Category Archives: Negotiable Instruments Act

Negotiable Instruments Act – Deposit of 20% of Fine

Amended Section 148 of the Negotiable Instruments Act confers power upon the appellate court to pass an order pending appeal to direct the appellant-accused to deposit the sum which shall not be less than 20% of the fine or compensation either on an application filed by the original complainant or even on the application filed by the appellant-accused under Section 389 Criminal Procedure Code to suspend the sentence. The aforesaid is required to be construed considering the fact that as per the amended Section 148 of the Negotiable Instruments Act, a minimum of 20% of the fine or compensation awarded by the trial court is directed to be deposited and that such amount is to be deposited within a period of 60 days from the date of the order, or within such further period not exceeding 30 days as may be directed by the appellate court for sufficient cause shown by the appellant. Therefore, if amended Section 148 of the Negotiable Instruments Act is purposively interpreted in such a manner it would serve the Objects and Reasons of not only amendment in Section 148 of the Negotiable Instruments Act, but also Section 138 of the Negotiable Instruments Act. The Negotiable Instruments Act has been amended from time to time so as to provide, inter alia, speedy disposal of cases relating to the offence of the dishonour of cheques. So as to see that due to delay tactics by the unscrupulous drawers of the dishonoured cheques due to easy filing of the appeals and obtaining stay in the proceedings, an injustice was caused to the payee of a dishonoured cheque who has to spend considerable time and resources in the court proceedings to realise the value of the cheque and having observed that such delay has compromised the sanctity of the cheque transactions, Parliament has thought it fit to amend Section 148 of the Negotiable Instruments Act. Therefore, such a purposive interpretation would be in furtherance of the Objects and Reasons of the amendment in Section 148 of the Negotiable Instruments Act and also Section 138 of the Negotiable Instruments Act. Surinder Singh Deswal v. Virender Gandhi, (2019) 11 SCC 341

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Dishonour of Cheque – Statutory Presumption

A dishonor of cheque carries a statutory presumption of consideration. The holder of cheque in due course is required to prove that the cheque was issued by the accused and that when the same presented, it was not honoured. Since there is a statutory presumption of consideration, the burden is on the accused to rebut the presumption that the cheque was issued not for any debt or other liability. There is the mandate of presumption of consideration in terms of the provisions of the Negotiable Instruments Act. The onus shifts to the accused on proof of issuance of cheque to rebut the presumption that the cheque was issued not for discharge of any debt or liability in terms of Section 138 of the Negotiable Instruments Act. Uttam Ram v. Devinder Singh Hudan, (2019) 10 SCC 287.

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Negotiable Instruments Act, Section 139 – Rebuttable Presumption

Once the execution of cheque is admitted Section 139 of the Negotiable Instruments Act mandates a presumption that the cheque was for the discharge of any debt or other liability. The presumption under Section 139 is a rebuttable preumption and the onus is on the accused to raise the probable defence. The standard of proof for rebutting the presumption is that of preponderance of probabilities.

        To rebut the presumption, it is open for the accused to rely on evidence led by him or the accused can also rely on the materials submitted by the complainant in order to raise a probable defence. Inference of preponderance of probabilities can be drawn not only from the materials brought on record by the parties but also by reference to the circumstances upon which they rely.

        It is not necessary for the accused to come in the witness box in support of his defence, Section 139 imposed an evidentiary burden and not a pervasive burden.

        It is not necessary for the accused to come in the witness box to support his defence.  Basalingappa v. Mudibasappa, (2019) 5 SCC 418.

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Filed under Negotiable Instruments Act, Rebuttable Presumption

Dishonour of Cheque – Company to be Arraigned As Accused

In N. Harihara Krishnan v. J. Thomas [N. Harihara Krishnan v. J. Thomas, (2018) 13 SCC 663 adverting to the ingredients of Section 138 of the Negotiable Instruments Act, the Hon’ble Apex Court observed as follows:

“Obviously such complaints must contain the factual allegations constituting each of the ingredients of the offence under Section 138. Those ingredients are: (1) that a person drew a cheque on an account maintained by him with the banker; (2) that such a cheque when presented to the bank is returned by the bank unpaid; (3) that such a cheque was presented to the bank within a period of six months from the date it was drawn or within the period of its validity whichever is earlier; (4) that the payee demanded in writing from the drawer of the cheque the payment of the amount of money due under the cheque to payee; and (5) such a notice of payment is made within a period of 30 days from the date of the receipt of the information by the payee from the bank regarding the return of the cheque as unpaid.”

The provisions of Section 141 postulate that if the person committing an offence under Section 138 is a company, every person, who at the time when the offence was committed was in charge of or was responsible to the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished.

In the absence of the company being arraigned as an accused, a complaint against the appellant was therefore not maintainable. The appellant had signed the cheque as a Director of the company and for and on its behalf. Moreover, in the absence of a notice of demand being served on the company and without compliance with the proviso to Section 138, the High Court was in error in holding that the company could now be arraigned as an accused. Himanshu v. B. Shivamurthy, (2019) 3 SCC 797.

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Filed under Company to be Arraigned, Dishonour of Cheque

Prosecution Based on Second or Successive Default – In Payment of Cheque Amount

The object of Section 138 of the Negotiable Instruments Act is to infuse credibility to negotiable instruments including cheques and to encourage and promote the use of negotiable instruments including cheques in financial transactions. The penal provision of Section 138 of the Negotiable Instruments Act is intended to be a deterrent to callous issuance of negotiable instruments such as cheques without serious intention to honour the promise implicit in the issuance of the same.

        Having regard to the object of Section 138 of the Negotiable Instruments Act, a prosecution based on a second or successive default in payment of the cheque amount is not impermissible simply because no statutory notice had been issued after the first default and no proceeding for prosecution had been initiated. As held in MSR Leathers v. S. Palaniappan, (2013) 1 SCC 177, there is no real or qualitative difference between a case where default is committed and prosecution immediately launched and another where the prosecution is deferred till the cheque presented again gets dishonoured for the second time or successive times. Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197.

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Dishonour of Cheque – Complaint Must Contain Factual Allegations

The scheme of the prosecution in punishing under Section 138 of the Negotiable Instruments Act  is different from the scheme of Cr.P.C. Section 138 creates an offence and prescribes punishment. No procedure for the investigation of the offence is contemplated. The prosecution is initiated on the basis of a written complaint made by the payee of a cheque. Obviously such complaints must contain the factual allegations constituting each of the ingredients of the offence under Section 138. Those ingredients are (1) that a person drew a cheque on an account maintained by him with the banker; (2) that such a cheque when presented to the bank is returned by the bank unpaid; (3) that such a cheque was presented to the bank within a period of six months from the date it was drawn or within the period of it validity whichever is earlier; (4) that the payee demanded in writing from the drawer of the cheque, the payment of the amount of money due under the cheque to payee; and (5) such a notice of payment is made within a period of 30 days from the date of receipt of the information by the payee from the bank regarding the return of the cheque as unpaid. It is obvious from the scheme of Section 138 of the Act, that each one of the ingredients flows from a document which evidences the existence of such an ingredient. The only other ingredient which is required to be proved to establish the commission of an offence under section 138 is that inspite of the demand notice referred to above, the drawer of the cheque failed to make the payment within a period of 15 days from the date of the receipt of the demand. A fact which the complainant can only assert but not prove, the burden would essentially be on the drawer of the cheque to prove that he had in fact made the payment pursuant to the demand. N. Harihara Krishnan v. J. Thomas, 2017 (101) ACC 690.

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Notice for Dishonour of Cheque – Requirements of

In the case of Suman Sethi v. Ajay K. Churiwal, (2000) 2 SCC 8, it was held as under:

       “It is a well settled principle of law that the notice has to be read as a whole. In the notice, demand has to be made for the “said amount”, i.e. the cheque amount. If no such demand is made, the notice no doubt would fall short of its legal requirement. Where in addition to the “said amount” there is also a claim by way of interest, cost etc. whether the notice is bad would depend on the language of the notice. If in a notice while giving the break-up of the claim, the cheque amount, interest, damages etc. are separately specified, other such claims for interest, cost etc. would be superfluous and these, additional claims would be severable and will not invalidate the notice. If, however, in the notice an omnibus demand is made without specifying what was due under the dishonoured cheque, the notice might well fail to meet the legal requirement and may be regarded as bad.”

          In the case of Suman Sethi v. Ajay K. Churiwal, (2000) 2 SCC 8, the Hon’ble Supreme Court has also referred to its judgment in the case of Central Bank of India v. Saxons Farms, 1999 (39) ACC 891 (SC) and held that the object of the notice is to give a chance to the drawer of the cheque to rectify his omission. Though in the notice demand for compensation, interest, cost etc. is also made, the drawer will be absolved from his liability under Section 138 if he makes the payment of the amount covered by the cheque of which he aware within 15 days from the date of receipt of the notice or before the complaint is filed. Hari Mohan Agrawal v. State of U.P., 2017 (101) ACC 843.

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Filed under Negotiable Instruments Act, Notice for Dishonour of Cheque

Offence of— Dishonour of Cheque

Proviso to Section 138 is all important and stipulates three distinct conditions precedent, which must be satisfied before the dishonor of a cheque can constitute and offence and become punishable. The first condition is that the cheque ought to have 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. The second condition is that the 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 thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid. The third condition is that 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 fifteen days of the receipt of the said notice. It is only upon the satisfaction of all the three conditions mentioned above and enumerated under the proviso to Section 138 as clauses (a), (b) and (c) thereof that an offence under Section 138 can be said to have been committed by the person issuing the cheque. Virendra Kumar Gupta v. State of U.P., 2016 (96) ACC 729.

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Filed under Negotiable Instruments Act, section 138, Uncategorized

Stop Payment Instructions – Burden of Proof

In MMTC Ltd. v. Medchl Chemicals and Pharma (P) Ltd., (2002) 1 SCC 234, it was held as under:
“Even when the cheque is dishonoured by reason of stop-payment instructions by virtue of Section 139 of the Negotiable Instruments Act, the court has to presume that the cheque was received by the holder for the discharge, in whole or in part, of any debt or liability. Of course this is a rebuttable presumption. The accused can thus show that the “stop-payment” instructions were not issued because of insufficiency or paucity of funds. 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 for encashment at the drawer bank and that the stop payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then offence under Section 138 would not be made out. The important thing is that the burden of so proving would be on the accused. A court cannot quash the complaint on this ground.” Pulsive Technologies Private Limited v. State of Gujarat, (2014) 13 SCC 18.

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Dishonour of Cheque – “Debt or Other Liability”

The Explanation appended to Section 138 of the Negotiable Instruments Act, 1881 explains the meaning of the expression “debt or other liability” for the purpose of Section 138. This expression means a legally enforceable debt or other liability. Section 138 treats dishonoured cheque as an offence, if the cheque has been issued in discharge of any debt or other liability. The Explanation leaves no manner of doubt that to attract an offence under Section 138, there should be a legally enforceable debt or other liability subsisting on the date of the drawal of the cheque. In other words, drawal of the cheque in discharge of an existing or past adjudicated liability is sine qua non for bringing an offence under Section 138. If a cheque is issued as an advance payment for purchase of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or otherwise, and material or goods for which purchase order was placed is not supplied, the cheque cannot be held to have been drawn for an existing debt or liability. The payment by cheque cannot be held to have been drawn for an existing debt or liability. The payment by cheque in the nature of advance payment indicates that at the time of drawal of cheque, there was no existing liability.
In Swastik Coaters (P) Ltd. v. Deepak Brothers, 1997 Cri LJ 1942 it was held as under:
“Explanation to Section 138 of the Negotiable Instruments Act clearly makes it clear that the cheque shall be relatable to an enforceable debt or liability and as on the date of the issuing of the cheque there was no existing liability in the sense that the title in the property had not passed on to the accused since the goods were not delivered.”
In Balaji Seafoods Exports (India) Ltd. v. Mac Industries Ltd., (1999) 1 CTC 6, it was held:
“Section 138 of the Negotiable Instruments Act makes it clear that where the cheque drawn by a person on 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 arrangement made with that bank, such person shall be deemed to have committed an offence under section 138 of the Act. The Explanation reads that for the purposes of this section, ‘debt or other liability’ means a legally enforceable debt or liability.”
In Magnum Avaition (P) Ltd. v. State, (2010) 172 DLT 91, it was held:
“The purpose of making or enabling Section 138 of the Negotiable Instruments Act was to enhance the acceptability of cheque in settlement of commercial transactions, to infuse trust into commercial transactions and to make a cheque as a reliable negotiable instrument and to see that the cheques of business transactions are not dishonoured. The purpose of Negotiable Instruments Act is to make an orderly statement of rules of law relating to negotiable instruments and to ensure that mercantile instruments should be equated with goods passing from one hand to other. The sole purpose of the Act would stand defeated if after placing order and giving advance payments, the stop payments are issued and orders are cancelled on the ground of pricing.
But, if a cheque is issued as an advance payment for purchase of the goods and for any reason whatsoever purchase order is not carried to its logical conclusion either because of its cancellation or otherwise and material or goods for which purchase order was placed is not supplied by the supplier, the cheque cannot be said to have been drawn for an existing debt or liability. Indus Airways (P) Ltd. v. Magnum Aviation (P) Ltd., (2014) 12 SCC 539.

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Filed under Dishonour of Cheque - "Debt or other liability", Negotiable Instruments Act