Earlier to 1988 the dishonour of cheque was only a civil liability. But the amendment introduced by Amendment Act No.66/1988 which was published in the gazette of India part-II, dated 19.12.1988, introduced Section 138 and 142 of the Negotiable Instruments Act which made it a criminal offence. This amendment was a new offence in the commercial filed, it was brought out of necessity in order to bring sanctity to the common business transactions
What amounts to an offence u/s.138 of Negotiable Instrument Act:
Section 138 reads as follows
“….138. Dishonour of cheque for insufficiency, etc., of funds in the accounts
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 a term which may extend to one year, 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, within fifteen 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 purpose of this section, "debt or other liability" means a legally enforceable debt or other liability.”
Thus Section 138 of N.I.Act, states that when a person issues a cheque to be encashed and the cheque so issued is issued towards payment of a ‘debt’ or liability and it is returned unpaid for want of funds, the person issuing such a cheque shall be deemed to have committed an offence. Section 138 presupposes three conditions for prosecution of an offence they are:
a. Cheque shall be presented for payment within six months from the date of issue or before expiry of its validity.
b. The holder shall issue notice demanding payment in writing to the drawer with in one month of the receipt of information of the bounced cheque, and
c. The drawer inspite of the demand notice fails to make payment within one month of the receipt of the notice.
If the above three conditions are satisfied the holder in due course gets the cause of action to launch prosecution against the drawer of the bounced cheque.
How should the complaint for dishonour of cheque be lodged for the offence punishable u/s.138 of the Negotiable Instrument Act?
Sec.142 of the Act envisages the method of lodging the complaint for the offence punishable u/s.138 of the Negotiable Instrument Act.
Cognizance of offences:
As per this Section notwithstanding anything contained in the Code of Criminal Procedure:
a. no court shall take cognizance of any offence punishable u/s.138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque,
b. such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to Sec.138,
[Provided that the cognizance of the complaint may be taken by the court after the prescribed period, if the complainant satisfies the court that he had sufficient cause for not making a complaint within such period]
c. no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the First Class shall try any offence punishable u/s.138.
The cases filed under sec.138 of the Negotiable Instrument Act are tried summarily. Thus for an offence to be made out and to set the criminal law in motion for the offence punishable u/s.138 of the Negotiable Instrument Act One should lodge a complaint in writing made within 30 days from the date of cause of action by the payee or holder in due course has to file a complaint before the Jurisdictional court u/s.200 of Cr.P.C.. When the complaint is presented for the said offence the court has to follow the procedure prescribed u/s.200 of Cr.P.C[i]. Which reads as follows
If the complaint so filed is made within limitation(time) and preconditions prescribed u/s.138 are complied with, court has to take cognizance of the offence and record sworn statement, then process shall be issued to the accused. The Magistrate shall not refer the complaint to the police for investigation u/s.156(3) of Cr.P.C. as the offence u/s.138 of the Negotiable Instrument Act is non-cognizable offence[ii].
Presumption regarding the offence u/s.138 of Negotiable Instrument Act in favour of holder:
When a complaint is file under Section 138 the court presumes that unless contrary is proved, the holder of cheque received the notice and failed to make necessary payment as referred to in Sec.138 for the discharge in whole or in part any legally valid ‘debt’ or ‘liability’. So, there is presumption that
The Supreme Court[iii] has held that even though a complaint is presented prematurely, the Court need not dismiss it and on the other hand it should wait till maturity or it may return the complaint to the complainant for presenting it later. The same matter again arose in a different situation before the Hon’ble High Court of karnataka[iv] . In that case, after trial, the Magistrate dismissed the complaint on the ground that it was premature and acquitted the accused. Before the Hon’ble High Court, relying upon Narasingh Das Tapadia’s case, it was contended that the Magistrate was bound to return the complaint when it was premature. But the Hon’ble High Court did not accept that contention and held that it was not mandatory for the Magistrate to return the complaint on the ground that it was premature and in that situation he had no alternative except to acquit the accused.
HOW MANY TIMES CHEQUE COULD BE PRESENTED?
A Division bench of our Hon’ble High Court of Karnataka[v] has held that till the expiry of the period of validity i.e.., 6 months a cheque could be presented any number of times, but, however, successive notices for purposes of determining the cause of action are not contemplated and therefore the complaint will have to be filed within one month from the date on which the cause of action arises. Similar is the view taken by the Supreme Court in the decision reported in AIR 1998 SC 3043 (SADANANDAN BHADRAN VS. MADHAVAN SUNIL KUMAR). In that case it is held that though a cheque can be presented any number of times during the period of its validity, the cause of action to file the complaint arises only once. In 2001 AIR SCW 2567=AIR 2001 SC 2825 (M/S. UNIPLAS INDIA LTD., VS. STATE (Govt. of NCT of Delhi), on facts the decision in ILR 1998 sC 3043 has been distinguished and it has been held that if within 15 days, notice of dishonour is not issued by the complainant, then he can create a fresh cause of action by presenting the cheque again.
NOTICE OF DISHONOUR:
It is held[vi] by courts that if the notice is not signed by the Advocate, it cannot be said that it is no notice. Further it has also been held that what is required under Sec.138(b) is that the notice of dishonour of cheque should be given within 15 days from the date of receipt of information from the bank and it is not necessary that the notice also should be served on the accused within the said 15 days. The Supreme Court in (SUMAN SETHI VS.
In the decision reported in 1997 (3) KLJ 271 (M/s. SAVITHA ENTERPRISES VS. K.RAVINDRA NATH SHETTY) the Hon’ble High Court has held that what is required is that a complaint is to be presented within 30 days from the date on which the cause of action arises and if at the request of the drawee the cheque is presented again and it is bounced, it cannot be contended by the accused that a fresh notice should have been issued when the cheque was dishonoured again.
In ILR 1998 Kar. 1841 (SRIDHAR M.A. VS. METALLOY N. STEEL CORPORATION) and 1999 Cri.L.J. 4606 (K.BHASKARAN VS. VAIDHYAN BALAN) the Supreme Court was concerned with the question as to when the service of notice could be inferred and it was held that if there is an endorsement like “not available in the house”, “house locked”, “shop closed”, “un claimed”, the service should be deemed to have been effected. These decisions of the Supreme Court have been recently followed by our Hon’ble High Court in the decision reported in ILR 2000 Kar. 1255 (A. SATHYANARAYANA VS. C. NAGARAJA) in which case the notice of dishonour was returned with an endorsement that the accused was not found on all the seven dates on which it was taken for service.
POWERS AND LIABILITIES OF POWER OF ATTORNEY HOLDER:
In ILR 1997 Kar. 1747 (P.A. VERGHEES VS. M/S. CAMPION BUSINESS ASSOCIATES PVT. LTD.,) it was held that a complaint presented by a power of attorney holder is valid. In ILR 2001 Kar. 2833 (S.RAMESH VS.
In ILR 1999 Kar. 1655 (
CAN THE DIRECTORS OF A COMPANY BE PROSECUTIED UNDER SECTION 138 FOR DISHONOUR OF CHEQUE:
The question whether it is permissible to prosecute all the directors of the company for an offence under Sec 138 of the N.I. Act was considered by our Hon’ble High Court in the decision reported in ILR 1997 Kar. 3239 = 1998 (2) KLJ 337 (NUCOR WIRES LTD., & OTHERS VS. H.M.T. (INTERNATIONAL) LTD.,) and it has been held that to launch a prosecution against the Directors of the company, there must be specific allegation in the complaint as to the part played by them in the transaction. Further, it is held that if the cheque is issued by the Managing Director who represents the company, then the case can be proceeded only against the company and the Managing Director. It is also stated that the Court has to find out as to who are all the persons incharge of and responsible for the conduct of the business of the company or firm as the case may be.
In AIR 2000 SC 145 (ANIL HADA VS.INDIAN ACRYLIC LTD.,) it was held that if a company could not be prosecuted for any reason, (in that case winding up proceedings had been ordered) there was no bar to proceed against the Directors, but, however, in such a case the complainant had to establish that the offence was actually committed by the company. It is also held in that case that in such a case, the accused can show that the company has not committed the offence though it is not made an accused and hence the accused who has been prosecuted is not liable to be punished. It is further held that prosecution of the company is not a sine quo non for prosecution of the other persons.
In ILR 2000 Kar. 1415 (R.GURUSWAMY VS. M/S. BALAJI COTTON INDUSTRIES) one of the directors of the company had issued cheques in question and the notice was issued calling upon the company to make good the amount for which the cheques had been issued. A contention was urged that the particular director alone could not have been prosecuted. The contention was overruled by the Hon’ble High Court and it was observed as to what was the consequence of not impleading the other directors was not a thing which could be speculated upon, at the stage of issuing process.
NEED FOR PERMISSION U/S. 84(4) OF KARNATAKA AGRICULTURAL PRODUCE MARKETING (REGULATION) ACT, 1966
In ILR 1999 Kar. 4020 (M/S. S.B. NAGARAJ AND COMPANY VS. M/S. SRI GANESH OIL MILL) the
BURDEN OF PROOF AND PRESUMPTION:
In ILR 2000 Kar. 1570 (
MAINTAINABILITY OF COMPLAINT FOR OFFENCES UNDER SECS. 406 AND 420 IPC WHEN PROCEEDINGS UNDER SEC.138 OF N.I. ACT ARE PENDING:
In AIR 2000 SC 754 (G.SAGAR SURI VS. STATE OF
SOME SITUATIONS WHERE OFFENCE U/S. 138 OF N.I. ACT CAN BE SAID TO HAVE BEEN COMMITTED THOUGH NOT SPECIFICALLY MENTIONED IN THE SECTION:
In ILR 1998 Kar. 2657 = AIR 1998 SC 1057 (M/S. MODI CEMENTS LTD., VS. KUCHIL KUMAR NANDAN) it has been held by the Supreme Court that when a cheque is dishonoured on the ground that the drawer had given instructions to the Banker to stop payment, it would amount to an offence U/s. 138 of the Act, following two earlier decisions of the same Court.
In ILR 1999 Kar. 4383 (NEPC MICOR LTD., AND OTHERS VS. MAGNA LEASING L TD.,) the Supreme Court has held that if the cheque is dishonoured with an endorsement “account closed’ a prosecution for an offence U/s. 138 of the N.I. Act is maintainable. This decision has been followed in 2001 (4) KLJ 122 = ILR 2001
In ILR 2001 Kant. 4079 (SWATHI INDUSTRIES VS. HITESH TRADERS) it has been held that the accused who run a partnership give a cheque in respect of one partnership for the amount due in respect of the other partnership which is also run by them, and if the cheque is dishonoured, still proceedings can be initiated under Sec.138 against the accused.
REGARDING THE FINE TO BE IMPOSED:
In 1999 Cri.L.J. 4606 = AIR 1999 SC 3762 (K.BHASKARAN VS. SHANKARAN VAIDYAN BALAN) it has been held by the Supreme Court that in view of the provisions of Sec.29 Cr.P.C. a Magistrate cannot impose a fine exceeding Rs.5,000/- for an offence U/s. 138 of the Act, but, however the Magistrate can take resort to Sec.357(3) Cr.P.C. where no limit is prescribed on the amount of compensation which could be awarded. The view taken in this decision has been reiterated subsequently in AIR 2001 SC 567 (PANKAJBHAI NAGAJIBHAI PATEL VS. STATE OF
ILR 2004 Kar. 4505 (V. SATYANARAYANA V/s. M/S. SANDEEP ENTERPRISES)
Negotiable Instrument Act – Sec.138 – Whether the complaint filed u/s.138 of the Negotiable Instrument Act forms part of the record or whether the same has to be marked as an exhibit as held in the judgment “G. PREMDAS V/s. VENKAT RAM (2001(1) KCCR 437)” or whether mere non-marking of the complaint is fatal – Held – The complaint filed u/s.138 of N.I.Act forms part of the record and hence, the same is not required to be marked as exhibit and mere not marking of the complaint would not be fatal to the complainants case – The judgment in the case G. PREMDAS V/s. VENKAT RAM (2001(1) KCCR 437) is no more good law.
As per this decision the complaint is not a document relayed on by complainant in support of his case and as such to rely on or use it, it need not be marked as exhibit since, being part of the record.
ILR 2004 Kar. 4423 (GOA PLAST (P) LTD. V/s.
Negotiable Instrument Act – Sec.138, 139 & 142 – Stop payment instruction in case of post dated cheques – Whether presumption u/s.139 could be invoked – Cheques issued towards repayment of amount misappropriated by respondent – Subsequent letter admitting liability but not responsibility for that liability – On facts and evidence presumption u/s.139 could be invoked.
The object and the ingredients under the provisions of Secs.138 & 139 of the Act cannot be ignored. Proper and smooth functioning of all business transaction, particularly, cheques as instruments, primarily depends upon the integrity and the honesty of the party. In our Country, in large number of commercial transaction, it was noted that the cheques were issued even merely as a device not only to stall but even to defraud the creditors. The sanctity and credibility of issuance of cheques in commercial transaction was eroded to a large extent. Undoubtedly, dishonour of a cheque by the bank causes incalculable loss, injury and inconvenience to the payee and the entire credibility of the business transaction within and outside the Country suffers a serious set back. The Parliament, in order to restore the credibility of cheques as a trustworthy substitute for cash payment enacted the aforesaid provisions. The remedy available in a civil court is a long drawn matter and an unscrupulous drawer normally takes various pleas to defeat the genuine claim of the payee.
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[i] Sec. 200 Examination of Complainant
AMagistrate taking cognizance of an offence on complainat shall examine upon oath the complainant and the withnesses present, if any, and the substance of such examinationshall be reduced to writing and shall be signed by the complainant and the witnesses and also by the magistrate:
Provided that, when the complainant is made in writing, the Magistrate need not examine the complainant and the witness
a. if a public servant acting or purporting to act in the discharge of his official duties of a court has made the complaint or
b. if the magistrate makes over the cse for enquiry or trial to another Magistrate under Sectio 192.
Provided further that if the Magistrte makes over the case to another Magistrate under Section 192 after examining the complainant and the witnesses the latter Magistrate need not re-examine them.
[ii] In this regard the Hon'ble High Court of Karnataka in a decision reported in ILR 1991 Kar. 612 (M. Mohan V/s. State of
[iii] In AIR 2000 SC 2946 = 2000 AIR SCW 3268 (NARASINGH DAS TAPADIA VS. GOVARDHAN DAS PARTANI)
[iv] ILR 2001 Kant. 3866 (ISHWAR RAMAGUNAGA VS. RAMADAS
[v] ILR 1998 Kar. 333 = 1998 (2) KLJ 1 (Y.KRISHNAMURTHY VS. SHARANAPPA)
[vi] ILR 1996 Kar. 1219 = 1996(2) KLJ 162 (SATHYANARAYANA GOWDA VS. RANGAPPA)
[vii] AIR 2000 SC 828
[viii] ILR 2000 Kar. 1570 (