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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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.
(1)An offence under Section 138 of the Negotiable Instrument Act is committed no sooner a cheque drawn by the accused on an account being maintained by him in a bank for discharge of debt/liability is returned unpaid for insufficiency of funds or for the reason that the amount exceeds the arrangement made with the bank.
(2)Cognizance of any such offence is however forbidden under section 142 of the Negotiable Instrument Act except upon a complaint in writing made by the payee or holder of the cheque in due course within a period of one month from the date the cause of action accrues to such payee or holder under clause (c) of proviso to Section 138.
(3)The cause of action to file a complaint accrues to a complainant/payee/holder of a cheque in due course if —
(a)the dishonoured cheque is presented to the drawee bank within a period of six months from the date of its issue.
(b)If the complainant has demanded payment of cheque amount within thirty days of receipt of information by him from the bank regarding the dishonor of the cheque, and
(c)If the drawer has failed to pay the cheque amount within fifteen days of receipt of such notice.
(4)The facts constituting cause of action do not constitute the ingredients of the offence under Section 138 of the Act.
(5)The proviso to Section 138 simply postpones/defers institution of criminal proceedings and taking of cognizance by the Court till such time cause of action in terms of clause (c) of proviso accrues to the complainant.
(6)Once the cause of action accrues to the complainant, the jurisdiction of the Court to try the case will be determined by reference to the place where the cheque is dishonoured.
(7)The general rule stipulated under Section 177 CrPC applies to cases under Section 138 of the Negotiable Instruments Act. Prosecution in such cases can, therefore, be launched against the drawer of the cheque only before the court within whose jurisdiction the dishonor takes place except in situations where the offence of dichonour of the cheque punishable under Section 138 is committed alongwith other offences in a single transaction within the meaning of Section 220(1) read with Section 184 of the Code of Criminal Procedure or is covered by the provisions of Section 182(1) read with Sections 184 and 220 thereof. Dashrath Rupsingh Rathod v. State of Maharashtra, 2014 (86) ACC 882.
The Section 147 of Negotiable Instruments Act, 1881 reads as under:
47. Offences to be compoundable.—Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), every offence punishable under this Act shall be compoundable.”.
In a recent decision of the Supreme Court – J.K. Industries Ltd.and ohers v. Amarlal V. Jumani and another, reported in (2012) 3 SCC 255 : (2012) 2 SCC (Cri) 125, it was held as under:
“Section 147 of the N.I. Act came by way of an amendment. From the Statement of Objects and Reasons of the Negotiable Instruments (Amendment) Bill, 2001, which ultimately became Act 55 of 2002, these amendments were introduced to deal with large number of cases which were pending under the N.I. Act in various courts in the country. Considering the said pendency, a Working group was constituted to review Section 138 of the N.I. Act and make recommendations about changes to deal with such pendency. Pursuant to the recommendations of the Working Group, the aforesaid Bill was introduced in Parliament and one of the amendments introduced was “to make offences under the Act compoundable”.
Non-compoundable offences have become Compoundable
It is clear from a perusal of Statement of Objects and Reasons that offence under the N.I. Act which was previously non-compoundable in view of Section 320, sub-section (9) of the Code has now become compoundable. That does not mean that the effect of Section 147 is to obliterate all statutory provisions of Section 320 of the Code relating to the mode and manner of compounding of an offence. Section 147 will only override Section 320(9) of the Code insofar as offence under Section 147 of the N.I. Act is concerned.
Therefore, Section 147 of the N.I. Act must be reasonably construed to mean that as a result of the said Section, the offences under the N.I. Act are made compoundable, but the main principle of such compounding, namely, the consent of the person aggrieved or the person injured or the complainant cannot be wished away nor can the same be substituted by virtue of Section 147 of the N.I. Act.