Author Name:   ROMA JAIN

When a cheque is presented in the concerned bank by the drawee within the stipulated time, within the three months from the date of issue the drawee bank issue Check Return Memo to the payee mentioning the reason for non payment

Law on Dishonour of Cheque In India And It Consequences Under Negotiable Instruments Act 1881 As Amended Upto

What is Negotiable Instruments?

The word negotiable Instruments means transferable by delivery and the word instruments means a written document by which a right is created in favour of person. It is a document guaranteeing the payment of a specific amount of money, either on demand or at a set time with the payee named on the document. It is an indebtedness to pay amount and the negotiable instrument is an unconditional guarantee for the same. There are different kinds of Negotiable Instruments such as Promissory Notes, Cheques, Bill of Exchange, Bank notes, Bearer bonds etc.

Cheques are used in almost all transactions such as re-payment of loan, payment of salary, bills, fees, etc. A vast majority of cheques are processed and cleared by banks on daily basis. Cheques are issued for the reason of securing proof of payment. Nevertheless, cheques remain a reliable method of payment for many people. On the other hand, it is always advisable to issue crossed “Account Payee Only” cheques in order to avoid its misuse. A cheque is a negotiable instrument. Crossed and account payee cheques are not negotiable by any person other than the payee. The cheques have to be deposited into the payee's bank account. Legally, the author of the cheque is called ‘drawer’, the person in whose favour, the cheque is drawn is called ‘payee’, and the bank who is directed to pay the amount is known as ‘drawee’. However, cases of cheque bounce are common these days. Sometimes cheques bearing large amounts remain unpaid and are returned by the bank on which they are drawn. A cheque which is issued by the drawer is valid for three months only from the date of issue as per the RBI guidelines earlier it was valid for six months but now it has been reduced to three months.

What amounts to Dishonour of Cheque?

Law on the dishonour of cheque is mentioned from section 138 to 142 of the Negotiable Instruments Act 1881 as amended by Negotiable Instruments ( Amendment )Act 2015 which is as follows :

· A person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account

· The cheque has been issued for the discharge in whole or in part of any debt or other liability

· The cheque has been presented to the bank within the period of three months from the date on which it is drawn or within the period of its validity whichever is earlier

· That the cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of the account id insufficient to honour the cheque or that it exceeds the amount to be paid from that account by an agreement made with the bank

· The payee or the holder in due course of the cheque makes a demand of the said payment by giving notice in writing to the drawer of the cheque within 30 days of the receipt of the information by him from the bank regarding the return of the cheque as unpaid

· Drawee fails to make the payment within 15 days of the receipt of the said notice

When a cheque is presented in the concerned bank by the drawee within the stipulated time i.e within the three months from the date of issue the drawee bank issue ‘ Check Return Memo’ to the payee mentioning the reason for non – payment.

Reasons for Dishonour of Cheque

· Insufficient Funds
· Signature not matching
· Account Closed
· Cheque was presented after three months
· Payment stopped by account holder
· Disparity in the words and figures mentioned in the cheque
· In case of a joint account where both signatures are required but only one is there
· Death of the customer
· Insanity of the customer
· Crossing limit of the overdraft

Jurisdictional Development of Under Section 138 of Negotiable Instruments Act as amended upto with Landmark Cases

Position before K. Bhaskaran vs. Shankaran

1. Rajesh Agarwal v. State and Others (2010) ILR 6 Del 610:

Held that prosecution for issuing of a cheque without sufficient funds in the Bank, will have to be instituted before the Court within whose jurisdiction the cheque was issued.

2. P.K. Muraleedharan v/s C.K.Pareed and Anr:

Kerala High court held that the place where the creditors resides or the place where the debtor resides cannot be said to be the place of payment unless there is any indication to that effect either expressly or impliedly. The cause of action as contemplated in S. 142 of the Act arises at the place where the drawer of the cheque fails to make payment of the money. That can be the place where the Bank to which the cheque was issued is located. It can also be the place where the cheque was issued or delivered. The Court within whose jurisdiction any of the above mentioned places falls has therefore got jurisdiction to try the offence under Section 138 of the Act

3. Rakesh Nemkumar Porwal v/s Narayan Dhondu Joglekar:

The anatomy of S. 138 comprises certain necessary components before the offence can be said to be complete, the last of them being the act of non-payment inspite of 15 days having elapsed after receipt of the final notice. It is true that the cheques may have been issued by the accused at his place of residence or business, the Bank on which it is drawn being often located at a second spot and inevitably the complainant or the payee has his place of residence or business at yet another location. It was for this reason that the Kerala High Court in the case of P.K.Muralendharan vs C.K Pareed, took the view that any of the three Courts could exercise jurisdiction. In our considered view, where undoubtedly each of the components constitute a stage in the commission of the of- fence, the final non-payment being the ultimate one, S. 178 Cr.P.C. would clearly apply to an offence of this type

4. Canara bank Financial Services Ltd. v/s Gitanjali Motors and Others:

Delhi High Court held that the place where the cheque was given or handed over is relevant and the Courts within that area will have territorial jurisdiction. Also held, "Then as per Section 179 when an act is an offence by reason of anything which has been done and of a consequence which has ensued. The offence may be inquired into or tried by a court within those legal jurisdiction such thing has been done or such consequence has ensued. Payment of cheque against an account having sufficient funds to meet the liability under the cheque is one act while dishonor of the cheque is a consequence of such an act. Therefore as per Section 179 also the place where the cheque was given or handed over will have jurisdiction and the courts of that place will have jurisdiction to try the offence. Likewise for purposes of Section 178(b) payment of cheque may be one part of an offence and dishonor of the cheque may be another part and, therefore, both places i.e. place where the cheque was handed over and the place where it was dishonored will have jurisdiction.

5. Sanjai Makkar and Ors.Vs.Saraswati Industrial Syndicate Limited and Ors.

The High Court of Allahabad held "...so far as territorial jurisdiction is concerned, the cause of action arises at a place where the cheque was drawn, or a place where the cheque was presented, or a place where the payee made a demand for payment of the money by giving a notice in writing to the drawer within the stipulated period and at a place where the drawer failed to make the payment within 15 days of the receipt of notice."

6. Gautham T. V. Centre v. Apex Agencies:

High Court of Andhra Pradesh held that the Court within whose jurisdiction the cheque is given, or where the information of dishonour is received or where the office of the payee is situate, will have jurisdiction to try the offence.

Position on and after K. Bhaskaran vs. Shankaran AIR 1999, SC 3762 Case

Hon’ble Apex court in the above mentioned case of Bhaskaran held that jurisdiction to initiate prosecution lies at the following places :
Ø Where cheque is drawn
Ø Where payment had to be made
Ø Where cheque is presented for payment
Ø Where cheque is dishonoured
Ø Where notice is served upto drawer

However, recently in case of Dashrath Rupsingh Rathod vs. State of Maharashtra, reported in MANU /SC/ 0655/ 2014 interpreted various provisions of Sec.138 of Negotiable Instruments Act and held the following :

· An offence under Section 138 of the Negotiable Instruments Act, 1881 is committed no sooner a cheque drawn by the accused on an account being maintained by him in a bank for discharge of debt/liability is returned unpaid for insufficiency of funds or the reason that the amount exceeds the arrangement made with the bank

· Cognizance of any such offence is however forbidden under Section 142 of the Act except upon a complaint in writing made by the payee or holder of the cheque in due course within a period of one month from the date the cause of action accrues to such payee or holder under clause (c) of proviso to Section 138\

· The cause of action to file a complaint accrues to the complainant, payee, holder in due course if :

a. The dishonoured cheque is presented to the drawee bank within the three months from the date of issue

b. If the complainant has demanded payment of cheque amount within thirty days of receipt of information by him from the bank regarding the dishonour of the cheque

c. If the drawer has failed to pay the cheque amount within fifteen days of receipt of such notice

· The facts constituting the cause of action do not constitute the ingredients of the offence under section 138 of the negotiable instruments act

· The proviso to Section 138 simply postpones/ defers institution of criminal proceedings and taking of cognizance by the Court till such time cause of action in terms of clause (c) of proviso accrues to the complainant

· Once the cause of action accrues to the complainant, the jurisdiction of the Court to try the case will be determined by reference to the place where the cheque is dishonoured

· The general rule stipulated under Section 177 of Cr.P.C. applies to cases under Section 138 of the Negotiable Instruments Act. Prosecution in such cases can, therefore, be launched against the drawer of th cheque only before the Court within whose jurisdiction the dishonour takes place except in situations where the offence of dishonour of the cheque punishable under Section 138 is committed along with other offences in a single transaction within the meaning of Section 220(1) read with Section 184 of the Code of Criminal Procedure or is covered by theprovisions of Section 182(1) read with Sections 184 and 220 thereof.

Punishment for dishonor of cheque : As per the current law, since it is a bailable offence, the defaulters can escape imprisonment as long as the trial is on. The law lays down an imprisonment of up to two years or fine that may extend up to double the dishonoured amount, or both but the government is planning for stringent punishment in such cases by making it a Non-Bailable offence ( but as of now no notification has been approved yet )

Where to file a complaint : Judicial Magistrate of first class and Metro Politian Magistrate having jurisdiction to try cases of dishonour of cheque

Pre-Requisites and Documents for filing a Cheque Bounce Case:

1. Original Cheque
2. Return Memo ( Bank Slip )
3. The statutory demand notice
4. Postal receipt of the notice you had issued
5. Any other document/s with the permission of Hon’ble court having the jurisdiction to try the case
6. Original copy of power of attorney, authorizing the attorney to present the complaint

Please refer the Negotiable Instruments (Amendment) Act 2015 for reading clauses in detail

# AIR 1999, SC 3762

The author can be reached at: roma@legalserviceindia.com

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