What is Cheque Bounce?
When a cheque is returned by the bank unpaid, it is said to be dishonoured or bounced. Cheque bounce could occur due to several reasons such as insufficiency of funds, etc. When the cheque is bounced for the first time, the bank issues a ‘cheque return memo’ along with reasons for non-payment.
What is a Cheque?
Cheques are used in many transactions including repayment of loans, payments of salaries bills, fee, etc. A cheque is a negotiable instrument. It is an instrument / exchange bill that is drawn upon a specific bank that is payable only on demand. A crossed or an AC Payee/Account payee cheque are not negotiable by any person other than the payee himself/herself. The cheques are required to be deposited into the payee’s bank account.
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What are the Essential Characteristics of a Cheque?
There are certain essentials in a cheque for it to be valid. These are:
1. In Writing: A cheque must be in writing. An oral order to pay on demand does not constitute a cheque.
2. Drawn on a Banker: A cheque must be drawn on a specified banker. A cheque may be drawn on a bank where the drawer of such cheque has an account- savings or current.
3. Unconditional order to pay: A cheque must contain an unconditional order to pay. It cannot be drawn to pay depending upon a contingency.
4. Order to pay a certain sum: A cheque must always state an order to pay a certain sum of money only. It cannot be an ambiguous amount and neither can it be for any act or thing in addition to money.
5. Signed and dated: A cheque must be signed by the drawer and should also mention the date of signing. It will not carry any validity if it is not signed by the original drawer.
6. Payable on demand: A cheque is always payable on demand.
7. Validity: The validity of a cheque in India is for a period of three months. Thus, if it is presented to the bank after a period of three months from the date of signing, it will be a stale cheque.
8. Payable Directly to Intended Person: The cheque is paid directly to the identified person or organisation only.
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Important Terms or Definitions for Cheque Bounce
Drawer: The author or the writer of the cheque is called the drawer of the cheque. A drawer is the person who essentially pays the amount written on the cheque.
Payee: The holder of the cheque is the payee of that cheque. This means that the person who is to be paid through the cheque is the payee. When the cheque is a self cheque, the drawer is also the payee.
Drawee: Drawer’s bank that facilitates the payment is the drawee of the cheque. Essentially, the bank whose cheque is signed by the Drawer is the Drawee Bank. This also means that, ideally, the Drawer has an account with the Drawee.
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What is Dishonor of Cheque or Cheque Bounce?
A cheque is negotiable instrument. A crossed and account payee cheque is not negotiable by any individual other than the payee and has to be deposited into the payee’s bank account only. The author or writer of the cheque is called the ‘drawer’ and the individual or person in whose favour the cheque is being written or drawn is called the ‘payee’. The bank which is directed to pay this amount is known as the ‘drawee’, as has been stated above.
Dishonor of cheque or cheque bounce occurs when a cheque that is presented in the bank is returned unpaid. Cheque Bounce could occur due to insufficient funds in the bank account of the person who issued the cheque or if the signatures on the cheque do not match with the original signature of that person.
You can proceed against the person who has issued such a cheque under various provisions of law. Cheque bounce is punishable in India. The most important and useful provision to consider is Section 138 of the Negotiable Instruments Act which will be discussed in detail in this article.
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Reasons for Cheque Bounce or Dishonour of Cheque
There can be a number of reasons which lead to the bouncing of a cheque or it being dishonoured when submitted for payment to a bank, some of which are listed below:
1. Expiry of cheque: Presentation of the cheque after the expiry of its validity period, i.e. after the expiry of 3 months.
2. Inconsistent account number: Inconsistency in the account number on the cheque.
3. Inconsistent words/figures: Inconsistency in the words or figures written on the cheque.
4. Mismatching of signature: Signature on the cheque not matching with the signatures on official documents of the bank such as the passbook etc.
5. Overwriting: When there is evident overwriting on the cheque.
6. Closure of bank account: In case the account holder has closed his/her account or the bank itself has closed his/her account.
7. No stamp/seal of the Company: The stamp or seal of the company that has issued the cheque being missing.
8. Drawer insane: In case the drawer has turned insane.
9. Drawer insolvent: In case the drawer has turned insolvent.
10. Rules of trust not adhered to: Issuance of a cheque against the rules of trust.
11. Limit of cheque overdraft crossed: Cheque amount crossing the limit of cheque overdraft, which is the maximum withdrawal limit allowed to the customer by the bank, can lead to cheque bounce or dishonour.
12. Cheque presented at wrong bank branch: Presentation of the cheque by the drawee at the wrong branch of the bank.
13. Payment stopped by Drawer: Cheque could be bounced/dishonoured if the drawer i.e. the account holder stops its payment.
14. Ateration: In case of any alterations in the cheque.
15. Authenticity of the cheque doubted: In case the bank doubts the authenticity of the cheque.
16. Insufficient opening balance: When there is insufficiency in the opening balance of the bank account of the drawer.
17. Insufficient funds: When the funds in the account of the drawer of the cheque are not sufficiency.
18. Crossed cheque : A crossed cheque is when a general instruction in relation to the cheque is specified by the drawer to the bank. This could be one of the reasons leading to cheque bounce/dishonour.
19. Shortage of signature: Cheque issued from a joint account where both the account holders’ signatures are required but the cheque bears only one signature.
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Consequences of a Bounced or Dishonoured Cheque
When a cheque is dishonoured, it leads to various consequences for both parties in law and within the banking system. Upon dishonour of a cheque, both parties may be liable to a penalty by their respective banks. Further, in cases where the dishonoured cheque was towards payments that carry an additional penalty for delay might also be affected e.g., loan repayment, rent payment by a particular date. In addition to the penalties, cheque dishonour can also have an adverse effect on your credit rating, which can have further implications on your standing/reputation before financial institutions.
1. Penalty by Bank: A cheque bounce, if due to mismatch of signature or insufficient funds or any other technical reason, the bank may charge a penalty upon the defaulter. This penalty is generally an NSF fee which is non-sufficient fund fee charged by the bank in case of insufficient funds. In case the cheque bounce while paying a repayment of loan, the bank can also levy an additional payment charge other than penalty charges.
2. CIBIL Score: A cheque bounce can negatively affect an individuals’ financial credit history. Even a single time of cheque bounce can negatively affect the CIBIL Score to an extent that his/her loan may be denied in the future. It is thus necessary that one must ensure that your cheque isn’t bounced even once.
3. Criminal or Civil Action against the Payer or Issuer of Cheque: A civil or criminal action can also be taken against an individual / issuer whose cheque has been bounced. If the aggrieved party does not receive the promised funds, he/she may file a civil case or a criminal case under Negotiable Instruments Act, 1881 or under Section 420 of the Indian Penal Code, 1860.
4. Other risks involved: The banks prohibit the issuance of cheque books to any customer if he has been charged at least 4 times for cheque bounce for an amount of Rs. 1 Crore, as per the RBI guidelines. Moreover, if the cheque that is bounced is one issued as an EMI towards repayment of a loan, the bank even has the right to issue a legal notice to you and to deduct money from your accounts.
The adverse legal implications in case of cheque bounce are discussed in a different section below.
Consult : Top Cheque Bounce Lawyers in India
Cheque Bounce under Section 138 of Negotiable Instruments Act
The Negotiable Instrument act, 1881 (hereinafter referred to as the ‘NI Act’) encapsulates the legal framework for the use and operation of negotiable instruments in our country. Cheques are also a form of negotiable instrument and therefore fall under the purview of the NI Act. Among the penal provisions of the NI Act, Section 138 provides for the punishment in case of dishonour of cheques.
Section 138 provides the punishment for cheque bounce and states that in case a cheque made for the discharge in-whole/in-part of any debt/liability is dishonoured for either insufficiency of funds or for the amount exceeding the arrangement with the bank, the drawer of such cheque shall be punishable under this provision.
The following are the essential ingredients for constituting the offence under Section 138 of the NI Act:
1. A person must have drawn the cheque in favour of another person to discharge any debt or other liability wither in whole or in part
2. The cheque must have been presented for payment within the validity of the cheque i.e., within three months of the date of the cheque
3. The cheque must have been dishonoured for one of the following two reasons;
a. Insufficiency of funds in the account
b. Value of the cheque exceeding the amount arranged to be paid from such account by an agreement made with the bank
4. The payee makes a demand to the drawer through a notice in writing, for the payment of the amount in the cheque within a period of 15 days from receiving information from the bank regarding the return of the cheque as unpaid
5. Failure of the drawer to make such payment to the payee within a period of 15 days from the receipt of the demand notice from the payee
Pertinently, Section 138 provides a punishment of imprisonment for a period which may extend to 1 year or with fine which may extend to twice the amount of the cheque, or with both.
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Section 138 of the Negotaible Instruments Act, 1881 has been reproduced below, verbatim:
“138 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.”
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What to do in case of Cheque Bounce?
The first and foremost thing to do in the case of cheque bounce is to seek the services of a cheque bounce advocate or lawyer. Irrespective of whether you are the drawer or the payee in the given situation, an advocate will best guide you to decide the plan of action that protects your interest. Given the civil and criminal consequences that may arise in case of cheque bounce, it is important to protect yourself from any liability before it’s too late. The detailed procedure for getting back the money due to you and also justice from the courts is provided in a separate section below.
Essentially, a lawyer will guide as to whether a demand notice in his/her name should be sent, or proceedings under the civil laws need to begin.
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What is the Procedure involved in a Cheque Bounce Case?
Cheque bounce matters have become common in today’s time. Many a time, a cheque is bounced with mal intention of the payer of the cheque. It is thus important to seek justice in a timely manner in order to ensure you get the amount/money that is rightfully yours. If you have been wronged and a cheque in your favour has been bounced, you have a right to legal recourse in order to get your rightful claim and punish the wrongdoer. The Procedure involved in a cheque bounce case under Section 138 of the Negotiable Instruments Act has been given in detail below:
1. Demand Notice: The first step that must be taken by you in case of cheque bounce is the sending of a demand notice i.e. a legal notice addressed to the drawer demanding your rightful payment, non-fulfillment of which will lead you to knock the doors of the Court. A demand notice must be sent as soon as possible and within a period of 15 days from the date of intimation from the bank that the cheque has been bounced. You must take help from a lawyer to draft the legal notice.
2. Filing of Cheque Bounce Complaint: If the drawer does not pay the amount within the stipulated period of 15 days from the date on which the legal notice is sent to him, then the aggrieved person can file a cheque bounce case against the drawer in such a situation. The complaint must be filed within 30 days.
3. Payment of Court Fees: While filing the cheque bounce complaint, the complainant is required to pay court fee. This has been discussed in detail later in the article.
4. Court Notice/Summons to Accused: Once the complaint has been filed by the payee of the cheque, the court issues summons to the accused in the matter.
5. Evidence: Evidence is an important aspect in every case, as is even in a cheque bounce matter. The Complainant, with the help of his/her cheque bounce lawyer will put forward the evidence that will prove that the complainant has been wronged. Cheque Bounce Return Memo, Copy of Demand Notice, Courier Receipt of sending Demand Notice, etc. must be presented in courts ro prove the legal obligation of the issuer to pay the amounts stated on the cheque.
6. Final Arguments: After the appearance of both the parties and the evidence and witnesses, the final arguments of both the parties by their respective lawyers is presented. This is generally the last stage before the decision of the Court.
7. Decision of Court: Based on the proceedings of the Court, the facts and circumstances of the particular case and after hearing both the parties, the Court gives its decision. It may punish or penalise the defaulter i.e. the accused in the case, as and if the Court deems fit.
Consult : Top Cheque Bounce Lawyers in India
Cheque Bounce Notice or Demand Notice
As already detailed above, issuance of a cheque bounce notice is an essential ingredient for initiating an action under Section 138 of the Negotiable Instruments act for binding the liability of the drawer. Therefore, it is important to understand what this demand notice is; and how to properly draft a cheque bounce notice.
What is a Demand Notice for cheque Bounce?
A demand notice, as provided under Section 138 of the NI Act, is a notice addressed by the payee to the drawer of the dishonoured cheque, demanding the money due and payable to him, which would have been received by the payee had the cheque not been dishonoured. Such a demand notice must be sent to the drawer at the earliest, within a period of 15 days of receiving intimation from the bank regarding the cheque being dishonoured. Such a notice under Section 138 is to be sent only in situations where the cheque has been dishonoured either due to insufficiency of funds or for reasons of value of cheque exceeding the amount arranged to be disbursed by the bank in agreement with the drawer in this regard.
The notice under Section 138, NI Act plays an important role in bringing the drawer to notice regarding the claim of the payee on account of cheque being dishonoured. This affords the drawer an opportunity to satisfy the demand within the 15 days provided and prevent unnecessary litigation between the parties.
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Things to include in a Cheque Bounce Notice
A notice being addressed under Section 138 of the NI Act, must include the following details:
The fact that cheque was made out in favour of payee for discharging a debt or liability in whole or in part.
The statement of debt and the corresponding liability of the drawer in this regard
The fact that the cheque was presented within a period of 3 months from the date of the cheque
The exact details of dishonour as provided by the bank
A clear and unequivocal demand of the sum due and payable, to be paid within 15 days from the date of receipt of the notice
Notice of initiating legal proceedings under Section 138 of the NI Act in case of failure to discharge liability by Drawer
Cheque Bounce Complaint
As stated above, if the drawer does not send a reply to the legal notice in the stipulated time, then the receiver of the cheque can file a cheque bounce complaint against the drawer. Details regarding documents, jurisdiction, who can file the complaint and where the complaint can be filed are discussed below:
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How to draft a Cheque Bounce Complaint?
As stated above, a complaint is sent after the drawer has not replied to the demand notice within 15 days from the date of the delivery of notice, or if the defaulter has ignored the demand notice, or outrightly refused to pay the amount. A complaint should be filed in the court which would have the jurisdcition over the dispute within 30 days from the date of the receipt of the demand notice by the drawer. A complaint should include every detail i.e. the facts of your matter and why and how you are wronged by the issuer of the cheque. It is important that you do not state things that negate information given in the legal notice. You must take the help of a cheque bounce lawyer, who will guide you and draft for you in the appropriate legal language. You must also always read through the complaint drafted by your lawyer and suggest necessary changes if you think fit.
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Where can a cheque bounce case be filed?
There has been quite some debate regarding the area of jurisdiction of a cheque bounce case. But recent Supreme Court rulings have clarified the issue. The cheque bounce case should be filed in the area where the cheque was submitted by you, to be honoured. Your cheque bounce lawyer will help you in filing the matter in the appropriate jurisdiction. You can file the complaint in a court within whose local limits of jurisdiction any of the following incidents have taken place:
Where the cheque had been drawn,
Where the cheque had been presented,
Where the cheque had been returned by the bank, or
Where the demand notice had been served by you.
Who can file a Cheque Bounce case?
Ordinarily, the payee of the cheque files the cheque bounce case. But in special cases, the case can also be filed through a power of attorney. An important thing to keep in mind is that it is mandatory for the complainant to appear before the magistrate and be examined under oath.
Consult : Top Cheque Bounce Lawyers in India
Documents Required for a Cheque Bounce case:
The following documents are required before filing a cheque bounce case :
1) Original cheque and return memo
2) Copy of notice and original postal receipts.
3) Evidence affidavit.
Court Fees for a Cheque Bounce Case
When a cheque bounce complaint is being filed, the complainant has to pay a certain amount of court fee. This fee that is to be paid to the court depends upon the amount that is stated on the cheque for which the complaint is being filed. The court fee to be paid according to the amounts on the cheques has been stated below:
1. If the amount on the cheque is from Rs. 0 to Rs. 50,000, the Court fee to be paid is Rs. 200/-
2. If the amount on the cheque is from Rs. 50,000 to Rs. 2,00,000, the Court fee to be paid is Rs. 500/-
3. If the amount on the cheque is above Rs. 2,00,000, the Court fee to be paid is Rs. 1000/-
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What is a material alteration? Does it affect your right to file a case?
Changing the amount of the cheque, changing the name of the payee (the person to whom the check is given), or making other changes on the cheque, such as the date or the name of the drawee (the person from whose bank account the cheque is withdrawing funds) or paying bank can be considered as material alteration. If the cheque has been dishonored and the bank finds out that there have been material alterations on the cheque, then you are not entitled to file a cheque bounce case. Thus, no latter changes should be made on a cheque, once written and signed.
Punishment and Penalty for Cheque Bounce
Cheque bounce is a punishable offence under the Negotiable Instruments Act, 1881. Section 138 of the NI Act provides the punishment for cheque bounce in cases where the dishonour is due to either insufficiency of funds or sum mentioned in the cheque exceeding the amount arranged to be paid from that account by an agreement made with the bank. Cheque Bounce in such conditions is punishable with imprisonment for a term which may extend to 1 year or with fine which may extend to twice the amount of the cheque, or even both.
In addition, there can also be civil liability and a person can be proceeded against by means of a civil suit for recovery of the money along with interest, if applicable.
Consult : Top Cheque Bounce Lawyers in India
How do I defend against a frivolous Cheque Bounce case?
In certain business transactions, cheques are used as a method for the payment of money or as a security. However, there have been many instances where after the completion of the business transaction, the person tries to fraudulently encash the cheque and subsequently files a false complaint in the Courts. Hence, the manner to defend a frivolous cheque bounce case is to show that there was no legal subsistence debt at the time the cheque was issued. Hence, with the help of your cheque bounce lawyer you will have to show that the cheque was given as a way of security and no debt existed at that point in time.
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Alternative remedies for Cheque Bounce
Other than a cheque bounce complaint under the Negotiable Instruments Act, a civil suit or a criminal case under the Indian Penal Code can also be filed. These have been discussed in detail below:
1. Civil Suit after Cheque Bounce
The drawee also has an option to separately file a civil suit in order to recover he due amount. A civil suit can help in recovering the due amount, along with costs of litigation. Especially when the amount is small, a civil suit by way of a summary suit under Order 37 (of the Civil Procedure Code) for recovery of money can also be filed in a cheque bounce case.
However, if the case is serious, this method is not advisable. It is important to take the help of a lawyer to understand the best possible method for your matter in particular.
2. Criminal Case under Section 420 of the Indian Penal Code
In serious cases where the cheque amount is big and in cases where it is applicable, a criminal complaint for cheating could also be filed under section 420 of the Indian Penal Code. A case under the Indian Penal Code will be a criminal case and punishment under this would involve imrpisonment or fine or both. However, the best way to understand which direction you should go in, is by hiring a good cheque bounce lawyer who will guide you after going through the facts and circumstances of your particular case.
Consult : Top Cheque Bounce Lawyers in India
Cheque Bounce case against Companies and Firms
If you want to file a cheque bounce case against your company or firm, the people you can file the cheque bounce case against are the directors and/or partners of the company or firm. You could even file a cheque bounce case against the firm or company.
Liability of Director in Cheque Bounce by a Company
When the person who comits the offence of cheque bounce is a Company i.e. an artificial entity, the Director of that company could be held liable under Section 141 of the Negotiable Instruments Act, 1881. According this law, every person who was in charge of the Company and responsible for its business at the time the offence was committed will be liable, along with the company.
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What happens if a Cheque Bounce issue is not resolved?
Cheque bounce cases are one of the most common offences affecting today’s financial world. There are over 40 lakh pending cases of cheque bounce in India as per the Supreme Court of India. A cheque bounce can lead to numerous consequences for the payee as well as the receiver, such as bank penalty, negative influence on the CIBIL score, civil or criminal action against the issuer, etc. To add to this, in case an action is not taken against the payee by the receiver within the prescribed time, it can also lead to lack of remedy for the receiver of the cheque as a case for cheque bounce is time-bound. Thus, it is important to address a cheque bounce case as soon as possible in order to avoid all the consequences involved.
Five things you need to do in case of Cheque Bounce
Consult or hire a good cheque bounce lawyer.
Be ready with the facts of your case to discuss with your lawyer.
Collect necessary documents and evidence to be filed or presented in court.
Appear before the Court on the dates of hearings.
If the decree is passed in your favour, ensure the other party is complying with it. If not, be ready to file for execution or contempt as the case may be.
Consult : Top Cheque Bounce Lawyers in India
Important things to keep in mind in case of Cheque Bounce
Only in exceptional circumstances, can a delay in filing the complaint i.e. after a lapse of 30 days could be excused by the magistrate.
A dishonour of cheque due to stop payment is also covered under Section 138 of the NI Act.
If a cheque has been presented at the request of the payee in a demand notice and this cheque also gets dishonoured, it would not mean that the drawer’s time limit under the notice increases.
A cheque issued for a gift or donation or any obligation would not be covered under Section 38 of the Negotianle Instuments Act. For this particular Section to apply, it is necessary that the cheque carried a legal obligation to pay.
A cheque should be presented within 3 months from the date on which it is issued. A cheque after 3 months expires and is a stale cheque.
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How to avoid Cheque Bounce?
In order to avoid a cheque bounce case in its entirety, one could choose NetBanking or Mobile Banking to make payments or transfer funds to third-party accounts, instead of cheques. If at all one does not want to do digital payments and is transferring money through cheques, the following points should be kept in mind. These are:
You must ensure that your cheque is an account payee (AC Payee) cheque.
You must use the signature that is registered with the bank.
You must ensure that there is sufficient balance in the bank account you intend to transfer from.
You need to cross-check and make sure that the details filled on the cheque by you are correct.
Why do you need a lawyer for a cheque bounce case?
As stated above, cheque bounce can attract possible criminal charges. By hiring a cheque bounce lawyer to file or to defend a cheque bounce case is one way you can ensure that you are on the right path in your cheque bounce journey. While the lawyer will need to gather information from you regarding the case, he or she will also take care of all the paperwork, allowing you more time to take care of your business and other priorities. An experienced attorney can give you expert advice on how to handle your cheque bounce case owing to his years of experience in handling such cases. A cheque bounce lawyer is an expert on the laws and can help you avoid significant mistakes that may cause financial or legal harm, which may require future legal proceedings to correct. A lawyer would also ensure you are directed on the right path regarding which kind of case to opt for. Thus, by hiring an attorney a person can make sure that he and his interests are protected under the law.
Consult : Top Cheque Bounce Lawyers in India
Landmark Judgments / Cases regarding Cheque Bounce in India
1. Canara Bank v. Canara Sales Corporation & Ors (1987)
Supreme Court of India
1987 AIR 1603
22 April, 1987
FACTS
This case serves as a foundation for understanding the banker-customer relationship which has duties and equity attached to it, at times of negligence by either of the parties or in case either of them is involved with fraudulent activities.
The respondent, in this case, had a current account in the bank of the plaintiff, which was ultimately found to be associated with fraudulent activity for the cheques that were encashed but did not have the initials of the managing director, the respondents herein. The offence of forgery was also committed in the present case. Thus, the respondents filed a suit for compensation with the amount that had been lost by them due to such criminal activities.
HELD
The Hon’ble Supreme Court stated that “when a cheque which is presented for encashment contains a forged signature the bank has no authority to make payment against such a cheque. The bank would be acting against law in debiting the customer with the amounts covered by such cheques.” It was highlighted by the Hon’ble Court that negligence was there on the part of both the debtor as well as the creditor, but it weighed more towards the banker than the company, finally ruling that the company was eligible for compensation by the bank.
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2. Modi Cements Ltd v Kuchil Kumar Nandi
Supreme Court of India
(1998) 3 SCC 249
2 March, 1998
FACTS
In the present case, when threee cheques were presented for encashment by the appellant through the banker, the same were returned by the bank unpaid with an endorsement saying "payment stopped by the drawer". Later it transpired that the respondent had given such instructions to its bank. The appellant sent a legal notice to the respondent in terms of Section 138 of the Negotiable Instruments Act, 1881 demanding payment of the aforesaid amounts under the cheques. Since the respondent failed and neglected to make the said payment of the aforesaid three cheques within the stipulated period of 15 days, three criminal complaints were filed by the appellant against the respondent under Section 138 of the Act. After this, the respondent filed applications for staying the proceedings against the three criminal proceeding instituted against him, which were eventually rejected. This lead the respondent into filing three petitions under Section 482 of the Criminal Procedure Code, 1973 in the High Court of Calcutta for quashing the above mentioned complaints. The Learned Single Judge allowed the respondent’s petitions and quashed the complaints of the complainant. Hence, the appellant filed appeals against this order passed by the Hon’ble High Court.
HELD
It was held by a three judge bench of the Hon’ble Supreme Court that even if a notice is issued for stopping the payment before the deposition of the cheque by the payee in his bank, the act of crime is committed. Once the drawer issues the cheque, it must be presumed that only because the drawer has issued a notice to the drawee or to the bank, in due course, it would not stop action by the holder of the cheque under Section 138 of the Act. The defense of “insufficiency of funds” thus, to some extent, stands weak.
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3. Kusum Ingots And Alloys Ltd vs Pennar Peterson Securities Ltd (2000)
Supreme Court of India
23 February, 2000
2000 (1) SCR 1120
FACTS
Post-dated cheques were issued in favour of the complainant on behalf of the company in course of business of the company. On presentation of the cheques by the complainant to the bank, they were returned without payment. Notice was issued by the complainant to the company and/or its Directors mentioning the facts of dishonour of the cheque, demanding payment for the same. No payment being made within the stipulated time of 15 days lead the complainant into filing a complaint against the company and/or its Directors contending them with the offence of having committed an offence under Section 138 of the Negotiable Instruments Act, 1881. Before the cheques were presented in the bank by the complainant or after the bank declined to honour the cheques, under the provisions of the SICA by the Board of Industrial and Financial Reconstruction, the drawer company was declared sick. The accused company and/or its Directors filed petitions under section 482 of the Code of Criminal Procedure or under Article 227 of the Constitution seeking quashing of the complaint/proceeding in the criminal case instituted against it by the complainant, chiefly on grounds that in view of the provisions in section 22 of SICA the criminal case instituted against them for commission of the alleged offence under section 138 NI Act was misconceived and that compelling the accused to face trial in that case will amount to abuse of the process of Court. The High Court declined to interfere in the proceedings and the petitions filed by the accused were dismissed. Hence, challenging the order passed by the High Court, appeals were filed by the accused. The main question that arose for consideration in these appeals was whether, after the company has been declared sick under the provisions of The Sick Industrial Companies Act, 1985, a company and its Directors can be proceeded against for having committed an offence under section 138 of the Negotiable Instruments Act, 1881 before the expiry of the period for payment of the cheque amount.
HELD
It was held that the ingredients of section 138 of the Negotiable Instruments Act, 1881 had prima facie been established from the complaint and the documents filed with it, therefore, the Magistrate was right in taking cognizance of the offence and issuing summons to the appellants. Further, section 138 “only deals with proceedings for recovery of money or for enforcement of any security or a guarantee in respect of any loans or advance granted to the company and a proceedings for winding up of the company. The section does not refer to any criminal proceeding. In M/s. B.S.I. Ltd. & Anr. v. Gift Holdings Pvt. Ltd., Criminal Appeal No. 847 of (1999) we held that pendency of proceeding under Section 22(1) of SICA alone is not sufficient to get absolved from the liability under Section 138 of the NI Act.”
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4. M/s. Dalmia Cement (Bharat) Ltd. v. M/s.Galaxy Traders & Agencies Ltd. & Ors.
Supreme Court of India
Appeal (crl.) 957 of 2000
19 January, 2001
FACTS
A cheque was dishonoured on account of insufficiency of funds in the account of the accused. The information regarding non-payment of the cheque amount was communicated by the Bank to the complainant. The complainant through its Advocate, issued a statutory notice in terms of Section 138 of the Act intimating the respondents regarding the dishonour of the cheque and calling upon the payment of the said amount within a period of 15 days from the receipt of the said notice. The respondents vide their letter intimated the appellant that they had in effect received empty envelopes without any contents and requested the appellant to mail the contents. By the time the complainant received the intimation of the respondents, the statutory period of filing the complaint was about to expire. Believing the averments of the respondents to be true, the appellant presented the cheque again to the drawee bank through their bankers. The cheque was again dishonoured by the drawee bank. A registered statutory notice was issued to the accused intimating the dishonour of the cheque and the payment was demanded, yet again.
HELD
It was observed by the Hon’ble Supreme Court of India that when the Negotiable Instruments Act, 1881 was enacted, section 138 was incorporated with a specified object of making a special provision by the incorporation of strict liability so far as the cheque as a negotiable instrument was concerned. The law relating to negotiable instruments is the law of the commercial world which was legislated for the facilitation of trade and commerce activity, creating a provision of giving sanctity to credit instruments which could be converted into money and hence could pass easily from one to another. In the present day, the trade and commerce activities, in the absence of such instruments, including a cheque, would likely be affected adversely as it is unfeasible for the trading community to go on with the bulk of currency in force. Efforts to defeat the objectives of law by resortment to innovative methods and measures shall be discouraged, or else the commercial and mercantile activities may be affected in a manner ultimately affecting the economy of the country.
5. M/s Meters and Instruments Private Limited & Anr. v. Kanchan Mehta (2017)
Supreme Court of India
Appeal (Crl.), 1731 of 2017
5th October 2017
FACTS
A complaint was filed by the complainant against the plaintiff under Section 138 of the Negotiable Instruments Act, 1881 on grounds that the plaintiff failed to pay an amount to the complainant which was to be done on a monthly basis, as per the agreement that existed between the two of them. A cheque was provided by the company to the complainant, hence discharging the legal liabilities of the company. This cheque was returned back due to there being insufficient funds in the bank account of the drawer. Thus, the company was provided with legal notices for completing the payment, which was not fulfilled by them and therefore the company was responsible for an offence under Section 138 of the Act. When the company’s director was willing to pay the complainant, there was a refusal of such demand draft from the end of the complainant. A suit was thus filed against the complainant by the company under Section 147 of the Act (provision for compoundable offences). The suit was rejected by the Hon’ble High Court on the ground that there was absence of complainant’s consent for holding the offence to be compounding by nature.
HELD
In this case, the Hon’ble Supreme Court took the object associated with Section 138 of the Act along with other statutory provisions in Chapter XVII into concern and passed the verdict saying that the offences that have been enumerated under Section 138 are of civil nature. Furthermore, the consent of both the parties in concern is required, as under the provision of compoundable offence, as present in Negotiable Instruments (Amendments and Miscellaneous Provision) Act, 2002. In the case before us, as the company was willing to pay compensation to the complainant, for proper and fair delivery of justice, the court thought to discharge the accused as the complainant had been compensated with the necessary amount.
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6. Mayawati v. Yogesh Kumar Gosain
Delhi High Court
17 October, 2017
CRL.REF.No.1/2016
FACTS
The appellant filed a complaint under Section 138 of the NI Act, complaining that the respondent had a liability of Rs. 55,99,600/- towards her as recorded in a regular ledger account for supply of fire-fighting goods and equipment to the respondent on different dates and different quantities. In part discharge of this liability, the respondent was stated to have issued two account payee cheques in favour of the complainants of Rs. 11,00,000/- and Rs. 16,00,000/-. Unfortunately, these two cheques were dishonoured by the respondent's bank on presentation on account of "insufficiency of funds". As a result, the complainant was compelled to serve a legal notice of demand on the respondent which, when went unheeded, led to the filing of two complaint cases under Section 138 of the NI Act before the Patiala House Courts, New Delhi. Consequently, by a common order dated 1st April, 2015 recorded in both the complaint cases, the matter was referred for mediation to the Delhi High Court Mediation and Conciliation Centre. after negotiations at the Delhi High Court Mediation and Conciliation Centre, the parties settled their disputes under a common settlement agreement dated 14th May, 2015 under which the accused agreed to pay a total sum of `55,54,600/- to the complainant as full and final settlement amount in installments with regard to which a mutually agreed payment schedule was drawn up. It was undertaken that the complainant would withdraw the complaint cases after receipt of the entire amount. In the agreement drawn up, the parties agreed to comply with the terms of the settlement which was signed by both the parties along with their respective counsels. Later, an application dated 16th November, 2015 was filed by the complainant seeking enforcement of the settlement agreement dated 14th May, 2015.
HELD
The instant reference has resulted because of the failure of the court to have recorded the settlement and undertakings binding the accused person in the complaint under Section 138 of the NI Act to abide by the settlement arrived at during mediation. There can be no manner of doubt that once a settlement is reported to the court and made the basis of seeking the court's indulgence, the parties ought not to be able to resile from such a position. In the event of either party resiling from the agreed upon settlement which has received the imprimatur of the court, the party attempting to breach the settlement and undertaking cannot be permitted to avoid making the payment. Such party also should not be allowed to violate such undertaking given to the opposite side as well as the court.
It was further held that it is legal to refer a criminal compoundable case as one under Section 138 of the NI Act to mediation.
The Delhi Mediation and Conciliation Rules, 2004 issued in exercise of the rule making power under Part-10 and Clause (d) of sub-section (ii) of Section 89 as well as all other powers enabling the High Court of Delhi to make such rules, applies to mediation arising out of civil as well as criminal cases.
In the context of reference of the parties, in a case arising under Section 138 of the NI Act, to mediation is concerned, the procedure that is required to be followed was laid down in this judgement in detail.
The procedure that is to be followed, in case the mediation settlement accepted by the court is not complied with, was also laid down in this case.
The settlement reached in mediation arising out of a criminal case does not tantamount to a decree by a civil court and cannot be executed in a civil court. However, a settlement in mediation arising out of referral in a civil case by a civil court, can result in a decree upon compliance with the procedure under Order XXIII of the C.P.C. This can never be so in a mediation settlement arising out of a criminal case.
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7. Smt. Asha Baldwa v. Ram Gopal
High Court of Rajasthan, Jodhpur Bench
S.B. Criminal Misc. (Pet.) Nos. 2726, 2727, 2728, 2730/2014 and 64/2015
Decided On, 13 September 2017
FACTS
A petition was filed by the petitioner under Section 482 of the Code of Criminal Procedure, 1973 for quashing of the proceedings instituted against the petitioner for committing an offence under Section 138 of the Negotiable Instruments Act, 1881.
It was alleged that the cheque that got dishonoured was handed over by the petitioner to the respondent and hence the petitioner was the consenting party to the act of giving the cheque, therefore being responsible for any of the proceedings in consequence of giving the cheque.
It was contended by the petitioner that as per Section 141(2) of the Negotiable Instruments Act, 1881, the allegations can only be made against the Company or its Directors or its Partners or other officer of the company only when the offence is committed with the consent or connivance or is attributed to any neglect on the part of any partners, secretary, manager or director.
HELD
It was held by the Hon’ble Court that the aim is that the person promising to pay abides by his/her promise of paying and thus mere handing of a dishonoured cheque does not amount to an offence under Section 138 of the Negotiable Instruments Act, 1881. It is provided under Section 139 that it shall be presumed that the holder of a cheque received the cheque of nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability.
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Format or Draft of Demand Notice in case of Cheque Bounce
To, Date: __/__/2021
Name of the party/parties
Address
Contact info.
Sub: Legal notice under section 138 of Negotiable Instrument Act for dishonour of cheque.
Dear Sir/Madam,
Under instructions and authority from my client M/s. ______ we serve upon you the following legal notice.
That my client is a Private Limited Company engaged in trading of computers, laptops, computer parts and accessories the name of ________ having office at _________.
That in the year ______ you have approached my client through E-mail communication of your employee ________ to purchase _______ for your office. Subsequently you have issued purchase order dated _______ amounting to rupees ______ for _______.
That you have promised our client to pay the cost of the product in the form of Current Dated Cheque as mentioned in the purchase order.
That our client had relied on your promise and as instructed by you delivered the ________ at your office at ______ vide Invoice No. _______ dated _______.
That you have issued Cheque No. ____dated ________ for Rs. ______/- (Rupees ____________only) drawn ____________________ towards payment against the Invoice.
That the aforesaid cheques No. _____dated ________for Rs. _______/- was presented by our client M/s. _______ on ____ to your bankers i.e. ______________.
That to our clients' shock and surprise the said cheque had been dishonored by your bankers with the reason “Fund Insufficient” which was intimated to our client by their _______ through their cheque return memo dated _________.
That thereafter in spite of many telephonic reminders by my client, you failed to make the payment due to my client.
That it is now clear that you had the dishonest intention at the time of purchasing ______ from my client and deceived my client to the tune of _________.
My client states that you have issued the above said cheques only with an intention to cheat our client which amounts to an offence punishable under section 138 of Negotiable Instruments Act.
Under the circumstances, we call upon you to pay of Rs. ____________ /- within a period of 15 (fifteen) days from the date of receipt of this notice, failing which our client will be constrained to take legal action against you in a court of law for an offence punishable under section 138 of Negotiable Instruments Act for which you will be liable for all costs and consequences.
This is without prejudice to all other legal rights and remedies available to our client for the above-stated purpose.
You are liable to pay a sum of Rs. _______/- as necessary cost and expenses of sending the present legal notice to you.
Copy of this legal notice is also kept at my office for further ready reference if required in the future.
Yours faithfully,
Signature
(Advocate)
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Format or Draft of Complaint for Cheque Bounce
IN THE COURT OF _____________________________
COMPLAINT NO ___________ OF____
IN THE MATTER OF:
Mr.____________________ COMPLAINANT
VERSUS
Mr. _______________ ACCUSED
POLICE STATION:____________
COMPLAINT UNDER SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881 (AS AMENDED UPTO DATE) FOR THE SUM OF RS. ______________ (RUPEES ________________ ONLY)
MOST RESPECTFULLY SHOWETH:
That the Complainant is working as _________________________ and is residing at ______________________________________. That the present complaint is being field by the complainant Mr./Ms. ___________________ to cause appearance in this Hon'ble Court and to depose and conduct the proceedings.
That on _______________ the accused namely Mr./Ms.______________ had approached the complainant personally and asked for a friendly loan of Rs. ________________.
That on __________ complainant paid Rs. ___________ (Rupees _____________ as friendly loan that was repayable on demand.
That towards payment of amount of loan, the accused issued Cheque No. ______________ Dated ____________for Rs. ___________to the complainant, after repeated requests to repay the loan. That in order to discharge their above said liability and in accordance with the agreed terms and conditions, the accused had issued Cheque No. _____________ Dated ___________for Rs. ___________/- drawn on ___________________. The said cheque was issued from Account No. ____________________which is held in the name of the accused. That the present complaint is based on the dishonor of the above said cheque which was issued in discharge of a lawful debt.
That at the time of handing over the above said cheque the accused had assured the complainant that the said cheque will be honored/encashed on presentation. Taking the above assurance/representation as true, the complainant had accepted the above said cheque.
That on the basis of the assurances given by the accused, the complainant presented the above said cheque with its bankers namely ___________________________________ and was dishonored vide cheque return advice dated _____ issued by the complainants bank. The aforesaid cheque was returned unpaid vide returning memo dated ____________with the remarks "FUNDS INSUFFICIENT".
That the dishonor of the cheque clearly shows and establishes that the accused did not intend to honor the amount under the said cheque in the first place.
That on account of the dishonor of the said cheque, the complainant had served a legal notice dated ____________upon the Accused by way of Registered Post vide Receipt No. _________________ dated ___________However, despite service of notice, the accused has not taken any steps to liquidate his liability and has failed to make balance payments to the complainant towards the amount covered under the said cheque, within the statutory period of 15 days or thereafter. Thus, the Accused has, therefore committed an offence within the meaning of Section 138 and other sections of the amended provisions of the Negotiable Instruments Act, 1881, for which he is liable to be prosecuted and punished.
That the accused have failed to make payment against the said cheque which has been done by them malafidely, intentionally and deliberately and knowingly. That at the time of issuing the said cheques the accused were fully aware that the said cheques will not be honored on presentation. Therefore, the accused has dishonestly induced the complainant to advance a sum of _________________ /- (Rupees __________________ Only) fully knowing that he cannot repay the said amount to the complainant.
That the accused is guilty offence under Section 138, Negotiable Instruments Act and is also liable to be prosecuted under Section 420 of the Indian Penal Code.
That in view of the facts and circumstances, the complainant has a cause of action and right to file the present complaint. The cause of actions has arisen in favour of the complainant when, on the expiry of the notice period, the Accused has not come forward to pay the amount relating to the dishonored cheques. The cause of action is still subsisting and continuing in nature.
That the cause of action has arisen at __________ as the cheques was issued at _________, and the same was payable at __________ and was also dishonored at _________. Therefore this Hon'ble Court has jurisdiction to try and adjudicate upon the present complaint.
That the complaint is well within limitation period prescribed under the Act:
i. Date of Dishonor ______
ii. Date of Notice ______
iii. Date of filing Complaint _______
That a list of documents and list of witnesses are annexed with this complaint.
PRAYER
It is, therefore, most respectfully prayed that this Hon'ble Court may be pleased to:
Summon, prosecute and punish the Accused and also direct the accused to pay the amount as double to the amount covered under the said dishonored cheques, under the provisions of Section 138 read with Section 142 of the Negotiable Instruments Act,1881 as amended by the Negotiable Instrument laws (Amended and Miscellaneous Provisions) Act, 2002. In accordance with Section 357 of Code of Criminal Procedure 1974, out of the penalty imposed, the Accused be ordered to compensate the Complainant to the extent of Rs._______ /- (Rupees ______________ Only) and
Such other and further orders may be passed as may be deemed fit and proper by this Hon'ble Court.
It is prayed accordingly.
PLACE:
DATED:
COMPLAINANT
THROUGH :
ADVOCATES
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