[Disclaimer: This note is for general information only. It is NOT to be substituted for legal advice or taken as legal advice. The publishers of the blog shall not be liable for any act or omission based on this note]<\/p>\n
Introduction<\/strong><\/span><\/p>\n Over the years there have been many important changes in the way cheques are issued\/bounced\/dealt with. Commercial globalisation has resulted in giving a big boost to our country. With the rapid increase in commerce and trade, use of cheque also increased and so did the cheque bouncing disputes.[1]<\/a> The object of Sections 138-142 of the Negotiable Instruments Act, 1881<\/a> \u00a0is to promote the efficacy of banking operations and to ensure credibility in transacting business through cheques.[2]<\/a><\/p>\n Section 138<\/a> casts a criminal liability punishable with imprisonment or fine or with both on a person who issues a cheque towards discharge of a debt or liability as a whole or in part and the cheque is dishonoured by the bank on presentation.[3]<\/a> Section 138 was enacted to punish unscrupulous drawers of cheques who, though purport to discharge their liability by issuing cheque, have no intention of really doing so. Apart from civil liability, criminal liability is sought to be imposed by the said provision on such unscrupulous drawers of cheques. However, with a view to avert unnecessary prosecution of an honest drawer of the cheque and with a view to give an opportunity to him to make amends, the prosecution under Section 138 of the Act has been made subject to certain conditions. These conditions are stipulated in the proviso to Section 138.[4]<\/a><\/p>\n In criminal law, commission of offence is one thing and prosecution is quite another. Commission of offence is governed by Section 138 of the Act. Prosecution is governed by Section 142<\/a> of the Act.[5]<\/a> It is also noteworthy that Section 138 while making dishonour of a cheque an offence punishable with imprisonment and fine, also provides for safeguards to protect drawers of such instruments where dishonour may take place for reasons other than those arising out of dishonest intentions. It envisages service of a notice upon the drawer of the instrument calling upon him to make the payment covered by the cheque and permits prosecution only after the expiry of the statutory period and upon failure of the drawer to make the payment within the said period.[6]<\/a><\/p>\n Negotiable Instruments Act, 1881<\/strong><\/span><\/p>\n Section 138.<\/span>\u00a0Dishonour of cheque for insufficiency, etc., of funds in the account<\/em><\/strong>.<\/em>\u2014Where 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 provision of this Act, be punished with imprisonment for a term which may extend to\u00a0two years, or with fine which may extend to twice the amount of the cheque, or with both:<\/p>\n Provided that nothing contained in this section shall apply unless \u2014<\/p>\n (a<\/em>) the cheque has been presented to the bank within a period of six months*<\/a>\u00a0from the date on which it is drawn or within the period of its validity, whichever is earlier;<\/p>\n (b<\/em>) 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,\u00a0within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and<\/p>\n (c<\/em>) 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.<\/p>\n Explanation<\/em>.\u2014For the purposes of this section, \u201cdebt or other liability\u201d means a legally enforceable debt or other liability.<\/p>\n Classification of Offence<\/strong><\/span><\/p>\n An offence committed under Section 138 is a non-cognizable offence (a case in which a police officer cannot arrest the accused without an arrest warrant). Also, it is a bailable offence.<\/p>\n Cases<\/strong><\/span><\/p>\n Ingredients<\/strong><\/span><\/p>\n The ingredients of the offence under Section 138 are:<\/p>\n (a<\/em>)\u00a0 cheque is drawn by the accused on an account maintained by him with a banker;<\/p>\n (b<\/em>)\u00a0 the cheque amount is in discharge of a debt or liability; and<\/p>\n (c<\/em>)\u00a0 <\/em>the cheque is returned unpaid for insufficiency of funds or that the amount exceeds the arrangement made with the bank, the offence standing committed the moment the cheque is returned unpaid.<\/p>\n Further steps laid down by way of the proviso are distinct from the ingredients of the offence which the enacting provision creates and makes punishable. Thus, an offence within the contemplation of Section 138 is complete with the dishonour of the cheque but taking cognizance of the same by any court is forbidden so long as the complainant does not have the cause of action to file a complaint in terms of clause (c<\/em>) of the proviso read with Section 142, Dashrath Rupsingh Rathod<\/em> v. State of Maharashtra<\/em>, (2014) 9 SCC 129<\/a>.<\/p>\n \u00a0<\/strong>Conditions precedent for constituting an offence under S. 138<\/strong><\/span><\/p>\n There are three distinct conditions precedent, which must be satisfied before the dishonour of a cheque can constitute an offence and become punishable.<\/p>\n (i<\/em>) The\u00a0cheque ought to have been presented to the bank within a period of 6 months [3 months]*<\/a> from the date on which it is drawn or within the period of its validity, whichever is earlier.<\/p>\n (ii<\/em>) The\u00a0 payee or the holder in due course of the cheque, as the case may be, ought to make a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid.<\/p>\n (iii<\/em>) The drawer of such a cheque should have failed to make 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 15 days of the receipt of the said notice.<\/p>\n It is only upon the satisfaction of all the three conditions mentioned above and enumerated under the proviso to Section 138 as clauses (a<\/em>), (b<\/em>) and (c<\/em>) thereof that an offence under Section 138 can be said to have been committed by the person issuing the cheque, MSR Leathers<\/em> v. S. Palaniappan<\/em>, (2013) 1 SCC 177<\/a>.<\/p>\n \u00a0<\/strong>Sentence<\/strong><\/span><\/p>\n The sentence prescribed under Section 138 is up to two years or with fine which may extend to twice the amount or with both. What needs to be noted is the fact that power under Section 357(3) CrPC<\/a> to direct payment of compensation is in addition to the said prescribed sentence, if sentence of fine is not imposed. The direction to pay compensation can be enforced by default sentence under Section 64 IPC<\/a> \u00a0and by recovery procedure prescribed under Section 431 CrPC<\/a>, Meters and Instruments (P) Ltd. <\/em>v. Kanchan Mehta<\/em>, (2018) 1 SCC 560<\/a>.<\/p>\n \u00a0<\/strong>Compounding of offence [recording of compromise between the parties]<\/span><\/strong><\/span><\/p>\n Section 147<\/a> makes offence punishable under the provisions of NI Act compoundable.<\/p>\n If the original complainant comes to the Court and says that he is withdrawing himself from prosecution on account of compromise and he has compounded the matter, then the conviction and sentence have to be set aside. No formal permission to compound the offence is required, Rameshbhai Sombhai Patel<\/em> v. Dineshbhai Achalanand Rathi<\/em>, 2004 SCC OnLine Guj 469<\/a>.<\/p>\n Though compounding requires consent of both parties, even in absence of such consent, the court, in the interests of justice, on being satisfied that the complainant has been duly compensated, can in its discretion close the proceedings and discharge the accused, Meters and Instruments (P) Ltd. v. Kanchan Mehta<\/em>, (2018) 1 SCC 560<\/a>.<\/p>\n \u00a0<\/strong>Quashing of complaint by the High Court under S. 482 CrPC <\/strong><\/span>[inherent powers]\u00a0<\/span><\/strong><\/p>\n If an accused wants the process under Sections 138 and 141 to be quashed by filing a petition under Section 482 CrPC<\/a> , he must make out a case that making him stand the trial would be an abuse of process of court, Gunmala Sales (P) Ltd. <\/em>v. Anu Mehta<\/em>, (2015) 1 SCC 103<\/a>.<\/p>\n Where to file a case for S. 138 offence?<\/strong><\/span><\/p>\n If cheque delivered for collection through an account<\/em><\/strong><\/span><\/p>\n If the cheque is delivered for collection through an account, the case will be tried by the court not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class within whose local jurisdiction the branch of the bank where the payee or holder in due course, as the case may be, maintains the account<\/em> is situated. [Section 142(2)(a<\/em>)<\/a>]<\/p>\n \u00a0<\/em><\/strong>If cheque presented for payment by payee or holder in due course otherwise through an account<\/em><\/strong><\/span><\/p>\n In such a situation, the case will be tried by the court not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class within whose local jurisdiction the branch of the drawee bank where the drawer of the cheque maintains the account<\/em> is situated. [Section 142(2)(b<\/em>)<\/a>]<\/p>\n Debt or other liability<\/strong><\/span><\/p>\n Explanation to Section 138 <\/a>is abundantly clear that the dishonoured cheque must have been received by the complainant against a “legally enforceable debt or liability”, Nanda<\/em> v. Nandkishor<\/em>, 2010 SCC OnLine Bom 54<\/a>.<\/p>\n Liability of a guarantor<\/em><\/strong><\/span><\/p>\n The words “any cheque” and “other liablity” in Section 138 clarifies the legislative intent. If the cheque is given towards any liability which may have been incurred even by someone else (such as in a case of a guarantor), the person who draws the cheque is liable for prosecution in case of dishonour of the cheque, ICDS Ltd.<\/em> v. Beena Shabeer<\/em>, (2002) 6 SCC 426<\/a>.<\/p>\n Mens rea not required for offence under S. 138<\/strong><\/span><\/p>\n The objective of Parliament was to strengthen the use of cheques, distinct from other negotiable instruments, as mercantile tender and therefore it became essential for Section 138 to be freed from the requirement of proving mens rea [guilty state of mind]. This has been achieved by deeming the commission of an offence dehors mens rea not only under Section 138 but also by virtue of the succeeding two sections. Section 139<\/a> \u00a0carves out the presumption that the holder of a cheque has received it for the discharge of any liability. Section 140<\/a> clarifies that it will not be available as a defence to the drawer that he had no reason to believe, when he issued the cheque, that it would be dishonoured, Dashrath Rupsingh Rathod<\/em> v. State of Maharashtra<\/em>, (2014) 9 SCC 129<\/a>.<\/p>\n Can a case be filed if the cheque is presented for encashment more than once?<\/strong><\/span><\/p>\n The holder or payee of the cheque may present the cheque for encashment on any number of occasions within the period of its validity [three months from the date of issue]. A dishonour, whether based on a second or any successive presentation of a cheque for encashment, would be a dishonour within the meaning of Section 138, MSR Leathers <\/em>v. S. Palaniappan<\/em>, (2013) 1 SCC 177<\/a>.<\/p>\n “Stop payment” instructions by the drawer<\/strong><\/span><\/p>\n A complaint under Section 138 can be made not only when the cheque is dishonoured for reason of funds being insufficient to honour the cheque or if the amount of the cheque exceeds the amount in the account, but also where the drawer of the cheque instructs its bank to “stop payment”. If the accused shows that in his account there were sufficient funds to clear the amount of the cheque at the time of presentation of the cheque and that the stop-payment notice had been issued because of other valid causes, then offence under Section 138 would not be made out, MMTC Ltd.<\/em> v. Medchl Chemicals and Pharma (P) Ltd.<\/em>, (2002) 1 SCC 234<\/a>.<\/p>\n Case of a post-dated cheque<\/em><\/strong><\/span><\/p>\n On the faith of payment by way of a post-dated cheque, the payee alters his position by accepting the cheque. If stoppage of payment before the due date of the cheque is allowed to take the transaction out of the purview of Section 138, it will shake the confidence which a cheque is otherwise intended to inspire regarding payment being available on the due date, Goaplast (P) Ltd.<\/em> v. Chico Ursula D’Souza<\/em>, (2003) 3 SCC 232<\/a>.<\/p>\n “Account closed” by the drawer<\/strong><\/span><\/p>\n Return of a cheque on account of account being closed would be similar to a situation where the cheque is returned on account of insufficiency of funds in the account of the drawer of the cheque which squarely brings the case within Section 138, NEPC Micon Ltd.\u00a0<\/em>v.\u00a0Magma Leasing Ltd.<\/em>, (1999) 4 SCC 253<\/a>.<\/p>\n “Signatures do not match”<\/strong><\/span><\/p>\n The expression \u201camount of money \u2026 is insufficient\u201d appearing in Section 138 of the Act is a genus and dishonour for reasons such as \u201caccount closed\u201d, \u201cpayment stopped\u201d, \u201creferred to the drawer\u201d are only species of that genus. Just as dishonour of a cheque on the ground that the account has been closed is a dishonour falling in the first contingency referred to in Section 138, so also dishonour on the ground that the \u201csignatures do not match\u201d or that the \u201cimage is not found\u201d, would constitute a dishonour within the meaning of Section 138 of the Act, Laxmi Dyechem<\/em> v. State of Gujarat<\/em>, (2012) 13 SCC 375<\/a>.<\/p>\n Notice under S. 138<\/strong><\/span><\/p>\n When the notice is sent by registered post by correctly addressing the drawer of the cheque, the mandatory requirement of issue of notice in terms of clause (b<\/em>) of proviso to Section 138 of the Act stands complied with. It is needless to emphasise that the complaint must contain basic facts regarding the mode and manner of the issuance of notice to the drawer of the cheque, C.C. Alavi Haji<\/em> v. Palapetty Muhammed<\/em>, (2007) 6 SCC 555<\/a>.<\/p>\n Presumption as to service of Notice<\/em><\/strong><\/span><\/p>\n It is clear from Section 27 of the General Clauses Act, 1897<\/a> and Section 114 of the Evidence Act, 1872<\/a> that once notice is sent by registered post by correctly addressing to the drawer of the cheque, the service of notice is deemed to have been effected. However, the drawer is at liberty to rebut this presumption, N. Parameswaran Unni<\/em> v. G. Kannan<\/em>, (2017) 5 SCC 737<\/a>.<\/p>\n \u00a0<\/strong>What if addressee refuses to receive Notice<\/em><\/strong><\/span><\/p>\n The Supreme Court in a catena of cases has held that when a notice is sent by registered post and is returned with postal endorsement \u201crefused\u201d or \u201cnot available in the house\u201d or \u201chouse locked\u201d or \u201cshop closed\u201d or \u201caddressee not in station\u201d or “intimation served, addressee absent”, due service has to be presumed, N. Parameswaran Unni<\/em> v. G. Kannan<\/em>, (2017) 5 SCC 737<\/a>.<\/p>\n Payment may be made within 15 days of receiving summons if Notice not received<\/em><\/strong><\/span><\/p>\n Any drawer who claims that he did not receive the notice sent by post, can, within 15 days of receipt of summons from the court in respect of the complaint under Section 138, make payment of the cheque amount and submit to the court that he had made payment within 15 days of receipt of summons (by receiving a copy of complaint with the summons) and, therefore, the complaint is liable to be rejected, C.C. Alavi Haji<\/em> v. Palapetty Muhammed<\/em>, (2007) 6 SCC 555<\/a>.<\/p>\n \u00a0<\/strong>Presumption under S. 139<\/strong><\/span><\/p>\n Once the execution of cheque is admitted, Section 139<\/a> creates a presumption that the holder of a cheque receives the cheque in discharge, in whole or in part, of any debt or other liability, Basalingappa<\/em> v. Mudibassapa<\/em>, 2019 SCC OnLine SC 491<\/a>.<\/p>\n This presumption is no doubt rebuttable at trial but there is no gainsaying that the same favours the complainant and shifts the burden to the drawer of the instrument (in case the same is dishonoured) to prove that the instrument was without any lawful consideration, Laxmi Dyechem<\/em> v. State<\/em> of Gujarat<\/em>, (2012) 13 SCC 375<\/a>.<\/p>\n Note<\/em>: Presumption under Section 139 is frequently read with Section 118<\/a> providing presumption of consideration, presumption as to date on the instrument, etc.<\/p>\n Case of a blank cheque<\/em><\/strong><\/span><\/p>\n If a signed blank cheque is voluntarily handed over to a payee, towards some payment, the payee may fill up the amount and other particulars. This in itself would not invalidate the cheque. The onus would still be on the accused to prove that the cheque was not in discharge of a debt or liability by adducing evidence. It is immaterial that the cheque may have been filled in by any person other than the drawer, if the cheque is duly signed by the drawer, Bir Singh <\/em>v. Mukesh Kumar<\/em>, (2019) 4 SCC 197<\/a>.<\/p>\n Case of a fiduciary relationship between complainant and accused<\/em><\/strong><\/span> [relationship of trust and confidence]<\/span><\/strong><\/p>\n The existence of a fiduciary relationship between the payee of a cheque and its drawer, would not disentitle the payee to the benefit of the presumption under Section 139, in the absence of evidence of exercise of undue influence or coercion, Bir Singh <\/em>v. Mukesh Kumar<\/em>, (2019) 4 SCC 197<\/a>.<\/p>\n \u00a0<\/strong>Rebutting the presumption<\/em><\/strong><\/span><\/p>\n