Finding its place in Chapter XVII of Negotiable Instruments Act, 1881 (the Act), Section 138 pertains to dishonour of cheques for insufficiency, etc. of funds in the account. Dishonour of cheques is said to be an offence of private nature (offence between two parties not involving the State) and according to the said section, a person is deemed to have committed an offence if he has drawn a cheque which has been dishonoured due to lack of funds in the bank account.
ESSENTIALS:
ESSENTIALS:
Like every offence, the act of dishonour of cheque also has some essential elements. Provided hereinafter are the essential elements of offence as described u/s 138 of the Act:
1. The cheque is drawn by a person on an account maintained him in person;
2. The cheque is drawn in discharge of a legally enforceable debt or liability;
3. The cheque is presented for payment within the limitation period (3 months from the date of cheque); and
4. The cheque is returned by the Bank for want of funds in the bank account.
OBJECTIVE:
The Supreme Court of India in Electronics Trade & Technology Development Corporation Ltd., Secunderabad v. Indian Technologists & Engineers (Electronics) (P) Ltd. [(1996) 2 SCC 739], held that the object of bringing Section 138 on statute appears to be to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. Despite civil remedy, Section 138 intended to prevent dishonesty on the part of the drawer of negotiable instrument to draw a cheque without sufficient funds in his account maintained by him in a book and induce the payee or holder in due course to act upon it. It draws presumption that one commits the offence if he issues the cheque dishonestly.
PROCEDURAL ASPECTS:
1. Once the abovementioned conditions with regards to section 138 of the Act are fulfilled, the payee or holder-in due-course, as the case may be, would demand the payment of the said amount within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid.
2. When the drawer of the cheque fails to make payment of the said amount within 15 days of the said notice, such person shall be deemed to have committed an offence and shall, be punished with imprisonment for 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.
3. As laid down under section 142 (cognizance of offences) of the Act, no Court shall take cognizance of such offence except on a complaint, in writing, made by the payee or the holder in due course of the cheque, and the limitation period for making the complaint is one month of the date on which the cause of action arises. It is also provided in the said section that the offence is to be originally tried by no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate or a Judicial Magistrate of the First Class.
2. The cheque is drawn in discharge of a legally enforceable debt or liability;
3. The cheque is presented for payment within the limitation period (3 months from the date of cheque); and
4. The cheque is returned by the Bank for want of funds in the bank account.
OBJECTIVE:
The Supreme Court of India in Electronics Trade & Technology Development Corporation Ltd., Secunderabad v. Indian Technologists & Engineers (Electronics) (P) Ltd. [(1996) 2 SCC 739], held that the object of bringing Section 138 on statute appears to be to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. Despite civil remedy, Section 138 intended to prevent dishonesty on the part of the drawer of negotiable instrument to draw a cheque without sufficient funds in his account maintained by him in a book and induce the payee or holder in due course to act upon it. It draws presumption that one commits the offence if he issues the cheque dishonestly.
PROCEDURAL ASPECTS:
1. Once the abovementioned conditions with regards to section 138 of the Act are fulfilled, the payee or holder-in due-course, as the case may be, would demand the payment of the said amount within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid.
2. When the drawer of the cheque fails to make payment of the said amount within 15 days of the said notice, such person shall be deemed to have committed an offence and shall, be punished with imprisonment for 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.
3. As laid down under section 142 (cognizance of offences) of the Act, no Court shall take cognizance of such offence except on a complaint, in writing, made by the payee or the holder in due course of the cheque, and the limitation period for making the complaint is one month of the date on which the cause of action arises. It is also provided in the said section that the offence is to be originally tried by no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate or a Judicial Magistrate of the First Class.
With the growing number of cases in the said offence, it was realised by the Courts and Legislature alike that of the Act were found deficient in dealing with dishonour of cheques. Not only the punishment provided in the Act proved to be inadequate, the procedure prescribed for the Courts to deal with such matters was found to be cumbersome. The Courts were unable to dispose of such cases expeditiously in a time bound manner in view of the procedure contained in the Act. The Supreme Court of India, therefore in Indian Bank Association v. Union of India [2014 (5) SCC 590] laid down the guidelines to adopt necessary policy and legislative changes to deal with cases relating to dishonour of cheques so that the same are expeditiously disposed of in accordance with the intent of the Act.
The Act in view of the above was first amended in 1988 and then again in 2002 whereby sections 143-147 were added in the Act. The new provisions were incorporated with a view to encourage the culture of use of cheques and enhancing the credibility of the instrument. The said sections also intended to ease the procedural aspects and to ensure that genuine and honest bank customers are not harassed or put to inconvenience.
4. The offence, by virtue of section 143 (Power of Court to try cases summarily) of the Act, is now tried summarily and in accordance with sections 262-265 (summary trials) of the Criminal Procedure Code, 1973.
The interesting thing to be noted here is that although the Act provides for punishment of imprisonment up to 2 years or fine of amount double than that mentioned on the cheque, the Magistrate can only pass a sentence of imprisonment for a term not exceeding one year and an amount of fine exceeding five thousand rupees in the case of any conviction in a summary trial under this section. But if the Magistrate or the parties feel that the offence should not be tried summarily, the Magistrate shall after hearing the parties, record an order to that effect and thereafter recall any witness who may have been examined and proceed to hear or rehear the case in the manner provided by the said Code.
5. By virtue of section 145 (Evidence on Affidavit) and 146 (Banks’ slip prima facie evidence of certain facts) of the Act, the evidence for dishonour of cheque can be given on affidavit which can directly be cross-examined by the Counsel of the accused. The Court shall, on production of bank’s slip or memo having thereon the official mark denoting that the cheque has been dishonoured, presume the fact of dishonour of such cheque, unless and until such fact is disproved.
6. Section 147 of the Act is an overriding section and states that the offence of dishonour of cheque is compoundable offence, irrespective of anything mentioned in the Criminal Procedure Code, 1908.
SOURCES:
The Negotiable Instruments Act, 1881;
www.indiankanoon.org
The Act in view of the above was first amended in 1988 and then again in 2002 whereby sections 143-147 were added in the Act. The new provisions were incorporated with a view to encourage the culture of use of cheques and enhancing the credibility of the instrument. The said sections also intended to ease the procedural aspects and to ensure that genuine and honest bank customers are not harassed or put to inconvenience.
4. The offence, by virtue of section 143 (Power of Court to try cases summarily) of the Act, is now tried summarily and in accordance with sections 262-265 (summary trials) of the Criminal Procedure Code, 1973.
The interesting thing to be noted here is that although the Act provides for punishment of imprisonment up to 2 years or fine of amount double than that mentioned on the cheque, the Magistrate can only pass a sentence of imprisonment for a term not exceeding one year and an amount of fine exceeding five thousand rupees in the case of any conviction in a summary trial under this section. But if the Magistrate or the parties feel that the offence should not be tried summarily, the Magistrate shall after hearing the parties, record an order to that effect and thereafter recall any witness who may have been examined and proceed to hear or rehear the case in the manner provided by the said Code.
5. By virtue of section 145 (Evidence on Affidavit) and 146 (Banks’ slip prima facie evidence of certain facts) of the Act, the evidence for dishonour of cheque can be given on affidavit which can directly be cross-examined by the Counsel of the accused. The Court shall, on production of bank’s slip or memo having thereon the official mark denoting that the cheque has been dishonoured, presume the fact of dishonour of such cheque, unless and until such fact is disproved.
6. Section 147 of the Act is an overriding section and states that the offence of dishonour of cheque is compoundable offence, irrespective of anything mentioned in the Criminal Procedure Code, 1908.
SOURCES:
The Negotiable Instruments Act, 1881;
www.indiankanoon.org
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