Q.1 What is the validity period of a cheque?

Q.1 What is the validity period of a cheque? Answer. For committing an offence under section 138 of the Act, it is mandatory that the cheque is presented to the 'bank' within a period of six months from the date of its drawing or within the period of its validity, whichever is earlier. It is the drawn cheque which has to be presented to the 'bank' within the period specified therein. When a post dated cheque is drawn or drawn, it is only a bill of exchange. Under the Act a post dated cheque becomes a cheque on the date which is written on the said cheque and the period of six months for the purposes of section 138 of the Act is to be calculated from the said date. Section 138 provides that where any cheque drawn by a person on an account maintained with a 'banker' for payment of any sum of money to any other person from that account in discharge either wholly or in part of any debt or other liability, is returned by the 'bank' unpaid, either because the funds standing to the credit of that account are insufficient to pay the cheque or 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 punishable with imprisonment as may be prescribed, subject to the conditions mentioned in clauses (a), (b) and (c) of the provision. Section 3 of the Act defines 'banker' to include any person acting as a banker and any post office savings bank. Section 72 of the Act provides that in order to recover the fee from the issuer of the cheque it must be presented to the bank on which the cheque is drawn before the relations between the issuer and his banker are altered to the prejudice of the drawee.' In order to prosecute a person for an offence under section 138 of the Act, it is essential that the cheque is presented to the banker within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier. When a post-dated cheque is written or drawn, it is only a bill of exchange and so long as it remains a bill of exchange, the provisions of section 138 do not apply to the said instrument. A post-dated cheque becomes a cheque within the meaning of section 138 of the Act on the date on which the cheque is written thereon and the period of six months is to be reckoned from the said date for the purposes of proviso (a) to section 138 of the Act. Q.2 What is the possibility of revalidating a cheque? Answer. There is no provision in the Negotiable Instruments Act or any other law which stipulates that the issuer of a negotiable instrument cannot revalidate it. It is always open to the payee to voluntarily revalidate a negotiable instrument including a cheque. Section 87 of the Negotiable Instruments Act, which is as follows:- 87. Effect of material alteration Any material alteration in a negotiable instrument is void as against any person who at the time of making such alteration is a party thereto and does not consent thereto, unless it is made with a view to accomplishing the common intention of the original parties: Shree Ishar Alloy Steels Ltd. vs. Jayaswals NECO Ltd. (22.02. 2001 SC): Manu/0121/2001 2 Ashok Yashwant Badwe vs. Surendra Madhavrao Nighojakar & others (14.03.2001 SC): MANU/SC/0170/2001 Alteration by indorser Any such alteration, if made by an indorser, releases the indorser from all liability to him in respect of the consideration thereof. The provisions of this section are subject to sections 20, 49, 86 and 125. The first paragraph of section 87 makes it clear that the party who consents to the alteration as well as the party who has made the alteration are not entitled to complain against such alteration. For example, if the issuer of a cheque himself has altered a cheque to validate or revalidate the same instrument, he cannot take advantage of it later by saying that the cheque has become invalid because a substantial change has taken place in it. Q. 3 What is the purpose of section 138 of the Negotiable Instruments Act? Answer. Dishonour of a cheque on the ground of closure of account is the result of the act of the cheque issuer putting his account in cipher. Therefore, on reading sections 138 and 140 together, it will become clear that dishonour of a cheque by a bank on the ground of closure of account will be covered by the phrase 'the funds standing to the credit of the account being insufficient to honour the cheque.' Veera Exports vs. T. Kalavathi (02.11.2001 SC) MANU/0699/2001 Even in respect of the penal provision any such interpretation should be avoided which drains the life and blood of the provision and makes it ineffective and a dead letter. If the interpretation sought for is given, it will only encourage dishonest persons to issue cheques and close 'that account' before presentation of the cheque and thereby escape the penal consequences of Section 138. Therefore, even though Section 138 is a penal law, it is the duty of the Court to interpret it in conformity with the legislative intent and purpose so as to suppress mischief and advance remedy. Section 138 of the Act has made contractual breach an offence and the legislative object is to promote the efficacy of banking and to ensure that cheques are not dishonoured in commercial or contractual transactions and that credibility is maintained in business transactions through cheques. In such a situation, the distinction between where the cheque is issued before the closure of the account or after the closure of the account has no relevant significance in law. In other words, where the cheque is issued before or after the closure of the account, in both situations the issuance of the cheque would be an offence under Section 138 of the Negotiable Instruments Act. S.R. Muralidar vs Ashok G.Y. (17.04.2001 KARHC) : Manu/KA/0217/2001 If a signed blank cheque is voluntarily presented to the payee for any payment, the payee can fill in the amount and other details. This will not make the cheque invalid per se. The burden of proving by adducing evidence that the cheque was not for the discharge of a debt or liability will still be on the accused. Even a blank cheque voluntarily signed and handed over by the accused, purporting to be for some payment, would be presumed under Section 139 of the Negotiable Instruments Act, in the absence of any concrete evidence to show that the cheque was not issued in discharge. Q. 4 What is the presumption in favour of holder under section 139 of the NI Act? Answer. The law states that once the signature of an accused is established on the cheque/negotiable instrument, these 'reverse onus' clauses come into effect. In such a situation, the onus falls on the accused to fulfil the charge levelled against him. This point of law has been clarified by this Court in Rohitbhai Jivanlal Patel v. State of Gujarat MANU/SC/0393/2019 (2019) 18 SCC 106, p.18 in the following words. Bir Singh vs. Mukesh Kumar (06.02.2019 SC) MANU/0154/2019 In the present case, even after allegedly raising a presumption under Section 139 of the NI Act, the trial court questioned the lack of evidence on the part of the complainant regarding the source of money for lending money to the accused and the wanted person after examining the relevant witnesses who had allegedly lent money to the accused for lending money to him. This approach of the trial court was at variance with the principles of presumption in law. After such a presumption, the onus shifted to the accused and unless the accused discharged the onus by bringing on record such facts and circumstances which showed a preponderance of probabilities leaning in his favour, no doubt could be raised on the case of the complainant. could as there was lack of evidence regarding the source of funds for lending money to the appellant-accused. Q. 5 What is the effect of issuing a postdated cheque? Answer: In the case of Goa Plast (Private) Limited Vs. Chico Usla D'Souza, it was held: Chapter XVII containing Sections 138 to 142 was introduced in the Act by Act 66 of 1988 with the objective of instilling confidence in the efficacy of banking operations and giving credibility to negotiable instruments in business transactions. The objective of these provisions was to discourage people from not honouring their commitments by way of payment by cheque. The court should incline towards the interpretation which best serves the purpose of the law. If payment of a post dated cheque can be routinely stopped it would lose its credibility and acceptability. The purpose of a post dated cheque is to provide some convenience to the issuer of the cheque. Therefore, it is all the more necessary that the issuer of the cheque should not be permitted to misuse the facility given by the creditor by accepting a post dated cheque. • Kalamani Tex & Ors vs P. Balasubramaniam (10.02.2021 MANU/SC/0066/2021 SC) : 7 MANU/SC/0200/2003: (2003) 3 SCC 232 In view of section 139, it must be presumed that the cheque has been issued in discharge of a debt or other liability. The presumption can be rebutted by adducing evidence and the burden of proof lies on the person who seeks to rebut the presumption. This presumption coupled with the purpose of Chapter XVII of the Act leads to the conclusion that by cancelling the payment of a post dated cheque, any person who has not paid the cheque can be denied the right to pay the cheque. The party should not be allowed to escape the penal provision of Section 138. A contrary view would render Section 138 a dead letter and it would provide a handle to persons who through their own acts are trying to evade payment under the legal obligations incurred by them which in other words may be termed as taking advantage of somebody's mistake. * Rangappa v. Mohan (07.05.2010 SC) : MANU/SC/0376/2010 For the purpose of clause (a) of the proviso to section 138 a post dated cheque shall be deemed to have been drawn on that date. On the basis of sections 5 and 6 of the Act, it was observed that 'a post dated cheque is a bill of exchange only when it is written or drawn, it becomes a cheque when it becomes payable on demand. A post-dated cheque is not payable until the date shown on the top of the document. It will become a cheque only on the date shown thereon and before that it continues to be a bill of exchange under section 5 of the Act. A post dated cheque remains negotiable as a bill of exchange but it will not become a cheque until the date when it becomes payable on demand. Goplast Pvt. Ltd. v. Chico Ursula D'Souza & Ors. (07.03.2003 SC): MANU/SC/0200/2003 Q.6 What is a cheque? A cheque is also a bill of exchange? Answer. Section 6 of the Act defines cheque as follows: 'A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. Now we have to look at the definition of bill of exchange. It is contained in section 5 of the Act. 'A bill of exchange is an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a certain person or to the holder of the instrument.' The maker or drawer of a bill of exchange must direct the drawee to pay a particular sum of money to a 'certain person'. This is the quintessence of a bill of exchange. Section 5 of the Act provides that a bill of exchange shall contain an unconditional order directing the drawee to pay 'a certain person', not necessarily referring to a third person. Such a 'certain person' may also be the bank which has drawn the bill of exchange. As long as the instrument is in the possession of a holder or bearers, such an instrument will operate as a bill of exchange, even if the drawer and drawee are the same person or banking institution.10 Q. 7 Can a complaint be lodged for dishonour of a self cheque? Answer. In the case of “Amolak Textiles v. Uphaar Fashion”, the court held that in case of self cheque, if the drawer of the cheque has signed the back of the cheque and endorsed it in favour of the complainant, he would become a holder in due course and he can act upon it. In Farhat Hussain Siddiqui v. State of Uttar Pradesh, the Allahabad High Court held that a bearer cheque issued in discharge of a debt or other legal obligation would enable the person entitled thereto to claim it in due course as the holder thereof, as defined under Section 9 of the NI Act, even if the cheque is payable to the bearer. The Andhra Pradesh High Court in M/s Intech Net Ltd. v. State has held that once a cheque is issued, it is accepted and if the cheque is issued by the cheque or bearer If the words are not struck out, the person in possession shall be the holder in due course and in case of dishonour thereof shall be entitled to invoke Section 138 of the NI Act. 10 Punjab & Sindh Bank vs. Vinkar Sahakari Bank Ltd. & Others (17.09.2001 SC): Manu/SC/0567/2001 11 MANU/KA/0600/2008 ILR 2009 Karnataka 628 12 MANU/UP/1010/2009 2010 Criminal LJ 1213 13MANU/AP/0900/2006 2007 Criminal LJ 216 Q. 8 Whether liability under section 138 NI Act can be avoided in case of return of money without payment by the banker? Answer. The section begins with the words 'where any cheque', the three words above are extremely significant, particularly, the user of the words 'any' because the first three words suggest that for whatever reason indeed if a cheque is drawn on an account maintained by him with a banker in favour of another person for the discharge of any debt or other liability, the highlighted words when read with the first three words at the commencement of section 138, leave no room for doubt that whatever may be the reason, the liability under this provision cannot be avoided, if it is returned unpaid by the banker. The legislature has been so careful as to record not only the full or partial discharge of any debt but also other liabilities. The language of the Act reflects the intention of the law makers to the effect that where there is a default on the part of one person in favour of another and a cheque is issued for payment of any debt or other liability, the same cannot be done. In the matter of applying the provisions of section 138 of the Act, there is no The restrictions 'any check' and 'other obligation' are the two key expressions that clarify the legislative intent so as to bring the provisions of the law within the scope of the factual context. Any contrary interpretation would defeat the intention of the legislature.14 Q. 9 What should the court consider when a cheque is received by a holder in possession? Answer. Section 138 of the NI Act, no doubt, contemplates only if the cheque is issued by a person 'for the discharge either wholly or in part of any debt or other liability'. Explanation to section 138 states that 'for the purposes of this section "debt or other liability" means a legally enforceable debt or liability'. Therefore, the first aspect of the contention is that for an offence under section 138 to be committed the cheque must have been drawn for the discharge of a legally enforceable debt or other liability. But the second aspect of the contention is weak because merely because an institution has filed a petition to wind it up, the debt will not cease to be legally enforceable. When a cheque is received by the bearer the court must presume that (1) it is a cheque of the nature specified in section 138 and (2) such cheque was received in discharge of a legally enforceable debt or obligation. It is a legislative mandate that the court must proceed on the presumption that such cheque was received in discharge of a legally enforceable debt or other obligation unless the issuer of the cheque proves that it is not so.15 "ICDS Limited vs. Bina Shabir & Others (12.08.2002 SC) : MANU/SC/0669/2002 Pankaj Mehra and others vs. State of Maharashtra and others (15.02.2000 SC) : MANU/SC/0089/2000 Q. 10 When does section 138 of the Act apply? Answer. Section 138 of the Act is a penal provision wherein if any person draws a cheque on an account maintained by him with a banker to any other person for payment of any sum of money either wholly or partly from that account, or for payment of any debt or other liability, is returned by the bank unpaid, either because the funds standing to the credit of that account are insufficient to pay the cheque or it is in excess of the amount arranged to be paid from that account under the agreement made with that bank, such person shall be deemed to have committed the offence. The difference between the provision of presumption and presumption of dishonesty can be clearly seen. For example, if a person draws a cheque when sufficient funds are not available on the date of issue of the cheque, but makes arrangement or deposits the amount before the cheque is sent to the bank by the drawee, and the cheque is honoured, it would not be appropriate to presume dishonesty on the part of the drawee under section 138. Section 138 of the Act applies only when the cheque bounces.16 16 Modi Somens Ltd. v. Kuchill Kumar Nandi (22.03.1998 MANU/SC/0171/1998 SC) : Q. 11 Who has the burden of proving stop payment instructions? Ans. Even where a cheque is dishonoured by reason of a stop payment direction under section 139, the court must presume that the cheque was received by the holder in part payment of any debt or liability. This is undoubtedly a rebuttable presumption. Thus the accused can show that the stop payment instructions were not issued due to insufficiency or lack of funds. If the accused shows that there were sufficient funds in his account with the drawee bank to pay the cheque at the time of presentation of the cheque for encashment and that the stop payment notice was issued due to other valid reasons. There was no existing debt or liability at the time of presentation of the cheque for encashment, the offence under section 138 will not be made out. The important point is that the burden of proof will be on the accused. Thus no court can dismiss a complaint on this ground. 17 17 MMTC Ltd. & others vs. Medchal Chemicals & Pharma (P) Ltd. & others (19.11.2001 SC) MANU/SC/0728/2001 Q. 12 Whether any purpose is served by section 138 NI Act? Answer. The purpose of introducing section 138 in the law is to ensure the effectiveness and Negotiable instruments appear to create confidence in the reliability of transactions in trade and promote the efficacy of banking operations and ensure reliability in trade transactions through cheques.18 Even though Section 138 is a penal statute, it is the duty of the court to interpret it in conformity with the legislative intent and purpose so as to suppress the mischief and pursue the remedy.19 Q. 13 Is there any difference between dishonour of cheque on the ground of ‘account closed’ and dishonour of cheque on the ground of ‘insufficiency of funds’? 18 NEPC Micron Ltd. v. Magma Leasing Ltd. (29.04.1999 SC) : MANU/SC/1746/1999 19 NEPC Micron Ltd. v. Magma Leasing Ltd. (29.04.1999 SC) : MANU/SC/1746/1999 Answer. Dishonour of cheque on the ground of 'account closed' may technically take place in the sense of the legal phrase of 'insufficiency of funds'. But in a real situation both are not always the same. In case of literal situation of insufficiency of funds in the account successive presentment may serve the purpose. The cheque drawer may be given an opportunity to replenish the funds in the account in order to pay the cheque on second presentation. But in case of 'account closed', the question of successive presentment has no meaning because the account itself does not exist, unlike in the case of 'insufficiency of funds', there is no possibility of fruitful result being had by successive presentment. Therefore, whenever a cheque is dishonoured on the ground of account being closed, the drawee cannot resort to successive presentment to save the limit. Similarly in case of dishonour of cheque on the ground that 'signature does not match with specimen'20 Q. 14 Is there any time period by which the cheque has to be presented to the bank? Answer. It is no longer entrenched that if there is criminal liability under Section 138 of the Act, the cheque is required to be presented to the drawee bank or the payee bank within a period of six (now three) months from the date of its issue. The same will be enforced by the person in whose favour the cheque is drawn. As held by the Supreme Court in the case of Shri Ishar Alloys Steel Ltd. v. Jayaswal NECO Ltd., non-presentation of the cheque to the drawee bank within the period specified in the section will absolve the person issuing the cheque of his criminal liability under Section 138 of the Act, who may otherwise be liable to pay the cheque amount to the drawee in a civil action initiated under the law. If the issuer of the cheque is to be held criminally liable the law mandates that the cheque be presented to the very bank on which it is drawn. As held by the Supreme Court in the case of Sadanandan Bhafidran, Section 138 does not impose any bar on the drawee to present a dishonoured cheque successively during the period of its validity. The cause of action arises only if When notice is given on each presentation of a cheque and on its dishonour only a fresh right arises and not a fresh cause of action. Once the notice is given under clause (b) of section 138 of the Negotiable Instruments Act, the cause of action arises and thereafter the drawee loses his right to further present the cheque. If the drawee fails to pay the money within the prescribed time he will be liable for an offence and a cause of action will arise for filing a complaint. As per the law a cheque can be presented for payment repeatedly any number of times within three months from the date of drawing the cheque or within the period of its validity, whichever expires earlier. Such repeated presentation even after each dishonour may be either voluntary or at the instance of the drawer. Even after such repeated dishonour the payee or holder has the right to stay further action under section 138 of the Negotiable Instruments Act, 1881 on the ground of dishonour. 20 H. Nanjundappa v. H. Hanumanthrayappa (26.06.2006 MANU/KA/8552/2006 KARHC) : 212001 Criminal L. J. 1250 of 2001 (2) BC 108 SC (FB) 22 Shrikant Chavan v. Hotel The Vaishno Devi 2006 Criminal L.J. 4447 (J&K) 23 Sadanandan Bhadran v. Madhavan Sunil Kumar 1998 (6) SCC 514 Q. 15. Will the successive presentation of cheques and successive acts of dishonour by the bank on the same ground give the drawer of the cheque multiple causes of action to initiate prosecution? Answer. The cause of action can arise only once, though the payee may present the cheque any number of times during the period of its validity. Failure by the payee to make payment within fifteen days of the receipt of the notice given under clause (b) of the proviso to section 138 of the Act may result in the discharge of the cheque. The court clarified that the payee cannot be liable for any offence for similar failure to pay after service of fresh notice on subsequent dishonour nor can the first offence be treated as non-permanent so as to give the right to the payee to file a complaint presuming the second offence. The court said that at this stage it would not be a question of waiver of the right to prosecute the payee but a question of absolving the payee of the offence which has already been committed by him and which cannot be committed by him again. Therefore once the payee serves notice under clause (b) of section 138, he loses the right of successive presentation of the cheque. If the payee fails to pay the amount within the prescribed time, he would be liable for the offence and the cause of action to file the complaint would arise.24 Q. 16 Is it possible to initiate prosecution on the basis of a subsequent offence? Answer. Mere issuance of a cheque or its bouncing due to insufficiency of funds is not an offence under Section 138 of the Act. It is only when the payee is given a notice of demand under Section 138(b) and fails to make payment within 15 days that the offence is committed. Once the failure occurs, the offence continues until the amount is paid. Section 142 only imposes certain restrictions in taking cognizance of the offence and nothing more. Therefore, an offence under Section 138 of the Negotiable Instruments Act is in the nature of a continuing offence and as such a complaint based on the second or subsequent dishonour of the cheque is certainly maintainable in law, notwithstanding the fact that the payee did not avail the opportunity and file a complaint after the first dishonour and thereafter a notice is sent to the issuer of the cheque under Section 138(b) of the Act. 24 Sadanandan Bhadran v. Madhavan Sunil Kumar 1998 (6) SCC 514 Interpreting Section 138 of the Negotiable Instruments Act, the courts have held that repeated presentation of a cheque for encashment is permissible within six months or within the date of its validity, whichever is earlier. Therefore, every time When the cheque gets dishonoured within that period, the drawee can issue a notice to the drawer of the cheque and call upon him to pay with the threat of prosecution if he so wishes and only if the drawee fails to make the payment within fifteen days from the date. After the receipt of that notice, it matures into an offence. Even in such a circumstance, the drawee may choose not to prosecute the drawee for one reason or another or it may be for the reason that the cheque comes to him requesting him to wait and present it after some time. In such circumstances, if the drawee obliges the drawee and presents the cheque after some time and if the cheque again bounces due to lack of funds or any reason whatsoever, it becomes open for the drawee to issue a notice under section 138(B) again calling upon the drawee to make the payment and failure to make the payment within 15 days gives rise to a fresh cause of action. It is for the payee to decide whether prosecution for offence under section 138 of the Act should be initiated or not. But, it would not be correct to say that the moment a cheque is dishonoured and a notice is issued to the payee to make payment and on failure to make payment within 15 days, a cause of action would arise and if that opportunity is not availed of, the complainant cannot initiate criminal proceedings on the ground of second or subsequent dishonour. What is required is that the cheque should be presented within six months or within its validity as required under section 138(A) of the Act. Further, the complainant has to state that a notice of demand was issued to the drawer of the cheque within 15 days from the date of return of the cheque for want of sufficient funds and the payee has failed to make payment within 15 days from the date of receipt of the cheque. The date of that notice and complaint should be within one month from that day.25 25 G. Ekanthappa v. State of Karnataka & others (09.09.1996 KARHC) : MANU/KA/0088/1996 Q. 17 Whether by approaching the civil court the aggrieved person is debarred from prosecuting the offender for the offence punishable under section 138 of the Act? Answer. Enforcement of liability through civil court would not deprive the aggrieved person of the right to prosecute the offender for an offence punishable under Section 138 of the Act. Both remedies may be possible simultaneously. A civil suit cannot prevent criminal prosecution. At the most, while considering the discretion of sentence, recovery of amount may be taken into account as a circumstance by the criminal court. Merely because of successful conclusion of civil suit, criminal prosecution cannot be an abuse of the process of the court justifying interference by this court, in exercise of inherent powers. Any cause of action which entitles the party to approach the court, if under the law he is entitled to prosecute, it is at his option to do so. Merely because he chooses to proceed on the criminal side, it does not preclude him from proceeding in the civil court. Section 138 of the Act being quasi-civil and criminal in nature, it certainly cannot be held that Section 138 proceedings could not have been initiated by the complainant at all because the civil suit was pending. Ultimately at the most if the complainant succeeds in obtaining the fruits of the decree in the civil suit, it would only be helpful as a mitigating circumstance while imposing punishment under Section 138 of the Act. Section 138 of the Act was introduced in the Negotiable Instruments Act and was made punitive keeping in view the special nature of the problem which the business world was facing. This does not mean that the creditor or the person to whom the cheque issuer has given such cheque for a debt or liability gives up his right to recover the said money in the civil court. Therefore, merely initiating prosecution or even obtaining a conviction under Section 138 of the Act against the accused does not prevent the payee from approaching the civil court for recovery of the amount which is legally recoverable.27 26A Padmanabha Panicker v. K.J. Tomy 1992 (73) Camp Cas 496 (Kerala): V.J. Mathew v. Sani Cyria 1995 AIHC 5017: Modern Denim Ltd. v. Lucas TVS Ltd. 2000 Bankman 492 (Madras): 2001 (105) Camp Cas 194 (Madras): A. Muthiah v. Jayammal 2001 (106) Camp Cas 710 (Madras): Saboora Textiles v. S. Krishnamurthy 2002 (112) Camp Cas 302 (Madras) Q. 18 Who is competent to file a criminal complaint under section 138 NI Act? Answer: A complaint under section 138 of the Act is admissible at the instance of the person in whose favour the cheque was drawn only under the following circumstances: (i) The cheque is drawn on 'a person'. (ii) a cheque drawn on an account maintained by such person with a banker for payment of any sum of money by any other person in full or partial discharge of a debt or other liability is returned by the banker as not honoured by the person, either because the funds standing to the credit of the account are insufficient to honour the cheque or because they exceed the amount required to be paid from the account 28 (iii) If the person committing an offence under section 138 of the Act is a company, or an association of persons, not only the company but also every person who was in charge of and responsible to the company for the conduct of the business of the company shall be deemed to be guilty of the offence and action shall be taken against it. 27 G N Raju vs B S Jai Prakash 2006 Criminal L. J. 820 (Karnataka) 28 Shiv Kumar Verma vs. Manoj Pandey 2011 Criminal L. J. 191 (Delhi) The only eligibility criteria prescribed by section 142 of the Act is that the complaint should be filed by the recipient or holder in due course. The complainant should be a natural person who is able to be physically present in the court. If a complaint is made in the name of an incorporeal person (such as a company or corporation), it is necessary that a natural person represents such juridical person in the court. When the complainant is a corporate body he is the legal complainant and he has to add a human being as the actual complainant to represent the complainant in the court proceedings. There may be occasions when different persons may represent the company. 20 An authorised person of the company can sign the complaint. The company being a corporate body, it breathes its life through authorised officers or agents: Any officer of the company who is duly authorised by the company to initiate proceedings can file a complaint for and on behalf of the company. He should be a person whose acts will be binding on the company, whether he is called a manager, secretary or by any other designation. Be called. Section 142 does not provide that the complaint should be filed by the recipient in person. Filing of complaint by the power of attorney holder of the recipient cannot be termed illegal or invalid. An endorsement on a promissory note to 'collect' the contents of the promissory note gives the endorsee the right to issue notice and file a criminal complaint under Section 138 of the Act. 31 29 MMTC Ltd. v. Medchal Chemicals & Pharma Pvt. Ltd. 2002 (1) Crim 156 (SC): 2002 (1) SCC 234: Associated Cement Co. Ltd. v. Keshavanand 1998 (1) SCC 687: Waterbase Ltd. Chennai v. Karuturu Raveendra 2002 (2) Crim 453 (AP): Y. Venkata Reddy v. Jagadamba Enterprises 2002 (2) Crim 447 (AP): Shakthi Concrete Industries Ltd. v. Valuable Streets (India) Ltd. 2000 (100) Camp Cas 429 (Madras) 30 Anil G. Shah v. I.J. Chittaranjan Co. 1998 Criminal L.J. 3870 (Gujarat): Ranjit Ray v. Pukhraj Jain 2000 (99) Camp Cas 229 (Orissa): Rajeev Indani v. D. Virendra Hegde 2001 (105) Camp Cas 774 (Karnataka): S. Ramesh v. Basant Kumar Patil 2002 (108) Camp Cas 847 (Karnataka) contra S. P. Sampathi v. Manju Gupta 2002 (111) Camp Cas 492 (AP) A. Nageswara Rao v. B.V. Subbaiah 2000 (99) Camp Cases 526 (AP) Q. 19 What is the meaning of the endorsement 'Refer to Drawer'? Answer. As per banking convention, the remark 'refer to drawer' essentially means that the cheque has been returned due to insufficiency of funds in the account of the cheque drawer. This is generally a polite method adopted by the bank to show its inability to honour the cheque due to insufficiency of funds. If, in fact, the petitioner company had sufficient credit in its account with the bank to honour the cheque at the relevant time, it could have shown this fact to the trial court. 33 Q. 20 What is meant by the endorsement 'Account Closed'? Answer. In NEPC Micron Ltd. v. Magma Leasing Ltd. the Supreme Court held that cheques returned by the bank with the endorsement 'account closed' fall under Section 138 of the Act. Closure of account is one of the modes by which a drawer may render his account insufficient to pay a cheque issued by him, therefore, closure of account will not discharge the accused from his liability under Section 138 of the Act. The question is whether on the date of issue of the cheque there were funds available in the bank to honour it. Dishonour of a cheque by a bank on the ground of account being closed would be covered under the phrase 'the funds standing in that account are insufficient to honour the cheque' as envisaged in Section 138 of the Act. Therefore when a cheque is returned by a bank with the endorsement 'account closed', it would amount to returning a cheque without payment. This has resolved the uncertainty that prevailed as conflicting views were expressed by various High Courts on this question. One view was that dishonour of a cheque on the ground that the account has been closed by the cheque issuer does not constitute an offence under Section 138 as the said section contemplates dishonour of cheque due to insufficiency of funds or in excess of the prescribed limit.36 32 Voltas Ltd. v. Hiralal Agarwal 1991 (71) Camp Cas 273 (Calcutta) 33 Electronics Trade & Technology Development Co. Ltd. v. Indian Technologists & Engineers (Electronics) Pvt. Ltd. 1996 Criminal L.J. 1692 (SC): 1996 (86) Camp Cas 30 (SC) 1996 (2) Bombay CR 150 (SC): AIR 1996 SC 2339 1996 (1) BC 217 (SC) 1996 (1) CCR 136 (SC): M.M. Malik v. Prem Kumar Goel 1992 (73) Camp Cas 425 (P&H) 341999 Criminal L.J. 2883 (SC) : 1999 (4) SCC 253 35 Kochayiappa v. Supersidhan 2002 (2) KLT 652 If the cheque is issued after the account is closed, whether at the instance of the closed account holder or at the instance of the bank, the cheque cannot be honoured because it does not contain money. As held by the Kerala High Court, so far as the offence punishable under section 138 of the Act is concerned, it does not matter whether the account was closed due to any act of the cheque drawer or at his instance37 Q. 21 What does it mean when the Bank notes 'additional arrangement' in the memo? 36 G.F. Hunasikattimath v. State of Karnataka 1993 (76) Camp Cas 278 (Karnataka): S. Prasanna v. R. Vijayalakshmi 1992 Criminal L.J. 1233 (Madras): 1993 (76) Camp Cas 522 (Madras) Om Prakash Bhojraj Maniar v. Swati Girish Bhide 1993 (78) Camp Cas 797 (Bombay): Jaspal Singh Bedi v. State 2005 Criminal L.J. 1061 (P&H) Addy K Rajendran v P K Sajeendran AIR 2010 (NOC) 304 (Kerala) Answer. The mention of 'excess of arrangement' by the bank in the memo shows nothing except the fact that the cheque was given for an amount which was not credited to the account and, therefore, the amount of the cheque was in excess of the balance in the bank account and hence the cheque was in fact dishonoured due to insufficiency of funds in the account and therefore it falls within the ambit of section 138 of the Act. Technically the words may be different but essentially the two expressions 'excess of arrangement' and 'insufficiency of funds' mean the same. Both indicate that the amount of the cheque was in excess of the balance in the bank account from which the cheque was issued. When the cheque was presented it was returned with an endorsement of 'excess of arrangement'. On filing the complaint, the accused stated that he was prohibited from making any payment by an order issued by the Income Tax Department. The court held that the question whether payment could not be made only because of the order of the Income Tax Department is to be considered at the time of hearing and therefore the complaint cannot be dismissed at that stage. 39 Q. 22 Does insufficient funds in accounts make someone liable? 30 Bimal Kumar Nopani v. State of U.P. 2006 Criminal L.J. 2611 (All) 39 Dr. J. Gopalakrishnan v. Smt. N. Shanthi 2001 (106) Camp Cas 571 (Madras) Answer. When a person issues a cheque, he should take care that his account does not go into the red during the period when the cheque issued by him may come to his bank for collection. However, the law gives the accused a chance to make amends in the event of his cheque bouncing. The conviction of the accused was upheld where, on the date of recovery, the account of the accused ended up with a surplus but went into the negative territory during the day when the cheque, which is the subject of dispute, came for payment. The Bombay High Court held that in an account where a large number of cheques are deposited in cash, the accused should not be held liable for any offence. Transactions occur and the possibility of insufficient funds even intraday, especially in an account that has many transactions, is a business reality. 40 On a reading of Section 138 of the Negotiable Instruments Act, it is quite clear that the liability under Section 138 of the Act is attracted primarily for either of the two ingredients, viz., the account holder does not have sufficient funds in his account to pay the cheque or the amount in the cheque exceeds the amount which is credited with the account holder. In a case where the main reason for dishonour of the cheque is insufficient funds in the account of the cheque issuer, which is implicit in the provision itself, even if there was no 'stop memo' or 'signature incomplete', the cheque in question would not have been honoured. The necessary statutory requirement for attracting Section 138 of the Act is therefore established. Q. 23 Can a person escape his liability for cheque dishonour due to incomplete signature? Uday Sathe v. Rahul Rajendra Borundia 2006 Criminal L.J. 3435 (Bombay) 41. Vijayakumar Narayanan v. M.T.Vijayan Kunhiraman Nambiar 2011 Criminal L.J. 343 (Kerala) Answer. Merely because the cheque bears an incomplete signature is not a ground to absolve the cheque issuer of the penal liability under section 138 of the Negotiable Instruments Act, 1881. If the accused or the cheque issuer has a bona fide defence that the signature in question is incomplete and the signature on the cheque was not made by him, it is his duty to prove the above fact, particularly when the evidence of the complainant is that the accused has issued the cheque under his signature. 42 As per the Negotiable Instruments Act, 1881 (Amendment) Act, 2002, Chapter XVII has been incorporated with a view to encourage the culture of use of cheques and to make the instrument more economical. This is with a view to enhance credibility. If the drawee or the drawee wants to deceive, the drawee may sign his signature in an incomplete form or in a different manner or differently and thus defeat the very purpose of amendment. Unless it is established that the signature in the cheque was not made by the accused or by some person other than the accused, it cannot be said that the cheque was not executed by the accused. Therefore, it is for the accused to explain how the cheque in question, which belonged to his account and bore his incomplete signature, came into the possession of the complainant. Returning the cheque unpaid with the advice 'operate account jointly, signature of other director required' is a dishonour of cheque within the meaning of section 138 of the Act. As the court has observed, it is necessary to ignore the circumstances in which such dishonour takes place. The law only takes into account the fact that payment has not taken place." 42 V Vijayakumar Narayanan v M.T.Vijayan Kunhiraman Nambiar 2011 Criminal L.J. 343 (Kerala) 43 Vinod Tanna v. Zaheer Siddique 2002 (1) Crime 104 (Bombay) 44 Modi Cements Ltd. v. Kuchil Kumar Nandy AIR 1998 SC 1057: 1998 Crim L.J. 1397 (SC) 1998 (92) Camp Cas 88 (SC) 1998 (3) SCC 249: Rakesh Nemkumar Porwal v. Narayan Dhond Joglekar 1993 Crim L.J. 680 (Bombay) (DB): 1993 (78) Camp Cas 822 (Bombay) On a reading of Section 138 of the Negotiable Instruments Act, 1881, it is quite clear that liability under Section 138 is attracted primarily for either of the two ingredients, viz., the account holder does not have sufficient funds in his account to honour the cheque or the amount in the cheque exceeds the amount which is at the credit of the account holder. In the present case, the main reason for dishonour of the cheque was insufficient funds in the account of the drawer of the cheque, which is implicit in the penal provision itself. Therefore, even if there is no 'stop memo' or 'signature incomplete', the concerned cheque would still not be honoured.15 Q. 24 Who will be held liable in case the cheque issuer refuses to sign? Answer. In the case of L.C. Goyal vs Suresh Joshi, the apex court held that where the drawer of a cheque denies his signature and pleads that till the opinion of a handwriting expert is not obtained, he cannot be held responsible and if the cheque bounces on the ground of insufficient funds, the plea of ​​forged signature could not be accepted. 45 V Vijayakumar Narayanan v M.T.Vijayan Kunhiraman Nambiar 2011 Criminal L.J. 343 (Kerala) 46 H.M. Satish v. B.N. Ashok 2007 (2) Karnataka L.J. 479: 2007 (3) Crime 502 based on L.C. Goyal v. Suresh Joshi AIR 1999 SC 2222: Once the complainant claimed that the cheque was given to him by the accused, duly signed, there was a presumption in favour of the complainant in terms of both Section 118 as well as Section 139 of the Act and it was the job of the accused to lead evidence to the contrary to displace the presumption. If the accused ever found that one of his cheques was lost and the complainant had forged his signature and presented it to the bank for payment, then This is much more firm than just sending a written notice to the bank In such a situation it was improper for the magistrate to compare the signatures himself and that too with the xerox copy. 47 The burden of proving a forged cheque is on the accused. Where the accused failed to take the necessary steps for forensic examination of the disputed signatures, the mere production of a specimen signature would not be sufficient to discredit the overwhelming evidence of the complainant that the cheque was issued to discharge a legally enforceable debt. No relevance need be given to the signature made by the accused on the documents that emerged after the dishonour of the cheque. Q. 25 Who will be liable to pay the cheque amount on demise of the drawee? Answer. A combined reading of Sections 138 and 142 of the NI Act makes it clear that only the payee or the concerned cheque holder can file a complaint under these sections, and that too after the issue of a notice demanding payment. Section 7 defines payee as the person named in the instrument to whom or to whose order the money is directed to be paid by the instrument. For a person to become a holder in due course, he must come into possession of the instrument for consideration. The respondent, as the executor of the will of his father to whom the cheque in question was issued, was neither a payee nor a holder in due course, as there was nothing to show that he had given any consideration to his father and was not entitled to file a complaint in respect of the cheque. 47 P V Construction vs K J Augusti 2007 Criminal L J 154 (Bombay) 48 P.K. Koyamoidheen v. G. Hariharan 1996 (86) Camp Cas 399 (Kerala) By the demise of the donee, it cannot be said that any heir or legatee had any right to issue notice under proviso (b) of section 138 of the Act and then to file a complaint under section 142 (A) of the Act. The right is acquired as if he automatically enters the shoes of the deceased payee. Only a person who is authorised by a succession certificate, letters of administration or probate granted by the Court is entitled to call upon the drawer to pay the amount of the dishonoured cheque by issuing a notice under the proviso (b) of section 138 of the Act. He would be entitled to file a complaint under section 142 of the Act because then he would virtually enter the shoes of the deceased payee. 49 The legal representatives of the payee or the holder in due course are entitled to file a criminal petition under Section 142 of the Act. Section 8 of the Act defines ‘holder in due course’ to mean any person entitled to take possession thereof in his own name and to receive or recover the amount due under the instrument from the drawer. Therefore, the legal representatives of the payee or the holder in due course are entitled to take legal possession of the instrument and are also entitled to receive and recover the amount covered under the instrument from the drawee. Section 118(g) of the Act specifies that the holder of a negotiable instrument is the holder in due course. Therefore, the legal representatives of the deceased payee or the holder in due course are entitled to file a complaint under Section 142 of the Act for an offence punishable under Section 138 of the Act.50 49 Yishnupant Chaburao Khaire v. Kailash Balbir Madan 2010 Criminal L.S. J.J. 2166 (Bombay): 2011 (1) Bankman 343 (Bombay) 50 Ashok Kumar vs Dr T R Bhagirathi AIR 2009 (NOC) 131 (Karnataka) The person demanding the amount must have the right to demand the money and secondly, he must be in a position to give full immunity to the person who is paying. If a person to whom the payment is to be made is not in a position to give full immunity and compensation as per law, then not paying him cannot be an offence. Q. 26 Will the cheque dishonour complaint automatically abate on the death of the complainant? Answer. A complaint filed shall not in fact abate on the death of the complainant. On the death of the complainant his legal representatives, his agents or power of attorney holder may be permitted to prosecute the complaint. An agent or power of attorney holder, cheque payee or holder in due course may be permitted to prosecute the complaint, unless there is a specific bar in the Code to such persons to file a complaint. But once a complaint is filed by the aggrieved persons, the prosecution may be continued by the interested persons or the persons named above. No provision of the law should be construed to defeat the purpose of the Act on technical aspects. In a case of this nature it is desirable that the legal representatives of the deceased come on record and prosecute the complaint in person, if possible. In case of any disability, they may seek permission of the court to prosecute such complaint through their agent or power of attorney.' The Magistrate may permit the son of the deceased complainant to proceed with the complaint under this section. In a fit case it is within the discretion of the trying magistrate to permit a fit and proper complainant to continue with the complaint, if the complainant is willing.52 51 Jimmy Johanagir Madan v. Ballikarruyappa Hindle 2002 (1) Crime 291 (Karnataka) : Raviselvam v. Nalini Vijayakumar 1999 (4) Crime 209 (Madras) : (2000) 102 Camp Cases 76 (Madras) 52 T.N. Jayarajan v. Jayarajan 1995 (82) Camp Cas 629 (Kerala) A cheque dishonour complaint is filed before a Metropolitan Magistrate (in metropolitan areas) or a Judicial Magistrate. Being a criminal offence, the accused is prosecuted and either the case is settled or he has to face punishment. If the accused person in a cheque dishonour case dies, the case abates and the only remedy available to the complainant is to file a civil case against the legal heirs of the accused person (if it is within limitation) as the criminal liability cannot be shifted to the legal heirs of the accused person and the case being of criminal nature under section 138 of the Negotiable Instruments Act, 1881, the liability of the accused cannot be shifted to the legal heirs of the complainant. Relying on the decision in Ashwin Nanubhai Vyas v. State of Maharashtra, the Supreme Court recently held in Chand Devi Daga & Ors v. Manju Khamatani & Ors54 that under section 302 CrPC which deals with granting of permission to prosecute as well as the decisions of the Supreme Court on the related issue, the High Court did not commit any error in granting permission to the legal heirs of the deceased complainant to prosecute the petition pending before it. Therefore, in a case under section 138 of the Negotiable Instruments Act, 1881 for cheque bouncing, if the complainant in the complaint case dies (when the case is still pending in the court for adjudication), in that case, the LRS can file an application under section 302 CrPC on behalf of the complainant for permission to prosecute the case. Q.27 Can the wife and daughters of the person drawing the cheque be prosecuted for the offence under section 138 of the Act? 53 AIR 1967 SC 983 : 1967 Criminal L.J. 943 54 2018 (1) SCC 71 Answer. On a reading of section 138 of the Act, it is clear that proceedings under a complaint alleging an offence under section 138 of the Act shall be initiated against the issue of cheque. 55 It is inconceivable that criminal liability can be imposed on the heirs and legal representatives of a person who is said to be guilty of the offence in question. The cheque presented by the complainant for recovery was returned on the ground of insufficient funds. The notice sent was returned with the postal endorsement 'party terminated'. The wife and daughters of the cheque drawer cannot be prosecuted for an offence under Section 138 of the Act for the alleged failure of the cheque drawer to meet the obligation to pay the amount covered by the cheque which bounced in response to the notice sent. 56 The statutory provisions of Section 138 reveal that the beneficiary of a cheque can take action for an offence under Section 138 only against the person who issued the cheque which was returned unpaid for insufficiency of funds. Criminal liability being the subject matter of the complaint under Section 138 of the Negotiable Instruments Act does not pass to the descendants or legal heirs of the person who issued the cheque. Since in the present case, the cheque which is the subject matter of the complaint against the petitioner was not issued by the petitioner, he is not criminally liable in respect of the cheque issued by his mother. 55 Savita H Sorlevs Rajesh Damidar Sarode 2006 Criminal L. J. 2229 (2) Bombay 56 Bhupinder Lima v. State 2000 (99) Camp Cas 424 AP 57 Neena Chopra v. Mahendra Singh Vaishya AIR 2012 (NOC) 42 (MP) Q. 28 When a notice demanding payment is given by the complainant, within how many days the accused has to make the payment? Answer. The words 'the drawee of such cheque fails to pay' are clearly different from saying that 'the drawee refuses to pay'. The legislature has used the word 'fails' instead of other expressions thoughtfully because the failure may be due to a number of reasons including inability to pay. But the offence would be complete only if the drawee 'fails' to make the payment within the prescribed time, whatever be the reason for such failure. The drawer of the cheque may have different explanations for his failure to pay the amount covered by the cheque, but no such explanation would be sufficient to extricate him from the net of the offence contemplated in the section. Perhaps some kind of explanation would be sufficient to mitigate the severity of the offence which may be useful for reducing the amount to be imposed. 58 When a notice is given by the complainant demanding payment, the accused has to make the payment within a period of 15 days of the receipt of such notice. The words 'pay' cannot mean 'make a conditional payment' or 'promise to pay'. A mere request to represent a cheque, with a promise that it will be honoured, would not amount to making payment within the meaning of section 138(c) of the Act. Q. 29 If a cheque is lost or reported stolen, can a case of cheque dishonour still be made under section 138 of the NI Act? 58 Pankaj Mehra & Ors. v. State of Maharashtra & Ors. 2000 (1) CCR 213 (SC) : 2000 Cminl L.J. 1781 (SC) 2000 (100) Camp Cas 417 (SC) 59 Udayasathe v. Rahul Rajendra Borundia 2006 Criminal L. J. 3435 (Bombay) Answer. In the case of Raj Kumar Khurana v. State (NCT of Delhi) & Ors., the Supreme Court decided whether a case of cheque dishonour under section 138 of the NI Act can be made out if a cheque is lost or stolen, and observed that, 'Section 138 of the Act also provides a penal provision. A penal provision enacted by virtue of legal fiction must receive strict construction. In the case of R Kalyani v. Janak C. Mehta and DCM Financial Services Ltd. v. J.N. Sarin & Ors.2, such a penal provision enacted by virtue of statutory fiction will apply when a cheque is returned by the bank without payment. Such non-payment may be either: (i) because the funds in that account are insufficient to honour the cheque, or (ii) it exceeds the amount payable from that account by an agreement made with that bank. Before proceedings can be initiated under this, all legal requirements must be complied with. The court must be satisfied that all the ingredients of committing an offence under the said provision have been complied with." The Supreme Court further held that since the parameters for invoking the provisions of Section 138 of the NI Act are limited, the bank's refusal to honour the cheque is not mischief as per the provisions of Section 138 NI Act. Thus, according to the Supreme Court, if it can be proved that the cheque was reported stolen or lost and the same was reported to the bank and/or the police, a complaint under Section 138 NI Act cannot be made. The provisions of Section 138 must be given a strict interpretation as it contains a legal fiction. 60 2009 (6) SCC 72 : 2009 Criminal L.J. 3454 (SC) 61 2009 (1) SCC 516 62 2008 (3) SCC (Criminal) 401 : 2008 (8) SCC 1 Q. 30. Whether section 138 of the NI Act violates Articles 14 and 21 of the Constitution on the ground that it excludes the mens rea? Answer. In Rajyadar Steels Ltd. v. Union of India, the Court held that Section 138 is not violative of Articles 14 and 21 of the Constitution on the ground that it excludes mens rea. The Court held that mens rea is generally an essential ingredient of a criminal offence, but the legislature can always create an offence of absolute or strict liability. The principle of strict liability has been introduced to encourage greater vigilance to prevent the ordinary negligence of the issuers of cheques in discharging a debt or obligation. In the present case, the element of mens rea has been excluded in the larger public interest to curb the incidence of dishonour of cheques and to provide greater credibility to commercial transactions which are vital to trade, business and industry in general and international trade transactions. Merely because a law arbitrarily creates an offence, it cannot be said to be arbitrary falling within the prohibition of Article 14 of the Constitution of India. 64 In V.A. Noori vs Union of India too, the court held that Section 138 does not violate or offend any constitutional or other right. In this case the provision was also challenged on the ground that as per Section 6 of the Act, when a cheque is not paid on demand it cannot be said that there has been a dishonour of the cheque. This will be brought under Section 138. The cheque holder has a legal right to be paid on demand. If a banker dishonours a cheque in the circumstances envisaged under Section 138, it cannot be said that the instrument of cheque loses its character and it becomes a bill of exchange, which is not payable on demand. The character of the cheque does not change even after being dishonoured by the banker. 63 2000 (100) Camp CAS 274 (DB) 84 B Mohana Krishna v. Union of India 1996 Criminal L.W., 636 App: 1996 (86) Camp Cas 487 65 2000 (98) Camp Cass 38 Q. 31. Is there a presumption in favour of the complainant that the cheque was in relation to discharge of an obligation and it is for the accused to prove the contrary? Answer. In Krishna Janardan Bhatt vs Dattatraya G Hegde case, the Supreme Court held that Section 138 of the Act has three elements 1. That the debt was legally enforceable: 2. The cheque was drawn on the banker's account in full or in part payment of any debt or other liability which the banker considers to be a legally enforceable debt, and 3. That the cheque so issued was returned for insufficiency of funds. There is no dispute on the proposition that Section 139 of the Act creates a presumption only in respect of the second component. 66 2008 (3) AD 557 (SC) AIR 2008 SC 1325 2008 (1) SCALE 421 : 2008 (141) Camp Cas 665 (SC) : G.Yanaranjan Patnayak v. State 2009 Criminal L.J. 2885 (Orissa) This means that only payments that are in discharge of a debt or other liability are covered. Gifts made via cheque Payments: donations etc. are beyond the scheme of the section. Where a cheque is not issued for the purpose of discharging any debt or other liability, the maker of the cheque is not liable to prosecution. For example, if the cheque is given as a gift or present and if it is dishonoured by the bank, the maker of the cheque is not liable to prosecution. There is a presumption in favour of the complainant that the cheque is in relation to the discharge of the liability and it is for the accused to prove the contrary and rebut the presumption. It can be rebutted only by evidence by the accused.6 In terms of sections 118 and 139 of the Act, the presumption is available in favour of the complainant and against the accused when the accused has admitted the transaction between the two and even the signature on the cheque and has not discharged his burden to rebut the presumption.69 Andhra High Court in Appalancha Mallikarjuna & Ors. v. Ratna Kanti Vimala & Ors...........Where the cheque is not issued for the purpose of discharging any debt or other liability, the maker of the cheque is not liable to prosecution. For example, if the cheque is given as a gift and if it is dishonoured by the bank, the maker of the cheque is not liable to prosecution. Unless the two conditions laid down in section 138 are fulfilled, no criminal liability can be attached. ..." Q. 32 Where a blank undated cheque was given only as security, will the provisions of section 138 NI apply? 67 B Mohan Krishna v. Union of India 1996 Criminal L.J. 636 (AP) : 1996 (86) Camp Cas 487 (AP) 68 Shailesh Kumar Agarwal v. State 2000 Criminal L.J. 2921 (All) 69 General Auto Sales v. Vijaya Lakshmi 2005 Criminal L.J. 1454 (Kerala) 70 1997 (2) AP LJ 389 Answer. Whether the wrath of section 138 of the Act would be attracted in a case where the cheque is issued as security for some financial transaction like loan etc. has been a question for a long time. In Taher N Khambe v Vinayak Enterprises where, in a loan transaction, a blank signed cheque was given as security, the court held that the provisions of section 138 of the Act would not apply in such a case. The court held that the cheque was not issued voluntarily for the discharge of any debt or legal obligation, and in such a case section 138 would not apply, otherwise every creditor would abuse the provisions of the section by receiving blank cheques and putting the debtors in charge of it. Similarly, in Balaji Seafoods Exports v MAC Industries Ltd., where a blank undated cheque was given only as security, it was held that the provisions of section 138 would not apply, as the cheque was handed over on the date of agreement when there was no discharge obligation. Where failure to pay is admitted, the cheque may be treated as duly presented for payment even though it may be admitted that it was issued only as security for the payment of the chit amount. Q. 33 Will filing a complaint in the court mean that it has been taken cognizance of by the Magistrate? "1996 (86) Camp Cas 471 (AP): 1995 Criminal L.J. 560 (AP) see also Ramakrishna Urban Cooperative Credit Society Ltd., Ahmednagar v. Rajendra Bhagchand Verma 2010 Criminal L.J. (NOC) 670 (Bombay): 72 1999 (1) BC 298 1999 (1) CTC 6 See also Jitendra Singh Flora v. Ravikar Talwar 2001 (1) BC 699 2001 (1) ALD (Ciminal) 767: Srinivasan v. State of Kerala 2000 (1) BC 323 : 2000 (DCR) 199: 2002 (11) Camp Cas 740: Modern Denim Ltd. v. Lucas TVS Ltd. 2000 Bankman 492 (Madras) : 2001 (105) Camp Cas 194 (Madras) : 2000 (2) BC 398 Answer. Under the Act, a prima facie offence is committed when the amount demanded is not paid within a period of 15 days of service of notice. Demand The complaint has been filed before the expiry of 15 days from the date of service of the notice. If even after 15 days the amount has not been paid, the Magistrate was authorised to take cognizance of such complaint. As the Supreme Court held in Narsingh Das Tapadia v. Goverdhan Das Partani, there is no period prescribed before which a complaint cannot be filed and if filed without disclosing the cause of action in terms of clause (c) of the proviso to Section 138, the complaint will be deemed to be void. The court cannot take cognizance unless the cause of action is before the complainant. The court said that mere presentation of a complaint in the court cannot be taken to mean that the Magistrate has taken cognizance of the same. If the complaint is found to be premature, it may await maturity or be returned to the complainant for filing at a later date, and mere presentation of it at an earlier date does not necessarily dismiss the complaint or give any right to the accused to be discharged from criminal liability for the offence committed. After the Supreme Court's decision, the Allahabad High Court said that the 15-day time limit for taking cognizance is expiring. 15 As held by the Madras High Court, a complaint filed after the refusal by the payer before the expiry of 15 days from the date of receipt of the statutory notice cannot be said to be premature. The court held that the cause of action arises from the date of refusal made on receipt of the notice. The payer need not wait for the completion of fifteen days. 73 Bhanwar Lal v. State 1999 Criminal L. J. 949 (Rajasthan): Contra Sardar Singh v. Karam Singh 1997 Criminal L. J. 3751 (Jammu & Kashmir): Ashok Hegde v. Jathin V. Attavan 1997 Criminal L. J. 3691 (Karnataka) 74 AIR 2000 SC 2946 : 2000 (102) Camp Cas 146 (SC) 75 Hem Lata Gupta v. State 2002 Criminal L.J. 1522 (All) 76 Rajendran v. Danapal Pillai 2001 (103) Camp Cas 801 (Madras) Q. 34 Will only one complaint be lodged in respect of more than one dishonoured cheque? Answer. Section 219 of the Code of Criminal Procedure states that when a person is charged with more than one offence of the same kind, committed within a time period of 12 months from the first to the last of such offences, whether in respect of the same person or not, the accused may be charged and tried at one and the same trial for a number of offences not exceeding three. This section permits joint trial if a person is charged with more than one offence, provided they are of the same kind and committed within a time limit of 12 months. The general rule is that the accused must be charged in respect of each specific offence alleged to have been committed by him and he is entitled to a separate trial in respect of each such charge as per the provisions of Section 218 of the CrPC. The purpose of the law is clear that if more than three charges are tried at one and the same trial, the accused is likely to be confused and, therefore, the legislature prohibits the court from clubbing charges of more than three offences at one and the same trial. " Nova Vision Electronics Pvt. Ltd. v. State 2011 Criminal L.J. 868 (Delhi): Madan Mohan Sahu v. Central Agencies 2010 Criminal L.J. 2905 (Orissa) Section 219 of the CrPC is an exception to the general rule that each specific offence with which a person is charged shall be a separate charge and shall be filed separately. For the purpose of Section 219(1) offences are of the same kind when they are punishable with the same punishment under the same section of the Indian Penal Code or any special or local law. It cannot be presumed that merely because a guideline has been given regarding the quantum of penalty under Section 138, they are different offences. These guidelines do not apply to the punishment or do not change the nature of the offence. Therefore, even if multiple cheques for different amounts have been issued, complaints in respect of different cheques can be tried jointly if Section 219(1) of the CrPC is satisfied, among other conditions. Each tender of a cheque and its dishonour gives rise to a separate cause of action, provided separate notices are issued in respect of each of these cheques. The payer is not prevented from combining the causes of action by including all the matters in a single notice. In such a case all the transactions covered by the notices will be treated as a single transaction, thereby permitting a single trial. However, in a case where the cheques are issued on different dates and separate notices are issued in respect of each default, the transactions cannot be treated as a single transaction attracting the provisions of Section 219 of the Code of Criminal Procedure. In Kershi Pirojsha Bhagwagar v. State of Gujarat, the Gujarat High Court held that where four cheques were dishonoured, giving rise to four alleged offences, the fact that two complaints were filed in respect of the four dishonoured cheques cannot reduce the number of offences. Only two alleged offences clubbed together in one complaint can amount to a sum of the number of offences. The argument that all the four cheques were given as part of a single transaction cannot bring the accused's case within the ambit of the provisions of Section 219 of the Code of Criminal Procedure and doing so would be a clear violation of the provisions. 78 C K Swamylatha v K Chandra Mohanan 1997 (88) Camp Cas 131 (Kerala): n Lakshmanan v. Sri Shanmukha Cotton Traders 2000 (102) Camp Cas 154 (AP) 79 Rajendra B. Choudhary v. State of Maharashtra & others 2007 Criminal L.J. 844 (Bombay) 80 2008 (1) AIR Karnataka R 180, (2008) 3 RECCRIR 477 Q. 35. Will a second complaint be possible on the same cheque? Answer. The petitioner issued a cheque in favour of the respondent in settlement of a debt. The cheque on being presented for payment was returned unpaid with an endorsement 'Refer to Drawer'. The respondent thereafter sent a notice to the petitioner for payment. The petitioner did not make the payment. The respondent filed a complaint which was taken up on file, but when it came up for hearing, the respondent was absent and the Magistrate dismissed the complaint on that ground. Later, the respondent presented the cheque a second time for payment: the cheque was again returned with an endorsement that 'provision has not been made for it. The respondent issued a statutory notice under section 138 of the Negotiable Instruments Act, 1881. The petitioner failed to make payment in response to the notice, and on the petition to quash the complaint, the respondent filed a second complaint. To register. Dismissing the petition, it was held that the second complaint was not based on the return of the cheque on the first occasion with the endorsement of 'Refer to Drawer'. The cheque was presented twice. The dishonour of the cheque on the second presentation, and the failure of the petitioner to comply with the demand made in the statutory notice, constituted a separate cause of action. Both were independent offences and the fact that the petitioner was acquitted on the first occasion was no bar to the maintainability of the second complaint. 81 Q. 36 If an offence under section 138 NI Act is committed, whether any payment made thereafter will absolve the accused from the liability or not? Answer. As the Supreme Court has held that once the offence is committed, any payment made thereafter will not absolve the accused of the liability for the criminal offence, though it may have some influence on the court trying the offence, in the matter of sentencing. But there is no stretch of the imagination that a criminal proceeding can be quashed on account of the deposit of money in the court or an order quashing criminal proceeding, which is otherwise not sustainable in law, can be sustained on account of the deposit of money in it. Therefore, the deposit of money by the drawer during the trial is of no significance.2 If a cheque issuer makes payment after the notice and before the filing of the complaint he cannot be absolved of his liability under Section 138 of the Act as the offence is complete on the failure of the cheque issuer to comply with the notice of demand as per proviso (b) of Section 138 of the Act. Any subsequent payment by the cheque issuer after failure to comply with the notice, whether before or after the filing of the complaint, can be taken only to mitigate the punishment that may be imposed on the cheque issuer by the court in a given case. 83 Under Section 138, there is no mention that the amount should be paid within a specified period. The provision only stipulates that if the accused does not pay the amount within fifteen days from the date of receipt of the notice he becomes liable to prosecution. Therefore, in the absence of any requirement to mention the period of 15 days within which the amount is to be paid, the notice under Section 138 of the Act would not be defective. Of course, prosecution cannot be initiated till the expiry of 15 days. This is prescribed so that the accused can pay the amount covered under the cheque instead of facing prosecution.4 81 P. Jawahar v. S.S. Pillai 1994 (81) Camp Cases 34 (Madras) 82 Rajnish Aggarwal v. Amit J. Bhalla 2001 Crim L.J. 708 (SC) : 2001 (104) Camp Cas 332 (SC) 2001 (1) Crim 104 (SC) : Suman Motor Ltd. v. Escorts Financial Services Ltd. 2001 (106) Camp Cas 432 83 William Rosario Fernandes v. Cabral & Co. 2007 (2) AIR Bombay R 288 In the case of Jaws Polymers Ltd. v. Sawhney Brothers, the Delhi High Court has held that if all the material requirements of this section are met and satisfied, the offence is complete and the trial and punishment of the accused would be perfectly legal and the payment of the amount of the cheque after filing of the criminal complaint would be justified. The offence will not be extinguished by the cheque. For example, if the amount of the cheque has not been paid by the cheque drawer within fifteen days from the date of receipt of the notice of demand from the drawee, the offence would be complete even if the payment is made on the sixteenth day. It is a different question what sentence the court would consider appropriate to impose for a minor scratch as required by law or in the presence of some other mitigating circumstance. Such a subsequent event could not be taken to hold that there was no legally enforceable debt payable by the accused. 84 B H Lakshminarayana vs Girijamma 2010 Criminal L. J. 3637 (Karnataka) 85 of 2003 (1) DCR 101 86 Cabral & Co. v. William Rosario Fernandes 2007 Criminal L.J. 159 (Bombay) It is settled that mere deposit of the entire amount covered by the cheque during the pendency of the trial cannot, in fact, absolve the accused of criminal liability, particularly when the complainant neither withdraws his case nor agrees to reduce the offence. The charge framed against the accused will continue. However, such payment may be a mitigating circumstance for the court to show leniency while passing sentence. Q. 37. While suspending the sentence for an offence under section 138 of the Act, can the Court impose a condition that part of the fine be remitted within a specified period? Answer. As stated by the Supreme Court, while suspending the sentence for an offence under Section 138 of the Act, it is advisable that the court imposes a condition that part of the fine be remitted within a specified period. If the fine amount is heavy, the court may direct remission of at least a part of it, as the convicted person wants the sentence to be suspended during the pendency of the appeal. Where the total amount of fine imposed exceeds Rs 20 lakh Where the order of depositing Rs. 4 lakhs as a condition for suspending the sentence is not considered to be unfair and unjust. 87 PS Sethuraman v. P Ilavagan 2010 Criminal L. J. (NOC) 1180 (Madras) 88 Stany Felix Pitto v. Jangid Builders Pvt. Ltd. 2001 Criminal L.J. 1039 (SC): Bay Leathers Exports Pvt. Ltd. v. Saylila 2001 (103) Camp Cas 792 (Madras) The law laid down by the apex court would naturally apply to a case also where compensation is ordered. Thus when there is a conviction under Section 138 of the Act of 1881, while suspending the original sentence, it is advisable that the appellate court imposes a condition of depositing the compensation amount keeping in view the object of Section 138 of the said Act. When the amount of compensation is heavy the court may direct the deposit of a reasonable amount. Only in exceptional cases, the appellate court may grant interim protection without deposit of compensation amount. In a recent case, the Sessions Judge was justified in imposing a condition of depositing 50 per cent of the cheque amount, which was Rs. 6,25,000, to suspend the order of payment of compensation. On the question whether the appellate court has the power to direct payment of compensation awarded by the magistrate as a condition for suspending the original sentence, the Bombay High Court has held that the appellate court would have the power to direct payment of compensation for the whole or any part of it, as a condition for suspending the original sentence of simple imprisonment and compensation. While giving such a direction, the court has to take care that the amount of compensation directed to be paid pending appeal is reasonable. Payment of compensation, either wholly or in part, is not automatically stayed when an appeal is presented. In the present case, out of the total compensation awarded by the magistrate of Rs. 15,00,000, the court directed payment of Rs. 5,00,000 within the prescribed time.90 However, in the same case, the Supreme Court had directed the chairman of the company to deposit Rs 1 lakh, saying that no unreasonable amount of compensation can be directed to be paid. Q. 38 Whether a complaint of 'cheque bounce' against a director of a company will be maintainable if the company is not impleaded as an accused? 89 Maheshwar Dattatraya Kale v. Capt. Atul Vasdev Diwekar 2006 Criminal L.J. 606 (Bombay) 10 Dilip S Dahanukar v. Kotak Mahindra Company Ltd. 2007 (3) Supreme 379 : 2007 (137) Camp Cas 1 (SC): 2006 Criminal L.J. 3653 (M) 2007 (3) Supreme 379 : 2007 (137) Camp Cas 1 (SC) * ibid Answer. In the latest case Himanshu vs B Shivamurthy and others, the Supreme Court set aside the order of the Karnataka High Court and said that the petition filed by the accused under Section 482 of the Code of Criminal Procedure on the complaint was dismissed. The bench found that the complainant had only issued a notice of demand on the director and filed a complaint against the company without making it an accused. It further said that the accused had drawn the cheque not in his personal capacity but as a director. The bench said certain conditions must be fulfilled before such a complaint can be lodged. It said: 'These conditions are: (i) the cheque is presented to the bank within six months from the date of its drawal or within the period of its validity, whichever is earlier; (ii) a demand is made by the payee or holder in writing by issuing a notice in writing to the drawer of the cheque within thirty days of receiving information from the bank about the return of the cheque; and (iii) within six months from the date of receipt of the notice. Failure of the drawee to pay the amount to the drawee or holder within fifteen days Citing earlier judgments and Section 141 of the Negotiable Instruments Act, the bench said: "In the absence of the company being impleaded as accused, the complaint against the appellant was not maintainable. The appellant had signed the cheque in his capacity as director of the company and on its behalf. Further, in the absence of notice of demand being served on the company and without compliance with the provision of Section 138, the High Court erred in holding that the company could now be impleaded as accused. 92 Criminal Appeal No. 1465 of 2009, Date of judgment 17/01/2019 The Supreme Court has reiterated in the case of A.R. Radha Krishna vs. Dasari Deepthi & Ors. that a complaint for 'cheque bounce' against a company and its director must contain a specific statement that the director was in charge of and responsible for the conduct of the business of the company at the time when the offence under Section 138/141 of the Negotiable Instruments Act was committed. A three-judge bench comprising Justice N.V. Ramana, Justice Mohan M. Shantanagoudar and Justice Indira Banerjee was considering an appeal against an order of the State of Telangana and Andhra Pradesh High Court which had quashed a cheque bounce complaint against the directors of the company. It was observed that the High Court can quash the complaint only if some undisputed evidence is brought on record leading to the conclusion that the director could never have been in charge of and responsible for the conduct of the business of the company at the relevant time. In an appeal filed by the complainant, the apex court bench said that the high court was not justified in allowing the petitions to be dismissed using its power under section 482 of the CrPC. 'In a case relating to offences under section 138 and section 141 of the Act, the law requires that the complaint must contain a specific statement that the director was in charge of and responsible for the conduct of the business of the company at the time when the offence was committed. The High Court, while deciding a quashing petition under Section 482 of the CrPC, said that it must consider whether the claim made in the complaint is sufficient or whether some undisputed evidence has been brought on record leading to the conclusion that the director could never have been in charge and responsible for the conduct of the business of the company at the relevant time. The court further said that, though the role of a director in a company is ultimately a question of fact, and no fixed formula can be fixed for it, the High Court should exercise its power under Section 482 of the CrPC only if it is convinced from the material on record that to allow the proceedings to continue would be an abuse of the process of the Supreme Court. While accepting the appeal, the court said: 93 Criminal Appeal Nos. 403-405, Judgment dated 28/02/2019 ....A perusal of the record in the present case indicates that the appellant has specifically stated in its complaint that respondent Nos. 1 and 2 were actively participating in the day to day affairs of accused No. 1 Company. Further, accused Nos. 2 to 4 (including respondent Nos. 1 and 2 herein) are alleged to be from the same family and running the accused No. 1 Company together. It is also stated in the complaint that all the accused in active connivance, mischievously and deliberately issued cheques in favour of the appellant and subsequently issued 'stop payment instructions' to the bank. No evidence of impeccable quality has been brought on record by respondent Nos. 1 and 2 to indicate that allowing the proceedings to continue would be an abuse of the process of the court..." Q. 39. Can a director of a company, who has already resigned, be said to be the person in charge of the company? Answer. A director of a company who has already resigned cannot be said to be the person in charge of the company two years later when a cheque bounced and it was pleaded that he was the person in charge at the time when the post dated cheque was issued. The issue cannot be allowed to be raised in appeal for the first time if it has not been raised before the trial court and the High Court. The liability of a director of a company to be prosecuted for an offence punishable under section 138, Negotiable Instruments Act, arises apart from the company and the person signing the cheque only if he was in charge of the company and was responsible for the conduct of the business of the company at the time the offence was committed and the complainant has made a claim to this effect in the complaint. 95 In the case of KPG Nair v. Jindal Menthol India Ltd. it was found that the allegations made in the complaint were not in clear terms or the context of the allegations contained therein did not make out a case that at the time of the offence the appellant was in the vicinity of the company and was responsible for the conduct of the business of the company. It was held that the requirement of section 141 was not met and the complaint against the accused was dismissed. Provisions similar to section 141, Negotiable Instruments Act, are also found under the Prevention of Food Adulteration Act, 1954. If the complaint contains neither any whisper nor any evidence against the directors, the directors are not vicariously liable. 97 94 DCM Financial Services Ltd. v. J.N. Sarin AIR 2008 SC 2255 : 2008 Crim LJ 3178 : 2008 AIR SCW 4034 : 2008 (8) SCC 1 2008 (8) Scale 54 2008 (3) SCC (Criminal) 401 95 Ramsita Finance & Investments Pvt. Ltd. v. Meenakshi Nagappa Halamanuar 2004 Criminal L.J. 1029 : 2004 (2) Civil L.J. 610 : ILR 2004 (1) Karnataka 421 : 2004 (2) Karnataka L.J. 279 (Karnataka) 96 2001 (10) SCC 218 : 2000 (4) Curr Criminal R. 100 : 2002 SCC (Criminal) 1038: Katta Sujatha v. Fertilizers & Chemicals Travancore Ltd. 2002 (7) SCC 655 2002 (6) Scale 169 : 2003 SCC (Cri) 151 7 Municipal Corporation of Delhi v. Ram Kishan Rohatgi AIR 1983 SC 67 : 1983 Criminal L.J. 159 1983 SCC (Ciminal) 115 (SC): State of Haryana v. Brij Lal Mittal AIR 1998 SC 2327 : 1998 Criminal L.J. 3287 : 1998 (5) SCC 3431998 (3) Camp Cas 329 Vicarious liability cannot be attached to directors who have retired more than two years before the issue of the cheque. A person shall be vicariously liable for an offence on behalf of a company only if the conditions precedent laid down in section 141 of the Act are fulfilled. For the above purpose, a strict construction would be necessary. The Supreme Court held in Sabita Ramamurthy v. RBS Channabasavaradhya that it may be true that it is not necessary for the complainant to specifically reproduce the words of the section, but what is required is a clear statement of fact so as to enable the court to reach a prima facie opinion that the accused i.e. the managing director and other directors are vicariously liable. Section 141 raises a legal fiction. By reason of the said provision, though a person is not personally liable for such offence, he would be vicariously liable. So far as a company registered or incorporated under the Companies Act, 1956 is concerned, such vicarious liability can be inferred only if the necessary statements, which are required to be made in the complaint petition, are made in such a manner as to make the accused therein vicariously liable. The offence committed by the company would entail strict compliance with the statutory requirements before any person can be made vicariously liable. Q. 40 If the accused is willing to pay the full amount of the cheque, can the complainant insist on adjudication of the cheque dishonour dispute on merits? Can give? 98 Ashok Muthanna v. Escorts Finance Ltd. 2002 (1) BC 320 (Madras) 99 AIR 2006 SC 3086 2006 Criminal LJ 4602 2006 (10) SCC 581 : 2006 AIR SCW 4582 Ans. If the accused is willing to pay the full amount of the cheque which he was liable to pay, the complainant cannot insist on a judgment on merits. This is justified because when the complainant has got what he was entitled to, there is no point in pursuing the case further. The complainant is only concerned about the recovery of his money and not the punishment meted out to the accused. The complainant has little remedy against the accused who did not compromise with him. If we compare the number of cases in which there was a compromise between the parties on the one hand (though just before the conclusion of the judgment) and the cases that ended with the judgment and conviction of the other party, we see that the latter cases are very few in number and most of the cases have been settled by the parties themselves. In Anil Kumar v. Pawan Kumar Ahuja100, the court observed that the provision of Section 147 of the Act declares the offence of dishonour of cheque as compoundable. Compounding can be done even after conviction. In such a situation, if the accused is ready and willing to pay the amount of the cheque concerned, the insistence of the complainant should not be considered for deciding the case. The readiness of the accused to pay the amount is serving the purpose for which the Act was enacted. Therefore, there is no point in prolonging the proceedings any longer. In Meters and Instruments Private Limited and others v. Kanchan Mehta, the Supreme Court held that normally the consent of both the parties is required for compounding of offence. But in the interest of justice, though the parties do not consent, the offence can be compounded if suitable compensation is given to the complainant. In such a situation, it is up to the discretion of the court to settle the case and release the accused. 100 of 2014 (4) RCR (Civil) 734 101 of 2017 (4) RCR (Kiminal) 476 Q. 41 Can a cheque dishonour dispute be closed if a settlement is reached between the parties? Answer. It is a bitter truth that a large number of pending cases is the biggest reason why people are losing faith in the judicial system. Pending cases lead to delay in dispensation of justice. If justice is not delivered on time, it fails in its purpose. Therefore, there is nothing wrong in looking for other ways to settle cases. Moreover, satisfaction of the parties is the ultimate aim of administration of justice. If the parties to the case are satisfied with the settlement, the court should not object to it. Rather the court should encourage such settlement. But, before accepting that the settlement has been validly made by the court, the satisfaction of the parties must be ensured. Thus, the permission of the aggrieved person or complainant cannot be rejected, nor can it be cancelled in any manner. When the settlement is done and the parties are satisfied, the purpose is accomplished. Now there is no point in proceeding further in the case. Therefore, the settlement between the two parties should be considered. The case has been closed. In M/s Kumar Steel Traders v State of Jharkhand 102, the court held that the accused was convicted for dishonour of cheque. But both the parties settled the dispute out of court and agreed to drop the suit amicably. Therefore, it is in the interest of justice that the judgment and order holding the accused liable and sentencing him as well as the order passed by the appellate court confirming the said judgment be set aside. Hence, the accused is acquitted.