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An Overview of Dishonoured Cheque Case

In common parlance a cheque is a financial instrument which is written by its owner, to order his bank to pay a certain sum to another person from his account. The oxford dictionary defines the term cheque as a written order to a bank to pay a stated sum from an account to a specified person. In legal arena, according to the Black’s law dictionary cheque is a draft signed by the maker or drawer, drawn on a bank, payable on demand, and unlimited in negotiability[1].

As far as India is concerned, the law which governs the cheque transactions is the Negotiable Instrument Act, 1881. In the eyes of Indian law, A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise on demand and it includes the electronic image of a truncated cheque and cheque in the electronic form[2]. Notwithstanding the advent of electronic transfers, the cheque transaction hasn’t lose its popularity. It has become not only common but also as sine qua non in most of the commercial transactions.

The apex court in Goa Plast (Pvt) Ltd. vs. Chico Ursula D’Souza, wherein it held :-

Chapter XVII containing sec 138 to 142 was introduced in the Act by Act 66 of 1988 with the object of inculcating faith in the efficacy of banking operations and giving credibility to negotiable instruments in business transactions. These provisions were intended to discourage people from not honouring their commitments by way of payment through cheques. [3]

Saviour of the victims Sec 138 is considered as a saviour because in the absence of sec 138 the victims of dishonoured cheque cases will only have the option to file a suit for recovery of money under the Civil Procedure Code, 1908[4] and the victims will be subject to payment of stamp duty and sluggish civil procedures but this section imposes punishment in the nature of both imprisonment and fine. The maximum term of punishment that can be awarded under this section is two years of imprisonment, or with a fine which may extend to twice the amount of the cheque, or with both. Hence, the intention of lawmakers by bringing this section is to reduce the number of frauds committed in the cheque transactions, to make the fraudsters punished and to seek speedy justice.

Sec 138 reads as follows:
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 purposes of this section, debt or other liability means a legally enforceable debt or other liability.][5]

Presumption in Cheque case The concept of presumption can be first traced in The Indian Evidence Act. Sec 4

of the Act deals with three categories of presumption they are as follows:
1. May presume
2. Shall presume
3. Conclusive proof

The first two categories of presumption are rebuttable, in contrary the last one is irrebuttable. In May presume the courts have wide scope either to presume a fact or not. So presuming a fact is totally based on the courts’ discretion. In case of Shall presume the courts are obliged to presume a fact unless and until the same fact is refuted. When it comes to conclusive proof there is no chance of rebutting a fact, the courts shall not allow to adduce evidence to disprove it when one fact is declared to be a conclusive proof of another by the other fact.[6]

The presumption under sec 118 of the negotiable instrument Act relates to the consideration, date, time of acceptance, time of transfer, order of indorsements, stamps and holder in due course. The presumption under this section is inclusive as it includes all kinds of negotiable instruments[7]. But sec 139 of the negotiable instrument Act is exclusive for cheque cases. It deals with presumption in favour of holder of cheques.

Sec 139 of the negotiable instrument Act reads as under Presumption in favour of holder.-It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability.[8]

From the above mentioned provision of law, the courts under this section should presume that the cheque as defined in sec 138 has been received by the holder for discharging either in whole or in part any debt or liability. As far as interpretation of the words any debt or liability is concerned the courts are guided by the explanatory provision provided in sec.138 of the negotiable instrument Act.

The explanation part of sec 138 of the negotiable instrument Act as follows

Explanation.- For the purposes of this section, debt or other liability means a legally enforceable debt or other liability.

Therefore, the complainant cannot succeed unless either the debt or other liability is lawful i.e. the transactions should not violate the provisions of any law or the law which is time being in force. The Hon’ble Supreme court held that the complaint under section 138 must contain the following ingredients, viz.,

(i) That there is a legally enforceable debt;

(ii) That the cheques was drawn from account of bank for discharge in whole or in part of any debt or other liability which pre-supposes a legally enforceable debt;

(iii) Cheque so issued had been returned due to insufficiency of funds[9].

When it comes to rebutting the presumption as contemplated in sec 139, it depends on the facts and circumstances of each case. In the light of sec 139, the action for rebutting the presumption would lie only in the hands of the accused. Hence, in all cheque cases the onus initially lies on the accused, unlike in all criminal cases. In layman’s point of view cheque bounce cases are considered as criminal case. But according to lawman’s view the very nature of cheque bounce offence is a civil wrong coupled with criminal provisions. In order to uphold the credibility and efficacy of cheque transaction and to ensure speedy disposal of cases the lawmakers have incorporated the penal provisions. As a result, the cheque dishonour cases are driven by the doctrine called the principle of Preponderance of probabilities which is followed in all civil cases and not by the doctrine of beyond reasonable doubt which is followed in all criminal trials.

In Kishan Rao Vs Shankargouda, the ratio laid by the apex court was a mere denial can’t rebut the presumption envisaged in sec 139.[10] The excerpt of Anss Rajashekar Vs Augustus Jeba Ananth[11] reads as follows; (..)In the absence of compelling justifications, reverse onus clauses usually impose an evidentiary burden and not a persuasive burden. Keeping this in view, it is a settled position that when an accused has to rebut the presumption under Section 139, the standard of proof for doing so is that of `preponderance o f probabilities'. Therefore, if the accused is able to raise a probable defence which creates doubts about the existence of a legally enforceable debt or liability, the prosecution can fail. As clarified in the citations, the accused can rely on the materials submitted by the complainant in order to raise such a defence and it is conceivable that in some cases the accused may not need to adduce evidence of his/her own.

The Hon’ble supreme court in Bir Singh vs Mukesk Kumar[12] held that:-
Even a blank cheque leaf, voluntarily signed and handed over by the accused, which is towards some payment, would attract presumption under Section 139 of the Negotiable Instruments Act, in the absence of any cogent evidence to show that the cheque was not issued in discharge of a debt.

Setting the law in Motion
The cheque cases are the concoction of both negotiable instrument Act and criminal procedure code. As per sec 138 the cheque has to be within the period of its validity, based on the RBI notification the period of validity has been reduced from six months to three months[13]. The law is set in motion by issue of demand notice within thirty days of the receipt of information by the payee or holder in due course of the cheque as the case may be regarding the return of cheque as unpaid[14]. If the drawer fails to remit the said amount within fifteen days of the receipt of the said notice, sec 142 comes into play[15]. According to sec 142 the court of Metropolitan magistrate or a judicial magistrate shall take cognizance of the offence enunciated in sec 138 only after filling of complaint made in writing by the payee or holder in due course of the cheque[16]. Provided that, no court inferior to that of a Metropolitan magistrate or a judicial magistrate has the authority to take cognizance of the offence[17]. The court may also condone the delay for filing the complaint[18]. Indeed, the intention of the framers of clause (b) of sec 142 is to give opportunity the complainant is case of any untoward situations.

In Sadanandan Bhadran vs Madhavan Sunil Kumar[19], the apex court held that Consequent upon the failure of the drawer to pay the money within the period of 15 days as envisaged under clause @ of the proviso to Sec 138, the liability of the drawer for being prosecuted for the offence he has committed arises, and the period of one month for filing the complaint under section 142 is to be reckoned accordingly.

Place of Suing
In K. Bhaskaran v. Sankaran Vaidhyan Balan[20] wherein it was held that the offence under Section 138 of the Act can be completed only with the concatenation of a number of acts. Following are the acts which are components of the said offence: (1) Drawing of the cheque,

(2) Presentation of the cheque to the bank,

(3) Returning the cheque unpaid by the drawee bank,

(4) Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount,

(5) failure of the drawer to make payment within 15 days of the receipt of the notice, if the five different acts were done in five different localities any one of the courts exercising jurisdiction in one of the five local areas can become the place of trial for the offence under Section 138 of the Act.

It was in Dashrath Rupsingh Rathod vs. State of Maharashtra[21], a three Judge Bench of the Supreme Court overruled the ratio decidendi and held that the place of suing is determined by the place where the offence was committed as per sec 177 of Criminal procedure code. Thus, the Complainant is statutorily bound to comply with Section 177 etc. of the Cr.P.C. and therefore the place of suits where the Section 138 Complaint is to be filed is not of his choosing.

The above mentioned judgement prevailed till the birth of The Negotiable Instruments (Amendment) Act, 2015. After the insertion of sub sec (2) of sec 142 in the Negotiable Instrument Act the issue of place of suing has been settled.

As per the sub sec (2) of sec 142[22]:
The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,-
(a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or

b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated.

Proceedings in Dishonoured Cheque case Initial Proceedings Sec 143 empowers the Judicial magistrates of the first class or Metropolitan magistrates to try the cases summarily as per the provisions of sections 262 to 265 of the Criminal Procedure Code and the Magistrates under this section has the authority to pass a sentence of imprisonment for a term not exceeding one year and an amount of fine exceeding five thousand rupees[23]. If the Magistrate apprehends that a sentence of imprisonment for a term exceeding one year may have to be passed or for any other reason undesirable to the case summarily the magistrate shall after hearing or rehearing the parties and witnesses shall record the reasons in writing and proceed in the manner stipulated in the code[24]. For mode of service the magistrate may direct to serve the copy of the summon through speed post or courier service approved by the Court of Session either at the place where the accused or witness ordinarily resides or carries on business or personally works for gain[25]. In case of refusal to receive the court issuing the summons may declare that the summons has been duly served[26].

Cognizance without physical appearance The essence of physical appearance has been diluted by sec 145 this was done in order to render speedy justice. Sec 145 deals with receiving evidence on affidavit. For taking cognizance it is not mandatory for the complainant to come in-person to file the complaint. If the court is satisfied based on the application either by the prosecution or the accused, can issue subpoena and examine any person adducing evidence on affidavit.[27]

The supreme court in Indian bank association vs. Union of India[28], held that court has option of accepting affidavits of complainant and other witnesses instead of examining them in the court, for their examination-in-chief - However, witnesses to the complaint and the accused must be available for cross-examination as and when there is direction to this effect by the court.

In Areeplavan Finance vs. State of Kerala & Ors[29], Justice B Sudheendra Kumar held that it is "abundantly clear from the object of enactment of Section 145 of the N.I. Act and the ratio laid down by the Apex Court that the personal appearance of the complainant is not necessary for taking cognizance of the offence.

"Therefore, the courts dealing with the cases under Section 138 of the N.I. Act shall not insist for the personal appearance of the complainant at the pre-cognizance stage if the complaint is accompanied by the affidavit of the complainant and the affidavit and the documents, if any, are found to be in order. This being the position, the dismissal of the complaints by the court below before taking cognizance on the reason that the complainant was not present in person before the court cannot be justified".

From the above it can be deduced that the courts have the option to take cognizance of the offence without the personal appearance of the complainant in case of complaint accompanied by affidavit.

Mischievous Defences In most of the cheque case the two defences which are taken by the accused are; 1. Cheque lost and stoppage instruction 2. Source of funds

The Hon’ble Supreme court has ended the cheque stoppage, a baleful defence by applying the rule of interpretation in Sec.138 of the Negotiable Instrument Act cases. The court censured the literal interpretation of the sec and construed the provision in the light of upholding the credibility and acceptability of the post-dated cheque transaction and in concurrence with the object of the Act.

In Goa Plast (Pvt) Ltd. vs. Chico Ursula D’Souza, the apex court held that The court should lean in favour of an interpretation which serves the object of the statute. A post-dated cheque will lose its credibility and acceptability if its payment can be stopped routinely. The reiterated the same position inRangappa vs. Shri Mohan[30].

The Supreme court feels that the defence of proof of funds after presumption is a filthy one. InRohitbhai Jivanlal Patel Vs. State of Gujarat & Anr., the court held that Needless to reiterate that the result of such presumption is that existence of a legally enforceable debt is to be presumed in favour of the complainant. When such a presumption is drawn, the factors relating to the want of documentary evidence in the form of receipts or accounts or want of evidence as regards source of funds were not of relevant consideration while examining if the accused has been able to rebut the presumption or not"[31]. Latest amendments in the Negotiable Instrument Act.

The 2018 amendment bill faces some mixed reviews, some said it is a bill for money launders but majority said that the bill will bring down the unnecessary litigation. But as Dr.Shashi Taroor mentioned, the bill failed to give space for trail in-absentia[32]. The main focus of the bill was interim compensation. Sec 143A and sec 148 have been inserted by virtue of the Negotiable Instrument Amendment Act, 2018 [33].

This amendment deals with the concept called interim compensation. In pursuance of sec 143, if the accused pleads not guilty the court may order him to pay interim compensation not exceeding twenty percentage of the cheque amount. The accused has to pay the compensation within sixty days from the date of the order which can be further extended to thirty days if the court is satisfied by the reasons. When the interim compensation remains unpaid the same can be recovered as fine under section 421 of the Criminal Procedure Code, 1973.

Sec 421 of the Criminal Procedure Code, 1973 reads as follows Warrant for levy of fine.
(1) When an offender has been sentenced to pay a fine, the Court passing the sentence may take action for the recovery of the fine in either or both of the following ways, that is to say, it may-

(a) issue a warrant for the levy of the amount by attachment and sale of any movable property belonging to the offender;

(b) issue a warrant to the Collector of the district, authorising him to realise the amount as arrears of land revenue from the movable or immovable property, or both, of the defaulter: Provided that, if the sentence directs that in default of payment of the fine, the offender shall be imprisoned, and if such offender has undergone the whole of such imprisonment in default, no Court shall issue such warrant unless, for special reasons to be recorded in writing, it considers it necessary so to do, or unless it has made an order for the payment of expenses or compensation out of the fine under section 357.

2) The State Government may make rules regulating the manner In which warrants under clause (a) of sub- section (1) are to be executed, and for the summary determination of any claims made by any person other than the offender in respect of any property attached in execution of such warrant.

(3) Where the Court issues a warrant to the Collector under clause (b) of sub- section (1), the Collector shall realise the amount in accordance with the law relating to recovery of arrears of land revenue, as if such warrant were a certificate issued under such law: Provided that no such warrant shall be executed by the arrest or detention in prison of the offender[34].

In case of acquittal the complainant is bound to pay the interim compensation along with interest from the date of such order till the sixtieth day which can be further extended to thirty days after showing sufficient cause. Sec 148 relates to payment of interim compensation in the stage of appeal , in an appeal by the drawer against conviction under section 138, the Appellate Court may order the appellant to deposit such sum which shall be a minimum of twenty percent of the fine or compensation awarded by the trial Court and it follows the same proposition laid down in sec 145A[35].

Compounding Provision
According to sec 147 all offences which are punishable under this Act can be compounded. This section plays a major role in decreasing the pendency ratio.

InJ&K Industries Ltd vs. Amarlal Vs. Juman[36], the top court observed that in view of the non-obstante clause in sec 147 of the Act, the requirement of consent of the person compounding in sec 320 of CrPc is necessary even in case of compounding of offence under the Negotiable Instruments Act. But the judgement didn’t withstand for a long time.

The judgement was overruled by the court inM/S. Meters and Instruments Pvt. Ltd & Anr vs. Kanchan Mehtawherein it was held that Though compounding requires consent of both parties, even in absence of such consent, the Court, in the interests of justice, on being satisfied that the complainant has been duly compensated, can in its discretion close the proceedings and discharge the accused. Therefore, from theM/S. Meters and Instruments Pvt. Ltd & Anr vs. Kanchan Mehtaverdict it can be inferred that if the courts finds that the complainant is duly compensated then the courts in the interest of justice, have full power to close the trail without anyone’s concurrence.

It is very pathetic to hear besides all these developments, colossal cheque bounce cases remain unsettled. The law commission in its report suggested for constitution of fast track magisterial courts to address the problem of pendency of dishonoured cheque cases[37]. The report says over 38 lacs cases remain unresolved cross all over the courts in India. As per Times now report, Law and Justice Minister Ravi Shankar Prasad said that the government is working for bringing fast track court mechanism for dishonoured cheque case[38]. Nonetheless, the state hasn’t initiated any step for setting up fast track courts at magisterial level in the 2018 amendment[39]. Let’s hope it in the next amendment. The Hon’ble Supreme court by virtue of its law making power as given in the constitution provided many directions in catena of cases in order to ensure speedy trail, now it is left to the legislators to make the Act more vibrant in the upcoming times.

[1] Black’s Law dictionary 8th edition ( 1st South Asian edition 2015)
[2] See sec 6 of the Negotiable Instrument Act, 1881
[3] Goa Plast (Pvt) Ltd. vs. Chico Ursula D’Souza (2003) 3 SCC 232
[4] Order 37 of the Civil Procedure Code, 1908
[5] See
[6] See sec 4 of the Indian Evidence Act, 1872
[7] See sec 118 of the Negotiable Instrument Act, 1881.
[9] Krishna Janardhan Bhat vs Dattatraya G. Hedge, 2008 (4) SCC 54 : 2008 (1)
SCR 605.
[10] Kishan Rao Vs Shankargouda Crl.A.No. 803 of 2016
[12] Bir Singh vs Mukesk Kumar CRIMINAL APPEAL NOS.230-231 OF 2019(@ SLP(CRL )
NOS. 9334-35 OF 2018)
[13] RBI/2011-12/251 DBOD.AML BC.No.47/14.01.001/2011-12
[14] See sec 138(b) of the Negotiable Instrument Act, 1881
[15] See sec 138 (c) of the Negotiable Instrument Act, 1881
[16] See sec 142(a) of the Negotiable Instrument Act, 1881
[17] See sec 142(c) of the Negotiable Instrument Act, 1881
[18] See sec 142(b) of the Negotiable Instrument Act, 1881
[19] Sadanandan Bhadran vs Madhavan Sunil Kumar, AIR 1998 SC 3043
[20] K. Bhaskaran v. Sankaran Vaidhyan Balan (1999) 7 SCC 510
[21] Dashrath Rupsingh Rathod vs. State of Maharashtra (2014) 9 SCC 129
[23] See sec 143 (1) of the Negotiable Instrument Act, 1881
[24] Ibid
[25] See sec 144 (1) of the Negotiable Instrument Act, 1881
[26] See sec 144 (2) of the Negotiable Instrument Act, 1881
[27] See sec 145(2) of the Negotiable Instrument Act, 1881
[28] Indian bank Association vs. UOI AIR 2014 SC 2528; (2014) 5 SCC 590,
[29] Areeplavan Finance vs. State of kerala & Ors Crl.MC.No. 171 of 2019
[35] See sec 148 of the Negotiable Instrument Act, 1881
[36] J&K Industries Ltd vs. Amarlal V. Juman (2012) 3 SCC 255

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