIR 2014 SC 3519

Supreme Court Observed by the three bench judges that, criminal complaints

In respect of bounce, cheques can only be led before a court within the territorial jurisdiction of which the drawee bank is situated. Court held that inconsistent with the observations made in Bhaskaran’s case, it was not overruled, until the Supreme Court’s decision on this case.

Court further observed that the cheque for encashment by his bank or the place of issuance or delivery of statutory notice are not relevant for the purpose of territorial jurisdiction of complaints.

In What Circumstances Cheque Bounce Does Not Amount To An Offence

  1. When the cheque is given as an advance and there exists no legal liability for payment as such.
  2. If the cheque is found mutilated.
  3. When the cheque is issued to a charitable trust as a gift or donation.
  4. Any alterations in a cheque for the requirement of attestation by the drawer.
  5. When there is a disparity in the amount stated in words and figures.

Filing Procedures Of Cheque Bounce Case

  1. After the cheque has been returned by the bank a formal demand legal notice to the drawer within the stipulated time of 30 days from the cheque was presented and returned by the bank to the drawee/complainant.
  2. When the drawer has not replied to the demand notice within fifteen days from the delivery of the notice or has been unnecessarily delaying payment or has outrightly refused to pay the amount. Within the prescribed time limit of 30 days from the date of receipt of the demand notice by the drawer, a complaint is to be filed in the Court which would have been the jurisdiction over the dispute.
  3. The below key points are to be followed by the drawee when registering the complaint in a Court within whose local limits of jurisdiction; place –
    • where the cheque was drawn.
    • Where the cheque was presented for payment.
    • Where the cheque is dishonored.
    • Where the notice of demand of payment was served by the drawee.
  1. The court issues a summons to the drawer (accused person) once the complaint is filed by the complainant/drawee.
  2. Before registering the complaint the complainant/drawee must have all the documents:
  3. Photocopies of the cheque returned by the bank, memo, copy of the legal notice for demand sent to the drawer/accused and the acknowledgment slips/receipts, written complaint, and letter of oath.

Compounding of Offense

Section 147 of the NI Act, 1881 introduced under the Negotiable Instruments (Amendment and Miscellaneous) Act 2002, made the offense of dishonor of cheques compoundable. Under Section 138 of the Act, in order to ensure speedy disposal of cheque bounce cases that were causing a huge burden on the judicial system. Section 147 of the NI Act, mentions that “not in accordance with provisions of the Criminal Procedure Code, all the offenses under the NI Act will be compoundable in nature which means offenders will be given a chance to pay the money instead of prosecution”. In Section 320 of CrPC, 1973 provisions have been given for compounding of offenses. The accused can avail of the remedy under Section 147 of the NI Act and compound the offense when the complainant and the accused agree to settle the case amicably.

The Gujarat High Court observed that when the parties have reached an amicable settlement, the compounding of an offense under Section 138 of the NI Act, 1881 is always permissible.

The bench referred to Section 147 of CrPC which states that” Notwithstanding anything contained in the case of Criminal Procedure, 1973 (2 of 1974), every offense punishable under this Act shall be compoundable”.

In Damodar S Prabhu v Sayed Babalal H (2010) 5 SCC 663 

In this case, the Supreme Court allowed the compounding of offenses even after conviction under Section 138 of the NI Act, 1881. The Bench cited the case

 Khokhar Iliyas Bismilla Khan v State of Gujarat & Anr Decision (R/C R MA/1046/2022

It was observed that every offense punishable under the NI Act is compoundable because 

the transactions between the private persons and the State are not party to the transaction. Application filed under Section 482 CrPC was allowed by the Court for quashing the judgment of conviction, demanding a deposit of 15% of the cheque amount, with the Gujarat State Legal Service Authority.

Prema v The State of Maharashtra (2011) SCC Online Bom 1004

The Court observed that the complainant had opposed the application filed by the accused for compounding; it was a unilateral request of the accused. Court conditionally set aside the order of imprisonment and instead enhanced the amount payable to the complainant.

Rishi Mohan Srivastav v State of U.P & Another

The petition was filed under Section 482 of CrPC before the High Court by the petitioner praying for compounding the offense under Section 138 of the NI Act and quashing the sentence of one year awarded to him.

The court observed that” in reference to an offense under Section 138 of the NI Act, the parties are free to compound the matter at any stage, even after the dismissal of revision application under Section 147 of the Act”. Court held that the jurisdiction of the High Court can be invoked under Section 482 CrPC read with Article 226 of the Constitution of India. The Court allowed the petition under 482 of CrPC and the conviction of the petition was set aside by the Court

Decriminalisation of Section 138 of The NI Act

The Government of India has introduced a proposal on decriminalizing Section 138 of the NI Act on the 8th of June 2021, in order to provide relief from the great economic distress that was caused due to the Worldwide corona pandemic. The Finance Ministry while inviting comments of stakeholders by June 23 on the legislation said “Actions taken for decriminalization for minor offenses are expected to go a long way in improving case of doing business and helping unclog the court system and prisons” It also noted “It would also be a significant step in the Government of India’s objective of achieving ‘Sabka Saath’,’ Sabka Vikas’ and ‘Sabka Vishwas’

The purpose of the provision is compensation and not punishment to support the decriminalization concept. Since the offense under Section 138 is compoundable, the main focus is on compensation rather than on punishment.’Reformative Theory’ is the best way to reform an offender rather than merely punishing them. The Supreme Court recently observed that the multiplicity of proceedings due to both Civil and Criminal redressal to the offense of cheque bounce has also clogged the judicial system. Directions are given by the Supreme Court to club together multiple Sections 138 cases against an individual ( in the last 12 months) in a single proceeding.

After the result of years of study and research, to pass the proposal to decriminalize Section 138 of the Act, 1881, was not made in a day the other aspect should not be overlooked. Due to lesser barriers and restrictions being imposed, increased interest in foreign investors in the Indian market, and lack of constant fear of getting intervened in legal battles over a petty sum, the proposal has many positive effects.

In Makwana Mangaldas Tulsidas v State of Gujarat Decision dated April 16 2021 observed that’ decriminalization is a welcome step but it should not obstruct the smooth operation of economic and sufficient measures’ Court held that cases involving small amounts were left to the civil jurisdiction in favor of decriminalization of cheque bounce cases, favored compensation rather than punishment. 

Concept of Applicability of Interim Compensation Under Section 138 of the NI Act

Section 143A empowers the Court to direct the accused to pay interim compensation to the complainant.:Provision of Sections 143 A (1) , 143 A (2), 143 A (3),143 A (6), states that —[(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, (2 of 1974) the Court trying an offence under section 138 may order the drawer of the cheque to pay interim compensation to the complainant—
(a) in a summary trial or a summons case, where he pleads not guilty to the accusation made in the complaint; and
(b) in any other case, upon framing of charge.
(2) The interim compensation under sub-section (1) shall not exceed twenty per cent of the amount of the cheque.
(3) The interim compensation shall be paid within sixty days from the date of the order under sub-section (1), or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the drawer of the cheque.
(6) The amount of fine imposed under section 138 or the amount of compensation awarded under section 357 of the Code of Criminal Procedure, 1973, (2 of 1974) shall be reduced by the amount paid or recovered as interim compensation under this section.]

Section 143A of the NI Act, 1881 deals with interim compensation during the pendency of Section 138, the cheque bounce case was discussed in two judgments. These two judgments have interpreted Section 143 A in two different manners.

L.G.R Enterprises v P. Anbazhagan (LGR CASE) (2019) 7 TMI 1840

  1. Madras High Court held that the interim compensation in a cheque bounce case is not mandatory but is at the discretion of the Court to award interim compensation in each and every case. Court further observed that the Magistrate is bound to give reasoned order while deciding an application under Section 143 A of the NI Act.
  2. Rajesh Soni v Mukesh Verma (2021) (7) TMI 386 – Chattisgarh took a different view of the provision of Section 143 A and held that a Court/Magistrate is statutorily bound to award interim compensation in such cases. The High Court interpreted the use of the word ‘may’ in Section 143 A which is alleged by the petitioner, that the usage of the word ‘may’ itself denotes that the interim compensation is not mandatory. The object of the provision of Section 143 A to secure the interest of the complainant as well as the accused. It is quite clear that the word ‘may’ may be treated as ‘shall’ and it is not ‘discretionary’ but ‘directory.’ 

There are divergent views of the High Court of Madras and Chhattisgarh High Court on the nature of provisions.

In Mohan Singh v International Airport Authority of India (1997) 9 SCC 132 

Delhi High Court observed that to consider whether legislation is mandatory or directory in nature, the use of the word ‘shall’ or ‘may’ is not decisive. It can be construed as a mandatory provision if a statutory remedy for violation of said provision as laid down by the Supreme Court in State of U.P v Babu Ram Upadhyaya AIR 1961 SC 751 

JSB Cargo and Freight Forwarder (P) Ltd v State, 2021 SCC Online DEL 5425

Court held that the effect of the provision of Section 143 A of the NI Act is a directory in nature not mandatory after the invocation of Section 294 of CrPC, 1973, and considering the submission that is made by the petitioner in response to the application under Section 143 A of the NI Act.

Judgement Analysis

Sameti Vij v M/S Paramount Tech Fab Industries LL 2021 SC 149

In this judgment, the Court observed that the object of the provision laid down in Section 138 of the NI Act is to enhance the acceptability of cheques in the settlement of liabilities. And in case the cheque does not exhibit, where the person issuing the cheques has the intention to honor the cheque, he/she shall be liable for the dishonor of the same. The burden of proof was on the accused in view of presumptions under Section 139 of the Act and the standard of proof was of “preponderance of probabilities”

The bench clarified that under Section 139 of the Act, a presumption is raised that the holder of a cheque received the cheque for the discharge in whole or in part, of any debt or other liability. The Court observed “ to rebut this presumption, facts must be adduced by the accused which on a preponderance of probability (not beyond reasonable doubt as in the case of criminal offenses) must then be proved”

The Supreme Court upheld the conviction of the appellant and dismissed the appeal for the reason that no evidence was led by the appellant to rebut the presumption that the cheques were issued for consideration.

M/S Dalmia Cement (Bharat) Ltd v M/S Galaxy Traders & Agencies Ltd & Ors. (2001) 6 SCC 463: AIR 2001 SC 676

The Hon’ble Supreme Court observed that when the Act was enacted, Section 138 was incorporated with a specified object of making a special provision by incorporating a Strict liability. So far as the cheque as the negotiable instrument was concerned under Section 138 of the NI Act, the complaint was quashed by the High Court and was barred by limitations as the complaint has allegedly failed to file it within the statutory period from the date of accruing of the cause of action.

M/S Metres and Instruments Pvt Ltd & Anr v Kanchan Mehta Criminal Appeal No. 1731 of 2017

The Court has given the direction for speedy disposal of Section 138 of the Act, dishonor of cheque cases with regard to modern technologies. 

The court observed “Use of modern technology needs to be considered not only for paperless Courts but also to reduce overcrowding of Courts. There appears to be a need to consider categories of cases which can be partly or entirely concluded”

Jayalakshmi Nataraj v Jeena & Co. Criminal Original No. 4104/1994

Madras High Court held that even though the managing directors are still held liable when he/she does not administer the day-to-day activities of the Company, irrespective of the fact that he/she was unaware of the affairs.

Geekay Exim (India) Ltd v. the State of Gujarat (1998)

High Court of Gujarat observed that while adjudicating whether men’s rea should be considered or not, elements must be presumed to exist at the instance of every case depending on their circumstances.

Canara Bank v Canara Sales Corpn (1987) AIR 1603

In this case, forgery took place, linked with fraudulent activity for the cheques containing forged signatures. Defining the relationship in the law of equity between the banker and its customer in a broad sense about each other’s duty and pointing out the negligence while performing the duty.

Contentions made under this appeal were defeated and upheld in the view of the High Court and Trial Court, the case was then dismissed.

Shakun Singh v Chandreshwar Singh CC No. 397/2020

The court observed that mere denial of not receiving the legal demand notice would not amount to proving his defense. Statement given under Section 313 of CrPC accused admitted and proved that the cheque was dishonored on the instructions of the accused, who gave instructions to the bank to reverse the entry.

By exposing the inherent improbability of the case of a complaint, the accused succeeded in rebutting the presumption of legal liability. The accused was acquitted under Section 138 of the Act for which the complaint failed to prove after the onus shifted.

Conclusion

In a real sense, Section 138 of the Act can be said to be falling either in the acts which are not Criminal, but are really a summary mode of civil rights, although the proceedings may be in a criminal form, acts in which public interest are prohibited under the penalty. Generally in Criminal law guilty intent/men’s rea is an essential ingredient of a crime. However, the intention of the legislature is to create an offense of Absolute Liability or Strict Liability where men’s rea is not all necessary. The provisions of the amendment of the Act, authorize the Appellant Court which is having appeals to direct the drawer to deposit 20% of the original compensatory amount. 

Courts were strained with the enormous problem of pending cases, with almost 20% of the pending litigation pertaining only to cheques dishonored disputes under Section 138 of the NI Act, 1881. No doubt, the NI Act has been amended time and again to ensure a positive step for the enhancement of the credibility of cheques, and would give impetus to trade and commerce. 

References

https://www.scconline.com Liability Under Sec 138 NI Act 

https://cleartax.in Consequences of Cheque Bounce Notice

https://www.helpline.com Filing Procedure of Cheque Bounce case

https://www.legalserviceindia.com Order 37 CPC, Summary Suits

https://www.lawctopus.com Explained SummarySuit

https://www.livelaw.in Compensation in Sec 138 NI Act Cases Complainant’s Rights Or The Discretion Of A Court by Lalit Ajmani & Sarthak Bhatia

https://www.taxmanagementindia.com By Mr.M.Govindarajan

https://www.lexology.com by Sakshi Shairwal and Muskan Kapoor

https://theadvocatesleague.in: Decriminalisation Of Section 138 of The Negotiable Instruments Act… By Rajat Singh

https://blog.ipleaders.in Nature Of Section 138 Of Negotiable Instrument Act, 1881 by Abanti Rose 

https://www.mondaq.com India: Section 138 Of Negotiable Instruments Act: Overview

https://singhania.in The Negotiable Instruments (Amendment) Act, 2018: An Overview

Loading

Categories: Recent Trends Analysis
Tags:

0 Comments

Leave a Reply

Avatar placeholder

Your email address will not be published. Required fields are marked *