Dishonour of Cheques and

Negotiable lnstruments
PrInt thIs
TALE OF CONTENTS
S.No Title Page No.
1 TALE OF CASES 2
2 TALE OF STATUTES 2
3 lNTRODUCTlON 3
4 RESEARCH
METHODOLOCY
4
5 CHAPTER 1 6
6 CHAPTER 2 10
7 CHAPTER 3 18
8 CONCLUSlON 21
9 lLlOCRAPHY 22

TALE OF CASES
lndian Cases
O Angu Fnrnmeswnr IexIIes (F) IId v. 5r Rn]nm & Co, (2001) 105 Comp Cas 186.
O Cnnnrn nnk v. Cnnnrn 5nIes CorornIon nnd ors, AR 1987 SC 1603.
O Chnndrn Reddy v. CowrseIIy Frnbhnknr Rno, (1996) 6 Andh LD 281 (AP).
O ]ng]vnn Mnv] v. Rnnchhodns Mnghn], AR 1954 SC 554.
O FT5 MnrkeIng FvI LId v. 5InIe oj AF, (2001) 105 Comp Cas 794.
O Fndmn FoIymers LId v. UnI TrusI oj Indn, (2002) 101 DeIhI LT 376.
O S.V.Muzumdar and Ors v. Cujarat State FertIIIzers Co. Ltd and Anr,
MANUJSCJ0318J2005.
O 5hnrdn AggnrwnI v. AddIonnI Chej MeIrooIInn MngsIrnIe, (1993) 78 Comp
Cas 123.
O 'Rn]n Kumnr v. F5ubbnrnmn Nndu nnd Anr, MANUJSCJ0937J2004.
English Cases
O Iemmng v. nnk oj New ZenInnd (1990) AC 577.
Table of Statutes
O ankIng, PubIIc FInancIaI nstItutIons and NegotIabIe nstruments Laws
(Amendment) Act, 1988
O CeneraI CIauses Act,
O ndIan Contract Act,
O ndIan PenaI Code,
O The NegotIabIe nstruments Act, 1881.

lNTRODUCTlON
Advent oI cheques In the market have gIven a new dImensIon to the commercIaI and
corporate worId, Its tIme when peopIe have preIerred to carry and execute a smaII
pIece oI paper caIIed Cheque than carryIng the currency worth the vaIue oI cheque.
DeaIIngs In cheques are vItaI and Important not onIy Ior bankIng purposes but aIso Ior
the commerce and Industry and the economy oI the country. ut pursuant to the rIse In
deaIIngs wIth cheques aIso rIses the practIce oI gIvIng cheques wIthout any IntentIon
oI honourIng them.
eIore 1988 there beIng no eIIectIve IegaI provIsIon to restraIn peopIe Irom IssuIng
cheques wIthout havIng suIIIcIent Iunds In theIr account or any strIngent provIsIon to
punIsh them In the vent oI such cheque not beIng honoured by theIr bankers and
returned unpaId. OI course on dIshonour oI cheques there Is a cIvII IIabIIIty accrued.
However In reaIIty the processes to seek cIvII justIce becomes a Iong drawn process
and recovery by way oI a cIvII suIt takes an InordInateIy Iong tIme. To ensure prompt
remedy agaInst deIauIters and to ensure credIbIIIty oI the hoIders oI the negotIabIe
Instrument a crImInaI remedy oI penaIty was Inserted In NegotIabIe nstruments Act,
1881 In Iorm oI the ankIng, PubIIc FInancIaI nstItutIons and NegotIabIe nstruments
Laws (Amendment) Act, 1988 whIch were Iurther modIIIed by the NegotIabIe
nstruments (Amendment and MIsceIIaneous ProvIsIons) Act, 2002. ThIs artIcIe
attempts to eIucIdate the penaI provIsIon In the IIght oI the amendments and the
judIcIaI InterpretatIons.
Many Issues arIse under thIs sectIon such as what happens In case oI deIauIt, who wIII
be IIabIe to the hoIder oI the cheque, what are the procedures InvoIved to make the
case adept In the eyes oI the magIstrate, etc. In thIs paper the researcher has
attempted to Iook at aII these Issues comprehensIveIy and anaIyse them wIth suIIIcIent
IIIustratIons.
RESEARCH METHODOLOCY
AMS AND OECTVES:
Through thIs paper the researcher aIms at understandIng the concept oI dIshonour
cheques as It appears In a new chapter Inserted Into the NegotIabIe nstruments Act,
1988. the researcher has trIed to understand as to what Is meant by dIshonour, who
wIII be IIabIe upon such dIshonouer and reIated questIons and Issues.
AIso the objectIve oI thIs paper Is to see the InterIace between crImInaI Iaw and cIvII
Iaw, as beIore the amendment dIshonour oI cheques was a pureIy crImInaI Iaw Issue,
however now It has been brought out oI that purvIew.
RESEARCH QUESTONS:
O how has the amendment to S.138, changed posItIon oI dIshonour oI cheques In
IawZ
O hat Is meant by dIshonour and who wIII be prIncIpaIIy IIabIe upon such
dIshonourZ
O Are companIes treated In the same manner as persons when a dIshonour oI
cheque occursZ
O hat Is the procedure whIch needs to be IoIIowed In order to prosecute the
oIIenderZ
SCOPE AND LMTATONS:
The scope oI thIs research paper Is understand the concept oI dIshonour oI cheques as
It appears under the NegotIabIe nstruments Act, aIso IookIng at how the posItIon oI
dIshonour oI cheques has been aItered In Iaw.
The researcher has IImIted herseII to dIscussIng the substantIaI Iaw aspects oI the
paper whIch are connected wIth ankIng Iaw and has kept the dIscussIon oI the
proceduraI aspects at a mInImum.
METHOD OF RTNC:
The researcher has used both a descrIptIve and anaIytIcaI method oI wrItIng In order to
understand the Issues better. The researcher has aIso reIIed on case Iaw, to get an
Indepth understandIng oI the topIc.
MODE OF CTATON:
A unIIorm mode oI cItatIon has been IoIIowed throughout thIs project.
SOURCES OF DATA :
The researcher has used secondary sources In order to obtaIn suIIIcIent data Ior thIs
project, nameIy, books, artIcIes and the Internet.
CHAPTERZATON:
O Chapter 1: thIs chapter deaIs wIth the shIIt oI bouncIng oI cheques Irom a pureIy
crImInaI approach to a quasI crImInaI quasI cIvII approach. ThIs IncIudes
comparIng the IngredIents under crImInaI and cIvII Iaw regardIng the topIc.
O Chapter 2: thIs chapter deaIs wIth the penaItIes and IIabIIItIes under S.138 and
aIso Iooks at the posItIon oI companIes In thIs regard.
O Chapter 3: thIs chapter deaIs wIth the procedure whIch Is requIred to be IoIIowed
In order to IIIe compIaInt Ior dIshonour oI cheques.
CHAPTER 1:
DlSHONOUR OF CHEQUES
Amendment to the Act: an interface with criminal law
S. 138 creates a penaI IIabIIIty, It makes a cIvII transactIon to be an oIIence under
Iaw.[1]
The court has noted that S.138 oI the Act has created a contractuaI breach as an
oIIence and the IegIsIatIve purpose to promote eIIIcacy In bankIng and oI ensurIng that
In commercIaI or contractuaI transactIons cheques cheques are not dIshonoured and
credIbIIIty In transactIng busIness through cheques Is maIntaIned.[2]
PrIor to the IntroductIon oI thIs chapter, the drawer oI a dIshonoured cheque couId be
crImInaIIy prosecuted under S.420 oI the ndIan PenaI Code[3]. However, even today
prosecutIon under the generaI Ior the oIIence oI 'cheatIng` Is maIntaInabIe. The
oIIence under S.138 oI the Act and S.420 oI the PC are dIIIerent In nature, thereIore
convIctIon oI oIIence under one provIsIon does not bar prosecutIon under the other.[4]
The IuII bench oI the Andhra Pradesh HIgh court has heId that when a person Issues a
cheque or a postdated cheque, he ImpIIedIy represents to the payee that In the
ordInary course oI events, the cheque on Its presentatIon to the bank wouId be met. n
such a cIrcumstance, even wIth the IntroductIon oI S.138 oI the Act, prosecutIon under
S.420 PC Is maIntaInabIe II dIshonest IntentIon at the tIme oI the Issuance oI the
cheque Is estabIIshed.[5]
hat then Is the advantage oI S.138 oI the NegotIabIe Instruments ActZ hat we see Is
that under crImInaI Iaw Ior a crIme oI dIshonour oI cheque to be made out there Is
need Ior the prosecutIon to IIrst estabIIsh dIshonest IntentIon on the part oI the drawer
Irom the InceptIon oI the Instrument. The crIme oI cheatIng cannot be constItuted II
the cheque Is dIshonoured by ItseII. Thus IaIIure oI the prosecutIon to prove thIs
eIement oI deceptIon usuaIIy Ied the court to hoId that the matter was oI cIvII nature.
AIso another probIem arIsIng under crImInaI Iaw Is the necessIty to prove the dIshonest
IntentIon beyond reasonabIe doubt.[6] Thus S.138 does away wIth thIs IormaIIstIc
rIgour oI crImInaI Iaw. I a cheque Is dIshonoured Ior paucIty oI Iund, the oIIence
under S.138 Is constItuted, notwIthstandIng the IntentIon oI the person IssuIng the
cheque. [7]
lngredient of Liability under S.138:
The object oI brIngIng In thIs sectIon as mentIoned above Is to IncuIcate IaIth In the
eIIIcacy oI bankIng operatIons and credIbIIIty In transactIng busIness on negotIabIe
Instrument. The IngredIents whIch are to be satIsIIed Ior makIng out a case under
S.138 oI the Act are:
1. The cheque Is drawn on a bank Ior the dIscharge oI any IegaIIy enIorceabIe debt
or other IIabIIIty. ThIs means that the cheque must have been drawn Ior payment
oI money to a person other than the drawer Ior the IuII or partIaI dIscharge[8] oI
any IegaIIy enIorceabIe debt or IIabIIIty. Thus what we see here Is that II a cheque
was gIven mereIy as a securIty, then a suIt cannot be IIIed upon that and S.138
wIII not be attracted. AIso to brIng It under the ambIt oI thIs sectIon, a cheque
shouId have presumabIy been Issued and not mereIy drawn Ior payment In
dIscharge oI a debt.
2. The cheque so dIshonoured must have been presented to the draweeJ bank
wIthIn a perIod oI sIx months Irom the date on whIch It Is drawn or wIthIn the
perIod oI Its vaIIdIty, whIchever Is earIIer.[9]
3. The cheque Is returned by the bank unpaId.
4. The cheque Is returned unpaId because the amount avaIIabIe In the drawer`s
account Is InsuIIIcIent Ior payIng the cheque.
5. The payee has gIven a notIce to the drawer cIaImIng the amount wIthIn 15 days
oI the receIpt oI the InIormatIon Irom the bank.[10]
6. The drawer has IaIIed to pay wIthIn 15 days Irom the date oI the receIpt oI
notIce.
7. The oIIence under thIs sectIon Is not compIete tIII a statutory opportunIty Is
oIIered to the drawer oI the cheque Ior makIng the deIauIt good wIthIn 15 days
oI the receIpt oI notIce to that eIIect. t Is onIy the IaIIure oI the drawer to avaII oI
thIs opportunIty and meet the demand Ior the amount oI the cheque that
becomes the cause oI actIon under the S.138. ThIs posItIon was IaId down
InMnhnInkshm nIerrses v. 5r 'shnu Trndng Co,[11] and has been deemed to
be one oI the essentIaI IngredIents oI thIs sectIon.
8. The payee has a IImItatIon perIod oI 30 days, wIthIn whIch he can IIIe a
compIaInt.
Mens Rea:
S.138 excIudes Mens Ren by creatIng strIct IIabIIIty and thIs Is expIIcIt Irom the words
'such person shaII be deemed to have commItted an oIIence.` The returnIng oI a
cheque by a bank eIther because the amount oI the money standIng to the credIt oI
the drawer Is InsuIIIcIent or the amount covered by the cheque Is In excess oI the
amount arranged to be paId Irom the account by an agreement wIth the bank are two
necessary condItIons creatIng strIct IIabIIIty whIch wIII be dIscussed In the subsequent
sectIon.
S.140 excIudes the deIence that the drawer had no reason to beIIeve, when he Issued
the cheque, that It maybe dIshonoured on presentment Ior the reasons stated In S.138.
the excIusIon oI mens renas a necessary IngredIent to thIs sectIon Is thus cIarIIIed
here.[12]Ing
HavIng thus touched just the basIc aspects oI dIshonourIng oI cheques, and IayIng
down Its pIace In the Act, The researcher wIII now deaI wIth the oIIence that Is
prescrIbed under the SectIon and deaIIng wIth the varIous cIrcumstances that couId
attract thIs sectIon.

CHAPTER 2:
PENALTlES AND LlAlLlTlES FOR DlSHONOUR
Dishonouring of a cheque:
n order to begIn a dIscussIon on the Issue oI dIshonour under the Act, It Is Important
to IIrst consIder the meanIng oI the term dIshonour and what does It constItute. ThIs
IInds mentIon In S.91 and S.92 oI the Act.
DIshonour oI negotIabIe Instruments may be oI two kInds:
1. DIshonour by nonacceptance.
2. DIshonour by nonpayment Is saId to be dIshonoured.[13]
S.91[14] oI the Act speaks oI dIshonour by nonacceptance. hat we see Irom thIs
deIInItIon Is a condItIon oI presentment oI the negotIabIe Instrument, however
presentment Ior acceptance Is requIred onIy In the case oI a bIII oI exchange. UsuaIIy
acceptance and payment go together and thIs usuaIIy happens In case an Instrument Is
payabIe aIter sIght, thus oIten It Is dIIIIcuIt to dIstInguIsh the two because dIshonour
by nonpayment Is usuaIIy dIshonour by nonacceptance,[15] and thus It Is onIy thIs bIII
oI exchange whIch can be dIshonoured by non-ncceInnce and not a cheque as In the
case oI a cheque no acceptance Is requIred to be taken to the banker and cheques are
maInIy Instruments payabIe at sIght .[16]
The second kInd oI dIshonour, Is that oI dshonour by non-nymenI. A negotIabIe
Instrument Is saId to be dIshonoured by nonpayment when the drawee oI a cheque
makes deIauIt In payment upon beIng duIy requIred to pay the same.[17] A drawee can
dIshonour a cheque
Thus It Is weII estabIIshed that cheques are aIways dIshonoured onIy Ior the reason
oI non-nymenI and not non-ncceInnce.
Apart Irom the broad heads mentIoned above, cheques can be dIshonoured by the
banker Ior severaI reasons. (I) payment countermanded, (II) InsuIIIcIency oI Iunds, (III)
nonappIIcabIIIty oI Iunds, (Iv) Improper presentatIon, (v) notIce oI death oI account
hoIder, (vI) court`s order prohIbItIng payment, (vII) postdated cheques, (vIII) staIe
cheques, (Ix) Iunacy, (x) InsoIvency, etc. the researcher wIII proceed to deaI wIth onIy
Iew oI these Instances.
FnymenI counIermnnded:
hen the drawer oI the cheques Issues InstructIons to the bank not to make any
payment oI a partIcuIar cheque Issued by hIm, the bank then stands revoked Irom
makIng payment on that cheque, thIs Is known as countermand oI cheques by the
drawer.[18] t must be noted here that any payment by the bank aIter such notIce wIII
not be consIdered as good payment. hen a drawer wIshes to stop payment he must
gIve notIce to the ank, though It Is usuaIIy the drawer who gIves such notIce, however
a payee can gIve a notIce to the banker that the cheque Is stoIen or Iost. n such a case
the banker must InIorm the drawer, so that the Iatter can gIve necessary
InstructIons.[19]
Insujjcency oj junds:
hen there are no Iunds to meet the cheque or the account oI the drawer does not
hoId suIIIcIent Iunds to meet the whoIe credIt amount oI the cheque, the banker Is
then justIIIed In reIusIng the payment oI such a cheque. However where the account
has suIIIcIent Iunds, the banker Is under an obIIgatIon to Its customer oI honourIng
the cheque presented to It.
A cheque when dIshonoured Ior the purpose oI InsuIIIcIency oI Iunds, the drawer oI
such cheque Is IIabIe to penaI consequences as under S. 138 oI the Act. However there
maybe an agreement to the contrary whereby the banker has undertaken to meet the
customer`s cheques even though there may not be suIIIcIent Iunds In hIs account, then
In such a case the banker Is bound to honour the cheque IaIIIng whIch the banker
wouId be IIabIe by way oI breach oI contract Ior an overdraIt IacIIIty[20] and the
necessary IegaI consequences wIII ensue.
One Issue that arIses here and has been under constant debate, Is that whether a
cheque returned by the banker endorsed wIth the words "reIer to drawer" wouId
amount to a dIshonour under S.138. aIter a number oI decIsIons on the poInt, there
has been a sort consensus on the poInt and courts have oIten saId that reIer to drawer
meant nothIng but that the drawer Iacked suIIIcIent Iunds In hIs account and thereIore
S.138 wouId be attracted In certaIn cIrcumstances.
Non-nIcnbIIy oj junds:
Under S.31 oI the Act It Is the banker`s duty to honour the cheque when Iunds whIch
are IyIng In the account oI the drawer are appIIcabIe Ior the purpose. Thus when the
Iunds In the account are IyIng Ior other purposes, the wIII necessarIIy dIshonour the
cheque presented beIore It Ior payment. An exampIe oI such a sItuatIon Is when the
banker may have a IIen over the Iunds IyIng In the account oI the drawer under S.171
oI the ndIan Contract Act. Another sItuatIon mIght be where the Iunds In the account
oI the drawer Is meant Ior a trust and a cheque Is drawn In breach oI a trust.[21]
Effects of dishonour of cheque:
FIrstIy, takIng oI IegaI actIon. The payeeJhoIder can take actIon agaInst the drawer oI
such a bIII may take actIon on the exact tIme oI dIshonourIng oI the bIII. Thus the
hoIder need not waIt Ior the bIII to mature and then to take actIon Ior dIshonourIng the
same.[22] SecondIy, when a cheque Is saId to be dIshonoured It Ioses Its basIc
characterIstIc oI negotIabIIIty wIth ImmedIate eIIect. ThIrdIy, on the dIshonourIng oI a
cheque, nothIng prevents the hoIder thereoI to present It agaIn partIcuIarIy on beIng
asked by the drawer oI the cheque. LastIy, under S.138, mere dIshonourIng oI cheques
does not gIve rIse to a cause oI actIon In Iavour oI the compIaInant but It accrues onIy
aIter the Issue oI demand notIce and IaIIure oI the drawer to make the payment.[23]
The payee or hoIder oI a cheque has the rIght to present the cheque Ior payment Ior
any number oI tImes and he may have It repeatedIy dIshonoured, but he can prosecute
the drawer onIy once.[24]
Post dated cheques:
ouId the above aspects appIy to a post dated chequesZ A postdated cheque
represents a mere promIse by the drawer to pay at some Iuture date and It represents
the hoIdIng out oI a hope rather than the representatIon oI a present Iact and thus a
broken promIse Is not a crImInaI oIIence though It may amount In certaIn busIness
reIatIons to dIscredItabIe behavIour on the part oI the drawer.[25] However the EngIIsh
Iaw on thIs Issue Is dIIIerent and more IogIcaI. AccordIng to them the drawer ImpIIedIy
represents that the exIstIng Iacts at the date when he gIves the cheque to the payee or
hIs agent Is such that In the ordInary course the cheque wIII, on presentatIon on or
aIter the date specIIIed In the cheque, be met.[26]
Liability of dishonouring of cheque:
DIshonourIng oI cheques can be rIghtIuIIy done or wrongIuIIy done dependIng on the
nature oI the actIon taken upon the cheque. Here we shaII see the varIous entItIes
whIch may IaII IIabIe upon the dIshonour oI a cheque subject to It beIng a rIghtIuI
dIshonour or a wrongIuI one:
LnbIIy oj Ihe drnwer Io Ihe nyee:
S.30 oI the Act Iays down that the drawer Is bound to compensate the payeeJ hoIder In
case oI dIshonour by the acceptorJ drawee.[27] Thus what we see here Is that the
IIabIIIty oI the draweeJ bank Is the prImary IIabIIIty and onIy when the bank IaIIs to
honour the cheque, the hoIder can then proceed agaInst the drawer. The bank Is under
a IegaI obIIgatIon to honour the cheque as Iong as the drawer has suIIIcIent Iunds
IyIng In hIs account In the bank.[28] However It must be noted that In the event oI non
compIIance by the bank, the payee cannot enIorce any obIIgatIon upon It, thIs Is
because there Is no prIvIty oI contract between them, nor any trust created so as to
make the payee a beneIIcIary thereunder.
LnbIIy oj Ihe bnnker Io Ihe drnwer:
The drawee oI a cheque Is usuaIIy a banker and the IegaI reIatIon between hIm and the
drawer, that Is to say, between the banker and the customer Is that oI a credItor and a
debtor. The banker who Is hoIdIng the money oI hIs customer owes a debt to hIm to
the extent IyIng In the customer`s account and the draweeJbanker Is thereIore under
an obIIgatIon to honour the cheques oI the customer so Iong as he can meet them
Irom such Iunds as exIst In the customer`s account. Thus what we see here Is that the
drawee`s IIabIIIty Is towards the drawer and not the payee. ThIs Is sImpIy because there
Is no prIvIty oI contract between the drawee and the payee and The Act onIy provIdes
Ior the IIabIIIty oI the drawee In Iavour oI the drawer oI the cheque as he Is an account
hoIder oI the drawer and thus there exIsts a contract nIer se.[29]
The Idea was IaId down cIearIy In ]ng]vnn Mnv] v. Rnnchhodns Mnghn],( whIch
says that there Is no provIsIon as such whIch makes the drawee IIabIe on the
Instrument, wIth the exceptIon oI S.31 oI the Act where the drawee must pay II there Is
suIIIcIent Iunds In the account oI the drawer. Such a IIabIIIty arIses out oI breach oI
contract In between the banker and the customer and In the case oI wrongIuI
dIshonourIng oI the cheque, the party In breach oI the contract must pay damages
whIch IIow Irom such breach.[31]
t must be notIced that the IIabIIIty oI the drawee however Is condItIonaI upon hIs
havIng In hIs hands Iunds oI the drawer suIIIcIent to pay the cheque amount.[32] Apart
Irom thIs there are varIous other sItuatIons whereby the banker can rIghtIuIIy
dIshonour the cheque and II he dIshonours the cheque Ior these reasons IIabIIIty wIII
not IaII upon hIm.
n case oI wrongIuI dIshonor the customer can sue Ior damages. However
quantIIIcatIon oI damages depends IargeIy on the credItworthIness oI the customer.
ThIs Is Important because dIshonour oI a cheque Impacts IargeIy the reputatIon and
IntegrIty oI a person, more so II the customer Is a weII known trader. [33] n aImost
every case the drawer can recover substantIaI damages Irom the drawee on the basIs
oI the above Iactors oI Ioss oI credIt, etc., however It maybe dIIIIcuIt to award
pecunIary damages In such a sItuatIon. Thus we see the cIvII remedIes avaIIabIe In case
oI dIshonourIng oI cheques, however such cIvII remedIes do not excIude crImInaI
actIon as Is IaId down In the amended chapter oI the Act.
LnbIIy n cnse oj jorgery:
A bankerJdrawee has no obIIgatIon to pay II the sIgnatures oI the customer on the
cheque are Iorged and has a rIght to dIshonour the cheque on thIs ground. The bank
has the specImen sIgnature oI hIs customer and It Is the duty oI the bank to compare
the sIgnatures, thus In doIng so II he IInds that the sIgnature Is InconsIstent , then the
bank shouId not honour the cheque.[34]
There remaIns a possIbIIIty that the cheque presented Ior payment Is not the
customer`s cheque at aII but a Iorgery, or that thIs sIgnature Is Iorged, or sIgned
wIthout hIs authorIzatIon. A banker payIng a cheque under these cIrcumstances Is not
entItIed rmn jnce, to debIt the customer`s account.[35] The Iaw Is that a cheque wIth
the drawer`s sIgnature Iorged Is a mere nuIIIty. A Iandmark case whIch Iays down the
Iaw In ndIa Is Cnnnrn nnk v. Cnnnrn 5nIes CorornIon nnd ors,( The court heId
that whenever a cheque purportIng to be by a customer Is presented beIore a bank It
carrIes a mandate to the bank to pay. I the cheque Is Iorged then there Is no such
mandate. The bank can escape IIabIIIty onIy II It can prove knowIedge on the part oI
the customer. Thus keepIng In vIew the Iact that the banker Is bound to know hIs
customer`s sIgnature and compare the same, the payIng banker wIII thus have no
statutory protectIon II he pays a cheque on whIch the customer`s sIgnature Is Iorged.
CompanyJFirm:
The drawer oI a cheque, whether a naturaI person or a body corporate or even a IIrm,
can be prosecuted under S.141[37] oI the Act.
n order that a company may be bound by a negotIabIe Instrument purportIng to have
been Issued on Its behaII two condItIons must be satIsIIed: (I) the Instrument must be
drawn, made, accepted or endorsed In the name oI or by or on behaII oI or account oI
the company, (II) and the person who makes, draws, endorses or accepts the
Instrument must have the authorIty gIven to hIm by the company on theIr behaII.
ProsecutIon oI the company Is not sne qun non Ior the prosecutIon oI the dIrectors,
and mereIy because company Is not made an accused In the proceedIngs Is no ground
to quash It. Thus the In a decIded case the Supreme Court heId that oIIIcers oI the
company who may be heId IIabIe IaIIIng under S.141 other than the dIrectors, IaII Into
the IoIIowIng categorIes:
(1) those who are In charge oI[38] the company and responsIbIe Ior the conduct oI
Its busIness; and
(2) persons other that those IaIIIng In the above category, who Is a mere dIrector,
manager or secretary, etc oI the company.
(3) Any other person who Is a dIrector or a manager or a secretary or oIIIcer oI the
company wIth whose connIvance or due to whose negIect the company has commItted
the oIIence.
However a person who proves that the oIIence was commItted wIthout hIs knowIedge
and that he had exercIsed due dIIIgence In the conduct oI hIs busIness Is exempted
Irom becomIng IIabIe by operatIon oI the provIso to SubsectIon (1). The burden In thIs
regard wIII have to be dIscharged by the accused. [39]
The managIng dIrector may aIso be attached wIth IIabIIIty and the essentIaIs Ior such
actIon Is:
(1) he has to be Incharge and responsIbIe In case,
(2) there shouId be hIs consent and connIvance Ior whIch there shouId be averments
In compIaInt or prIma IacIe prooI oI It. The sectIon beIng penaI has to be strIctIy
construed. n the absence oI basIc Iacts beIng pIeaded In the compIaInt, vIcarIous
IIabIIIty cannot be Imputed.[40]
In case oI an actIon under S.138, the MD oI a company on behaII oI whom the
dIshonoured cheque has been Issued, cannot pIead that he dId not partIcIpate In the
day to day admInIstratIon oI the company and thereIore Is not crImInaIIy IIabIe because
normaIIy, by deIInItIon the MD Is supposed to be Incharge oI managIng the company.
NeIther can an MD pass the bIame onto the dIrectors oI the company, ImputIng IIabIIIty
onto the dIrectors Ior a dIshonoured cheque Issued by the MD Is a matter oI Iacts and
evIdence.[41] LastIy, a managIng dIrector can onIy be sued In hIs oIIIcIaI capacIty and
not as an IndIvIduaI.[42]
rm:
n the case oI a IIrm, II the receIpt oI the notIce Is by one partner who Is habItuaIIy
actIng Ior the busIness oI the IIrm, It shaII be deemed to be notIce to the IIrm.[43]
HavIng understood the substantIve aspects oI dIshounour oI a cheque, the researcher
wIII now dIscuss the proceduraI aspects In the subsequent chapter. Once the drawee
estabIIshes to the payee that there has occurred a dIshonour to the cheque, then the
payee goes through a serIes oI proceduraI aspects so as to cIaIm hIs money back and II
aII eIse IaIIs then the payee wIII IInaIIy IIIe a compIaInt agaInst the drawer.
CHAPTER 3
PROCEDURE AND PRACTlCE:
The oIIence under S.138 Is a noncognIzabIe oIIence by vIrtue oI S.142 oI the Act on
account oI thenon-obsInnIe cIause as comprIsed In sectIon 142 oI the Act, the
magIstrate must proceed ImmedIateIy on compIaInt. For a compIaInt however, IIrst a
statutory notIce must be sent to the drawer and II the drawer does not repIy
accordIngIy wIthIn 15 days, It opens ItseII Ior prosecutIon.
Notice:
A notIce Is one oI the essentIaI characterIstIc oI S.138. The perIod Ior cause oI actIon Is
to be counted Irom the date oI receIpt oI notIce by the accused. NotIce has to be sent
to the drawer wIthIn 30 days oI the receIpt oI InIormatIon Irom the bank about the
dIshonour.[44] As regards IIabIIIty oI dIshonour oI cheques It Is essentIaI to rmn
jnce show that aIter 15 days oI receIpt oI notIce, the accused IaIIed to pay the
amount.
n the case oI Fndmn FoIymers LId v. UnI TrusI oj Indn,[45] It has been heId that a
notIce Is must and mandatory. UnIess and untII the IntentIon Is cIear on the part oI the
part oI the person gIvIng notIce that the payment by the drawer oI the cheque shouId
be made wIthIn 15 days oI receIpt thereoI, any communIcatIon between the partIes
InsIstIng Ior makIng the payment cannot be termed as notIce under S.138 oI the Act.
OtherwIse the purpose oI presentIng the cheque tIme and agaIn durIng the perIod oI
vaIIdIty wouId have no meanIng.
So Iar as the questIon oI gIvIng notIce Is concerned, It Is stated that every person who
becomes IIabIe upon an actIon Ior dIshonour oI the Instrument and onIy by such
dIshonour eIther the hoIder thereoI or some party thereto who remaIns IIabIe thereon
may gIve notIce to such partIes as entItIed to ImmedIate notIce. ut the hoIder may
gIve notIce to such partIes as he desIres to charge; but he cannot by gIvIng notIce
make a person IIabIe who Is not otherwIse IIabIe under Iaw, e.g., drawee In the case oI
dIshonour oI cheques.[46]
Serving the notice:
An Important questIon that arIses here Is that when Is a notIce deemed to be served
and upon who Is the burden oI provIng servIceZ
The probIem that arIses Is that the sectIon does not onIy say deIIvery oI notIce, but
'receIpt oI the notIce`, such wordIngs In the sectIon can be put to numerous
InterpretatIons. The questIon Is II 'receIpt oI notIce, postuIates actuaIIy deIIvery, then
the drawer can easIIy preempt actIon agaInst hIm by deIIberateIy stayIng away Irom hIs
premIses and the IIkes. t wouId be InequItabIe that such a person be Iet oII the hook,
whIIe another drawer who stays on and accepts the notIce wouId subject hImseII to
prosecutIon.
n the case oI 'Rn]n Kumnr v. F5ubbnrnmn Nndu nnd Anr( the questIon that
came up was what Is meant by a proper notIce and II there Is no proper wouId the
compIaInt be quashed.
"n CIause (c) oI the provIso the drawer oI the cheque Is gIven IIIteen days Irom the
date oI receIpt oI saId notIce Ior makIng payment. ThIs aIIords cIear IndIcatIon that
'gIvIng notIce` In the context Is not the same as receIpt oI notIce. CIvIng Is the process
oI whIch receIpt Is the accompIIshment. The payee has to perIorm the Iormer process
by sendIng the notIce to the drawer In hIs correct address, II receIpt or even tender oI
notIce Is IndIspensabIe Ior gIvIng the notIce In the context envIsaged In CIause (b) an
evader wouId successIuIIy keep the postaI artIcIe at bay at Ieast tIII the perIod oI IIIteen
days expIres. Law shaII not heIp the wrong doer to take advantage oI hIs tactIcs. Hence
the reaIIstIc InterpretatIon Ior the expressIon 'gIvIng notIce` In the present context Is
that, II the payee has dIspatched notIce In the correct address oI drawer reasonabIy
ahead oI the expIry oI IIIteen days, It can be regarded that he made the demand by
gIvIng notIce wIthIn the statutory perIod. Any other InterpretatIon Is IIkeIy to Irustrate
the purpose Ior provIdIng such a notIce."
Thus Irom here we see that there can be deemed notIce even where actuaI notIce has
not been gIven. However thIs Is a rebuttabIe presumptIon and Its Ior the compIaInant
to prove that the notIce was served and that the person eIther reIused to accept the
notIce or was unavaIIabIe.
Though thIs Is the popuIar posItIon yet, many courts dIIIer In opInIon and It has been
heId that where the deIIvery Is done by post, then readIng S.138 wIth S.27 oI the
CeneraI CIauses Act
lngredients:
Though no Iorm oI notIce Is prescrIbed, the requIrement Is that the notIce shaII be
gIven In wrItIng wIthIn IIIteen days (now thIrty wIth the amendment).
SecondIy when a notIce Is served, It must demand the "saId amount" I.e. the cheque
amount In It. I no such demand Is made the notIce IaIIs short oI IegaI requIrement.[48]
However II apart Irom the "saId amount" other amounts by way oI Interest, costs, etc Is
mentIoned, such a notIce wouId be a vaIId notIce under the SectIon. The IegIsIatIve
Intent oI the SectIon Is quIte cIear, the drawer oI the cheque wIII be IIabIe Ior
convIctIon II the demand Is not met wIthIn 15days oI the receIpt. Thus II the cheque
amount Is paId wIthIn the statutory perIod or beIore a compIaInt Is IIIed the IegaI
IIabIIIty under S.138 wIII cease and and Ior recovery oI addItIonaI costs, a cIvII suIt wIII
IIe.
AIso the statIng oI the cheque number, though seems essentIaI so that the drawer
shouId know oI whIch cheque the notIce reIates to, yet It has been heId that S.138
does not Iay down any such condItIon and II the cheque number Is absent or wrong,
dependIng on the Iacts and cIrcumstances, the notIce wIII deemed good or bad In
Iaw.[49]
urden of proof:
Under thIs Iaw aII presumptIons are made agaInst the drawer oI such cheques and thus
the onus oI prooI Is IeIt on the accused rather than the prosecutor.

CONCLUSlON
Though InsertIon oI the penaI provIsIons have heIped to curtaII the Issue oI cheque
arIsIng out oI Its dIshonour eIther honestIy or wIth dIshonest IntentIon and the tradIng
communIty now IeeIs more secured In receIvIng the payment through cheques.
However there beIng no provIsIon Ior recovery oI the amount covered under the
dIshonoured cheque, In a case where accused Is convIcted under sectIon 138 and the
accused has served the sentence but, unabIe to deposIt amount oI IIne, the onIy optIon
IeIt wIth the compIaInant Is to IIIe cIvII suIt.
The provIsIons oI the Act do not permIt any other aIternatIve method oI reaIIzatIon oI
the amount due to the compIaInant on the cheque beIng dIshonored Ior the reasons oI
"InsuIIIcIent Iund" In the drawer`s account. The proper course to be adopted by the
compIaInant In such a sItuatIon shouId be by IIIIng a suIt beIore the competent cIvII
court, Ior reaIIzatIonJ recovery oI the amount due to hIm Ior the reason oI
dIshonoured cheque whIch the compIaInant Is at IIberty to avaII oI II so advIsed In
accordance wIth Iaw.
Thus what we see Is that the sectIon Is not IuII prooI, however there Is no denyIng that
thIs provIsIon has done away wIth the rIgorous and tIme consumIng methods oI
crImInaI Iaw. n support oI thIs we can see that the sectIon aIso provIdes Ior summary
proceedIngs, makIng the Issue penaIty a Iot sImpIer, because II a cheque gets
dIshonoured today and proceedIngs go on as usuaI, then the person may onIy get
reIIeI aIter say three or Iour years, thIs deIeats the purpose oI a cheque whIch Is meant
Ior ImmedIate acceptance and dIstrIbutIon oI cheque amount.
lLlOCRAPHY
Articles:
O .SrIvInasan, "ouncIng oI cheques Issued In companIes," CorornIe Lnw
Advser, VoI 35, Oct (1) 1999.
ooks:
O OP`FaIzI`, KhergnmvnIn on Ihe NegoInbIe InsIrumenIs AcI, 19
th
ed ( New DeIhI;
LexIs NexIs, 2003).
O A.N.Saha, Lnw oj shonour oj Cheques, 1
st
ed ( New DeIhI; OrIent PubIIshIng
Company, 1995).
O Rajesh Cupta, shonour oj Cheques (Lnw &FrncIse), 1
st
ed ( New DeIhI; harat
Law House Pvt. Ltd, 1996).
O Avtar SIngh, NegoInbIe InsIrumenIs, 4
th
ed ( Lucknow; Eastern ook Company,
2005).
O S.N.Cupta, shonour oj Cheques: LnbIIy CvI nnd CrmnnI ( DeIhI; UnIversaI
ook Traders, 1991).
O M.S.Parthasarathy, Cheques n Inw nnd FrncIse, 6
th
ed (DeIhI; UnIversaI Law
PubIIshIng Co. Pvt. Ltd, 2003).
O S..AwasthI, Lnw oj shonour oj Cheques: orgery nnd ChenIng (Pune; CT
PubIIcatIons, 1993).
O Mr. ustIce S.. MaIIk (ed), 5KrshnnmurIh Aynr`s Lnw reInIng Io Ihe NegoInbIe
InsIrumenIs AcI,6
th
ed( AIIahabad; The UnIversIty ook Agency, 1997)
ebsites:
O Anonymous, "SC ruIIng on dIshonour oI cheques," The Hndu, Thursday,
15
th
August,2002www.hInduonnet.comJthehInduJ2002J08J15JstorIesJ20020815
02381200.htm
O .rIshnamurthI, " DIshonour oI cheques How crImInaI IIabIIIty arIses," The
Hndu, Sunday,
29
th
uIy,2001http:JJwww.thehIndubusInessIIne.comJbusInessIIneJIwJ2001J07J29
JstorIesJ0729g251.htm.
O .krIshnamurthy, "when cheques get dIshonoured," The Hndu, Sunday,
23
rd
December 2001.www.bIonnet.comJIwJ2001J12J23JstorIesJ0723g251.htm

[1] OP`FaIzI`, KhergnmvnIn on Ihe NegoInbIe InsIrumenIs AcI, 19
th
ed ( New DeIhI;
LexIs NexIs, 2003) at 379.
[2] Ibd, at 381.
[3] HereIn aIter reIerred to as PC.
[4] 5urn note 3, at 382.
[5] FT5 MnrkeIng FvI LId v. 5InIe oj AF, (2001) 105 Comp Cas 794.
[6] A.N.Saha, Lnw oj shonour oj Cheques, 1
st
ed ( New DeIhI; OrIent PubIIshIng
Company, 1995) at 3.
[7] Ibd, at 4.
[8] SInce a cheque must be Ior the IuII or partIaI dIscharge oI the debt, then II It
appears that the cheque Is Ior an amount more than the debt or IIabIIIty, the sectIon
wIII not be attracted. ThIs was heId In Angu Fnrnmeswnr IexIIes (F) IId v. 5r Rn]nm &
Co, (2001) 105 Comp Cas 186.
[9] Rajesh Cupta, shonour oj Cheques (Lnw &FrncIse), 1
st
ed ( New DeIhI; harat Law
House Pvt. Ltd, 1996) at 47.
[10] Iurther
(I) such notIce shouId specIIIcaIIy make the aIIegatIon oI the dIshonourIng
oI the cheque Ior reason oI InsuIIIcIency oI Iunds.
(II) The notIce shouId contaIn the date,however It has oIten been heId that
such an omIssIon wIII not be IataI to the prosecutIon oI the case. t shouId aIso contaIn
the number the cheque Is bearIng, the name oI the banker the cheque Is drawn upon,
the amount Ior whIch the same Is drawn and the date oI the Issue oI the cheque In
case oI the postdated cheque or the antIdated cheque.
(III) The notIce shouId make specIIIc demand oI the amount oI the cheque.
See, 5urn note, at 47.
[11] (1993) 77 Comp Cas 249. n thIs case the accused receIved a statutory notIce on
24
th
August 1989 and the compIaInt was IIIed on 5
th
September 1989. It was heId that
the IImItatIon wouId begIn Irom 9
th
September 1989 and the compIaInt was wIthIn
tIme. t wouId however appear Irom the cIear wordIngs oI S.138 ( c) that the cause oI
actIon arIses onIy II the drawer IaIIs to make payment wIthIn 15 days oI the notIce, thIs
Is one oI the essentIaI IngredIents oI the sectIon. n thIs case, the drawer had tIII
8
th
September 1989 to pay the amount.
[12] M.S.Parthasarathy, Cheques n Inw nnd FrncIse, 6
th
ed (DeIhI; UnIversaI Law
PubIIshIng Co. Pvt. Ltd, 2003) at
[13] 5urn note 9, at 28.
[14] S.91 " a bIII oI exchange Is saId to be dIshonoured by nonacceptance when the
drawee, or one oI the severaI drawees not beIng partners, makes deIauIt In acceptance
upon beIng duIy requIred to accept the bIII, or where the presentment Is excused and
the bIII Is not accepted. here the drawee Is Incompetent to contract, or the
acceptance Is quaIIIIed, the bIII maybe treated as dIshonoured."
[15] ngvnn v. Rnnchoddns, AR 1954 SC 554.
[16] 5urn note 9, at 29.
[17] S.92 oI the Act. t states as IoIIows," A promIssory note, bIII oI exchange or
cheque Is saId to have been dIshonoured by nonpayment when the maker oI the note,
acceptor oI the bIII or drawee oI the cheque makes deIauIt In payment upon beIng duIy
regIstered to pay the same."
[18] 5urn note 9 at 30.
[19] S.N.Cupta, shonour oj Cheques: LnbIIy CvI nnd CrmnnI ( DeIhI; UnIversaI
ook Traders, 1991) at 14.
[20] Iemmng v. nnk oj New ZenInnd (1990) AC 577, see aIso Rnyner&Co v. Hnmbros
nnks, (1942) 2 AII ER 694.
[21] 5urn noIe 9, at 31
[22] 5urn noIe 1 at 29.
[23] 5urn note 9, at 30.
[24] Avtar SIngh, NegoInbIe InsIrumenIs, 4
th
ed ( Lucknow; Eastern ook Company,
2005) at 364.
[25] 5urn note 9, at
[26] 5urn note 24, at 370.
[27] S.30 oI the Act says, " the drawer oI a bIII oI exchange or cheque Is bound, In case
oI dIshonour by the drawee or acceptor thereoI, to compensate the hoIder, provIded
due notIce oI dIshonour has been gIven to or receIved by, the drawer as hereInaIter
provIded."
[28] S.31 oI the Act " the drawee oI a cheque havIng suIIIcIent Iunds oI the drawer In
hIs hands, properIy appIIcabIe to the payment oI such cheque, must pay the cheque
when duIy requIred to do so, and In deIauIt oI such payment, must compensate the
drawer Ior any Ioss or damage caused by such deIauIt."
[29] 5urn note 10, at 34.
[30] AR 1954 SC 544.
[31] 5urn note 9, at 34.
[32] 5urn note 19, at 6.
[33] Ibd, at 33.
[34] Ibd, at 23.
[35] Id, at 22.
[36] AR 1987 SC 1603. In thIs case the questIon was whether the bank was IIabIe Ior
payment oI cheque oI a customer over the Iorged sIgnature despIte rendItIon oI
wIthdrawaI sheets and month deposIts, where contentns were not checked by hIm and
mereIy accepted. n the case, 42 cheques wIth Iorged sIgnatures were presented on
varIous dates between 1957 and 1961. DurIng thIs perIod the customer wouId conIIrm
the status oI hIs accounts at the end oI every haII year. The accounts were audIted by
the Chartered Accountant and the banks contentIon was that, had there been any
mIsapproprIatIon upto 3 Iacs Irom the account the same wouId have been detected It.
[37] S.141 offences by companies.
[38] S.141(1) - "II the persom commIttIng an oIIence under S.138 Is a company, every
person who, at the tIme the oIIence was commItted, was In charge oI, and was
responsIbIe to the company Ior the conduct oI the busIness the company, as weII as
the company, shaII be deemed to be guIIty oI the oIIence ans shaII be IIabIe to be
prosecuted agaInst and punIshed accordIngIy.."
[39] S.V.Muzumdar and Ors v. Cujarat State FertIIIzers Co. Ltd and Anr,
MANUJSCJ0318J2005. the Iacts oI the case are as IoIIows respondent No.
1JcompIaInant suppIIed goods on credIt to MJs Carware NyIons Ltd.(accused No. 14).
Cheques Issued by the company were not honoured by the drawee bank on the ground
oI InsuIIIcIent Iunds. Payments were not made even aIter IegaI notIces. There were 14
accused persons IncIudIng the company named In the compIaInt. Some oI the accused
persons were DIrectors and whIIe others were empIoyees. Summons was Issued to aII
the accused persons Ior IacIng trIaI Ior aIIeged commIssIon oI oIIences punIshabIe
under SectIon 138 oI the Act read wIth SectIons 420 and 114 oI the PC. The saId
common judgment and order was chaIIenged beIore the HIgh Court. The chaIIenge
beIore the HIgh Court was prImarIIy on the ground that there was no materIaI to show
that the accused persons at the tIme oI oIIence as aIIegedIy commItted were In charge
andJor responsIbIe to the company Ior the conduct oI the busIness as requIred under
SectIon 141(1) oI the Act. t was aIso submItted that the deemIng provIsIon under Sub
sectIon (2) oI SectIon 141 whIch covers persons wIth whose consent or connIvance or
any attrIbutabIe negIIgence Ior commIssIon oI the oIIence by the company was aIso
not appIIcabIe.
[40] hergamvaIa, at442.
[41] 5hnrdn AggnrwnI v. AddIonnI Chej MeIrooIInn MngsIrnIe, (1993) 78 Comp
Cas 123.
[42] Chnndrn Reddy v. CowrseIIy Frnbhnknr Rno, (1996) 6 Andh LD 281
(AP). Cj, avtar sIngh, at 435.
[43] 5urn note 24, at 388.
[44] S.138 (b) provIso.
[45] (2002) 101 DeIhI LT 376.
[46] 5urn note 19, at 7.
[47] MANUJSCJ0937J2004.
[48] 5urn note 24, at 389.
[49] hergamwaIa, at 408.