Search

LAW REGARDING DISHONOUR OF CHEQUE: AN OVERVIEW


Advent of cheques in the market has given a new dimension to the commercial and corporate world, In place of bundle of notes a piece of cheques is much easier to carry. Dealings in cheques are vital and important not only for banking purposes but also for the commerce and industry and the economy of the country.


A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of ‘a truncated cheque’ and ‘a cheque in the electronic form’, as defined under section 6 of negotiable instrument act.


section 138 covers the provision for dishonour of cheques for insufficiency etc. of funds in the account of drawer. The drawer pays off his lability to the payee through cheque and when bank returns the cheque unpaid due to insufficient balance on the account held by the drawer, the liability/debt remains due to the drawer and the amount remains unpaid. This is known as the dishonor of cheque The return of cheque can be because of insufficient funds in the account or due to exceeding the limit of the amount which was agreed to be paid by the bank. Such a default by any person, creates a liability under the said provision.


The essential ingredients of sec138 are as follows:-

1. Drawing of a cheque by a person on an account of any debt or other liability.

2. Presentation of the cheque to the bank within a period of 6 months from date of its drawing or within the period of its validity.

3. Returning of the cheque unpaid by the drawee bank.

4. Notice in writing to the drawer of cheque within 30 days of receipt of information regarding return of cheque as unpaid in form of debit advance or return memo.

5. Failure of the drawer to make payment within 15 days of receipt of notice.


Dishonour is of 2 kinds:

Dishonour of bill of exchange by non-acceptance

Dishonour of promissory note, bill of exchange or cheque by non-payment


Case: N. Harihara Krishnan v. J. Thomas


The Apex court in a recent judgement held that any failure to include the company as an Accused in the complaint, filed for dishonor of cheque section 138 of the Negotiable Instruments Act, 1881 of dishonour of a cheque issued by a company, would be fatal to the prosecution of such company even if the complaint filed against the signatory of the cheque has been duly complied with.


In the concerned case, the cheque was signed by the appellant, Mr. Harihara Krishnan (“Appellant”), who was authorized to sign on behalf of Dakshin Granites Pvt. Ltd. (“Company”) which is the drawer company. When the cheque was dishonoured, the complainant, Mr. J. Thomas (“Respondent”), lodged a complaint under section 138 of the NI Act against the Appellant. However, he failed to lodge a complaint against the Company. It is important to note that the Appellant drew the cheque on behalf of the Company, thereby making Company the drawer of the cheque.


Respondent subsequently sought to implead Company in the complaint, which the trial court granted. Against this, Appellant filed an appeal before the High Court stating the application to implead was filed after the expiry of the limitation period, which also ruled in favour of Respondent. Appellant then appealed to the Apex Court, which then overruled both the orders.


Offence under 138 is an offence without any mens rea .It is not a criminal offence in real sense as it does not require mens rea, like few other criminal offences, but as public interest is hampered by such offence so it has been made a punishable offence. It includes strict liability. Creation of the strict liability is an effective measure by encouraging greater vigilance to prevent usual callous attitude of drawers of cheques in discharge of debts.


Under Section 142, courts take cognizance of offences punishable under Section 138 only upon a complaint made by the payee or, as the case may be, the holder in due course of the cheque. The complaint must be in writing and be made within one month of the date on which the cause of action i.e. after the person drew the cheque fails to pay the amount within 15 days of the receipt of notice of its dishonour. No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class has the power to try any offence punishable under section 138.

The maximum punishment for such an offence is imprisonment upto 2 years or fine upto twice the amount of cheque or both.

Section 138 of the Act protects the payee from any illegal act on the part of the drawer. As cheques are commonly used instruments in the business world, banking sector needs to be protected. It not only aims at speedy disposal of cases but also to bring a sanctity to the system by seeking to clamp down on defaults in payments and has empowered the payee against drawer to bring higher virtuousness to cheque transactions. After the amendment of 2002 and insertion of such penal provision has given relief to the drawee. It has also helped in curtailing the dishonest intention of doing fraud. The steps can be taken as remarkable steps in the banking sector.


Written by: Vasudha Goel, Final Year Student, Mody University, Rajasthan.


45 views0 comments

Recent Posts

See All

A CONCEPT OF DOUBLE JEOPARDY

Introduction Black’s law dictionary defines Double Jeopardy as: – A second prosecution after a first trial for the same offense. In India, protection against double jeopardy could be an elementary rig

FARMS ACTS 2020: FRIEND OR FOE TO FARMERS?

INTRODUCTION Indian Parliament, in the preceding year passed three bills related to agriculture and farming, together known as the Farmers Bill. The Bills include The Farmer’s Produce Trade and Commer

MAINTENANCE OF PARENTS AND SENIOR CITIZENS

Portraying your own self as one day you will be undergoing this stage “Do not regret growing older. It’s a privilege denied to many.” Indian society is proud of its diverse culture and traditions. Com