The term Negotiable means transfer by endorsement or delivery
therefore the term Instrument
means any legal instrument in writing, which is made in favour of a person.
As a result, Negotiable Instruments are written
implying cash payment, either on demand or within a specific
timeframe, and bearing the drawer's/payer's name Negotiable instruments plays
an very important role in the today's business world. And some of the
Instruments like, cheques, bank drafts, bill of exchange etc. are easy way of
trade & commerce transactions.
Specifically the utilization of cheque has given
a new dimension to both business & company world. Cheque being a bit of paper
is straightforward to hold &move anywhere, thus people prefer it than carrying
currency &due to the wide acceptance of cheques worldwide, it's become important
to guard the credibility of this instrument & therefore the protection of
hard-earned money also faith in the cheque system. Tthe usage of cheques has
been regulated in India through ,Negotiable Instruments Act 1881
.Under which dishonour of cheque is considered a punishable offence.
There are various negotiable instruments; like cheques, promissory notes, bills
of exchange, bank notes, etc. However, for day to day transactions, cheque is
that the most generally used legal document in businesses today & due to the
Active usage people often get into some trouble & they find queries like What
to try to to if cheque gets bounced, the way to file cheque bounce case,
Jurisdiction of cheque bounce case, cheque case jurisdiction etc. So, during
this paper i will be dealing with some of the important information about
Cheque bounce or Dishonor of cheque and also about jurisdiction to file
complaint or Jurisdiction for cheque bounce case.
Dishonor Of Cheque:
According to Section 6. of the Negotiable Instruments Act, the check is
defined as the bill of exchange
issued on a particular banker & expressed to
be payable other than on demand. Includes the electronic image of the truncated
check & a check in the electronic form.
In the banking scenario, the honored cheque indicates the successful transaction
of the amt. cited on the check to the beneficiary concerned i.e. payee.
Conversely, if the Bank refuses to dispense the cheque sum to the beneficiary,
it will be treated as a dishonored cheque so, it refers to a scenario where the
Bank refuses to dispense the check amount to the payee.
Reference to the term 'dishonor' made in Section 91& 92 of the Negotiable
Instruments Act, 1881.
S. 91. Dishonor by non-acceptance- A bill of exchange is stated or deemed to be
dishonoured ,only if the drawee or one of the multiple drawees .not being the
partners refuses to accept it , defaults on an acceptance after being duly
obliged to accept the bill, or when presentment is excused & bill isn't
so in other words it can be said that the bill can said to be or considered as
dishonored If the drawee is unable to contract or when the acceptance is
Section 92: Dishonor by Non-Payment
A bill or a cheque is said to be dishonored by non-acceptance only If maker of
the'note' /the acceptor of the bill/ the drawee of the cheque defaults on
payment after duly required to pay the same.
Therefore, if at the presentation the banker does not pay, then there is
dishonor and the bearer immediately acquires the right of recourse against the
drawer& against the other parts of the cheque.
Section 138 Negotiable Instruments Act 1881:
The Negotiable Instruments (Amendment And Miscellaneous Provisions) Act, 2002,
has made the following changes to Section 138. of the Negotiable Instruments
138. Cheque dishonour due to 'insufficient funds' in the account:
If a cheque
drawn by a person on an account maintained by him with a banker is returned by
the bank unpaid for payment of any amount of money to another person from that
account for the discharge, in whole or in part, of any debt or other liability,
Such person shall be deemed to have committed an offence and shall, without
prejudice to any other provision of this Act, be punished with imprisonment for
a period of not less than one year if the amount of money standing to the credit
of that account is insufficient to honour the cheque or if it exceeds the amt.
arranged to be paid from that account, by an agreement made with that particular
Provided provided in this section, nothing in this section shall apply unless:
- the cheque has been handed to the bank within six months of the date on
which it was drawn, or during the validity term of the cheque, whichever comes
- within thirty days after receiving information from the bank regarding
the return of the cheque as unpaid, the payee or holder of the cheque, as the case
may be, makes a claim for payment of the specified amount of money by giving a
notice in writing to the drawer of the cheque; and
- within 'fifteen days' of receiving the said notice, the drawer of such cheque fails to make payment of the said sum of money to the payee or to the
holder, in due course.
A legally enforceable debt or other liability is referred to
as a debt or other liability
in this section.
Scope of S.138 of NI act , 1881( Negotiable Instruments Act,1881):
Section 138 makes it as statutory offence dishonour cheques because there
are insufficient funds in a person's bank account with the banker, and the
amount arranged to be paid from that account by an agreement made with that bank
is greater than the amount arranged to be paid from that account by an agreement
made with that bank as specified in the act.
However, there are a number of reasons for cheque dishonour, such as signature
mismatch, payment stopped by the drawer, account closed by the drawer, and so
Whenever a cheque for the discharge of any legally enforceable debt or other
liability is dishonoured by the bank for lack of funds and payment is not made
by the drawer inspite of a legal notice of demand, it shall be considered a
criminal offence. The Act considers cheque dishonour to be a criminal offence,
but it is only enforcing a civil right in a summary manner.
Ingredients of offence:
The essential ingredients of sec138 are:
- Drawing a check by a person on an account of any debt or other
- Presentation of the check to the bank within a period of six months from
the date of its drawing or within the period of its validity.
- Return of the unpaid check by the drawee bank.
- Written notice to the cheque drawer within 30 days of receipt of information
relating to the return of the cheque as unpaid in the form of an advance debit
or return memo.
- Non-payment by the drawer within fifteen days of receipt of the notice.
The High Court of Maharashtra held in Vishnu S/O Amthalal Patel v. State of
Maharashtra & Anr
. that the accused's cheque could not be regarded a legally
enforceable debt or liability. The evidence fell short of establishing that the
applicant/accused owes a legally enforceable debt or liability for which the
cheque was given. As a result, the applicant/accused has met his or her burden
and refuted the presumption based on the aforementioned provisions of the Act.
Reasons for Dishonour Of Cheque:
- Stop payment:
In case of Electronics Trade and Technology Development Corporation India Vs
Indian Technologies and Engineers (Electronics) Pvt. Ltd. It was held by hon'ble court that if the drawer issues a notice to the payee or holder in due
course not to present the cheque for payment, and the cheque is still presented
and dishonoured on the drawer's instructions, Section 138 ii applies. However,
in another case, Modi Cement Ltd. vs Kuchil Kumar Nandi, the Supreme Court
reversed its earlier findings and stated that section 138 would apply even if a
cheque was dishonoured due to a "Stop Payment" instructions to the bank.
- Bank account closed:
The dishonour of a cheque on the grounds that the drawer of the cheque has
closed the account is a violation of S.138. Account Closed means that :
Despite the fact that the account was active at the time the cheque was
issued, the account has since been closed.
It indicates that the drawer has no
intention of paying.
Closing an account is one of the ways a drawer can make his account insufficient
to honour a cheque he has issued; thus, closing an account would not allow the
accused to avoid his liability under section 138 of the Act.' In N. A. Issac
vs. Jeeman P. Abraham & Anrol, it was held by hon'ble court that if a cheque
is issued after an account has been closed, Section 138 will apply.
- Refer to the dawer:
In the usual sense, "refer to drawer" refers to a bank statement, as in we are
not paying, go back to the drawer and ask why,or go back to the drawer and ask
him to pay.The words implies that' the cheque has been returned due to a lack
of funds in the drawer's account, as is 'customary in banking'. It's a polite
approach for a bank to indicate that it won't be able to honour the cheque due
to a lack of funds.
In the case of M/s Electronic Trade & Technology Development Corporation Ltd. v.
M/s Indian Technologist & Engineer (Electronic) Pvt. Ltd. it was held by the hon'ble court that that if a cheque is returned with the endorsement "Refer to
drawer" or "Instructions for stoppage of payment" or exceeds the arrangement, it
constitutes cheque dishonour.
- Post dated cheque:
A post dated cheque is a bill of exchange, when it's written or drawn, it
becomes a cheque when it is payable on demand. Because a post-dated cheque
cannot be presented to the bank, the issue of its return does not arise. S.138
of NI Act, comes into action, only when a post-dated cheque becomes a cheque
having effect from the date displayed on the face of the said cheque.
Before taking any action, a legal notice for check dishonour is required.
This Act stipulates that, if a cheque has been dishonoured, the drawer must be
notified (by registered A.D.) within 30 days of receiptof the memo from the
drawee bank that the cheque has been dishonoured.
The following points should be
included in the legal notice for cheque dishonour:
- The issued check was presented to the bank for payment;
- The check was then dishonoured for the reason stated by the drawee bank.
- Requesting payment of a sum written on a cheque within 15 days of
receipt of notice.
The next action should be conducted after sending the legal notice for cheque
Filing of complaint:
When the drawer of the cheque fails to make the payment within fifteen days
after receiving the notification, the cause of action for beginning proceedings
is complete, according to Section 138 of the Act and its proviso.
Only from the moment the notice period expired would the offence be considered
committed. A section 138 complaint must be filed within one month of the
occurrence of the cause of action. The day on which the cause of action arises
is excluded from the calculation of the limitation period for filing a complaint
under Section 138 of the Act.
In K Bhaskaran v. Sankaran Raidhyan Balan
, reported in (1999) 7 SCC 510, the
Apex court held that a crime under section 138 of the Act can only be committed
by concatenating several acts.
- The Cheque Drawing
- The presentation of cheque to the bank
- The drawee bank's unpaid cheque is returned to the sender.
- giving written notice to the cheque drawer requesting payment of the cheque
- The drawer's failure to make within 15 days of receipt the notice
All of these elements combine to form the crime of cheque dishonour.
According to the Court, under the principles of law governing the administration
of substantive criminal law, the complainant can choose any of the courts with
jurisdiction over any of the local areas within the territorial limits of which
any of the five acts were committed. The court went on to say that the court
with jurisdiction over the payer's and payee's places of residence can have
territorial jurisdiction to investigate and try the complaint.
Dashrath Rupsingh Rathod v State of Maharashtra & Anr:
The Supreme Court's
recent landmark decision has altered the essential criteria for initiating
criminal complaints for cheque dishonour under Section 138 of the Negotiable
Instruments Act. Previously, the holder of the cheque could file a case under
Section 138 at his place of business or residence.
However, the Hon'ble Supreme
Court has ruled that the complaint must be filed in the location where the bank
branch on which the cheque was drawn is located, and that the judgement will
apply retrospectively, that is, lakhs of cases pending in various Courts across
the country will see an interstate transfer of cheque bouncing cases
A court trying a case involving cheque bouncing must order the drawer to pay
interim compensation to the claimant of not more than 20% of the cheque sum
within 60 days of the trial court's order, according to the Negotiable
Instruments (Amendment) Act, 2018, which came into effect on 1st sept.,
This interim fee can be levied in a summary trial or a summons case where the
drawer pleads not guilty to the lawsuit's accusations, or when a charge is
framed in another case. In addition, the Amendment permits the Appellate Court
to order the claimant to deposit a minimum of 20% of the fine/compensation
imposed, in addition to temporary compensation, while hearing appeals against
Civil action:Cognizance of Offences:
The Negotiable Instrument Act of 1881 section 142 that deals with the cognizance
In the case of Birendra Prasad Sah v. State of Bihar and Others
appellant served a legal notice within 30 days of receipt the memo of dishonour.
As a result, the proviso (b) to section 139's requirement was met. The
respondent claimed that he was not served with the legal notice. The appellant
specifically claimed in the complaint that despite numerous requests to the
Postal Department, no acknowledgement of notice was provided. As a result, the
appellant had no choice but to issue a second notice. The Court held that the
first notice formed the cause of action for a complaint under s.138 since it had
to be issued within the time limit.
Essential conditions required for cognizance of offence:
The following conditions must be met before proceeding against the drawer of a
- In due course, the payee or holder must file a written complaint.
- Under clause (c) of the proviso to Section 138, the complaint must be
filed within one month of the day on which the cause of action arose.
- The offence stated under Section 138 can only be tried in a court of
Metropolitan Magistrate or a Judicial Magistrate of First Class.
Section 147: Compoundable offences
Every offence punishable under this Act is compoundable, notwithstanding
anything in the Code of Criminal Procedure, 1973, (2 of 1974.)
The provisions of the Code of Criminal Procedure, 1973, are not applicable to
the compounding of offences under the NI Act, as evidenced by the non obstante
Prior to the introduction of Section 147 of the NI Act, the provisions of
Section 320 of the CrPC were used to compound the offence under the NI Act. The
legislature felt it appropriate to allow compounding without the permission of
the court in the case of an offence under Section 138 of the NI Act, because
normally, cheque dishonour occurs from commercial transactions between private
parties. As a result, only Section 147 begins with a non obstante clause, taking
it beyond the scope of section 320 of the CrPC.
The following guidelines were issued by hon'ble Supreme court in case of Damodar
S. Prabhu v. Sayed Babalal H. on cheque bounce cases are:
- That the summons be appropriately modified to make it apparent to the
accused that he may apply for compounding of the offences at the first or
second hearing of the case, and that if he does, compounding may be granted
by the court without imposing any costs on accused.
- If the accused fails to make an application for compounding ,
compounding may be granted if an application for compounding is made before
the Magistrate at a later stage, is subject to the condition that the
accused pay 10% of the cheque
amount to be deposited with the' Legal Services Authority', or such other
authority as the court deems appropriate.
- Similarly, if the accused applies for compounding in a revision or
appeal before the Sessions Court or a High Court, the compounding may be
granted on the condition that the accused pay 15% of the cheque amount in costs.
- Finally, if a compounding application is filed with the Supreme Court,
the figure rises to 20% of the whole amount of the cheque.
A person guilty of an offence u/s. 138 of the Negotiable Instrument Act of
1881 faces a maximum sentence of two years in prison and a fine of double the
amount of the cheque, or both.
The Delhi High Court considered whether a criminally compoundable offence under
Section 138 might be handled by mediation in the matter of Dayawati v. Yogesh
, 2017. The Court held that the Legislature had not explicitly
established a legislative clause permitting the criminal court to transfer the
plaintiff and convicted parties to alternative resolving disputes mechanisms.
Arbitration is permitted and recognised under the Code of Criminal Procedure (Cr.P.C), without specifying or limiting the technique used to achieve it. As
a result, there is no prohibition against adopting alternative dispute
resolution methods like as arbitration, mediation, or conciliation (as defined
in Section 89 of the Civil Procedure Code, 1908) to resolve disputes involving
offences covered by Section 320 of the Cr.P.C. It further stated that the
proceedings under Section 138 of the Act are different from other criminal
cases, and similar to civil wrong with criminal overtones.
In the case of Dashrath Rupsingh Rathod versus State of Maharashtra and
, the hon'ble Supreme Court held that the territorial jurisdiction for
the dishonour of cheques is limited only to the court whose local jurisdiction
the offence was committed, which in this case is the court where the cheque is
dishonoured by the bank on which it is drawn. All other complaints (including
those in which the accused/respondent has not been properly served) will be
returned to the complainant for filing in the appropriate court, as determined
by the Supreme Court, in accordance with an exposition of the law.
The Court held in Apparel Export Promotion Council v. Collage Culture & Ors
that once the Trial Court proceedings were revived, the appellant was required
to follow the orders entered in those proceedings unless they were stayed. The
Court noted that the thirty-day period started on the date the decision was
delivered. The fact that the appellant had not physically collected the
complaint did not lengthen the time frame in which it had to re-file it.
The law related to Negotiable Instruments is a law of commercial world that was
enacted to facilitate trade and commerce by providing for the sanctification of
a credit instrument that would be deemed convertible into money and easily
transferable from one person to another. In absence such instruments, trade and
commerce activities were expected to affected, as it was not practical for the
trading community to continue using the bulk of the currency in force.
The Act's key objective is to legalize the manner by which the instruments
covered by it can be passed from hand to hand through negotiation, just like any
other good. Though the penal provisions have served to reduce the issue of
cheques in a lighthearted or playful manner, or with a dishonest intention, the
trading community today feels more comfortable in receiving payment by cheques.
However, because there is no provision for recovering the amount covered by the dishonoured cheque, if an accused is convicted under section 138 and has served
his or her sentence, but is unable to deposit the fine then it is the
complainant's sole choice is to file a civil suit.
However, the process of seeking civil justice is notoriously slow, and
recovering damages through a civil suit can take an inordinate amount of time.
If the Government of India could establish a tribunal to deal with cheque
dishonour and the liability that arises from it, the process of recovering
damages for the aggrieved party could be accelerated.
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