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DishonourofChequesandNegotiableInstruments
byContributedPapers|November20,20102:34pm
TABLEOFCONTENTS
S.No
1
Title
TABLEOFCASES
PageNo.
2
TABLEOFSTATUTES
INTRODUCTION
RESEARCHMETHODOLOGY
CHAPTER1
CHAPTER2
10
CHAPTER3
18
CONCLUSION
21
BIBLIOGRAPHY
22
TABLEOFCASES
IndianCases
AnguParameswaritextiles(P)ltdv.SriRajam&Co,(2001)105CompCas186.
CanaraBankv.CanaraSalesCorporationandors,AIR1987SC1603.
D.ChandraReddyv.GowrisettyPrabhakarRao,(1996)6AndhLD281(AP).
jagjivanMavjiv.RanchhodasMaghaji,AIR1954SC554.
OPTSMarketingPvt.Ltdv.StateofA.P.,(2001)105CompCas794.
PadminiPolymersLtdv.UnitTrustofIndia,(2002)101DelhiLT376.
S.V.MuzumdarandOrsv.GujaratStateFertilizersCo.LtdandAnr,MANU/SC/0318/2005.
ShardaAggarwalv.AdditionalChiefMetropolitanMagistrate,(1993)78CompCas123.
V.RajaKumariv.P.SubbaramaNaiduandAnr,MANU/SC/0937/2004.
EnglishCases
Flemmingv.BankofNewZealand(1990)AC577.
TableofStatutes
Banking,PublicFinancialInstitutionsandNegotiableInstrumentsLaws(Amendment)Act,1988
GeneralClausesAct,
IndianContractAct,
IndianPenalCode,
TheNegotiableInstrumentsAct,1881.
INTRODUCTION
Adventofchequesinthemarkethavegivenanewdimensiontothecommercialandcorporateworld,itstimewhenpeoplehavepreferred
tocarryandexecuteasmallpieceofpapercalledChequethancarryingthecurrencyworththevalueofcheque.Dealingsinchequesare
vitalandimportantnotonlyforbankingpurposesbutalsoforthecommerceandindustryandtheeconomyofthecountry.Butpursuantto
theriseindealingswithchequesalsorisesthepracticeofgivingchequeswithoutanyintentionofhonouringthem.
Before1988therebeingnoeffectivelegalprovisiontorestrainpeoplefromissuingchequeswithouthavingsufficientfundsintheir
accountoranystringentprovisiontopunishthemintheventofsuchchequenotbeinghonouredbytheirbankersandreturnedunpaid.Of
courseondishonourofchequesthereisacivilliabilityaccrued.Howeverinrealitytheprocessestoseekciviljusticebecomesalong
drawnprocessandrecoverybywayofacivilsuittakesaninordinatelylongtime.Toensurepromptremedyagainstdefaultersandto
ensurecredibilityoftheholdersofthenegotiableinstrumentacriminalremedyofpenaltywasinsertedinNegotiableInstrumentsAct,
1881informoftheBanking,PublicFinancialInstitutionsandNegotiableInstrumentsLaws(Amendment)Act,1988whichwerefurther
modifiedbytheNegotiableInstruments(AmendmentandMiscellaneousProvisions)Act,2002.Thisarticleattemptstoelucidatethe
penalprovisioninthelightoftheamendmentsandthejudicialinterpretations.
Manyissuesariseunderthissectionsuchaswhathappensincaseofdefault,whowillbeliabletotheholderofthecheque,whatarethe
proceduresinvolvedtomakethecaseadeptintheeyesofthemagistrate,etc.inthispapertheresearcherhasattemptedtolookatall
theseissuescomprehensivelyandanalysethemwithsufficientillustrations.
RESEARCHMETHODOLOGY
AIMSANDOBJECTIVES:
http://legalsutra.com/1313/dishonourofchequesandnegotiableinstruments/print/
1/8
AIMSANDOBJECTIVES:
Throughthispapertheresearcheraimsatunderstandingtheconceptofdishonourchequesasitappearsinanewchapterinsertedinto
theNegotiableInstrumentsAct,1988.theresearcherhastriedtounderstandastowhatismeantbydishonour,whowillbeliableupon
suchdishonouerandrelatedquestionsandissues.
Alsotheobjectiveofthispaperistoseetheinterfacebetweencriminallawandcivillaw,asbeforetheamendmentdishonourofcheques
wasapurelycriminallawissue,howevernowithasbeenbroughtoutofthatpurview.
RESEARCHQUESTIONS:
howhastheamendmenttoS.138,changedpositionofdishonourofchequesinlaw?
Whatismeantbydishonourandwhowillbeprincipallyliableuponsuchdishonour?
Arecompaniestreatedinthesamemanneraspersonswhenadishonourofchequeoccurs?
Whatistheprocedurewhichneedstobefollowedinordertoprosecutetheoffender?
SCOPEANDLIMITATIONS:
ThescopeofthisresearchpaperisunderstandtheconceptofdishonourofchequesasitappearsundertheNegotiableInstrumentsAct,
alsolookingathowthepositionofdishonourofchequeshasbeenalteredinlaw.
TheresearcherhaslimitedherselftodiscussingthesubstantiallawaspectsofthepaperwhichareconnectedwithBankinglawandhas
keptthediscussionoftheproceduralaspectsataminimum.
METHODOFWRITING:
Theresearcherhasusedbothadescriptiveandanalyticalmethodofwritinginordertounderstandtheissuesbetter.Theresearcherhas
alsoreliedoncaselaw,togetanindepthunderstandingofthetopic.
MODEOFCITATION:
Auniformmodeofcitationhasbeenfollowedthroughoutthisproject.
SOURCESOFDATA:
Theresearcherhasusedsecondarysourcesinordertoobtainsufficientdataforthisproject,namely,books,articlesandtheinternet.
CHAPTERIZATION:
Chapter1:thischapterdealswiththeshiftofbouncingofchequesfromapurelycriminalapproachtoaquasicriminalquasicivil
approach.Thisincludescomparingtheingredientsundercriminalandcivillawregardingthetopic.
Chapter2:thischapterdealswiththepenaltiesandliabilitiesunderS.138andalsolooksatthepositionofcompaniesinthis
regard.
Chapter3:thischapterdealswiththeprocedurewhichisrequiredtobefollowedinordertofilecomplaintfordishonourof
cheques.
CHAPTER1:
DISHONOUROFCHEQUES
AmendmenttotheAct:aninterfacewithcriminallaw
S.138createsapenalliability,itmakesaciviltransactiontobeanoffenceunderlaw.[1]
ThecourthasnotedthatS.138oftheActhascreatedacontractualbreachasanoffenceandthelegislativepurposetopromoteefficacy
inbankingandofensuringthatincommercialorcontractualtransactionschequeschequesarenotdishonouredandcredibilityin
transactingbusinessthroughchequesismaintained.[2]
Priortotheintroductionofthischapter,thedrawerofadishonouredchequecouldbecriminallyprosecutedunderS.420oftheIndian
PenalCode[3].However,eventodayprosecutionunderthegeneralfortheoffenceofcheatingismaintainable.TheoffenceunderS.138
oftheActandS.420oftheIPCaredifferentinnature,thereforeconvictionofoffenceunderoneprovisiondoesnotbarprosecution
undertheother.[4]ThefullbenchoftheAndhraPradeshHighcourthasheldthatwhenapersonissuesachequeorapostdatedcheque,
heimpliedlyrepresentstothepayeethatintheordinarycourseofevents,thechequeonitspresentationtothebankwouldbemet.In
suchacircumstance,evenwiththeintroductionofS.138oftheAct,prosecutionunderS.420IPCismaintainableifdishonestintentionat
thetimeoftheissuanceofthechequeisestablished.[5]
WhatthenistheadvantageofS.138oftheNegotiableinstrumentsAct?Whatweseeisthatundercriminallawforacrimeofdishonour
ofchequetobemadeoutthereisneedfortheprosecutiontofirstestablishdishonestintentiononthepartofthedrawerfromthe
inceptionoftheinstrument.Thecrimeofcheatingcannotbeconstitutedifthechequeisdishonouredbyitself.Thusfailureofthe
prosecutiontoprovethiselementofdeceptionusuallyledthecourttoholdthatthematterwasofcivilnature.Alsoanotherproblem
arisingundercriminallawisthenecessitytoprovethedishonestintentionbeyondreasonabledoubt.[6]ThusS.138doesawaywiththis
formalisticrigourofcriminallaw.Ifachequeisdishonouredforpaucityoffund,theoffenceunderS.138isconstituted,notwithstanding
theintentionofthepersonissuingthecheque.[7]
IngredientofLiabilityunderS.138:
Theobjectofbringinginthissectionasmentionedaboveistoinculcatefaithintheefficacyofbankingoperationsandcredibilityin
transactingbusinessonnegotiableinstrument.TheingredientswhicharetobesatisfiedformakingoutacaseunderS.138oftheAct
are:
1.Thechequeisdrawnonabankforthedischargeofanylegallyenforceabledebtorotherliability.Thismeansthatthecheque
musthavebeendrawnforpaymentofmoneytoapersonotherthanthedrawerforthefullorpartialdischarge[8]ofanylegally
enforceabledebtorliability.Thuswhatweseehereisthatifachequewasgivenmerelyasasecurity,thenasuitcannotbefiled
uponthatandS.138willnotbeattracted.Alsotobringitundertheambitofthissection,achequeshouldhavepresumablybeen
issuedandnotmerelydrawnforpaymentindischargeofadebt.
2.Thechequesodishonouredmusthavebeenpresentedtothedrawee/bankwithinaperiodofsixmonthsfromthedateonwhich
itisdrawnorwithintheperiodofitsvalidity,whicheverisearlier.[9]
3.Thechequeisreturnedbythebankunpaid.
4.Thechequeisreturnedunpaidbecausetheamountavailableinthedrawersaccountisinsufficientforpayingthecheque.
5.Thepayeehasgivenanoticetothedrawerclaimingtheamountwithin15daysofthereceiptoftheinformationfromthebank.
[10]
2/8
[10]
6.Thedrawerhasfailedtopaywithin15daysfromthedateofthereceiptofnotice.
7.Theoffenceunderthissectionisnotcompletetillastatutoryopportunityisofferedtothedrawerofthechequeformakingthe
defaultgoodwithin15daysofthereceiptofnoticetothateffect.Itisonlythefailureofthedrawertoavailofthisopportunity
andmeetthedemandfortheamountofthechequethatbecomesthecauseofactionundertheS.138.Thispositionwaslaid
downinMahalakshmiEnterprisesv.SriVishnuTradingCo,[11]andhasbeendeemedtobeoneoftheessentialingredientsof
thissection.
8.Thepayeehasalimitationperiodof30days,withinwhichhecanfileacomplaint.
MensRea:
S.138excludesMensReabycreatingstrictliabilityandthisisexplicitfromthewordssuchpersonshallbedeemedtohavecommittedan
offence.Thereturningofachequebyabankeitherbecausetheamountofthemoneystandingtothecreditofthedrawerisinsufficient
ortheamountcoveredbythechequeisinexcessoftheamountarrangedtobepaidfromtheaccountbyanagreementwiththebank
aretwonecessaryconditionscreatingstrictliabilitywhichwillbediscussedinthesubsequentsection.
S.140excludesthedefencethatthedrawerhadnoreasontobelieve,whenheissuedthecheque,thatitmaybedishonouredon
presentmentforthereasonsstatedinS.138.theexclusionofmensreaasanecessaryingredienttothissectionisthusclarifiedhere.
[12]ing
Havingthustouchedjustthebasicaspectsofdishonouringofcheques,andlayingdownitsplaceintheAct,Theresearcherwillnowdeal
withtheoffencethatisprescribedundertheSectionanddealingwiththevariouscircumstancesthatcouldattractthissection.
CHAPTER2:
PENALTIESANDLIABILITIESFORDISHONOUR
Dishonouringofacheque:
InordertobeginadiscussionontheissueofdishonourundertheAct,itisimportanttofirstconsiderthemeaningofthetermdishonour
andwhatdoesitconstitute.ThisfindsmentioninS.91andS.92oftheAct.
Dishonourofnegotiableinstrumentsmaybeoftwokinds:
1.Dishonourbynonacceptance.
2.Dishonourbynonpaymentissaidtobedishonoured.[13]
S.91[14]oftheActspeaksofdishonourbynonacceptance.Whatweseefromthisdefinitionisaconditionofpresentmentofthe
negotiableinstrument,howeverpresentmentforacceptanceisrequiredonlyinthecaseofabillofexchange.Usuallyacceptanceand
paymentgotogetherandthisusuallyhappensincaseaninstrumentispayableaftersight,thusoftenitisdifficulttodistinguishthetwo
becausedishonourbynonpaymentisusuallydishonourbynonacceptance,[15]andthusitisonlythisbillofexchangewhichcanbe
dishonouredbynonacceptanceandnotachequeasinthecaseofachequenoacceptanceisrequiredtobetakentothebankerand
chequesaremainlyinstrumentspayableatsight.[16]
Thesecondkindofdishonour,isthatofdishonourbynonpayment.Anegotiableinstrumentissaidtobedishonouredbynonpayment
whenthedraweeofachequemakesdefaultinpaymentuponbeingdulyrequiredtopaythesame.[17]Adraweecandishonouracheque
Thusitiswellestablishedthatchequesarealwaysdishonouredonlyforthereasonofnonpaymentandnotnonacceptance.
Apartfromthebroadheadsmentionedabove,chequescanbedishonouredbythebankerforseveralreasons.(i)payment
countermanded,(ii)insufficiencyoffunds,(iii)nonapplicabilityoffunds,(iv)improperpresentation,(v)noticeofdeathofaccount
holder,(vi)courtsorderprohibitingpayment,(vii)postdatedcheques,(viii)stalecheques,(ix)lunacy,(x)insolvency,etc.theresearcher
willproceedtodealwithonlyfewoftheseinstances.
Paymentcountermanded:
Whenthedrawerofthechequesissuesinstructionstothebanknottomakeanypaymentofaparticularchequeissuedbyhim,thebank
thenstandsrevokedfrommakingpaymentonthatcheque,thisisknownascountermandofchequesbythedrawer.[18]Itmustbenoted
herethatanypaymentbythebankaftersuchnoticewillnotbeconsideredasgoodpayment.Whenadrawerwishestostoppaymenthe
mustgivenoticetotheBank,thoughitisusuallythedrawerwhogivessuchnotice,howeverapayeecangiveanoticetothebankerthat
thechequeisstolenorlost.Insuchacasethebankermustinformthedrawer,sothatthelattercangivenecessaryinstructions.[19]
Insufficiencyoffunds:
Whentherearenofundstomeetthechequeortheaccountofthedrawerdoesnotholdsufficientfundstomeetthewholecreditamount
ofthecheque,thebankeristhenjustifiedinrefusingthepaymentofsuchacheque.Howeverwheretheaccounthassufficientfunds,the
bankerisunderanobligationtoitscustomerofhonouringthechequepresentedtoit.
Achequewhendishonouredforthepurposeofinsufficiencyoffunds,thedrawerofsuchchequeisliabletopenalconsequencesasunder
S.138oftheAct.Howevertheremaybeanagreementtothecontrarywherebythebankerhasundertakentomeetthecustomers
chequeseventhoughtheremaynotbesufficientfundsinhisaccount,theninsuchacasethebankerisboundtohonourthecheque
failingwhichthebankerwouldbeliablebywayofbreachofcontractforanoverdraftfacility[20]andthenecessarylegalconsequences
willensue.
Oneissuethatariseshereandhasbeenunderconstantdebate,isthatwhetherachequereturnedbythebankerendorsedwiththewords
refertodrawerwouldamounttoadishonourunderS.138.afteranumberofdecisionsonthepoint,therehasbeenasortconsensuson
thepointandcourtshaveoftensaidthatrefertodrawermeantnothingbutthatthedrawerlackedsufficientfundsinhisaccountand
thereforeS.138wouldbeattractedincertaincircumstances.
Nonapplicabilityoffunds:
UnderS.31oftheActitisthebankersdutytohonourthechequewhenfundswhicharelyingintheaccountofthedrawerareapplicable
forthepurpose.Thuswhenthefundsintheaccountarelyingforotherpurposes,thewillnecessarilydishonourthechequepresented
beforeitforpayment.Anexampleofsuchasituationiswhenthebankermayhavealienoverthefundslyingintheaccountofthe
drawerunderS.171oftheIndianContractAct.Anothersituationmightbewherethefundsintheaccountofthedrawerismeantfora
trustandachequeisdrawninbreachofatrust.[21]
Effectsofdishonourofcheque:
3/8
Effectsofdishonourofcheque:
Firstly,takingoflegalaction.Thepayee/holdercantakeactionagainstthedrawerofsuchabillmaytakeactionontheexacttimeof
dishonouringofthebill.Thustheholderneednotwaitforthebilltomatureandthentotakeactionfordishonouringthesame.[22]
Secondly,whenachequeissaidtobedishonoureditlosesitsbasiccharacteristicofnegotiabilitywithimmediateeffect.Thirdly,onthe
dishonouringofacheque,nothingpreventstheholderthereoftopresentitagainparticularlyonbeingaskedbythedrawerofthe
cheque.Lastly,underS.138,meredishonouringofchequesdoesnotgiverisetoacauseofactioninfavourofthecomplainantbutit
accruesonlyaftertheissueofdemandnoticeandfailureofthedrawertomakethepayment.[23]
Thepayeeorholderofachequehastherighttopresentthechequeforpaymentforanynumberoftimesandhemayhaveitrepeatedly
dishonoured,buthecanprosecutethedraweronlyonce.[24]
Postdatedcheques:
Wouldtheaboveaspectsapplytoapostdatedcheques?Apostdatedchequerepresentsamerepromisebythedrawertopayatsome
futuredateanditrepresentstheholdingoutofahoperatherthantherepresentationofapresentfactandthusabrokenpromiseisnot
acriminaloffencethoughitmayamountincertainbusinessrelationstodiscreditablebehaviouronthepartofthedrawer.[25]However
theEnglishlawonthisissueisdifferentandmorelogical.Accordingtothemthedrawerimpliedlyrepresentsthattheexistingfactsat
thedatewhenhegivesthechequetothepayeeorhisagentissuchthatintheordinarycoursethechequewill,onpresentationonor
afterthedatespecifiedinthecheque,bemet.[26]
Liabilityofdishonouringofcheque:
Dishonouringofchequescanberightfullydoneorwrongfullydonedependingonthenatureoftheactiontakenuponthecheque.Herewe
shallseethevariousentitieswhichmayfallliableuponthedishonourofachequesubjecttoitbeingarightfuldishonourorawrongful
one:
Liabilityofthedrawertothepayee:
S.30oftheActlaysdownthatthedrawerisboundtocompensatethepayee/holderincaseofdishonourbytheacceptor/drawee.[27]
Thuswhatweseehereisthattheliabilityofthedrawee/bankistheprimaryliabilityandonlywhenthebankfailstohonourthecheque,
theholdercanthenproceedagainstthedrawer.Thebankisunderalegalobligationtohonourthechequeaslongasthedrawerhas
sufficientfundslyinginhisaccountinthebank.[28]Howeveritmustbenotedthatintheeventofnoncompliancebythebank,thepayee
cannotenforceanyobligationuponit,thisisbecausethereisnoprivityofcontractbetweenthem,noranytrustcreatedsoastomake
thepayeeabeneficiarythereunder.
Liabilityofthebankertothedrawer:
Thedraweeofachequeisusuallyabankerandthelegalrelationbetweenhimandthedrawer,thatistosay,betweenthebankerandthe
customeristhatofacreditorandadebtor.Thebankerwhoisholdingthemoneyofhiscustomerowesadebttohimtotheextentlyingin
thecustomersaccountandthedrawee/bankeristhereforeunderanobligationtohonourthechequesofthecustomersolongashecan
meetthemfromsuchfundsasexistinthecustomersaccount.Thuswhatweseehereisthatthedraweesliabilityistowardsthedrawer
andnotthepayee.ThisissimplybecausethereisnoprivityofcontractbetweenthedraweeandthepayeeandTheActonlyprovidesfor
theliabilityofthedraweeinfavourofthedrawerofthechequeasheisanaccountholderofthedrawerandthusthereexistsacontract
interse.[29]
TheideawaslaiddownclearlyinjagjivanMavjiv.RanchhodasMaghaji,[30]whichsaysthatthereisnoprovisionassuchwhichmakes
thedraweeliableontheinstrument,withtheexceptionofS.31oftheActwherethedraweemustpayifthereissufficientfundsinthe
accountofthedrawer.Suchaliabilityarisesoutofbreachofcontractinbetweenthebankerandthecustomerandinthecaseof
wrongfuldishonouringofthecheque,thepartyinbreachofthecontractmustpaydamageswhichflowfromsuchbreach.[31]
Itmustbenoticedthattheliabilityofthedraweehoweverisconditionaluponhishavinginhishandsfundsofthedrawersufficientto
paythechequeamount.[32]Apartfromthistherearevariousothersituationswherebythebankercanrightfullydishonourthecheque
andifhedishonoursthechequeforthesereasonsliabilitywillnotfalluponhim.
Incaseofwrongfuldishonorthecustomercansuefordamages.Howeverquantificationofdamagesdependslargelyonthe
creditworthinessofthecustomer.Thisisimportantbecausedishonourofachequeimpactslargelythereputationandintegrityofa
person,moresoifthecustomerisawellknowntrader.[33]Inalmosteverycasethedrawercanrecoversubstantialdamagesfromthe
draweeonthebasisoftheabovefactorsoflossofcredit,etc.,howeveritmaybedifficulttoawardpecuniarydamagesinsuchasituation.
Thusweseethecivilremediesavailableincaseofdishonouringofcheques,howeversuchcivilremediesdonotexcludecriminalactionas
islaiddownintheamendedchapteroftheAct.
Liabilityincaseofforgery:
Abanker/draweehasnoobligationtopayifthesignaturesofthecustomeronthechequeareforgedandhasarighttodishonourthe
chequeonthisground.Thebankhasthespecimensignatureofhiscustomeranditisthedutyofthebanktocomparethesignatures,
thusindoingsoifhefindsthatthesignatureisinconsistent,thenthebankshouldnothonourthecheque.[34]
Thereremainsapossibilitythatthechequepresentedforpaymentisnotthecustomerschequeatallbutaforgery,orthatthissignature
isforged,orsignedwithouthisauthorization.Abankerpayingachequeunderthesecircumstancesisnotentitledprimafacie,todebit
thecustomersaccount.[35]Thelawisthatachequewiththedrawerssignatureforgedisamerenullity.Alandmarkcasewhichlays
downthelawinIndiaisCanaraBankv.CanaraSalesCorporationandors,[36]Thecourtheldthatwheneverachequepurportingtobe
byacustomerispresentedbeforeabankitcarriesamandatetothebanktopay.Ifthechequeisforgedthenthereisnosuchmandate.
Thebankcanescapeliabilityonlyifitcanproveknowledgeonthepartofthecustomer.Thuskeepinginviewthefactthatthebankeris
boundtoknowhiscustomerssignatureandcomparethesame,thepayingbankerwillthushavenostatutoryprotectionifhepaysa
chequeonwhichthecustomerssignatureisforged.
Company/Firm:
Thedrawerofacheque,whetheranaturalpersonorabodycorporateorevenafirm,canbeprosecutedunderS.141[37]oftheAct.
Inorderthatacompanymaybeboundbyanegotiableinstrumentpurportingtohavebeenissuedonitsbehalftwoconditionsmustbe
satisfied:(i)theinstrumentmustbedrawn,made,acceptedorendorsedinthenameoforbyoronbehalfoforaccountofthecompany,
(ii)andthepersonwhomakes,draws,endorsesoracceptstheinstrumentmusthavetheauthoritygiventohimbythecompanyontheir
behalf.
Prosecutionofthecompanyisnotsinequanonfortheprosecutionofthedirectors,andmerelybecausecompanyisnotmadeanaccused
intheproceedingsisnogroundtoquashit.ThustheinadecidedcasetheSupremeCourtheldthatofficersofthecompanywhomaybe
heldliablefallingunderS.141otherthanthedirectors,fallintothefollowingcategories:
(1)thosewhoareinchargeof[38]thecompanyandresponsiblefortheconductofitsbusinessand
4/8
(1)thosewhoareinchargeof[38]thecompanyandresponsiblefortheconductofitsbusinessand
(2)personsotherthatthosefallingintheabovecategory,whoisameredirector,managerorsecretary,etcofthecompany.
(3)Anyotherpersonwhoisadirectororamanagerorasecretaryorofficerofthecompanywithwhoseconnivanceorduetowhose
neglectthecompanyhascommittedtheoffence.
Howeverapersonwhoprovesthattheoffencewascommittedwithouthisknowledgeandthathehadexercisedduediligenceinthe
conductofhisbusinessisexemptedfrombecomingliablebyoperationoftheprovisotoSubsection(1).Theburdeninthisregardwill
havetobedischargedbytheaccused.[39]
Themanagingdirectormayalsobeattachedwithliabilityandtheessentialsforsuchactionis:
(1)hehastobeinchargeandresponsibleincase,
(2)thereshouldbehisconsentandconnivanceforwhichthereshouldbeavermentsincomplaintorprimafacieproofofit.Thesection
beingpenalhastobestrictlyconstrued.Intheabsenceofbasicfactsbeingpleadedinthecomplaint,vicariousliabilitycannotbe
imputed.[40]
incaseofanactionunderS.138,theMDofacompanyonbehalfofwhomthedishonouredchequehasbeenissued,cannotpleadthathe
didnotparticipateinthedaytodayadministrationofthecompanyandthereforeisnotcriminallyliablebecausenormally,bydefinition
theMDissupposedtobeinchargeofmanagingthecompany.NeithercananMDpasstheblameontothedirectorsofthecompany,
imputingliabilityontothedirectorsforadishonouredchequeissuedbytheMDisamatteroffactsandevidence.[41]Lastly,amanaging
directorcanonlybesuedinhisofficialcapacityandnotasanindividual.[42]
Firm:
Inthecaseofafirm,ifthereceiptofthenoticeisbyonepartnerwhoishabituallyactingforthebusinessofthefirm,itshallbedeemed
tobenoticetothefirm.[43]
Havingunderstoodthesubstantiveaspectsofdishounourofacheque,theresearcherwillnowdiscusstheproceduralaspectsinthe
subsequentchapter.Oncethedraweeestablishestothepayeethattherehasoccurredadishonourtothecheque,thenthepayeegoes
throughaseriesofproceduralaspectssoastoclaimhismoneybackandifallelsefailsthenthepayeewillfinallyfileacomplaint
againstthedrawer.
CHAPTER3
PROCEDUREANDPRACTICE:
TheoffenceunderS.138isanoncognizableoffencebyvirtueofS.142oftheActonaccountofthenonobstanteclauseascomprisedin
section142oftheAct,themagistratemustproceedimmediatelyoncomplaint.Foracomplainthowever,firstastatutorynoticemustbe
senttothedrawerandifthedrawerdoesnotreplyaccordinglywithin15days,itopensitselfforprosecution.
Notice:
AnoticeisoneoftheessentialcharacteristicofS.138.Theperiodforcauseofactionistobecountedfromthedateofreceiptofnotice
bytheaccused.Noticehastobesenttothedrawerwithin30daysofthereceiptofinformationfromthebankaboutthedishonour.[44]
Asregardsliabilityofdishonourofchequesitisessentialtoprimafacieshowthatafter15daysofreceiptofnotice,theaccusedfailedto
paytheamount.
InthecaseofPadminiPolymersLtdv.UnitTrustofIndia,[45]ithasbeenheldthatanoticeismustandmandatory.Unlessanduntilthe
intentionisclearonthepartofthepartofthepersongivingnoticethatthepaymentbythedrawerofthechequeshouldbemadewithin
15daysofreceiptthereof,anycommunicationbetweenthepartiesinsistingformakingthepaymentcannotbetermedasnoticeunder
S.138oftheAct.Otherwisethepurposeofpresentingthechequetimeandagainduringtheperiodofvaliditywouldhavenomeaning.
Sofarasthequestionofgivingnoticeisconcerned,itisstatedthateverypersonwhobecomesliableuponanactionfordishonourofthe
instrumentandonlybysuchdishonoureithertheholderthereoforsomepartytheretowhoremainsliablethereonmaygivenoticetosuch
partiesasentitledtoimmediatenotice.Buttheholdermaygivenoticetosuchpartiesashedesirestochargebuthecannotbygiving
noticemakeapersonliablewhoisnototherwiseliableunderlaw,e.g.,draweeinthecaseofdishonourofcheques.[46]
Servingthenotice:
Animportantquestionthatariseshereisthatwhenisanoticedeemedtobeservedanduponwhoistheburdenofprovingservice?
Theproblemthatarisesisthatthesectiondoesnotonlysaydeliveryofnotice,butreceiptofthenotice,suchwordingsinthesectioncan
beputtonumerousinterpretations.Thequestionisifreceiptofnotice,postulatesactuallydelivery,thenthedrawercaneasilypreempt
actionagainsthimbydeliberatelystayingawayfromhispremisesandthelikes.Itwouldbeinequitablethatsuchapersonbeletoffthe
hook,whileanotherdrawerwhostaysonandacceptsthenoticewouldsubjecthimselftoprosecution.
InthecaseofV.RajaKumariv.P.SubbaramaNaiduandAnr[47]thequestionthatcameupwaswhatismeantbyapropernoticeandif
thereisnoproperwouldthecomplaintbequashed.
InClause(c)oftheprovisothedrawerofthechequeisgivenfifteendaysfromthedateofreceiptofsaidnoticeformakingpayment.
Thisaffordsclearindicationthatgivingnoticeinthecontextisnotthesameasreceiptofnotice.Givingistheprocessofwhichreceiptis
theaccomplishment.Thepayeehastoperformtheformerprocessbysendingthenoticetothedrawerinhiscorrectaddress,ifreceiptor
eventenderofnoticeisindispensableforgivingthenoticeinthecontextenvisagedinClause(b)anevaderwouldsuccessfullykeepthe
postalarticleatbayatleasttilltheperiodoffifteendaysexpires.Lawshallnothelpthewrongdoertotakeadvantageofhistactics.
Hencetherealisticinterpretationfortheexpressiongivingnoticeinthepresentcontextisthat,ifthepayeehasdispatchednoticeinthe
correctaddressofdrawerreasonablyaheadoftheexpiryoffifteendays,itcanberegardedthathemadethedemandbygivingnotice
withinthestatutoryperiod.Anyotherinterpretationislikelytofrustratethepurposeforprovidingsuchanotice.
Thusfromhereweseethattherecanbedeemednoticeevenwhereactualnoticehasnotbeengiven.Howeverthisisarebuttable
presumptionanditsforthecomplainanttoprovethatthenoticewasservedandthatthepersoneitherrefusedtoacceptthenoticeor
wasunavailable.
Thoughthisisthepopularpositionyet,manycourtsdifferinopinionandithasbeenheldthatwherethedeliveryisdonebypost,then
readingS.138withS.27oftheGeneralClausesAct
Ingredients:
Thoughnoformofnoticeisprescribed,therequirementisthatthenoticeshallbegiveninwritingwithinfifteendays(nowthirtywiththe
5/8
Thoughnoformofnoticeisprescribed,therequirementisthatthenoticeshallbegiveninwritingwithinfifteendays(nowthirtywiththe
amendment).
Secondlywhenanoticeisserved,itmustdemandthesaidamounti.e.thechequeamountinit.Ifnosuchdemandismadethenotice
fallsshortoflegalrequirement.[48]Howeverifapartfromthesaidamountotheramountsbywayofinterest,costs,etcismentioned,
suchanoticewouldbeavalidnoticeundertheSection.ThelegislativeintentoftheSectionisquiteclear,thedrawerofthechequewill
beliableforconvictionifthedemandisnotmetwithin15daysofthereceipt.Thusifthechequeamountispaidwithinthestatutory
periodorbeforeacomplaintisfiledthelegalliabilityunderS.138willceaseandandforrecoveryofadditionalcosts,acivilsuitwilllie.
Alsothestatingofthechequenumber,thoughseemsessentialsothatthedrawershouldknowofwhichchequethenoticerelatesto,yet
ithasbeenheldthatS.138doesnotlaydownanysuchconditionandifthechequenumberisabsentorwrong,dependingonthefacts
andcircumstances,thenoticewilldeemedgoodorbadinlaw.[49]
Burdenofproof:
Underthislawallpresumptionsaremadeagainstthedrawerofsuchchequesandthustheonusofproofisleftontheaccusedrather
thantheprosecutor.
CONCLUSION
Thoughinsertionofthepenalprovisionshavehelpedtocurtailtheissueofchequearisingoutofitsdishonoureitherhonestlyorwith
dishonestintentionandthetradingcommunitynowfeelsmoresecuredinreceivingthepaymentthroughcheques.Howevertherebeing
noprovisionforrecoveryoftheamountcoveredunderthedishonouredcheque,inacasewhereaccusedisconvictedundersection138
andtheaccusedhasservedthesentencebut,unabletodepositamountoffine,theonlyoptionleftwiththecomplainantistofilecivil
suit.
TheprovisionsoftheActdonotpermitanyotheralternativemethodofrealizationoftheamountduetothecomplainantonthecheque
beingdishonoredforthereasonsofinsufficientfundinthedrawersaccount.Thepropercoursetobeadoptedbythecomplainantin
suchasituationshouldbebyfilingasuitbeforethecompetentcivilcourt,forrealization/recoveryoftheamountduetohimforthe
reasonofdishonouredchequewhichthecomplainantisatlibertytoavailofifsoadvisedinaccordancewithlaw.
Thuswhatweseeisthatthesectionisnotfullproof,howeverthereisnodenyingthatthisprovisionhasdoneawaywiththerigorous
andtimeconsumingmethodsofcriminallaw.Insupportofthiswecanseethatthesectionalsoprovidesforsummaryproceedings,
makingtheissuepenaltyalotsimpler,becauseifachequegetsdishonouredtodayandproceedingsgoonasusual,thenthepersonmay
onlygetreliefaftersaythreeorfouryears,thisdefeatsthepurposeofachequewhichismeantforimmediateacceptanceand
distributionofchequeamount.
BIBLIOGRAPHY
Articles:
K.Srivinasan,Bouncingofchequesissuedincompanies,CorporateLawAdviser,Vol35,Oct(1)1999.
Books:
OPFaizi,KhergamvalaontheNegotiableInstrumentsAct,19thed(NewDelhiLexisNexis,2003).
A.N.Saha,LawofDishonourofCheques,1sted(NewDelhiOrientPublishingCompany,1995).
RajeshGupta,DishonourofCheques(Law&Practise),1sted(NewDelhiBharatLawHousePvt.Ltd,1996).
AvtarSingh,NegotiableInstruments,4thed(LucknowEasternBookCompany,2005).
S.N.Gupta,DishonourofCheques:LiabilityCivilandCriminal(DelhiUniversalBookTraders,1991).
M.S.Parthasarathy,ChequesinlawandPractise,6thed(DelhiUniversalLawPublishingCo.Pvt.Ltd,2003).
S.K.Awasthi,LawofDishonourofCheques:ForgeryandCheating(PuneCTJPublications,1993).
Mr.JusticeS.B.Malik(ed),S.KrishnamurthiAiyarsLawrelatingtotheNegotiableInstrumentsAct,6thed(AllahabadThe
UniversityBookAgency,1997).
Websites:
Anonymous,SCrulingondishonourofcheques,TheHindu,Thursday,15thAugust,2002
www.hinduonnet.com/thehindu/2002/08/15/stories/2002081502381200.htm[1]
K.Krishnamurthi,DishonourofchequesHowcriminalliabilityarises,TheHindu,Sunday,29th
July,2001http://www.thehindubusinessline.com/businessline/iw/2001/07/29/stories/0729g251.htm.
K.krishnamurthy,whenchequesgetdishonoured,TheHindu,Sunday,23rdDecember2001.
www.blonnet.com/iw/2001/12/23/stories/0723g251.htm[2]
[1]OPFaizi,KhergamvalaontheNegotiableInstrumentsAct,19thed(NewDelhiLexisNexis,2003)at379.
[2]Ibid,at381.
[3]HereinafterreferredtoasIPC.
[4]Supranote3,at382.
[5]OPTSMarketingPvt.Ltdv.StateofA.P.,(2001)105CompCas794.
[6]A.N.Saha,LawofDishonourofCheques,1sted(NewDelhiOrientPublishingCompany,1995)at3.
[7]Ibid,at4.
[8]Sinceachequemustbeforthefullorpartialdischargeofthedebt,thenifitappearsthatthechequeisforanamountmorethanthe
debtorliability,thesectionwillnotbeattracted.ThiswasheldinAnguParameswaritextiles(P)ltdv.SriRajam&Co,(2001)105Comp
Cas186.
[9]RajeshGupta,DishonourofCheques(Law&Practise),1sted(NewDelhiBharatLawHousePvt.Ltd,1996)at47.
[10]further
6/8
[10]further
(i)suchnoticeshouldspecificallymaketheallegationofthedishonouringofthechequeforreasonofinsufficiencyoffunds.
(ii)Thenoticeshouldcontainthedate,howeverithasoftenbeenheldthatsuchanomissionwillnotbefataltotheprosecution
ofthecase.Itshouldalsocontainthenumberthechequeisbearing,thenameofthebankerthechequeisdrawnupon,theamountfor
whichthesameisdrawnandthedateoftheissueofthechequeincaseofthepostdatedchequeortheantidatedcheque.
(iii)Thenoticeshouldmakespecificdemandoftheamountofthecheque.See,Supranote,at47.
[11](1993)77CompCas249.Inthiscasetheaccusedreceivedastatutorynoticeon24thAugust1989andthecomplaintwasfiledon
5thSeptember1989.itwasheldthatthelimitationwouldbeginfrom9thSeptember1989andthecomplaintwaswithintime.Itwould
howeverappearfromtheclearwordingsofS.138(c)thatthecauseofactionarisesonlyifthedrawerfailstomakepaymentwithin15
daysofthenotice,thisisoneoftheessentialingredientsofthesection.Inthiscase,thedrawerhadtill8thSeptember1989topaythe
amount.
[12]M.S.Parthasarathy,ChequesinlawandPractise,6thed(DelhiUniversalLawPublishingCo.Pvt.Ltd,2003)at
[14]S.91abillofexchangeissaidtobedishonouredbynonacceptancewhenthedrawee,oroneoftheseveraldraweesnotbeing
partners,makesdefaultinacceptanceuponbeingdulyrequiredtoacceptthebill,orwherethepresentmentisexcusedandthebillisnot
accepted.Wherethedraweeisincompetenttocontract,ortheacceptanceisqualified,thebillmaybetreatedasdishonoured.
[15]Jagivanv.Ranchoddas,AIR1954SC554.
[17]S.92oftheAct.Itstatesasfollows,Apromissorynote,billofexchangeorchequeissaidtohavebeendishonouredbynonpayment
whenthemakerofthenote,acceptorofthebillordraweeofthechequemakesdefaultinpaymentuponbeingdulyregisteredtopaythe
same.
[18]Supranote9at30.
[19]S.N.Gupta,DishonourofCheques:LiabilityCivilandCriminal(DelhiUniversalBookTraders,1991)at14.
[20]Flemmingv.BankofNewZealand(1990)AC577,seealsoRayner&Cov.HambrosBanks,(1942)2AllER694.
[21]Supranote9,at31
[22]Supranote10at29.
[24]AvtarSingh,NegotiableInstruments,4thed(LucknowEasternBookCompany,2005)at364.
[25]Supranote9,at
[27]S.30oftheActsays,thedrawerofabillofexchangeorchequeisbound,incaseofdishonourbythedraweeoracceptorthereof,to
compensatetheholder,providedduenoticeofdishonourhasbeengiventoorreceivedby,thedrawerashereinafterprovided.
[28]S.31oftheActthedraweeofachequehavingsufficientfundsofthedrawerinhishands,properlyapplicabletothepaymentof
suchcheque,mustpaythechequewhendulyrequiredtodoso,andindefaultofsuchpayment,mustcompensatethedrawerforanyloss
ordamagecausedbysuchdefault.
[30]AIR1954SC544.
[33]Ibid,at33.
[34]Ibid.,at23.
[35]iBid,at22.
[36]AIR1987SC1603.inthiscasethequestionwaswhetherthebankwasliableforpaymentofchequeofacustomerovertheforged
signaturedespiterenditionofwithdrawalsheetsandmonthdeposits,wherecontentnswerenotcheckedbyhimandmerelyaccepted.In
thecase,42chequeswithforgedsignatureswerepresentedonvariousdatesbetween1957and1961.Duringthisperiodthecustomer
wouldconfirmthestatusofhisaccountsattheendofeveryhalfyear.TheaccountswereauditedbytheCharteredAccountantandthe
bankscontentionwasthat,hadtherebeenanymisappropriationupto3lacsfromtheaccountthesamewouldhavebeendetectedit.
[37]S.141offencesbycompanies.
[38]S.141(1)ifthepersomcommittinganoffenceunderS.138isacompany,everypersonwho,atthetimetheoffencewas
committed,wasinchargeof,andwasresponsibletothecompanyfortheconductofthebusinessthecompany,aswellasthecompany,
shallbedeemedtobeguiltyoftheoffenceansshallbeliabletobeprosecutedagainstandpunishedaccordingly.
[39]S.V.MuzumdarandOrsv.GujaratStateFertilizersCo.LtdandAnr,MANU/SC/0318/2005.thefactsofthecaseareasfollows
respondentNo.1/complainantsuppliedgoodsoncredittoM/sGarwareNylonsLtd.(accusedNo.14).Chequesissuedbythecompanywere
nothonouredbythedraweebankonthegroundofinsufficientfunds.Paymentswerenotmadeevenafterlegalnotices.Therewere14
accusedpersonsincludingthecompanynamedinthecomplaint.SomeoftheaccusedpersonswereDirectorsandwhileotherswere
employees.SummonswasissuedtoalltheaccusedpersonsforfacingtrialforallegedcommissionofoffencespunishableunderSection
138oftheActreadwithSections420and114oftheIPC.ThesaidcommonjudgmentandorderwaschallengedbeforetheHighCourt. 7/8
138oftheActreadwithSections420and114oftheIPC.ThesaidcommonjudgmentandorderwaschallengedbeforetheHighCourt.
ThechallengebeforetheHighCourtwasprimarilyonthegroundthattherewasnomaterialtoshowthattheaccusedpersonsatthetime
ofoffenceasallegedlycommittedwereinchargeand/orresponsibletothecompanyfortheconductofthebusinessasrequiredunder
Section141(1)oftheAct.ItwasalsosubmittedthatthedeemingprovisionunderSubsection(2)ofSection141whichcoverspersons
withwhoseconsentorconnivanceoranyattributablenegligenceforcommissionoftheoffencebythecompanywasalsonotapplicable.
[40]Khergamvala,at442.
[41]ShardaAggarwalv.AdditionalChiefMetropolitanMagistrate,(1993)78CompCas123.
[42]D.ChandraReddyv.GowrisettyPrabhakarRao,(1996)6AndhLD281(AP).Cf,avtarsingh,at435.
[44]S.138(b)proviso.
[45](2002)101DelhiLT376.
[47]MANU/SC/0937/2004.
[49]Khergamwala,at408.
Endnotes:
1.www.hinduonnet.com/thehindu/2002/08/15/stories/2002081502381200.htm:
http://www.hinduonnet.com/thehindu/2002/08/15/stories/2002081502381200.htm
2.www.blonnet.com/iw/2001/12/23/stories/0723g251.htm:http://www.blonnet.com/iw/2001/12/23/stories/0723g251.htm
Norelatedposts.
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