Negotiable Instruments are written statements implying payment of money, either on demand or within a time period with the drawer’s/payer’s name on it. In India, Negotiable Instruments Act, 1881 codifies the law governing transactions involving negotiable instruments. There are various negotiable instruments; such as cheques, promissory notes, bills of exchange, bank notes, etc. However, for day to day transactions, cheque is the most widely used negotiable instrument in businesses today.
Once Margaret Thatcher said,” I do wish I had brought my cheque book. I don’t believe in credit cards”.
A cheque is a negotiable instrument. 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.
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’.
Notice of Dishonour
Section 138(b) of the Negotiable Instruments Act, 1881 provides for the Notice of Dishonour. It states that the payee or 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 cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid. Thus, the said provision states that if the holder of the cheque receives information from the Bank that the cheque has been dishonoured, he should within 30 days make a demand to the drawer for payment.
Section 138 in the Negotiable Instruments Act, 1881
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 19 [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, 20[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.]”
Filing a complaint under Section 138 of the Act
For filing a complaint, the complainant needs to follow these steps;
1. Dishonour of Cheque(s):
The complainant should have deposited the cheque drawn in his/its favour, which cheque(s) has been returned unpaid or has been dishonoured due to:
• Insufficiency of fund in the account of the drawer;
• Issuance of stop payment instructions by the drawer to the drawer bank;
• Amount of cheque exceeding the arrangement with the drawer bank.
2. Notice asking for payment of dues:
This Act provides that, once the cheque has been dishonoured, a notice needs to be issued (by registered A.D.) to the drawer within 30 days of the receipt of memo from drawee bank that the cheque is dishonoured. The notice to be sent should mention the following points;
• The cheque issued was presented for payment in bank;
• The cheque was subsequently dishonoured for the reason provided by the drawee bank (which should be any of the three reasons provided in Para 1 above);
• Asking for payment for sum written on cheque within a period of 15 days from the date of receipt of notice.
3. Filing complaint:
Where on the receipt of notice, if the drawer of the cheque remains silent or refuses to pay the money within 15 days from the date of receipt of notice, then a criminal complaint should be filed against the drawer (“Accused”) within next 30 days from the expiry of time period provided to the drawer.
4. Place of filing the complaint:
The place for filing the complaint shall be determined based on any of the following;
• Place of the bank on which the cheque is drawn;
• Place where cheque is presented to the bank and the same is dishonoured;
• Place of residence/business of the complainant;
• Place of residence/business of Accused;
• Place from where the notice is sent to the drawer of the cheque demanding the cheque amount.
5. Contents of criminal complaint:
A complaint should contain complete details about the complainant, Accused, details of the transaction, details of the notice sent to Accused, jurisdiction clause, limitation clause, prayers asking for compensation and punishment for the Accused. The complaint should also be accompanied with all the important attachments i.e. the list of witnesses, list of all original documents and copies, board resolution giving authority to a person to file complaint on behalf of the company (if applicable) etc.
6. Issuance of summons:
Upon filing of complaint and completion of all procedural aspects, the Magistrate before whom the complaint is filed shall verify the documents and upon subsequent verification, shall issue summons against the Accused.
7. Post – Issuance of summons:
On issuance of summons, the Accused may appear or may not appear.
On appearance of the Accused; the plea of the Accused shall be recorded and the proceedings shall be conducted as per Section 262 and 265 of CrPC.
Where Accused fails to appear; a Bail able warrant shall be issued against the Accused. Even after this, where the Accused fails to appear, a Non-Bail able warrant will be issued. If the Accused appears, the procedure will be the same as in the case of issuance of summons.
However, If the Accused fails to secure his attendance, then by courts order, Accused shall be declared absconding and a notice shall be issued in local newspaper in respect of the same. Properties of the Accused will be attached and will be sold by public auction. Complainant can recover his dues out of the sale proceeds.
Upon hearing the parties, the court may pass any of the following orders;
• The Accused may be acquitted of all the charges; or
• The Accused may be held guilty of the offence committed under Section 138 of the Act and shall be penalized as follows;
• imprisonment up to two years; or
• monetary fine which may extend to twice the amount of cheque; or
• both imprisonment and fine; or
• Paying off the dishonoured cheque amount to the complainant.
Scenario after 2015 Amendment Act
Jurisdiction to file cases of cheque bouncing has now been changed by Negotiable Instruments (Amendment) Act, 2015 (“Amendment Act”) which came into effect on 15th June 2015. As per this Amendment Act, a cheque dishonour case under Section 138 needs to be filed in the court as per provisions of Section 141(1) and 142(2), and even all pending cheque bouncing cases shall also get transferred to the courts as per this Amendment Act. The Amendment Act states that if the cheque is delivered through an account then the court having local jurisdiction over the branch where the payee or the holder maintains the account would try the case. If the transfer is made otherwise, the court having jurisdiction over the drawee bank would entertain the case. The Amendment Act further requires all the subsequent complaints arising out of Section 138 against the same drawer to be filed in the same court as the first complain, if it is still pending in the court, irrespective of whether those cheques were delivered for collection or presented for payment within the territorial jurisdiction of that court.
This Amendment Act superseded the judgement of Supreme Court in the matter of Dashrath Rupsingh Rathod v. State of Maharashtra. In this case, a 3-Judge bench of the Supreme Court had held that a cheque bouncing case can be filed only in a court which has the territorial jurisdiction over the place where the cheque is dishonoured by the bank on which it is drawn.
Several people raised difficulties over this because the payee of the cheque had to file a case at the place where drawer of the cheque has a bank account.
However, now the legal position has completely changed which can be well understood from the following case;
Bridgestone India Pvt. .Ltd. vs. Inderpal Singh;
In the following case, Bridgestone India Pvt. Ltd. (“Petitioner”) had filed a case against Inderpal Singh (“Respondent”) for dishonour of Cheque drawn on a bank at Chandigarh. The cheque was presented at a bank of Indore where Petitioner resides and was subsequently dishonoured. A petition was filed against the Respondent. The Respondent prayed to the court that Indore court had no jurisdiction to entertain this aforesaid proceeding, which was eventually accepted by court applying the Dashrath Rupsingh Rathod case which stated that jurisdiction lays only before the court in whose jurisdiction original drawee bank was located, which is Chandigarh in the present case.
An appeal was filed in the Supreme Court by the Petitioner challenging the order. The court held that, the new Ordinance vests jurisdiction for initiating proceedings under Section 138, inter alia, in territorial jurisdiction of court where cheque is delivered for collection (through an account of branch of bank where payee or holder in due course maintains an account). Therefore, in the following case, Section 142(1) (a) gives jurisdiction to Indore court to entertain the aforesaid proceedings and the judgement rendered in the Dashrath Rupsingh Rathod case shall not stand in any way of Petitioner insofar as territorial jurisdiction for initiating a proceeding emerging from dishonour is Cheque is concerned.
Thus, a cheque is a traditional payment method that employs the use of a paper document to make a payment transaction. It is a trusted form of making payments as only the recipient named is able to cash the cheque at a financial institution, provided that they prove their identity. Sec 138 to142 is inserted by Banking Public Financial Institutions and Negotiable Instruments clause (Amendment) Act,1988 to make the drawer liable for penalties in case of bouncing of the cheque due to insufficiency of funds with adequate safeguards to prevent harassment of the honest drawer.
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