July 14, 2018:
Section 138, NI Act- Position of Law on Cheque Bounce and Punishment in India (Download PDF)
The Author, Akanksha Yadav is a 2nd Year student of of Dr. Ram Manohar Lohiya National Law University, Lucknow, UP. She is currently interning with LatestLaws.com.
Introduction
In 1988, The Negotiable Instruments Act, 1881, was amended and Section 138 was inserted making the bouncing of cheques a punishable offence amounting to a punishment of imprisonment of a term extendable to 2 years, or with fine extendable to double the amount of the cheque or both. The main objective of incorporating Section 138 in the act by amendment in 1988 was to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments to prevent issuance of dishonest cheques by the drawer.The ingredients required for complying with Section 138 as defined in Kusum Ignots and Alloys ltd. v Pennar Peterson Securities Ltd.[1] are as follows:
- A person (will be drawer of the cheque) should have a legally enforceable debt or other liability towards another person (will be payee or holder of the cheque, as the case may be) and a cheque is drawn to discharge the debt or liability
- Cheque is returned due to insufficient funds or exceeds the amount agreed upon to be paid by the bank
- Cheque is to be presented within six months from date of its drawn or till its validity, whichever being earlier
- A written notice within 30 days is sent to the drawer along with the receipt of information from bank about failure of payment of cheque
- The payee or holder doesn’t receive the payment within 15 days of the receipt of send written notice to the drawer
Cheques covered under this Section
The Section 6 of the Act defines cheque but there have been instances where cheque issued for various reasons were covered under this section and some were not. The Courts have in several cases made it clear that blank cheques containing no date or signature would not be considered under the definition of the cheque mentioned in section 138.
In Hari Ram Sariwala v State of Jharkhand,[2] High Court dismissed the complaint filed under section 138 on the basis that filling an amount and date on a cheque is a material change. Thus, when appellant failed to prove that blank cheque was handed to him, considering the materials changes court counted cheque as invalid and didn’t implement Section 138 though drawer had a legal debt to pay to appellant.
In M.S. Narayana Menon v State of Kerala[3] and Sudhir Kumar Bhalla v Jagdish Chand,[4] the Supreme Court expounded that cheques issued for security purposes would not come under the purview of the Section 138 as the provision only attracted liability for dishonour of cheques which were drawn for discharging debt or liability. Whereas, the cheques drawn to discharge the drawer’s liability as a surety,[5]self-addressed cheque[6] and pay order being closer to a bill of exchange[7], were considered under the ambit of this section.
Reasons for Dishonouring of Cheques
The main objective of the Section 138 was to discourage persons dishonestly issuing cheques. Thus, except dishonouring of cheques based on insufficient funds, there are other acts which would amount to the commencement of the offence.
Majority of High Courts held that stoppage of payment by drawer will be covered under Section 138. Supreme Court also confirmed that cases where drawer with dishonest intention instructed bank for stoppage of payment to payee would also come under the preview of Section 138 of the Act.[8] But mere notice to stop payment will not always be counted as an offence under Section 138. In M.M.T.C Ltd. v Medhel Chemicals and Pvt. Ltd.,[9]Supreme Court drew out the distinction test and stated that if there was sufficient fund in the account of drawer and the cheque payment was stopped due to some other valid reasons that would not amount to an offence mentioned under Section 138. Supreme Court validating on the reasons did not consider as commencement of offence when done before the due date of payment.[10]
Another scenario in which the Courts applied Section 138 is closure of bank accounts. As closure of bank accounts cause the standing amount to be nil leading to dishonour of cheques by the bank. Therefore, the closure of bank account also attracted the punishment for the commencement of the offence defined under Section 138.[11]
Offence under Section 138
The dishonouring of cheques due to insufficient funds is criminalised by the insertion of Section 138. The offence is also person specific and like IPC takes cognizance of offender along with the offence.[12] In some features yet it differs from the ones defined in IPC when compared. It neither counts for mens rea nor treats it par with the other crimes.
The main objective of Section 138 was to stop dishonest persons from issuing cheques. The Court, however, didn’t consider mens rea as an important ingredient by creating strict liability and agreed that there necessarily need not be intention for dishonouring cheques.[13] Therefore, if a person who is unaware of insufficient funds issues a cheque and it is dishonoured due to insufficient funds, the person will be held liable for the commencement of an offence if all other ingredients are satisfied.
The gravity of the offence under the Section 138 is not same as that for IPC. The court has cleared in Kaushalya Devi Massand v Roopkishore Khore,[14] that offence under Section 138 is only given criminal overtones but can’t be equated with the other offences which are defined under IPC. Therefore, it could be said that the offence under Section 138 is only a civil wrong just defined in the Act as criminal one.
Recent important Judgements
- Mediation: In 2017, Delhi High Court in Dayawati v Yogesh Kumar Gosain[15] took into account the question whether an offence under Section 138, which is a criminally compoundable case could be settled by mediation. The Court answered in affirmation for the speedy disposal of cases. It also stated that scheme of prosecution is different from CrPC as offence being of civil nature and laid down the procedure to be followed in the settlement of the offence.
- Jurisdiction: The leading judgement given by Supreme Court in Bhaskaran v. Sankaran Vaidhyan Balan[16] case allowed five territorial jurisdictions. In 2014, Supreme Court considering the misuse of place of institution restricted holder or payee from filing cases other than the place where bank was located from which cheque was to be drawn and was dishonoured.[17] Later, Negotiable Instruments (Amendment) Ordinace 2015, was enacted which torn down the principle of territorial jurisdiction given in 2014. In 2016, Bridgestone India Private limited v Inderpal Singh statutorily superseded the earlier judgement by allowing the appellant to initiate proceedings at the place where cheque was delivered.[18]
- Speedy Disposal of cases and Dishonouring of cheques: Taking into consideration the piles of cases dealing with dishonouring of cheques, Supreme Court in the judgement of Meters and Instruments (P) Ltd. v Kanchan Mehta[19] held that summary procedure should be normally followed as the offence is of civil nature to dispose cases speedily. It also allowed online mode for certain proceedings.
Conclusion
The Section 138 was inserted with the objective to discourage the dishonest activity of issuing cheques which were later dishonoured for insufficient funds. All the ingredients mentioned in Kusum Ignots and alloys ltd. v Pennar Peterson Securities, are the major requirements for filing a case. The act though only mentioned two causes i.e., insufficient fund and exceeding amount, but Courts has also considered cases like stoppage of payment or closure of account where drawer issued cheques were dishonoured. The court is now taking mediation and other efforts like online proceedings to have speedy disposal in this modern era. Besides the Negotiable Instrument Act, judgements given by High Court and Supreme Courts are the law that need to be referred for bouncing of cheques.
[1] (2000) 2 SCC 745.
[2] (2012) 2 AIR Jhar R 324.
[3] AIR 2006 SC 3366.
[4] AIR 2008 SC 2407.
[5] Alexander v Joseph Chacko, (1995) 82 Comp Cas 368.
[6] Mahesh Goyal v S.K. Sharma, 1997 Cr LJ 2868.
[7] Punjab and Sind Bank v Vinkar Sahakari Bank Ltd., AIR 2001 SC 3641.
[8] Electronics Trade and Technology Development Corpn. Ltd. v Indian Technologists and engineers (electronics) (p) ltd. and another (1996) 2 SCC 739.
[9] (2002) 1 SCC 234.
[10] Goa Plast Pvt. Ltd. v V. Chico Ursula D’souza, AIR 2003 SC 2035.
[11] NEPC Micon Ltd. v Magna Leasing Ltd. AIR 1999 SC 1952.
[12] N. Harihara Krishnan v J. Thomas, 2017 SCC Online SC 1017.
[13] G. Rukkumani v K. Rajendran, 2001 Cr LJ 3120.
[14] (2011) 4 SCC 593.
[15] 2017 SCC Online Del 11032.
[16] (1999) 7 SCC 510.
[17] Dashrath Rupsingh Rathod v State of Maharashtra (2014) 9 SCC 129.
[18] (2016) 2 SCC 75.
[19] (2018) 1 SCC 560.
