Law of contracts

Assignment
On
Contracts
Of
Dishonor Of cheque
BY:- Ankit Tiwari
BBA.LLB
1st year
econ! emester
(2013008316)
1
INTRODUCTION
Advent of cheques in the market have given a new dimension to the
commercial and corporate world, its time when people have preferred to carry
and execute a small piece of paper called cheque than carrying the currency
worth the value of cheque. 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. But pursuant to the rise in dealings with cheques,
the practice of giving cheques without any intention of honoring them has
also risen. In case a cheque is issued by a person in liquidation of his debt or
liability, and same is dishonoured, then it not only creates a bad taste, but
can also result in harassment and can cause damages to the person to whom
the cheque may have been issued.
In India, cheques are governed by the Negotiable Instruments Act, 1881,
which is largely a codifcation of the English Law on the subject. Before 1988
there was no efective legal provision to restrain people from issuing cheques
without having sufcient funds in their account or any stringent provision to
punish them in the event of such cheque not being honoured by their bankers
and returned unpaid. Although, on dishonour of cheques there is a civil
liability accrued, however in reality the processes to seek civil justice becomes
notoriously dilatory and recover by way of a civil suit takes an inordinately
long time. To ensure prompt remedy against defaulters and to ensure
credibility of the holders of the negotiable instrument a criminal remedy of
penalty was inserted in Negotiable Instruments Act, 1881 in form of the
2
Banking, Public Financial Institutions and Negotiable Instruments Laws
(Amendment) Act, 1988 which were further modifed by the Negotiable
Instruments (Amendment and Miscellaneous Provisions) Act, 2002[3].
DISHONOUR OF CHEQUES MEANING
Section 6 of the Negotiable Instruments Act, 1881 defnes a cheque as
"a bill of exchange drawn on a specifed banker and not expressed to be
payable otherwise than on demand".
"Dishonour" means "to refuse or neglect to accept or pay when duly presented
for payment of a bill of exchange or a promissory note or draft on a banker.
1

Blacks Law Dictionary
2
defnes the term "Dishonour" as
"to refuse to accept or pay a draft or to pay a promissory note when duly
presented. An instrument is dishonored when a necessary or optional
presentment is duly made and due acceptance or payment is refused, or
cannot be obtained within the prescribed time, or in case of bank collections,
the instrument is reasonably returned by the midnight deadline;
Reference to the term 'dishonour' has been made in Section 91 and Section 92
of the Negotiable Instruments Act, 1881.
Section 91 - Dishonor by non- acceptance
1
Vide Whartons Law Lexicon, 1978 Ed. p. 335
2
Vide Rakesh orwa! ". #ara$an %o&!ekar, 1993 'r L% (8) p. *(88+ *,o-+.

3
"A bill of exchange is said to be dishonored by non-acceptance when the
drawee, or one of several drawee not being partners, makes default in
acceptance upon being duly required to accept the bill, or where presentment
is excused and the bill is not accepted.
Where the drawee is incompetent to contract, or the acceptance is qualifed
the bill may be treated as dishonored".
Section 92- Dishonour by non-payment
"A promissory note, bill of exchange or cheque is said to be dishonored by non-
payment when the maker of the note, acceptor of the bill or drawee of the
cheque makes default in payment upon being duly required to pay the same".
Thus if on presentation the banker does not pay, then dishonour takes place
and the holder acquires at once the right of recourse against the drawer and
the other parties on the cheque.
Dishonour of cheque has been considered as a criminal ofence under Section
138 of the Negotiable Instruments Act, 1881. According to Section 138
whenever any cheque for discharge of any legally enforceable debt or other
liability is dishonoured by the bank for want of funds and the payment is not
made by the drawer despite a legal notice of demand, it shall be deemed to be
criminal ofence.
DISHONOUR OF CHEQUE - INTERPRETATION OF SECTION 138
Section 138 of the Negotiable Instruments Act, 1881
.
Dishonour of cheques is considered as an ofence under Section 138 of the
Negotiable Instruments Act, 1881. Section 138 deals with Dishonour of
cheque for insufciency of funds in the accounts. The Section reads as follows:
"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 insufcient 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 ofence and shall without prejudice to any other provisions of
this Act, be punished with imprisonment for a term which may extend to two
year, or with fne which may extend to twice the amount of the cheque, or
with both.
Ingredients and requirements of the penal provisions
Section 138 creates an ofence for which the mental elements are not
necessary. It is enough if a cheque is drawn by the accused 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 discharge in whole or in part, of
any debt or other liability due. Therefore, whenever the cheques are on
account of insufciency of funds or reasons referable to the drawers liability
to provide for funds, the provisions of section 138 of the Act would be
attracted, provided the following conditions are satisfed:
5
1. Cheque drawn on a bank account
Section 138 requires, that a cheque, to be caught by the section, should be
'drawn by a person on an account maintained by him with the banker for
payment of any amount of money'. Existence of a "live account" at the time of
issue of cheque is a condition precedent for attracting penal liability for the
ofence under this section. The cheque is returned by the bank unpaid either
because of the insufciency of the amount or, because it exceeds the amount
arranged to be paid from that account. The words "that account" in the
section denote to the account in respect of which the cheque was drawn. No
doubt if any person manages to issue a cheque without an account with the
bank concerned its consequences would not snowball into the ofence
described under section 138 of the Act. For the ofence under section 138 of
the Act there must have been an account maintained by the drawer at the
time of the cheque was drawn.
2. Issue of Cheque in discharge of a debt or liability
The cheque unpaid by the bank must have been issued in discharge of a debt
or other liability wholly or in part. Where a cheque is issued not for the
purposes of discharge of any debt or other liability, the maker of the cheque is
not liable for prosecution under section 138 of the Act. A cheque given as a
gift or for any other reasons and not for the satisfaction of any debt or other
(
liability, partly or wholly, even if it is returned unpaid will not meet the penal
consequences.
a) Presentation of the cheque within six months or within the
period of its validity
The cheque must have been presented to the bank within a period of six
months from the date on which it is drawn or its period of validity, whichever
is earlier. Thus if a cheque is valid for three months and is presented to the
bank within a period of six months the provisions of this section shall not be
attracted. However if the period of validity of the cheque is not specifed or
prescribed the cheque is presented within six months from the date the cause
of action can arise. The six months are taken from the date the cheque was
drawn.
b) Return of the cheque unpaid for reason of insufciency of funds
The cheque must be returned either because the money standing to the credit
of that account is insufcient to honour the cheque or that it exceeds the
arrangement made to be paid from that account by an agreement with the
bank.
c) Issue of the notice of dishonour demanding payment within thirty
days of receipt of information as to dishonour of the cheque.
The payee or the holder in due course of the cheque has to give a notice in
writing making a demand for payment of the said amount of money to the
7
drawer of the cheque. Such notice must be given within 30 days of
information from the bank regarding the return of cheque as unpaid.
d) Failure of the drawer to make the payment within ffteen days of
the receipt of the payment
After the receipt of the above notice the drawer of the cheque has to make
payment of said amount of money to the payee or to the holder in due course
of the cheque within 15 days of the receipt of the notice. If the payment is not
made after the receipt of the notice within stipulated time, a cause of action
for initiating criminal proceedings under this section will arise.
Scope and applicability of Section 138
According to the Section 138 whenever any cheque for discharge of any legally
enforceable debt or other liability is dishonoured by the bank for want of
funds and the payment is not made by the drawer despite a legal notice of
demand, it shall be deemed to be a criminal ofence.
Where a cheque is issued not for the purpose of discharge of any debt or other
liability, the maker of the cheque is not liable for prosecution. For example, if
the cheque is given by way of a gift or present and if it is dishonoured by the
bank, the maker of the cheque is not liable for prosecution
3
.
DISHONOUR OF CHEQUE OFFENCE BY DRAWER
3
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8
The word 'ofence' is not defned in the Negotiable Instruments Act, 1881.
According to section 3(38) of the General Clauses Act it means any act or
omission made punishable by any law for the time being in force.
It is the person who draws and issues a cheque that falls within the ambit of
Section 138 of the Negotiable Instruments Act, 1881. The maker of cheque
(who signs the cheque) is called the `drawer'.
When a person is aware of the fact that there are no funds in one's bank
account if he issues cheque to a trader for goods purchased, the bank will
return the cheque for insufciency of funds. By issuing a cheque under such
circumstance, drawer commits an ofence under Section 138 of the Negotiable
Instruments Act.
On the cheque being dishonoured, the payee in terms of Section 138 of the Act
can call upon the guilty to pay the money covered by the returned cheque
within 30 days from the date of return, only after serving a notice of
dishonour to the drawer. If the drawer does not pay the amount despite the
notice within 15 days from the receipt thereof, the drawer commits an ofence
under Section 138 of the Negotiable Instruments Act, 1881.
Notice of Dishonour
Notice of Dishonour is a formal communication of the fact of dishonour of
cheque. Sub-section (b) of Section 138 of the Negotiable Instruments Act
requires the payee or the holder in due course to issue a notice in writing to
the drawer of the cheque within 15 days of the receipt of the information by
9
him from the bank regarding the return of the cheque as unpaid. The sub-
section further provides that the drawer has to comply with the demand
within 15 days of the receipt of the said notice.
The demand notice envisaged in section 138 is in efect a notice of dishonour
to the drawer combined with a demand on him to pay the amount of the
dishonoured cheque within the time allowed by the statute. It serves as a
warning to the person to whom the notice is given that he could now be made
liable. If the holder fails to give this notice to the drawer, except in cases when
notice of dishonour may be excused, all prior parties liable thereon are
discharged of their liability.
Cause of Action
Cause of action for prosecution under section 138 of the Negotiable
Instruments Act does not arise by mere presentation of the cheque in bank
and by its dishonour.
A division bench of the Kerala High Court
4
, after considering the ambit and
scope of Sections 138 and 142 of the Negotiable Instruments Act, has held
that the prosecution for such an ofence would only be maintainable when the
period of 15 days from the receipt of the notice by the drawer of the cheque
has elapsed. The court observed that the dishonour of he cheque by itself does
not give rise to a cause of action because payment can be made on receipt of
the notice of demand contemplated in clause (b) of Section 138 and in that
event, there is no ofence, nor any attempt to commit the ofence nor even a
.
#.'. 05-aresan ". 4-eerappa 1991 *1+ 0L6 797
1)
preparation to commit the ofence. Failure to pay the amount within ffteen
days of receipt of notice alone is the cause of action that would permit a
prosecution and nothing else.
Written Complaint
A complaint is required to be fled by the payee or the holder in due course of
the dishonoured cheque.
Section 142 (a) of the Negotiable Instruments Act, makes it clear that only
upon a complaint in writing made by the payee or the holder in due course of
the cheque, the court can take cognizance of the ofence. If the payee or the
holder in due course does not fle a complaint, the drawer cannot be
prosecuted.
Criminal Proceeding Chapter XVII of the Negotiable Instruments
Act
Chapter XVII inserted by the Banking, Public Financial Institutions and
Negotiable Instruments Laws (Amendment) Act, 1988 provides for penalties
in case of dishonour of certain cheques for insufciency of funds in the
accounts or for the reason that the amount exceeds the arrangement made by
the drawer.
As per the penal provisions under the Act, the drawer, committing an ofence
under Section 138, is liable to be punished with imprisonment for a term
11
which may extend to two years, or fne which may extend to twice the amount
of the cheque or both.
OFFENCES - CHEATING AND FORGERY
Cheating being an ofence is defned under Section 415 of the Indian Penal
Code as follows:
"Whoever, by deceiving any person, fraudulently or dishonestly induces the
person so deceived to deliver any property to any person, or to consent that
any person shall retain any property, or intentionally induces the person so
deceived to do or omit to do anything which he would not do omit if he were
not so deceived, and which act or omission causes or is likely to cause damage
or harm to that person in body, mind, reputation or property, is said to
"cheat".
Explanation. A dishonest concealment of facts is deception within the
meaning of this section."
In order to bring the case within the defnition of Cheating under section 415
of the IPC, it has to be shown by the prosecution that there was some
inducement on the part of the accused persons and the said inducement was
made fraudulently or dishonestly with a view to deceive the complainant. It is
further to be shown by the prosecution that due to deception practiced by the
accused persons, the person so deceived had delivered the property to the
12
accused persons or had given consent that the accused person shall retain
that property.
To hold a person guilty of the ofence of cheating it has to be shown that his
intention was dishonest at the time of making the promise.
Whenever a cheque issued with dishonest intentions is dishonoured, the
drawer of the cheque can be proceeded against under sections 417 & 420 of
the IPC by the payee or holder in due course of the cheque.
Forgery
Section 463 of IPC defnes forgery as:
"Whoever makes any false documents or electronic record part of a document
or electronic record with, intent to cause damage or injury, to the public or to
any person, or to support any claim or title, or to cause any person to part
with property, or to enter into any express or implied contract, or with intent
to commit fraud or that fraud may be committed, commits forgery."
Punishment for Forgery
Whoever commits forgery shall be punished with the imprisonment of either
for a term which may extend to two years or with fe or with both.
5

LIABILITY FOR STOPPED PAYMENT
5
7ection .(5 o2 3ndian ena! 'ode
13
A stopped payment is usually requested if the cheque has been declared
missing or lost. But many a times the drawer, to escape his debt or liability
has used it as an instrument of deception. The 1988 amendment in Section
138 of Negotiable Instruments Act is also silent about Stopped Payment.
In India, while there is as such no express provision relating to stop payment
of cheques. However there are various judgments regarding this aspect.
Indian Courts have covered this facet in Section 138 of Negotiable
Instruments Act, which is related to dishonour of cheques. The discussion
relating to stop payment has assumed importance in view of the amendment
to the Negotiable Instruments law by the amendment in 1988. Prior to this
amendment, people issued cheques knowing well that the cheque is not going
to be honored on presentation, and they tried to create circumstances in
which the bank would return the cheque with such endorsements as "stopped
payment", "refer to drawer" or "A/C closed". These were some of the tricks
used by the drawer to escape the penal liability, which was attached to
Section 138 of Negotiable Instruments Act.
The question that arises is whether a drawer who stops the payment having
insufcient funds in his account can be held liable under Section 138 of the
Negotiable Instruments Act? In this regard various judgments of High Courts
and the Supreme Court have been reviewed in order to fnd out a solution to
the abovementioned issue.
DRAWERS LIABILITY FOR DISHONOUR OF CHEQUE
1.
Section 30 of the Negotiable Instruments Act, 1881 reads as follows:"the
drawer of a bill of exchange or a cheque is bound, in case of dishonour by the
drawee or acceptor thereof, to compensate the holder, provided due notice of
dishonour has been given to, or received by, the drawer".
Section 30 makes it imperative that the notice of dishonour should of
necessity be served on to the drawer of such cheque. It is clear that the
drawer shall be bound to compensate the payee or the holder, as the case may
be, if only he has been served with the notice of dishonour.
Section 138 of the Negotiable Instruments Act requires that the payee or the
holder in due course of the cheque to issue a notice in writing to the drawer
making a demand for payment of the cheque amount. Such notice must be
given within 30 days of information from the bank regarding the return of
cheque as unpaid.
The requirement of giving of notice is mandatory. There is no mode
prescribed under section 138 for serving the notice. It is sufcient that the
notice in writing is served on accused. Where no notice making demand for
payment was served upon the drawer as contemplated under clause (b) and
clause (c) of Section 138, which would mean that no demand has been made
within the specifed time from the date of dishonour of cheque in question,
conviction will not be sustainable
6
.
Consequence of part payment by drawer after issue of notice
(
4dhikari *,+ ". onra8 199( 'ri L% 18) */ad+
15
Section 138 clearly shows that in the event of the drawer of the cheque failing
to make the payment of the said amount of money, a prosecution can be
maintained. The expression "said amount of money" can only denote the
amount for which the cheque is drawn and cannot relate to a part of it. Even
where part payment is made by the drawer after issue of statutory notice, the
prosecution can not be quashed
7
.
Liability of drawer after deposit of entire amount during trialAs
stated by the Supreme Court once the ofence is committed, any payment
made subsequent thereto will not absolve the accused of the liability of
criminal ofence, though in the matter of awarding of sentence, it may have
some efect on the court trying the ofence. But by no stretch of imagination, a
criminal proceeding could be quashed on account of deposit of money in the
court or that an order of quashing of criminal proceeding, which is otherwise
unsustainable in law, could be sustained because of the deposit of money in
this court. The deposit of money by the drawer, therefore, during the trial is of
no consequence
8
.
Death of Drawer
The criminal liability can not be fastened to the heirs and the legal
representatives of the person who is said to have been guilty of the ofence in
question. The cheque presented for realization by the complainant was
returned on the ground of insufcient funds. The notice sent was returned
with postal endorsement 'party expired'. Wife and daughters of the drawer of
7
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8
Ra8neesh 4&&arwa! ". 4-it %. ,ha!!a 2))1 'ri L% 7)8 *7'+
1(
the cheque cannot be prosecuted for the ofence under Section 138 of the Act
for the alleged failure of the drawer in meeting the liability to pay the amount
covered by the cheque which was dishonoured in response to the notice sent
by the complainant
9
.
Drawer declared insolvent
The drawer cannot escape from the criminal liability by putting forward he
plea that he is not bound to discharge the liability mentioned in the
complaint as he was already declared as an insolvent, especially when there
is section 139 permitting the court to presume that there is an existing
liability and the issuance of the cheque was made towards the discharge of
the said liability.

DRAWEES LIABILITY FOR DISHONOUR OF CHEQUE
Rightful Dishonour - when bank may refuse to honour
When there is the relationship of banker and customer between the parties,
the banker is under an obligation to pay cheques when a mandate to pay is
received from the customer, or when a cheque is issued.
However, there may be a number of circumstances when the bank has no
other alternative but to return the cheque and in all such cases the bank is
9
,h5pinder Li-a ". 7tate *2)))+ 99 'o-p 'as .2. *4+
17
fully justifed in returning the cheque. These are the cases which may be
termed as a countermand from the customer which means an order to revoke
the former instructions and annulling the former mandate given by the
customer to the bank to honour the cheques and it also means the situations
resulting from the closure of account by the customer, prohibitory 'garnishees'
orders having been received from the court or orders for payment having been
received from the court or orders for payment having been received under
Section 226 (3) of the Income-Tax Act, 1961 and similarly it also means the
situation when there is a restrained order from the court, notice of death of
the customer, lunacy of the customer, notice of loss of cheque or forged
signatures on the cheque.
Wrongful dishonour of cheque Drawee/ banks liability to pay
damages
In case all the conditions which are necessary for the payment of a cheque are
present and have been fulflled then if the bank dishonours a cheque it will
amount to a breach of contract for which the banker is liable to pay damages.
The liability of drawee of cheque in case of a wrongful dishonour has been
dealt with under Section 31 of the Negotiable Instruments Act, 1881. Section
31 states as follows:
"the drawee of a cheque having sufcient funds of the drawer in his hands
properly applicable to the payment of such cheque must pay the cheque when
18
duly required so to do, and, in default of such payment, must compensate the
drawer for any loss or damage caused by such default".
Compensation for wrongful dishonour
Wrongful dishonour of a cheque exposes the drawee bank to statutory liability
to the drawer to compensate him for 'any loss or damage cause by such
default'.
The principle of awarding compensation to the drawer of a cheque is
reparation for the injury sustained or likely to be sustained by reason of
dishonour. In almost every case the drawer can recover substantial damages
against the drawee on the basis of injury to his credit, although he may not be
able to prove that he had sufered actual pecuniary loss through the
dishonouring of the cheque
10
. However, there appears to be a distinction
between a trader and a non-trader in this respect, while a trader is always
entitled to substantial damages for dishonouring of his cheque, a non-trader
will be entitled only to nominal damages in the absence of an allegation and
proof of substantial damages
11
.
The General rule followed by the courts in awarding damages is that damages
are awarded for foreseeable and actual loss sufered and the quantum of
damages is usually based on the principle of restitutio in intgegram i.e.
restoring the person to the position he would have been in if he had not
1)
7ridhar " 6$rwitt, *1)1+ 4.W.#. 113: Ro!in ". 7teward *185.+ . '.,. 595
11
;i99ons ". West-inster ,ank *1939+ 3 4!! E.r. 577
19
sufered a damage. But in case of trademans cheque the damages awarded
are inversely proportional to the amount on the cheque. Thus, smaller the
amount of the dishonoured cheque, greater are the damages paid. The reason
behind this rule is, businessmans loss of reputation or status or goodwill is
once again inversely proportional to the amount of the cheque.

LAWS OF OTHER COUNTRIES ON LIABILITY FOR DISHONOUR OF
CHEQUES
Laws of Australia - Cheques and Payment Orders Act 1986
Section 69 of Cheques and Payment Orders Act 1986 defnes dishonour as
"A cheque is dishonoured if the cheque is duly presented for payment and
payment is refused by the drawee bank, being a refusal that is communicated
by the drawee bank to the holder or the person who presented the cheque on
the holder's behalf."
Section 70 of Cheques and Payment Orders Act 1986 provides for the liability
of the drawer or indorser for dishonour of cheque. "A person who is the
drawer or an indorser of a cheque that has been dishonoured is liable on the
cheque whether or not the person is given notice by any person of the
dishonour."
Laws of United Kingdom Bills of Exchange Act, 1882
2)
The Bills of Exchange Act 1882 codifes for the United Kingdom the law
relating to bills of exchange, promissory notes and cheques. A cheque "is a bill
of exchange drawn on a banker payable on demand".
12
For the most part the
rules of law applicable to bills payable on demand apply in their entirety to
cheques. But there are certain peculiar rules relating to the latter which
arise from the fact that the relationship of banker and customer subsists
between the drawer and drawee of a cheque. For example, when a person has
an account at a bank he is, as an inference of law, entitled to draw on it by
means of cheques.
The holder of a bill has special duties which he must fulfl in order to
preserve his rights against the drawers and indorsers. They are not absolute
duties; they are duties to use reasonable diligence. When a bill is payable
after sight, presentment for acceptance is necessary in order to fx the
maturity of the bill. Accordingly the bill must be presented for acceptance
within a reasonable time. When a bill is payable on demand it must be
presented for payment within a reasonable time. When it is payable at a
future time it must be presented on the day that it is due.
If the bill is dishonoured the holder must notify promptly the fact of
dishonour to any drawer and indorser he wishes to charge. If, for example, the
holder only gives notice of dishonour to the last indorser, he could not sue the
drawer unless the last indorser or some other party liable has duly sent notice
to the drawer. When a foreign bill is dishonoured the holder must cause it to
be protested by a notary public. The bill must be noted for protest on the day
12
7ection 73 o2 the ,i!!s o2 Exchan&e 4ct 1882
21
of its dishonour. If this be duly done, the protest, i.e. the formal notarial
certifcate attesting the dishonour, can be drawn up at any time as of the date
of the noting. A dishonoured inland bill may be noted, and the holder can
recover the expenses of noting, but no legal consequences attach thereto. In
practice, however, noting is usually accepted as showing that a bill has been
duly presented and has been dishonoured. Sometimes the drawer or indorser
has reason to expect that the bill may be dishonoured by the drawee. In that
case he may insert the name of a "referee in case of need." But whether he
does so or not, when a bill has been duly noted for protest, any person may,
with the consent of the holder, intervene for the honour of any party liable on
the bill. If the bill has been dishonoured by non-acceptance it may be
"accepted for honour supra protest". If it has been dishonoured by non-
payment it may be "paid supra protest". When a bill is thus paid and the
proper formalities are complied with, the person who pays becomes invested
with the rights and duties of the holder so far as regards the party for whose
honour he has paid the bill, and all parties antecedent to him.
13
Laws of New Zealand on Dishonour of Cheques
The Bills of Exchange Act 1908 codifes for the New Zealand laws relating to
bills of exchange, promissory notes and cheques. In this Act, the provisions
relating to dishonour of cheques are not separately dealt with under the
chapter related to cheques in the Act and therefore it can be assumed that the
provisions of dishonour of bills only apply in case of dishonour of cheques.
13
7ection (5 to (8 o2 the ,i!!s o2 Exchan&e 4ct, 1882
22
Section 42 of the Bills of Exchange Act 1908 deals with dishonoured by non-
acceptance -
"Where a bill is duly presented for acceptance and is not accepted within the
customary time, the person presenting it must treat it as dishonoured by non-
acceptance. If he does not, the holder shall lose his right of recourse against
the drawer and indorsers".
Section 43 of the Bills of Exchange Act 1908 further deals with the
consequences of dishonour by non-acceptance -
"A bill is dishonoured by non-acceptance-
(a) Where it is duly presented for acceptance, and such an acceptance as is
prescribed by this Act is refused, or cannot be obtained; or
(b) Where presentment for acceptance is excused and the bill is not accepted.
New Zealand Laws
Under the Bills of Exchange Act 1908 Section 42 requires that when a cheque
is duly presented for acceptance and is not accepted within the customary
time, the person presenting it must treat it as dishonoured by non-
acceptance. However, if he does not, the holder will lose his right of recourse
against the drawer and indorsers.
Further, Section 48 of the Bills of Exchange Act 1908 deals with notice of
dishonour. The section states that if a cheque has been dishonoured by non-
acceptance or by non-payment, notice of dishonour must be given to the
23
drawer and each indorser. However, any drawer or indorser to whom such
notice is not given shall be discharged from his liability.
CONCLUSION
The law relating to Negotiable instruments is the law of the commercial world
which was enacted to facilitate the activities in trade and commerce, making
provision of giving sanctity to the instrument of credit which would be
deemed convertible into money and easily passable from one person to
another. In the absence of such instruments, the trade and commerce
activities were likely to be adversely afected as it was not practical for the
trading community to carry on with it the bulk of currency in force.
The main object of the Act is to legalise the system by which instruments
contemplated by it could pass from hand to hand by negotiation like any other
goods.
Chapter XVII was inserted in the Act 1988 with a view to promote the
efcacy of banking operations and to ensure credibility in transacting
business through cheques. However the chapter is not comprehensive and
lacks to cover the various aspects of the commercial transactions especially in
view of the emerging ways of payment through the Internet and other
electronic means. Section 138 also does not specifcally cover the aspects such
as where the payment has been stopped by the drawer or where the account
has been closed prior to the endorsement of the cheque. These provisions no
doubt have served their purpose but they could be more elaborate in solving
the dispute rather than merely relying on the Court judgments.
2.
However, the processes to seek civil justice is notoriously dilatory and recover
by way of a civil suit may take inordinately long time therefore if the
Government of India could establish a tribunal to deal with the dishonour of
cheques and the liability arising therefrom, it could make the process of
recovery of damages faster for the aggrieved party. For example, the Debts
Recovery Tribunals have been established by the Government of India under
an Act of Parliament (Act 51 of 1993) for expeditious adjudication and
recovery of debts due to banks and fnancial institutions. Establishment of a
similar tribunal to deal with the cases of dishonour of cheques could perhaps
provide a faster relief to the aggrieved party.
BIBLIOGRAPHY
1. R.K Suri; Dishonour of Cheques- Prosecution & Penalties, ALT
Publishers, Hyderabad;
2. S.N. Gupta, Dishonour of cheques-Liability Civil & Criminal,
Universal Book Traders, Delhi;
3. Rajesh Gupta, Dishonour of cheques Law and Practice, Bharat
Law House Pvt Ltd, New Delhi;
.. A.N Saha, Law of Dishonour of cheques, Orient Publishing
Company, New Delhi;
25
5. S.K. Awasthi, Law of Dishonour of cheques Forgery and Cheating,
CTJ Publications, Pune;
(. R. Swaroop, Cases on Dishonour of cheques (Under Section 138 to
Section 142 of the Negotiable Instruments Act), Law Aid
Publications, Madras;
7. Bhashyam & Adiga, The Negotiable Instruments Act, Bharat Law
House, New Delhi;
8. M.S. Parthasarthy, Cheques in Law and Practice, Universal Law
Publishing Co. Pvt. Ltd., Delhi;
9. S. Chand, Business laws, S. Chand and Company Ltd., New Delhi;
1). Article by T.N Pandey, Dishonour of cheques: whether all
directors of a company can be prosecuted in case of dishonour of
cheques.
2(