All about Cheque Bounce Cases | Pankaj Kumar & Co. | Call @ +91-8800543454
All about Cheque Bounce Cases | Pankaj Kumar & Co. | Call @ +91-8800543454
Latest news April 12, 2020 292
Question: Is cheque bounce an offence and what is Punishment for it?
Answer: Yes, Section 138 of Negotiable Instrument Act, 1881 casts a criminal liability punishable with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, 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.
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 which are as under:
(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 thirty 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 purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.
Question: Can Police register FIR in Cheque Bounce Case?
Answer: No, police cannot register an FIR for offence committed under Section 138 Negotiable Instrument Act, 1881 (cheque bounce case) as the offence is a non-cognizable offence. However, an FIR may be registered by the police if the accused has committing offence of cheating or any other cognizable offence.
Question: How can accused take bail in Cheque Bounce Case?
Answer: Offence under Section 138 Negotiable Instrument Act, 1881 is a bailable offence and thus, any person accused in Cheque Bounce Case can get bail from the Court after receiving the summon from the Court.
Question: How to file a cheque bounce case?
Answer: (1) Firstly, the cheque has to be presented the bank within a period of 3 months from the date on which it is drawn (2) Secondly, the payee or the holder in due course of the cheque, as the case may be, is required 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 (3) Thirdly, drawer of such a cheque can 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 (4) Fourthly, if the drawer of such a cheque fails to make payment of the said amount of money within 15 days, the payee can file a complaint case within a period of one month in the court in whose area the payee has his bank account.
Question: Can a court award Compensation in cheque bounce case?
Answer: Court has power under Section 357(3) Cr.P.C. to direct payment of compensation in addition to the prescribed sentence, if sentence of fine is not imposed. The direction to pay compensation can be enforced by default sentence under Section" target="_blank" class="updatelink">Click here 64 IPC and by recovery procedure prescribed under Section 431 CrPC. Case in support: Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560.
Question: Can parties compromise a Cheque Bounce Case?
Answer: Section 147 of Negotiable Instrument Act, 1881 makes offence punishable under the provisions of NI Act compoundable.
Question: Can parties compromise a Cheque Bounce Case at appellate stage once the accused is convicted by trial Court?
Answer: Yes, 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 shall be set aside. No formal permission to compound the offence is required. Court judgment: Rameshbhai Sombhai Patel v. Dineshbhai Achalanand Rathi, 2004 SCC OnLine Guj 469.
Question: How an accused can get rid of a Cheque Bounce Case if the complainant is not ready to compromise?
Answer: 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, (2018) 1 SCC 560.
Question: Quashing of complaint by the High Court under S. 482 CrPC [inherent powers]
Answer: If an accused wants a Cheque Bounce Case under Sections 138 and 141 to be quashed by filing a petition under Section 482 CrPC , he must make out a case that making him stand the trial would be an abuse of process of court. Gunmala Sales (P) Ltd. v. Anu Mehta, (2015) 1 SCC 103.
Question: Where to file a Cheque Bounce case under Section 138 of NI Act?
Answer: 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 is situated. [Section 142(2)(a)]. If cheque presented for payment by payee or holder in due course otherwise through an account: 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 is situated. [Section 142(2)(b)]
Question: Is existence of Debt or other liability necessary for making accused liable for Cheque Bounce offence?
Answer: Explanation to Section 138 is abundantly clear that the dishonoured cheque must have been received by the complainant against a “legally enforceable debt or liability”. Court Judgment: Nanda v. Nandkishor, 2010 SCC OnLine Bom 54.
Question: If a Guarantor who issues a Cheque is for offence of Cheque Bounce Case?
Answer: The words “any cheque” and “other liability” 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. v. Beena Shabeer, (2002) 6 SCC 426.
Question: What if a person issues a Cheque for discharge of liability of someone else?
Answer: The words “any cheque” and “other liability” in Section 138 clarifies the legislative intent. If the cheque is given towards any liability which may have been incurred even by someone else, the person who draws the cheque is liable for prosecution in case of dishonour of the cheque, ICDS Ltd. v. Beena Shabeer, (2002) 6 SCC 426.
Question: Is Guilty State of Mind is necessary for offence of Cheque Bounce Case?
Answer: 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 carves out the presumption that the holder of a cheque has received it for the discharge of any liability. Section 140 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 v. State of Maharashtra, (2014) 9 SCC 129.
Question: Can a case be filed if the cheque is presented for encashment more than once?
Answer: 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 v. S. Palaniappan, (2013) 1 SCC 177.
Question: Cheque Bounce Case in case of “Stop payment” instructions by the drawer.
Answer: 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. v. Medchl Chemicals and Pharma (P) Ltd., (2002) 1 SCC 234.
Question: Case of a post-dated cheque
Answer: Cheque Bounce Case is maintainable in case of Post Dated Cheque. 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. v. Chico Ursula D’Souza, (2003) 3 SCC 232.
Question: Cheque Bounce case when “Account closed” by the drawer”
Answer: Cheque Bounce case is maintainable in case the drawer closes the bank Account. 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. v. Magma Leasing Ltd., (1999) 4 SCC 253. However, if the cheque dishonours due to account being closed by order of any authority, the accused would not be liable.
Question: Cheque dishonour due to “Signatures do not match”
Answer: The expression “amount of money … is insufficient” appearing in Section 138 of the Act is a genus and dishonour for reasons such as “account closed”, “payment stopped”, “referred to the drawer” 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 “signatures do not match” or that the “image is not found”, would constitute a dishonour within the meaning of Section 138 of the Act. Laxmi Dyechem v. State of Gujarat, (2012) 13 SCC 375.
QUESTION: How to serve demand Notice under S. 138 NI Act?
Answer: 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) 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 v. Palapetty Muhammed, (2007) 6 SCC 555.
Question: What is Presumption as to service of Notice”?
Answer: It is clear from Section 27 of the General Clauses Act, 1897 and Section 114 of the Evidence Act, 1872 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 v. G. Kannan, (2017) 5 SCC 737.
Question: What if addressee refuses to receive Notice?
Answer: 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 “refused” or “not available in the house” or “house locked” or “shop closed” or “addressee not in station” or “intimation served, addressee absent”, due service has to be presumed. N. Parameswaran Unni v. G. Kannan, (2017) 5 SCC 737.
Question: Can Payment be made within 15 days of receiving summons if Notice not received?
Answer: Yes, 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 v. Palapetty Muhammed, (2007) 6 SCC 555.
Question: What is Presumption under S. 139 NI Act?
Answer: Once the execution of cheque is admitted, Section 139 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 v. Mudibassapa, 2019 SCC OnLine SC 491. 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 v. State of Gujarat, (2012) 13 SCC 375.
Note: Presumption under Section 139 is frequently read with Section 118 providing presumption of consideration, presumption as to date on the instrument, etc.
Question: Case of a blank cheque?
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 v. Mukesh Kumar, (2019) 4 SCC 197.
Question: Case of a fiduciary relationship between complainant and accused [relationship of trust and confidence]
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 v. Mukesh Kumar, (2019)
Question: Rebutting the presumption
When an accused has to rebut the presumption under Section 139, the standard of proof for doing so is that of “preponderance of probabilities”. Therefore, if the accused is able to raise a probable defence which creates doubt about the existence of a legally enforceable debt or liability, the prosecution can fail. The accused can rely on the materials submitted by the complainant in order to raise such a defence and it is conceivable that in some cases the accused may not need to adduce evidence of his own, Rangappa v. Sri Mohan, (2010) 11 SCC 441.
Not necessary for accused to appear in witness box for rebuttal
It is not necessary for the accused to come in the witness box in support of his defence. Section 139 imposes an evidentiary burden and not a persuasive burden. Basalingappa v. Mudibassapa, 2019 SCC OnLine SC 491.
Complainant to prove financial capacity if disputed by accused
It is incumbent upon the complainant to prove his financial capacity to extend the loan in question, if the accused disputes the same. Basalingappa versus Mudibassapa. 2019 SCC OnLine SC 491.
Complaint by a company
The complainant has to be a corporeal person who is capable of making a physical appearance in the court. If a complaint is made in the name of an incorporeal person (like a company or corporation) it is necessary that a natural person represents such juristic person in the court. There may be occasions when different persons can represent the company, Associated Cement Co. Ltd. v. Keshvanand, (1998) 1 SCC 687.
Defect can be rectified later
Even if initially there was no authority given by the company in favour of the de facto complainant, still the company can, at any stage, rectify that defect. At a subsequent stage the company can send a person who is competent to represent the company, MMTC Ltd. v. Medchl Chemicals and Pharma (P) Ltd., (2002) 1 SCC 234.
Offence by companies and vicarious liability of officers of the Company
Three categories of persons can be discerned from Section 141 who are brought within the purview of the penal liability through the legal fiction envisaged in the section. They are: (1) the company which committed the offence, (2) everyone who was in charge of and was responsible for the business of the company, and (3) any other person who is a director or a manager or a secretary or officer of the company, with whose connivance or due to whose neglect the company has committed the offence, Anil Hada v. Indian Acrylic Ltd., (2000) 1 SCC 1. Section 141 extends criminal liability on account of dishonor of cheque in case of a company to every person who at the time of the offence, was in charge of, and was responsible for the conduct of the business of the company. By a deeming provision contained in Section 141, such a person is vicariously liable to be held guilty for the offence under Section 138 and punished accordingly, SMS Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89.
Case against the Directors
A director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable for a criminal offence under the provisions, National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330.
Impleading the Company as accused necessary
The commission of offence by the company is an express condition precedent to attract the vicarious liability of others. For maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The only exception would be in a case where the company cannot be prosecuted against without obtaining sanction of a court of law or other authority. In such case, trial against the other accused may be proceeded against if ingredients of Sections 138 and 141 are otherwise fulfilled. Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661.
Necessary averments in complaint to put vicarious liability
For making directors liable for the offences committed by the company under Section 141, there must be specific averments against the directors, showing as to how and in what manner they were responsible for the conduct of the business of the company, National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330.
Case of a Managing Director and signatory of a cheque
Specific averments against the Managing Director or Joint Managing Director are not required to be made in the complaint. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141, SMS Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89.
Offence by a partnership firm and vicarious liability of partners
For the purpose of Section 141, a firm comes within the ambit of a company. Partner of a firm is liable to be convicted for an offence committed by the firm if he was in charge of and was responsible to the firm for the conduct of the business of the firm or if it is proved that the offence was committed with the consent or connivance of, or was attributable to any neglect on the part of the partner concerned. Katta Sujatha v. Fertilizers & Chemicals Travancore Ltd., (2002) 7 SCC 655.
Interim compensation to the complainant
Section 143-A empowers the Court trying an offence under Section 138, to order the drawer of the cheque to pay interim compensation to the complainant which shall not be more than 20% of the amount of the cheque. Such interim compensation has to be paid by the drawer within a period of 60 days (extendable by 30 days) from the date of the order directing such compensation. Such compensation may be recovered as if it were a fine under Section 421 CrPC.
If the drawer of the cheque is acquitted, the complainant has to repay the amount of such compensation received within 60 days (extendable by 30 days) from the date of the acquittal order. The complainant has also to pay interest on such amount at the bank rate as published by RBI prevalent at the beginning of the relevant financial year.
Payment pending appeal against conviction
A drawer of cheque who is convicted under Section 138, may file an appeal against his conviction. In such a case, by the provision of Section 148, the Appellate Court can order him to deposit such sum which shall be at least 20% of the compensation or fine awarded by the trial court. Such amount is payable in addition to any interim compensation paid under Section 143-A. The Court can release such amount to the complainant at any time during pendency of the appeal. In case of appellant’s acquittal, the complainant has to repay the amount to him in the same manner as mentioned above under “interim compensation to the complainant”.
Section 138 NI Act proceedings not covered within the period of moratorium under Section 14 Insolvency and Bankruptcy Code:
National Company Law Appellate Tribunal (NCLAT) has held that Section 138 is a penal provision; the imposition of a fine cannot be held to be a money claim or recovery against the Corporate Debtor. As such, the said section is not covered within the purview of Section 14 I&B Code. In fact, no criminal proceeding is covered under the section. [Shah Brothers Ispat (P) Ltd. v. P. Mohanraj,2018 SCC OnLine NCLAT 415, dated 31-07-2018]
Section 138 of NI Act and Section 420 IPC:
Punjab and Haryana High Court has held that Section 138 of NI Act and Section 420 IPC are not exclusive to each other, a person can be charged with both offences simultaneously. [Sazid Khan v. State of Haryana,2018 SCC OnLine P&H 1733, decided on 27-07-2018]
Whether company can be included as accused if cheque is signed by Director on behalf of the company? What will happen if the accused company is let off?
The Supreme Court in N. Harihara Krishnan v. J. Thomas (Crl. App. No. 1534 of 2017) held that failure to include a company as accused would be enhance the prosecution against the accused even if the previous complaint was valid against the signatory of the cheque. The court relied on its earlier decision in Aneeta Hada v. Godfather Travels & Tours Private Limited (2012) 5 SCC 661 in which it was held that for prosecution to be maintained the company must be included as accused within the limitation period for filing the case. In Anil Gupta v. Star India Private Limited & Others (Criminal Appeal No. 1364 of 2014), the Supreme Court held that if the accused company is let off, the case cannot continue against Managing Director who is only vicariously liable. The court while applying the doctrine of strict construction opined that commission of an offence under Section 141 is a condition precedent to attract the vicarious liability of others. The words “as well as the company” in the section make it clear that first the company has to be prosecuted then only the signatory could be vicariously liable subject to the petition and proof.
Whether notice under Section 138 is mandatory to be given to the Director who has signed the cheque?
The Supreme Court in Kirshna Texport & Capital Markets Limited v. Ila A. Agarwal & Ors. (Criminal Appeal No. 1220 of 2009) held that Section 138 does not include necessity of issuing individual notices to the directors of the company in case of dishonour of cheques. The directors are in charge of the affairs of the company and would be aware of the notice received by the company. Therefore on a literal construction it is not required to issue individual notice under Section 138. It was further stated that if the directors contend that they had no knowledge about the offence committed or they diligently tried to prevent such commission, it would be a defence at any stage of the trial except stage of notice under Section 138. If the provision of giving notice is read in Section 141 then it will go against the meaning of the Section and remedy under Section 138 will become complicated.
Whether a cheque issued on personal capacity of the Director will make a company liable if it gets dishonoured?
The Supreme Court in Mainuddin Abdul Sattar Shaikh v. Vijay D Salvi (Criminal Appeal No. 1472 of 2009) held that accused can be made liable under Section 138 even if the company is not accused as on the facts it was held that complainant did not have to necessarily prove that the accused was in charge of the affairs of the company by virtue of the position held by him. Plain reading of Section 138 states the basic ingredients which constitutes the offence first being that for a person to be held liable must be the drawer of the cheque on account maintained by him with the bank for payment of money to another person from that account in discharge of the whole or part of any debt or liability. This case was supported by the judgment in P.J. Agro Tech Limited and Ors. v. Water Base Limited [(2010) 12 SCC 146] wherein it was held that cheque drawn by an employee of a company on his personal account even though he was doing it on behalf of the appellant company and its Directors, the appellant company and its Directors cannot be held liable under Section 138.
CHEQUE DISHONOUR OF ADVANCE PAYMENT IN CONTRACTS
The Supreme Court in Indus Airways Pvt. Ltd. & Ors. v. Magnum Aviation Pvt. Ltd. & Anr. (Criminal Appeal No. 830/2014), held that post-dated cheques issued by purchaser as advance payment is not considered to be in discharge of legally enforceable debt or liability and hence does not come under Section 138 of Negotiable Instruments Act, 1881.
DISHONOUR OF CHEQUE ISSUED AS SECURITY FOR REPAYMENT OF LOAN
The Supreme Court in Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited (Crl. Appeal No. 867 of 2016) held that dishonour of a post-dated cheque for repayment of loan described as a security in the loan agreement comes under Section 138 of Negotiable Instruments Act, 1881. Regarding the security clause in the agreement, the court stated that the word ‘security’ refers to those cheques for repayment of installments. Repayment becomes dues when loan is advanced and installment is due. The loan was disbursed on 28th February, 2002 before the date of cheque leaves. Once the loan was disbursed and installments fell due on the date of the cheque as per the agreement, dishonour of such cheques would fall under Section 138. The cheque leaves represent the outstanding liability.
POWER OF ATTORNEY
While passing a combined judgment in the cases A.C. Narayanan v. State of Maharashtra & Anr. (Criminal Appeal No. 73 of 2007) and Shri. G. Kamlakar v. M/S Surana Securities Ltd. & Anr. (Criminal Appeal No. 1437 of 2013), the Supreme Court held that Power of Attorney can file a complaint under Section 138 of Negotiable Instruments Act, 1881 provided that he must specifically plead and support the complaint by relevant documents. If the Power of Attorney does not know about the transactions of the company then he/she will cannot be examined.
CHEQUE DISHONOUR IN CASE OF PARTNERSHIPS
In Katta Sujatha v. Fertilizers & Chemicals Travancore Ltd. (2002) 7 SCC 655, the Supreme Court held that partner of a firm is liable to be convicted for offence under Section 138 if he was in charge of the conduct of business of the firm or if it was committed with the consent or negligence of that partner.
Cheque Bounce Complaint Based On Second Notice After Re-Presentation of Cheque Maintainable:
In case titled as ‘M/S. Sicagen India Ltd. v. Mahindra Vadineni & Ors.’ Supreme Court of India has reiterated that there is no bar on successive presentation of cheque and if a second legal notice is sent after representation of cheque, the limitation shall be counted from the date of sending of second notice. The Supreme Court Bench while arriving at it’s judgment made reference to Three-Judge Bench decision in the case of MSR Leathers vs. S. Palaniappan and Another 2013 ((1) SCC 177 wherein the Apex Court held that there is nothing in the provisions of Section 138 of the Negotiable Instruments Act, 1881 that forbids the holder of the Cheque to make successive presentation of the cheque and institute the criminal complaint based on the second or successive dishonour of the cheque on its presentation.
Presence of a legally recoverable debt at the time of issuing cheque is a necessity for an action under S. 138 NI Act:
The respondent took a loan from the complainant Bank and issued a blank cheque as a security for the said loan. The respondent defaulted in re-payment of the loan and when the bank presented the said cheque for collection, they were returned with the endorsement ‘insufficient funds in the account’. Subsequently, the bank initiated proceedings under Section 138 of NI Act. However, the respondent was acquitted by the trial court holding that there was no liability existing at the time of issuing the cheque. The appellant Bank assailed the order of the trial court.
After evaluating the material on record, the High Court was of the view that there was no illegality committed by the trial court. The Court observed that the said cheque was not issued by the respondent towards a legally recoverable debt; it was only issued as a security for the loan which he had borrowed from the complainant. The Court relied on the Supreme Court decision in Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd., (2016) 10 SCC 458 wherein it was held that “if on the date of the cheque, liability or debt exists or the amount has become legally enforceable, the section is attracted and not otherwise”. In the facts and circumstances of the instant case, the Court found that at the time of issuance of the blank cheque, there was no legal liability of the respondent to pay any amount to the complainant; it was a security for a loan, the re-payment of which was to arise in future. Accordingly, the Court dismissed the appeal finding it sans merit. [PCA and RD Bank Ltd. v. Suresh Das, 2018 SCC OnLine Kar 492, dated 27.2.2018]
Conviction for S. 138 NI Act offence reversed where complainant incapable of extending the subject loan:
Delhi High Court held that “it is very surprising that a person who earns only Rs 15,000 per month would make an arrangement of Rs 4,90,000/- and give the same as a friendly loan. No date of extending the loan or rate of interest at which such loan was extended, has been mentioned. Neither there is any document executed nor the date when the loan was and of its repayment is mentioned.” In the Court’s opinion, the defence raised by the accused was probable and rightly rebutted the statutory presumption. In such view of the matter, the petition was dismissed and the impugned order was upheld. [Sanjay Verma v. Gopal Halwai, 2019 SCC OnLine Del 7572, decided on 15-03-2019]
Accused under Section 138 NI Act acquitted on the ground of Limitation:
Karnataka High Court upheld acquittal of the accused by the trial court holding that the recovery of loan in the given case was hit by limitation. The petitioner was prosecuted for offence punishable under Section 138 of Negotiable Instruments Act, 1881. The complainant alleged that the accused took a hand loan from him and issued cheques in lieu thereof. However, when the said cheques were presented in the bank, they were dishonoured and returned with a memo marked ‘insufficient funds’. The complainant issued a demand letter to the accused as required by the Act. However, the accused did not repay the loan even after the demand letter was issued to him. Consequently, the accused was prosecuted under the Act. The trial court, inter alia, found that the time gap between the giving of loan by the complainant to the accused and presenting of cheques for recovery thereof, was more than three years. Trial court held the case to be hit by limitation and acquitted the accused. The High Court perused the record as well as provisions of the NI Act and the Limitation Act. The Court observed that the limitation period for recovery of a hand loan is three years from the date the loan is given. The Court found that, in the instant case, the loan was given in the year 2004 and the cheques were presented for its recovery only in the year 2008. The Court also held that there was no part repayment of the loan to the complainant by the accused, nor the accused acknowledged the presence of debt in this period to start a fresh period of limitation. The High Court, inter alia, held that the case of the complainant was barred by limitation of three years as provided in the Limitation Act. Accordingly, the petition filed by the complainant against the order of acquittal of the accused passed by the trial court, was dismissed. [K.N. Raju v. Manjunath T.V., Crl. Appeal No. 302 of 2010, decided on 16.3.2018]
High Court of Punjab & Haryana has held that if bank account has been blocked, it cannot be treated as being maintained by the account holder and therefore, no liability can be attached to the drawer of cheque of that bank account.
Court acquits Accused as Complainant fails to prove Cheque Bounce:
Upholding the acquittal of the accused- businessman, Ravindrakumar Gulabchand Jain by High Court in a case of bouncing of a cheque, Justice S.M.Modak, at Nagpur Bench of Bombay High Court dismissed the appeal against the acquittal filed by the Complainant -businessman, Tejendra Singh Gopal Singh Bagga ,with the observation that even though the complainant adduced sufficient evidence on the point of formation of their firm, running of business and on the point of dissolution of firm, he falls short in proving the case of settlement of accounts and arrival of share amount. Unless that is done, liability cannot be fastened on the accused.
According to the HC, the complainant also failed to prove the fact of dishonour of cheque for Rs 3,25,000/-. The Court has stated that it sees no reason to interfere in the judgment of the trial court and the appeal needs to be dismissed. The HC is convinced about the sufficiency of service of notice and correctness of the findings of the trial court. Admittedly, UCO Bank's representative was not examined. The trial court had rightly refused to accept bank memo, as it did not bear the seal of the Bank, to be able to draw a presumption of dishonour of the cheque. This could have been excused if a proper person from SBI, that is the signatory of the letter had been examined. The trial court had refused to give the benefit of the legal presumption under section 139 of the Negotiable Instruments Act to the complainant. The trial court found that the accused was successful in making out a probable case in his defence.
Section 138 NI Act: Demand Notice sent to director is sufficient notice to company:
Recently, Supreme Court has upheld an order of the Delhi High Court wherein it was observed that demand notice issued to director is sufficient notice to the company. A bench of Justice Sapre and Justice Malhotra has passed the order in the case titled as M Tech Developers Pvt. Ltd. vs State of NCT of Delhi on 30.07.2019. Supreme Court observed "Having heard the learned counsel for the parties and on perusal of the record of the case, we are not inclined to interfere with the impugned order passed by the High Court". It then observed and held "In our view, the reasoning and the conclusion arrived at by the High Court does not call for any interference. The Special Leave Petition is accordingly dismissed". Earlier, the matter was dealt with by the Delhi High Court in the case titled as Sarabjit Singh vs State on 08.10.2018.
Company can be made accused even at later stage under Section 319 Cr.P.C. if it was earlier not made an accused
Recently, Supreme Court has upheld an order of the Delhi High Court whereby addition of company as accused in a cheque bounce case was accepted through Section 319 CrPC. A bench of Justice Sapre and Justice Malhotra has passed the order in the case titled as M Tech Developers Pvt. Ltd. vs State of NCT of Delhi on 30.07.2019. Supreme Court observed "Having heard the learned counsel for the parties and on perusal of the record of the case, we are not inclined to interfere with the impugned order passed by the High Court". It then observed and held “In our view, the reasoning and the conclusion arrived at by the High Court does not call for any interference. The Special Leave Petition is accordingly dismissed".
Earlier, the matter was dealt with by the Delhi High Court in the case titled as Sarabjit Singh vs State on 08.10.2018. Delhi High Court had noted "In the complaint, reference was made to the company as an accused. It appears that under some confusion, inadvertently the name of the company was omitted from the array of accused. The complainant had brought an application immediately, in 2008 itself, to make suitable correction. By the time, the said application came up for consideration, the summoning order had already been passed. Since the Magistrate did not have the power of review, there was some difficulty in entertaining the said request at that stage. This is why liberty was granted while permitting the first application under Section 319 Cr. PC to be withdrawn for such application to be moved again. The application on which the order was passed by the Metropolitan Magistrate which was set aside by the revisional court, was an application moved in exercise of such liberty".
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