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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 also rises the practice of giving cheques without any intention of honouring them. Before 1988 there being no effective legal provision to restrain people from issuing cheques without having sufficient funds in their account or any stringent provision to punish them in the vent of such cheque not being honoured by their bankers and returned unpaid. Of course on dishonour of cheques there is a civil liability accrued. However in reality the processes to seek civil justice becomes a long drawn process and recovery 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 Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 which were further modified by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002. This article attempts to elucidate the penal provision in the light of the amendments and the judicial interpretations. Many issues arise under this section such as what happens in case of default, who will be liable to the holder of the cheque, what are the procedures involved to make the case adept in the eyes of the magistrate, etc. in this paper the researcher has attempted to look at all these issues comprehensively and analyse them with sufficient illustrations. RESEARCH METHODOLOGY AIMS AND OBJECTIVES: Through this paper the researcher aims at understanding the concept of dishonour cheques as it appears in a new chapter inserted into the Negotiable Instruments Act, 1988. the researcher has tried to understand as to what is meant by dishonour, who will be liable upon such dishonouer and related questions and issues. Also the objective of this paper is to see the interface between criminal law and civil law, as before the amendment dishonour of cheques was a purely criminal law issue, however now it has been brought out of that purview. RESEARCH QUESTIONS: how has the amendment to S.138, changed position of dishonour of cheques in law? What is meant by dishonour and who will be principally liable upon such dishonour? Are companies treated in the same manner as persons when a dishonour of cheque occurs? What is the procedure which needs to be followed in order to prosecute the offender? SCOPE AND LIMITATIONS:

The scope of this research paper is understand the concept of dishonour of cheques as it appears under the Negotiable Instruments Act, also looking at how the position of dishonour of cheques has been altered in law. The researcher has limited herself to discussing the substantial law aspects of the paper which are connected with Banking law and has kept the discussion of the procedural aspects at a minimum. METHOD OF WRITING: The researcher has used both a descriptive and analytical method of writing in order to understand the issues better. The researcher has also relied on case law, to get an indepth understanding of the topic. MODE OF CITATION: A uniform mode of citation has been followed throughout this project. SOURCES OF DATA : The researcher has used secondary sources in order to obtain sufficient data for this project, namely, books, articles and the internet. CHAPTERIZATION: Chapter 1: this chapter deals with the shift of bouncing of cheques from a purely criminal approach to a quasi criminal quasi civil approach. This includes comparing the ingredients under criminal and civil law regarding the topic. Chapter 2: this chapter deals with the penalties and liabilities under S.138 and also looks at the position of companies in this regard. Chapter 3: this chapter deals with the procedure which is required to be followed in order to file complaint for dishonour of cheques. CHAPTER 1: DISHONOUR OF CHEQUES Amendment to the Act: an interface with criminal law S. 138 creates a penal liability, it makes a civil transaction to be an offence under law.[1] The court has noted that S.138 of the Act has created a contractual breach as an offence and the legislative purpose to promote efficacy in banking and of ensuring that in commercial or contractual transactions cheques cheques are not dishonoured and credibility in transacting business through cheques is maintained.[2] Prior to the introduction of this chapter, the drawer of a dishonoured cheque could be criminally prosecuted under S.420 of the Indian Penal Code[3]. However, even today prosecution under the general for the offence of cheating is maintainable. The offence under S.138 of the Act and S.420 of the IPC are different in nature, therefore conviction of offence under one provision does not bar prosecution under the other.[4] The full bench of the Andhra Pradesh High court has held that when a person issues a cheque or a post-dated cheque, he impliedly represents to the payee that in the ordinary course of events, the

cheque on its presentation to the bank would be met. In such a circumstance, even with the introduction of S.138 of the Act, prosecution under S.420 IPC is maintainable if dishonest intention at the time of the issuance of the cheque is established.[5] What then is the advantage of S.138 of the Negotiable instruments Act? What we see is that under criminal law for a crime of dishonour of cheque to be made out there is need for the prosecution to first establish dishonest intention on the part of the drawer from the inception of the instrument. The crime of cheating cannot be constituted if the cheque is dishonoured by itself. Thus failure of the prosecution to prove this element of deception usually led the court to hold that the matter was of civil nature. Also another problem arising under criminal law is the necessity to prove the dishonest intention beyond reasonable doubt.[6] Thus S.138 does away with this formalistic rigour of criminal law. If a cheque is dishonoured for paucity of fund, the offence under S.138 is constituted, notwithstanding the intention of the person issuing the cheque. [7] Ingredient of Liability under S.138: The object of bringing in this section as mentioned above is to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instrument. The ingredients which are to be satisfied for making out a case under S.138 of the Act are: 1. The cheque is drawn on a bank for the discharge of any legally enforceable debt or other liability. This means that the cheque must have been drawn for payment of money to a person other than the drawer for the full or partial discharge[8] of any legally enforceable debt or liability. Thus what we see here is that if a cheque was given merely as a security, then a suit cannot be filed upon that and S.138 will not be attracted. Also to bring it under the ambit of this section, a cheque should have presumably been issued and not merely drawn for payment in discharge of a debt. 2. The cheque so dishonoured must have been presented to the drawee/ 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.[9] 3. The cheque is returned by the bank unpaid. 4. The cheque is returned unpaid because the amount available in the drawers account is insufficient for paying the cheque. 5. The payee has given a notice to the drawer claiming the amount within 15 days of the receipt of the information from the bank.[10] 6. The drawer has failed to pay within 15 days from the date of the receipt of notice. 7. The offence under this section is not complete till a statutory opportunity is offered to the drawer of the cheque for making the default good within 15 days of the receipt of notice to that effect. It is only the failure of the drawer to avail of this opportunity and meet the demand for the amount of the cheque that becomes the cause of action under the S.138. This position was laid down in Mahalakshmi Enterprises v. Sri Vishnu

Trading Co,[11] and has been deemed to be one of the essential ingredients of this
section. 8. The payee has a limitation period of 30 days, within which he can file a complaint. Mens Rea:

S.138 excludes Mens Rea by creating strict liability and this is explicit from the words such person shall be deemed to have committed an offence. The returning of a cheque by a bank either because the amount of the money standing to the credit of the drawer is insufficient or the amount covered by the cheque is in excess of the amount arranged to be paid from the account by an agreement with the bank are two necessary conditions creating strict liability which will be discussed in the subsequent section. S.140 excludes the defence that the drawer had no reason to believe, when he issued the cheque, that it maybe dishonoured on presentment for the reasons stated in S.138. the exclusion of mens rea as a necessary ingredient to this section is thus clarified here.[12]ing Having thus touched just the basic aspects of dishonouring of cheques, and laying down its place in the Act, The researcher will now deal with the offence that is prescribed under the Section and dealing with the various circumstances that could attract this section.

CHAPTER 2: PENALTIES AND LIABILITIES FOR DISHONOUR Dishonouring of a cheque: In order to begin a discussion on the issue of dishonour under the Act, it is important to first consider the meaning of the term dishonour and what does it constitute. This finds mention in S.91 and S.92 of the Act. Dishonour of negotiable instruments may be of two kinds: 1. Dishonour by non-acceptance. 2. Dishonour by non-payment is said to be dishonoured.[13] S.91[14] of the Act speaks of dishonour by non-acceptance. What we see from this definition is a condition of presentment of the negotiable instrument, however presentment for acceptance is required only in the case of a bill of exchange. Usually acceptance and payment go together and this usually happens in case an instrument is payable after sight, thus often it is difficult to distinguish the two because dishonour by non-payment is usually dishonour by non-acceptance,[15] and thus it is only this bill of exchange which can be dishonoured by non-acceptance and not a cheque as in the case of a cheque no acceptance is required to be taken to the banker and cheques are mainly instruments payable at sight .[16] The second kind of dishonour, is that of dishonour by non-payment. A negotiable instrument is said to be dishonoured by non-payment when the drawee of a cheque makes default in payment upon being duly required to pay the same.[17] A drawee can dishonour a cheque Thus it is well established that cheques are always dishonoured only for the reason of non-

payment and not non-acceptance.


Apart from the broad heads mentioned above, cheques can be dishonoured by the banker for several reasons. (i) payment countermanded, (ii) insufficiency of funds, (iii) nonapplicability of funds, (iv) improper presentation, (v) notice of death of account holder, (vi) courts order prohibiting payment, (vii) post-dated cheques, (viii) stale cheques, (ix) lunacy, (x) insolvency, etc. the researcher will proceed to deal with only few of these instances.

Payment countermanded:
When the drawer of the cheques issues instructions to the bank not to make any payment of a particular cheque issued by him, the bank then stands revoked from making payment on that cheque, this is known as countermand of cheques by the drawer.[18] It must be noted here that any payment by the bank after such notice will not be considered as good payment. When a drawer wishes to stop payment he must give notice to the Bank, though it is usually the drawer who gives such notice, however a payee can give a notice to the banker that the cheque is stolen or lost. In such a case the banker must inform the drawer, so that the latter can give necessary instructions.[19]

Insufficiency of funds:
When there are no funds to meet the cheque or the account of the drawer does not hold sufficient funds to meet the whole credit amount of the cheque, the banker is then justified in refusing the payment of such a cheque. However where the account has sufficient funds, the banker is under an obligation to its customer of honouring the cheque presented to it. A cheque when dishonoured for the purpose of insufficiency of funds, the drawer of such cheque is liable to penal consequences as under S. 138 of the Act. However there maybe an agreement to the contrary whereby the banker has undertaken to meet the customers cheques even though there may not be sufficient funds in his account, then in such a case the banker is bound to honour the cheque failing which the banker would be liable by way of breach of contract for an overdraft facility[20] and the necessary legal consequences will ensue. One issue that arises here and has been under constant debate, is that whether a cheque returned by the banker endorsed with the words refer to drawer would amount to a dishonour under S.138. after a number of decisions on the point, there has been a sort consensus on the point and courts have often said that refer to drawer meant nothing but that the drawer lacked sufficient funds in his account and therefore S.138 would be attracted in certain circumstances.

Non-applicability of funds:
Under S.31 of the Act it is the bankers duty to honour the cheque when funds which are lying in the account of the drawer are applicable for the purpose. Thus when the funds in the account are lying for other purposes, the will necessarily dishonour the cheque presented before it for payment. An example of such a situation is when the banker may have a lien over the funds lying in the account of the drawer under S.171 of the Indian Contract Act. Another situation might be where the funds in the account of the drawer is meant for a trust and a cheque is drawn in breach of a trust.[21] Effects of dishonour of cheque: Firstly, taking of legal action. The payee/holder can take action against the drawer of such a bill may take action on the exact time of dishonouring of the bill. Thus the holder need not wait for the bill to mature and then to take action for dishonouring the same.[22] Secondly, when a cheque is said to be dishonoured it loses its basic characteristic of negotiability with immediate effect. Thirdly, on the dishonouring of a cheque, nothing prevents the holder thereof to present it again particularly on being asked by the drawer of the cheque. Lastly,

under S.138, mere dishonouring of cheques does not give rise to a cause of action in favour of the complainant but it accrues only after the issue of demand notice and failure of the drawer to make the payment.[23] The payee or holder of a cheque has the right to present the cheque for payment for any number of times and he may have it repeatedly dishonoured, but he can prosecute the drawer only once.[24] Post dated cheques: Would the above aspects apply to a post dated cheques? A post-dated cheque represents a mere promise by the drawer to pay at some future date and it represents the holding out of a hope rather than the representation of a present fact and thus a broken promise is not a criminal offence though it may amount in certain business relations to discreditable behaviour on the part of the drawer.[25] However the English law on this issue is different and more logical. According to them the drawer impliedly represents that the existing facts at the date when he gives the cheque to the payee or his agent is such that in the ordinary course the cheque will, on presentation on or after the date specified in the cheque, be met.[26] Liability of dishonouring of cheque: Dishonouring of cheques can be rightfully done or wrongfully done depending on the nature of the action taken upon the cheque. Here we shall see the various entities which may fall liable upon the dishonour of a cheque subject to it being a rightful dishonour or a wrongful one:

Liability of the drawer to the payee:


S.30 of the Act lays down that the drawer is bound to compensate the payee/ holder in case of dishonour by the acceptor/ drawee.[27] Thus what we see here is that the liability of the drawee/ bank is the primary liability and only when the bank fails to honour the cheque, the holder can then proceed against the drawer. The bank is under a legal obligation to honour the cheque as long as the drawer has sufficient funds lying in his account in the bank.[28] However it must be noted that in the event of non-compliance by the bank, the payee cannot enforce any obligation upon it, this is because there is no privity of contract between them, nor any trust created so as to make the payee a beneficiary thereunder.

Liability of the banker to the drawer:


The drawee of a cheque is usually a banker and the legal relation between him and the drawer, that is to say, between the banker and the customer is that of a creditor and a debtor. The banker who is holding the money of his customer owes a debt to him to the extent lying in the customers account and the drawee/banker is therefore under an obligation to honour the cheques of the customer so long as he can meet them from such funds as exist in the customers account. Thus what we see here is that the drawees liability is towards the drawer and not the payee. This is simply because there is no privity of contract between the drawee and the payee and The Act only provides for the liability of the drawee in favour of the drawer of the cheque as he is an account holder of the drawer and thus there exists a contract inter se.[29]

The idea was laid down clearly in jagjivan Mavji v. Ranchhodas Maghaji,[30] which says that there is no provision as such which makes the drawee liable on the instrument, with the exception of S.31 of the Act where the drawee must pay if there is sufficient funds in the account of the drawer. Such a liability arises out of breach of contract in between the banker and the customer and in the case of wrongful dishonouring of the cheque, the party in breach of the contract must pay damages which flow from such breach.[31] It must be noticed that the liability of the drawee however is conditional upon his having in his hands funds of the drawer sufficient to pay the cheque amount.[32] Apart from this there are various other situations whereby the banker can rightfully dishonour the cheque and if he dishonours the cheque for these reasons liability will not fall upon him. In case of wrongful dishonor the customer can sue for damages. However quantification of damages depends largely on the creditworthiness of the customer. This is important because dishonour of a cheque impacts largely the reputation and integrity of a person, more so if the customer is a well known trader. [33] In almost every case the drawer can recover substantial damages from the drawee on the basis of the above factors of loss of credit, etc., however it maybe difficult to award pecuniary damages in such a situation. Thus we see the civil remedies available in case of dishonouring of cheques, however such civil remedies do not exclude criminal action as is laid down in the amended chapter of the Act.

Liability in case of forgery:


A banker/drawee has no obligation to pay if the signatures of the customer on the cheque are forged and has a right to dishonour the cheque on this ground. The bank has the specimen signature of his customer and it is the duty of the bank to compare the signatures, thus in doing so if he finds that the signature is inconsistent , then the bank should not honour the cheque.[34] There remains a possibility that the cheque presented for payment is not the customers cheque at all but a forgery, or that this signature is forged, or signed without his authorization. A banker paying a cheque under these circumstances is not entitled prima

facie, to debit the customers account.[35] The law is that a cheque with the drawers
signature forged is a mere nullity. A landmark case which lays down the law in India is Canara Bank v. Canara Sales Corporation and ors,[36] The court held that whenever a cheque purporting to be by a customer is presented before a bank it carries a mandate to the bank to pay. If the cheque is forged then there is no such mandate. The bank can escape liability only if it can prove knowledge on the part of the customer. Thus keeping in view the fact that the banker is bound to know his customers signature and compare the same, the paying banker will thus have no statutory protection if he pays a cheque on which the customers signature is forged. Company/Firm: The drawer of a cheque, whether a natural person or a body corporate or even a firm, can be prosecuted under S.141[37] of the Act. In order that a company may be bound by a negotiable instrument purporting to have been issued on its behalf two conditions must be satisfied: (i) the instrument must be drawn, made, accepted or endorsed in the name of or by or on behalf of or account of the

company, (ii) and the person who makes, draws, endorses or accepts the instrument must have the authority given to him by the company on their behalf. Prosecution of the company is not sine qua non for the prosecution of the directors, and merely because company is not made an accused in the proceedings is no ground to quash it. Thus the in a decided case the Supreme Court held that officers of the company who may be held liable falling under S.141 other than the directors, fall into the following categories: (1) those who are in charge of[38] the company and responsible for the conduct of its business; and (2) persons other that those falling in the above category, who is a mere director, manager

or secretary, etc of the company. (3) Any other person who is a director or a manager or a secretary or officer of the

company with whose connivance or due to whose neglect the company has committed the offence. However a person who proves that the offence was committed without his knowledge and that he had exercised due diligence in the conduct of his business is exempted from becoming liable by operation of the proviso to Sub-section (1). The burden in this regard will have to be discharged by the accused. [39] The managing director may also be attached with liability and the essentials for such action is: (1) he has to be incharge and responsible in case, (2) there should be his consent and connivance for which there should be averments in

complaint or prima facie proof of it. The section being penal has to be strictly construed. In the absence of basic facts being pleaded in the complaint, vicarious liability cannot be imputed.[40] in case of an action under S.138, the MD of a company on behalf of whom the dishonoured cheque has been issued, cannot plead that he did not participate in the day to day administration of the company and therefore is not criminally liable because normally, by definition the MD is supposed to be in-charge of managing the company. Neither can an MD pass the blame onto the directors of the company, imputing liability onto the directors for a dishonoured cheque issued by the MD is a matter of facts and evidence.[41] Lastly, a managing director can only be sued in his official capacity and not as an individual.[42]

Firm:
In the case of a firm, if the receipt of the notice is by one partner who is habitually acting for the business of the firm, it shall be deemed to be notice to the firm.[43] Having understood the substantive aspects of dishounour of a cheque, the researcher will now discuss the procedural aspects in the subsequent chapter. Once the drawee establishes to the payee that there has occurred a dishonour to the cheque, then the payee goes through a series of procedural aspects so as to claim his money back and if all else fails then the payee will finally file a complaint against the drawer.

CHAPTER 3 PROCEDURE AND PRACTICE: The offence under S.138 is a non-cognizable offence by virtue of S.142 of the Act on account of thenon-obstante clause as comprised in section 142 of the Act, the magistrate must proceed immediately on complaint. For a complaint however, first a statutory notice must be sent to the drawer and if the drawer does not reply accordingly within 15 days, it opens itself for prosecution. Notice: A notice is one of the essential characteristic of S.138. The period for cause of action is to be counted from the date of receipt of notice by the accused. Notice has to be sent to the drawer within 30 days of the receipt of information from the bank about the dishonour.[44] As regards liability of dishonour of cheques it is essential to prima facie show that after 15 days of receipt of notice, the accused failed to pay the amount. In the case of Padmini Polymers Ltd v. Unit Trust of India,[45] it has been held that a notice is must and mandatory. Unless and until the intention is clear on the part of the part of the person giving notice that the payment by the drawer of the cheque should be made within 15 days of receipt thereof, any communication between the parties insisting for making the payment cannot be termed as notice under S.138 of the Act. Otherwise the purpose of presenting the cheque time and again during the period of validity would have no meaning. So far as the question of giving notice is concerned, it is stated that every person who becomes liable upon an action for dishonour of the instrument and only by such dishonour either the holder thereof or some party thereto who remains liable thereon may give notice to such parties as entitled to immediate notice. But the holder may give notice to such parties as he desires to charge; but he cannot by giving notice make a person liable who is not otherwise liable under law, e.g., drawee in the case of dishonour of cheques.[46] Serving the notice: An important question that arises here is that when is a notice deemed to be served and upon who is the burden of proving service? The problem that arises is that the section does not only say delivery of notice, but receipt of the notice, such wordings in the section can be put to numerous interpretations. The question is if receipt of notice, postulates actually delivery, then the drawer can easily preempt action against him by deliberately staying away from his premises and the likes. It would be inequitable that such a person be let off the hook, while another drawer who stays on and accepts the notice would subject himself to prosecution. In the case of V.Raja Kumari v. P.Subbarama Naidu and Anr[47] the question that came up was what is meant by a proper notice and if there is no proper would the complaint be quashed. In Clause (c) of the proviso the drawer of the cheque is given fifteen days from the date of receipt of said notice for making payment. This affords clear indication that giving notice in the context is not the same as receipt of notice. Giving is the process of which receipt is the accomplishment. The payee has to perform the former process by sending the notice to the drawer in his correct address, if receipt or even tender of notice is indispensable for giving the notice in the context envisaged in Clause (b) an evader would successfully keep

the postal article at bay at least till the period of fifteen days expires. Law shall not help the wrong doer to take advantage of his tactics. Hence the realistic interpretation for the expression giving notice in the present context is that, if the payee has dispatched notice in the correct address of drawer reasonably ahead of the expiry of fifteen days, it can be regarded that he made the demand by giving notice within the statutory period. Any other interpretation is likely to frustrate the purpose for providing such a notice. Thus from here we see that there can be deemed notice even where actual notice has not been given. However this is a rebuttable presumption and its for the complainant to prove that the notice was served and that the person either refused to accept the notice or was unavailable. Though this is the popular position yet, many courts differ in opinion and it has been held that where the delivery is done by post, then reading S.138 with S.27 of the General Clauses Act Ingredients: Though no form of notice is prescribed, the requirement is that the notice shall be given in writing within fifteen days (now thirty with the amendment). Secondly when a notice is served, it must demand the said amount i.e. the cheque amount in it. If no such demand is made the notice falls short of legal requirement.[48] However if apart from the said amount other amounts by way of interest, costs, etc is mentioned, such a notice would be a valid notice under the Section. The legislative intent of the Section is quite clear, the drawer of the cheque will be liable for conviction if the demand is not met within 15days of the receipt. Thus if the cheque amount is paid within the statutory period or before a complaint is filed the legal liability under S.138 will cease and and for recovery of additional costs, a civil suit will lie. Also the stating of the cheque number, though seems essential so that the drawer should know of which cheque the notice relates to, yet it has been held that S.138 does not lay down any such condition and if the cheque number is absent or wrong, depending on the facts and circumstances, the notice will deemed good or bad in law.[49] Burden of proof: Under this law all presumptions are made against the drawer of such cheques and thus the onus of proof is left on the accused rather than the prosecutor. CONCLUSION Though insertion of the penal provisions have helped to curtail the issue of cheque arising out of its dishonour either honestly or with dishonest intention and the trading community now feels more secured in receiving the payment through cheques. However there being no provision for recovery of the amount covered under the dishonoured cheque, in a case where accused is convicted under section 138 and the accused has served the sentence but, unable to deposit amount of fine, the only option left with the complainant is to file civil suit.

The provisions of the Act do not permit any other alternative method of realization of the amount due to the complainant on the cheque being dishonored for the reasons of insufficient fund in the drawers account. The proper course to be adopted by the complainant in such a situation should be by filing a suit before the competent civil court, for realization/ recovery of the amount due to him for the reason of dishonoured cheque which the complainant is at liberty to avail of if so advised in accordance with law. Thus what we see is that the section is not full proof, however there is no denying that this provision has done away with the rigorous and time consuming methods of criminal law. In support of this we can see that the section also provides for summary proceedings, making the issue penalty a lot simpler, because if a cheque gets dishonoured today and proceedings go on as usual, then the person may only get relief after say three or four years, this defeats the purpose of a cheque which is meant for immediate acceptance and distribution of cheque amount. BIBLIOGRAPHY Articles: K.Srivinasan, Bouncing of cheques issued in companies, Corporate Law Adviser, Vol 35, Oct (1) 1999. Books: OPFaizi, Khergamvala on the Negotiable Instruments Act, 19th ed ( New Delhi; Lexis Nexis, 2003). A.N.Saha, Law of Dishonour of Cheques, 1st ed ( New Delhi; Orient Publishing Company, 1995). Rajesh Gupta, Dishonour of Cheques (Law &Practise), 1st ed ( New Delhi; Bharat Law House Pvt. Ltd, 1996). Avtar Singh, Negotiable Instruments, 4th ed ( Lucknow; Eastern Book Company, 2005). S.N.Gupta, Dishonour of Cheques: Liability Civil and Criminal ( Delhi; Universal Book Traders, 1991). M.S.Parthasarathy, Cheques in law and Practise, 6th ed (Delhi; Universal Law Publishing Co. Pvt. Ltd, 2003). S.K.Awasthi, Law of Dishonour of Cheques: Forgery and Cheating (Pune; CTJ Publications, 1993). Mr. Justice S.B. Malik (ed), S.Krishnamurthi Aiyars Law relating to the Negotiable

Instruments Act,6th ed ( Allahabad; The University Book Agency, 1997).


Websites: Anonymous, 15th 81200.htm K.Krishnamurthi, Dishonour of cheques- How criminal liability arises, The SC ruling on dishonour of cheques, The

Hindu, Thursday,

August,2002www.hinduonnet.com/thehindu/2002/08/15/stories/20020815023

Hindu, Sunday,
29thJuly,2001http://www.thehindubusinessline.com/businessline/iw/2001/07/29/sto ries/0729g251.htm. K.krishnamurthy, when 23rd cheques get dishonoured, The

Hindu, Sunday,

December 2001.www.blonnet.com/iw/2001/12/23/stories/0723g251.htm

[1] OPFaizi, Khergamvala on the Negotiable Instruments Act, 19th ed ( New Delhi; Lexis Nexis, 2003) at 379. [2] Ibid, at 381. [3] Herein after referred to as IPC. [4] Supra note 3, at 382. [5] OPTS Marketing Pvt. Ltd v. State of A.P., (2001) 105 Comp Cas 794. [6] A.N.Saha, Law of Dishonour of Cheques, 1st ed ( New Delhi; Orient Publishing Company, 1995) at 3. [7] Ibid, at 4. [8] Since a cheque must be for the full or partial discharge of the debt, then if it appears that the cheque is for an amount more than the debt or liability, the section will not be attracted. This was held in Angu Parameswari textiles (P) ltd v. Sri Rajam & Co, (2001) 105 Comp Cas 186. [9] Rajesh Gupta, Dishonour of Cheques (Law &Practise), 1st ed ( New Delhi; Bharat Law House Pvt. Ltd, 1996) at 47. [10] further (i) such notice should specifically make the allegation of the dishonouring of the

cheque for reason of insufficiency of funds. (ii) The notice should contain the date,however it has often been held that such an

omission will not be fatal to the prosecution of the case. It should also contain the number the cheque is bearing, the name of the banker the cheque is drawn upon, the amount for which the same is drawn and the date of the issue of the cheque in case of the post-dated cheque or the anti-dated cheque. (iii) The notice should make specific demand of the amount of the cheque.

See, Supranote, at 47. [11] (1993) 77 Comp Cas 249. In this case the accused received a statutory notice on 24th August 1989 and the complaint was filed on 5th September 1989. it was held that the limitation would begin from 9th September 1989 and the complaint was within time. It would however appear from the clear wordings of S.138 ( c) that the cause of action arises only if the drawer fails to make payment within 15 days of the notice, this is one of the essential ingredients of the section. In this case, the drawer had till 8 th September 1989 to pay the amount. [12] M.S.Parthasarathy, Cheques in law and Practise, 6th ed (Delhi; Universal Law Publishing Co. Pvt. Ltd, 2003) at [13] Supra note 9, at 28. [14] S.91- a bill of exchange is said to be dishonoured by non-acceptance when the drawee, or one of the several drawees not being partners, makes default in acceptance upon being duly required to accept the bill, or where the presentment is excused and the bill is not accepted. Where the drawee is incompetent to contract, or the acceptance is qualified, the bill maybe treated as dishonoured. [15] Jagivan v. Ranchoddas, AIR 1954 SC 554. [16] Supra note 9, at 29.

[17] S.92 of the Act. It states as follows, A promissory note, bill of exchange or cheque is said to have been dishonoured 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 registered to pay the same. [18] Supra note 9 at 30. [19] S.N.Gupta, Dishonour of Cheques: Liability Civil and Criminal ( Delhi; Universal Book Traders, 1991) at 14. [20] Flemming v. Bank of New Zealand (1990) AC 577, see also Rayner&Co v. Hambros

Banks, (1942) 2 All ER 694. [21] Supra note 9, at 31 [22] Supra note 10 at 29. [23] Supra note 9, at 30. [24] Avtar Singh, Negotiable Instruments, 4th ed ( Lucknow; Eastern Book Company, 2005) at
364. [25] Supra note 9, at [26] Supra note 24, at 370. [27] S.30 of the Act says, the drawer of a bill of exchange or 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 as hereinafter provided. [28] S.31 of the Act- the drawee of a cheque having sufficient funds of the drawer in his hands, properly applicable to the payment of such cheque, must pay the cheque when duly required to do so, and in default of such payment, must compensate the drawer for any loss or damage caused by such default. [29] Supra note 10, at 34. [30] AIR 1954 SC 544. [31] Supra note 9, at 34. [32] Supra note 19, at 6. [33] Ibid, at 33. [34] Ibid., at 23. [35] iBid, at 22. [36] AIR 1987 SC 1603. in this case the question was whether the bank was liable for payment of cheque of a customer over the forged signature despite rendition of withdrawal sheets and month deposits, where contentns were not checked by him and merely accepted. In the case, 42 cheques with forged signatures were presented on various dates between 1957 and 1961. During this period the customer would confirm the status of his accounts at the end of every half year. The accounts were audited by the Chartered Accountant and the banks contention was that, had there been any misappropriation upto 3 lacs from the account the same would have been detected it. [37] S.141- offences by companies. [38] S.141(1) if the persom committing an offence under S.138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business the company, as well as the company, shall

be deemed to be guilty of the offence ans shall be liable to be prosecuted against and punished accordingly. [39] S.V.Muzumdar and Ors v. Gujarat State Fertilizers Co. Ltd and Anr,

MANU/SC/0318/2005. the facts of the case are as follows- respondent No. 1/complainant supplied goods on credit to M/s Garware Nylons Ltd.(accused No. 14). Cheques issued by the company were not honoured by the drawee bank on the ground of insufficient funds. Payments were not made even after legal notices. There were 14 accused persons including the company named in the complaint. Some of the accused persons were Directors and while others were employees. Summons was issued to all the accused persons for facing trial for alleged commission of offences punishable under Section 138 of the Act read with Sections 420 and 114 of the IPC. The said common judgment and order was challenged before the High Court. The challenge before the High Court was primarily on the ground that there was no material to show that the accused persons at the time of offence as allegedly committed were in charge and/or responsible to the company for the conduct of the business as required under Section 141(1) of the Act. It was also submitted that the deeming provision under Sub-section (2) of Section 141 which covers persons with whose consent or connivance or any attributable negligence for commission of the offence by the company was also not applicable. [40] Khergamvala, at442. [41] Sharda Aggarwal v. Additional Chief Metropolitan Magistrate, (1993) 78 Comp Cas 123. [42] D. Chandra Reddy v. Gowrisetty Prabhakar Rao, (1996) 6 Andh LD 281 (AP). Cf, avtar singh, at 435. [43] Supra note 24, at 388. [44] S.138 (b) proviso. [45] (2002) 101 Delhi LT 376. [46] Supra note 19, at 7. [47] MANU/SC/0937/2004. [48] Supra note 24, at 389. [49] Khergamwala, at 408.